Don’t Feed the Alligators

A Personal Finance Blog from a Small-Scale Landlord’s Perspective

Archive for the 'Rewards' Category

Bizarre

Creative Commons License photo figure credit: Kecko

Over the last several weeks we’ve put a lot of mileage on our rewards credit card. We’ve been stocking up on gift cards from our local grocery store due to the fabulous deal that they offered during tax season.  The use of our rewards card here sweetened the deal even more, since we get 5% cash back on grocery purchases, and the purchase of gift cards counts as groceries.  Unfortunately, the credit limit on this card was not high enough for us to be able to put all of the cards that we wanted to buy on it in one cycle, so I made two mid-month payments to ensure that we could receive all of the rewards we had coming.

Because of a too strange to explain here situation, we actually charged $3,000 online and decided to cancel the order before it shipped.  The merchant was great about the order cancellation, and we had no problem with this.  I noticed on the credit card website, however, that our available balance went down significantly.  I know how credit card transactions work, so I assumed that our card was authorized for the big purchase, which reserves the money on our card for some period of time, but the charge was never completed.

A few days went by and our balance was down to less than $100.  My experience was that authorizations only last for a couple of days at best.  I waited another two days, but there was no change in the available balance.  I sent an email to the credit card company’s customer service department inquiring about why the available balance was so low.  Here is the response that I got:

“Upon review of your account, the reason you are showing only $79.00 in available line of credit because you utilized your entire line of credit during this billing period in the amount of $XXXX.xx. According to the terms of [credit card company] Revolving Card accounts, you may utilize your entire assigned Line of Credit one time within a billing period. Even though you are making payments within the billing period, your available line of credit will not be reset until the next statement closing date on 04/30/09.”

So basically the credit card company was saying that the credit limit applies not to my balance but rather to how much I charge in total in a cycle.  I thought this response was strange for a number of reasons.  The first of which was that I had never heard of such a thing.  The second was that the amount I had charged was already greater than 125% of my credit limit.  I didn’t happen to have the terms of my account handy, so I took the company at its word and chalked this up as a way for the company to limit the amount of rewards they have to pay out each month.

Imagine my surprise when a day later our available balance suddenly increased by exactly $3,000.  It seems to me that there are only two explanations for this: the first is that the credit card company took pity on our plight and gave us a break on the terms, in the amount EXACTLY equal to the purchase that we made and then cancelled.  The second is that the authorization for the purchase finally rolled off the books.  I’m going to assume it was the second, but I haven’t contacted the card issuer to confirm.

What intrigues me the most about the whole situation is why the credit card issuer answered the way it did.  Either the terms cited are true but not observed, or they are not true and the customer service representative flat out lied.  If the latter is true, why?  Was it so hard to actually look at our account and see that there was an outstanding authorization that was limiting out credit line?  I’m just baffled by the response on this one, and if the rewards program wasn’t so darned good I might consider at least calling them on this or even finding a new card to use.  As it is, there’s been no harm, so no foul either.

Have you ever had a bank or credit card company do something bizarre like this?

Shaw's Cards

photo figure credit: ScrapperMom

This past Sunday morning ScrapperMom was perusing the grocery store circular when this offer caught her eye (my emphasis added):

Choose your tax refund reward. Customers can purchase gift cards with their Shaw’s Rewards Card (for carded markets) at their local store’s Customer Service center.  No tax form or refund check is necessary.  Customers may purchase a grocery store gift card at $250 or $300.  Each gift card will be loaded with an additional $20 for a $250 purchase or $30 for a $300 purchase.  There is no limit for the amount of cards a customer can purchase. The additional bonus amount cannot be used for the purchase of alcohol, fuel, tobacco, lottery tickets, dairy products, prescription drugs or additional gift cards.  Offer is available March 13, 2009 through April 15, 2009.

Shaw’s is one of our local grocery stores (same company as Star Market), and it ran a similar 10% bonus during last year’s Economic Stimulus check mailings.  Apparently the response from customers and reward for Shaw’s was so great that they’ve decided to run this offer during tax season this year as well.  The limit before was whatever the size of your stimulus check was, and we took full advantage.  But I’m really psyched that there’s no limit on this offer.

Clearly this is a great deal no matter how you slice it.  The offer is for a store that we visit at least once per week, where we spend at least $250 per month, and that sells necessities, namely food.  The only real question is how much advantage we can take.  There are a few factors that limit how many of these cards we should buy:

  • How much cash we have available.
  • What the cost is to tie up this cash for whatever time it will take to use up all of the cards that we buy.
  • Whether this is really a no limit offer.

