Finding a Better Credit Card

I have seen people unwilling to drop their credit card company.  Even with all the advantages with changing.  I myself don’t want to try and get a new credit card until all my credit card debt is gone.  Since 1 brought 3 credit cards and my wife brought 2 credit cards to our marriage we have cards from Chase, Discover, HSBC, and Wells Fargo.  This leaves a few options for us.  We want to cut this down to 3 cards.  The Wells Fargo card is a backup funding source for our Wells Fargo checking account so we will not have any overdraft charges.  It makes the checking account we have