Because we don’t live paycheck to paycheck, we actually have somewhere between $10,000 and $15,000 available on hand in cash that we could use for this “investment” that is not technically part of our emergency fund.  It turns out that we also gave the government too big of an interest free loan last year, so we’re going to be getting a healthy refund which we can also roll into purchasing discount gift cards.

I ran some quick math to see how soon I would have to spend the gift card before we would have just been better off sticking the money in a CD.  I figured out that if I could earn 3.5%, tax free,  on a $300 investment today, it would take 34 months to earn 10% on the initial investment.  That means that as long as I can spend the gift card within the next 3 years (because with taxes it will take longer than 34 months to accrue 10%) I will be getting a better return by buying the gift card.

I asked myself if there were any down sides to this offer as well.  One that pops to mind is that we’ll be tying up lots of cash that we may need for other things.  The nice thing about these gift cards, however, is that we can easily trade them for cash, and if things ever get that bad, we’ll still have to eat, so having grocery cards is not such a bad thing.  Another thing we’ll need to be careful about is where and how we store the cards.  Having the equivalent of thousands of dollars in cash laying around has risks: fire, theft, loss, etc.  We’ll have to figure out a way to deal with that.  Lastly, what if the store goes out of business?  This is certainly something about which to be concerned, but this is a chain that has been around as long as I can remember, stores don’t usually just all of a sudden stop honoring gift cards, and as above we should be able to liquidate them quickly if it comes to that.

We still haven’t decided exactly how many of these cards we’ll buy in total.  We spent about $5,400 on groceries in 2008, so we can buy a lot of these cards and still come out ahead.  Yesterday ScrapperMom went to the Customer Service desk to buy 6 of them and was told that you can only buy 5 per customer per day.  So there is, apparently, a limit, but I still don’t think it should affect how many we want to buy (though if it did I would argue that the ad does say “no limit”).

What do you think?  Should we stock up on $10,000 worth of these cards (or the closest multiple of $300) and get an instant $1,000 back?  Is this a deal that interests you?  How many will you buy or would you buy if you could?  Are there downsides or risks that we’ve yet to consider? Leave a comment below!

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Holiday

Creative Commons License photo figure credit: muha…

Happy New Year to all!  As we close the chapter on one year and move on to a new one, I find this to be an excellent time to reflect on the state of life in general, and for the purposes of this blog, Personal Finance.  If you’re a regular reader of this blog you will know that I am a big fan of automating personal finance:

  • Our cash back credit cards get billed directly to our bill-pay account at our bank and the bank automatically pays the full balance every month.
  • ING and Vanguard both automatically withdraw pre-set amounts from our checking account monthly to cover various savings goals like increasing the size of our emergency fund, Roth IRA contributions, savings to cover annual payment to insurance, etc.
  • Bill-pay automatically pays all of our fixed monthly expenses like our mortgage, student loans, car loans, etc.

The only things that we ever have to really worry about paying on time are utility bills, gas and electric.

Given this level of automation, it’s easy to neglect our finances.  They’re not really neglected, but they’re not always getting the attention that they may deserve.  Sometimes we’re saving too much or too little.  Sometimes we’re spending more than we should and don’t realize it.  Sometimes we need to shift saving priorities because goals have been met or circumstances have changed.

I’m apparently such a work-a-holic that I had to take the last several days of the year off in order to burn, rather than lose, vacation time.  I spent the better part of one day and small parts of others catching up on our finances — a Personal Finance Holiday of sorts.  I’m not by far the first person to propose such a concept, and I’ve thought about taking a Personal Finance Holiday for a long time, but didn’t think that I had enough personal finance “stuff” to do to fill up a whole day.  Well, after neglecting to even open Quicken since mid-October, it turns out I did have a whole day of catching up to do.

Usually a Personal Finance Holiday is used to get going on all of the little things that you’ve been meaning to do, but haven’t found the time for (you have been meaning to do these things, haven’t you?):

  • creating a Spending Plan
  • opening a new Savings Account
  • starting an IRA savings account
  • buying life and disability insurance
  • opening a 529 account for your child(ren)
  • writing down or benchmarking your Personal Finance goals

Reading any of the myriad of Personal Finance books available can leave one overwhelmed by the number of things that you realize that you should be doing with your finances.  Taking a PF Holiday gives you the perfect opportunity to sit down and bang all of these items out in one shot.  It also gives you time when you would otherwise be unavailable to do all of the little things that might distract you from actually getting this stuff done, without feeling guilty about it: Can’t do it on Saturday because you have to spend time with the kids; Can’t do it on a holiday because you have to spend time with grandma; Can’t do it on a vacation day because you have to run all those other errands that you’ve been neglecting; Can’t do it on a sick day because, well, you’re sick (right?).

Maybe you’re thinking that you can’t possibly take a PF Holiday because you don’t have any vacation time.  Well, take it unpaid.  That’s right, it might not sound very frugal or financially prudent to do so, but let’s look at what a PF Holiday is worth:

  • If you use your PF Holiday to open an IRA and put just $100 per month into it, you’ll have $1,227 in one year at a modest 5% average return, and $15,528 in 10 years.
  • If you setup a disability insurance policy, you and your family will likely be able to maintain your standard of living should you become disabled.  If you can’t work for 10 years, this might be worth a quarter of a million dollars
  • If you set up an emergency fund, and use this fund instead of a credit card when a true emergency rolls around, you might save $1,400 in interest on that credit card.

If the average person makes $40,000/year or about $20/hour, then the cost of a PF Holiday on unpaid time is just $320.  It’s actually even lower than that since you won’t have to pay taxes on money that you don’t make (or conversely, if you had worked the 8 hours you would have brought home closer to $250).  So a small $250 investment could be worth tens or even hundreds of thousands of dollars over the next decade, and even more beyond that — perhaps even enough to vacation at the beautiful looking spot in the photo above!

In our case, we already have most of our Personal Finance stuff under control, or so we’d like to think, so the PF Holiday was used to catch up on what’s been going on, make sure that everything is going the way it should be.  It was also used to tweak and steer the various Personal Finance vehicles toward their respective goals.

Have you ever taken a Personal Finance Holiday?  Do you need to take a Personal Finance Holiday?  Do you have any new or redoubled goals for 2009?  Let’s hear about your experience in the Comments Section below!

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Christmas Tree

Creative Commons License photo figure credit: SleepingBear

This week ScrapperMom and I started and finished our Christmas shopping.  This was rather easy given that we don’t have many for whom to shop, we budgeted for Christmas just after LAST Christmas, and we already had the money set aside for these gifts.

Several years ago, we agreed with our adult siblings that we would all concentrate our buying efforts on the children in the family.  Prior to this point, we, like most families, would simply trade a bunch of items that we thought others would like.  Sometimes a hint or two may have been dropped over a Labor Day barbeque or Thanksgiving dinner, but for the most part we were left to guessing.  As a result, we all often ended up with well intentioned gifts, most of which never quite lived up to their full potential.

Some might argue that the whole point of gift giving is to know enough about the person to whom your are giving the gift to give something that will truly be appreciated.  This is a great idea in principle, but my experience is that it rarely happens in real life.  Others might argue that it’s not about the gift itself, but rather the thought that counts.  This is also a nice sentiment, but results in a pile of “stuff” that may create guilt on the part of the recipient and resentment on the part of the giver.  Instead, we prefer to share experiences: watching the kids open their presents, sharing a nice meal, and just being all together.

A few years back, we also started setting a pretty strict limit on what we would spend per gift recipient.  The obvious and immediate reason for this is that it limited how much we could spend in total and kept us from going into debt to finance Christmas.  The longer term reason, however, is that it allows us to anticipate how much money we’re going to need to cover Christmas all year long.  Knowing this allows us to begin saving for Christmas next year almost as soon as Christmas is over this year.

Christmas Club” savings accounts are not a new concept, but have fallen out of favor lately with the more prevalent use of credit cards.  Christmas Clubs are simple savings accounts that allow you to allocate a certain dollar amount per paycheck, week, month, or some other period.  The key to the success of this type of account is that the money is automatically deducted from your regular income stream and set aside in an account that is relatively difficult to access.

Many banks and credit unions still offer Christmas Club (and Vacation) savings accounts.  Our Christmas Savings account resides at ING Direct as one of our sub-accounts.  This is not truly a traditional Christmas Club account, and it has some advantages and disadvantages.  The ING account allows us to make it automatic.  Every month, ING automatically transfers 1/12 of our total Christmas budget for the year to the Christmas account.  The ING account also pays interest, which many Club accounts don’t.  Many Club accounts also restrict access to the money in the account, forcing you to leave the money alone or pay a penalty.  This is good for forcing you to save, but bad if you really need to get access to the money for a dire emergency.  The ING account allows me year round access to my money, but since it does not sit at a bank that is involved in our day to day financial business, the temptation to tap into it is very low.

This year we budgeted $800 in total for Christmas, and deposited $66.67 per month at ING.  By early December we had $800.04 sitting in our account, ready to be spent.  We used our new reward card of choice, the American Express Blue Cash card, to make all of our purchases, and will pay off the balance in full when the bill arrives.  Since we actually came in a bit under budget, we will probably not adjust our budget for next Christmas, and will begin paying for it in early January.

How do you pay for Christmas?  Do you take on debt to do so, or are you a Christmas Club user?  Do you set a Christmas budget or spend as the mood strikes?  We’d like to hear about it in the Comments Section below.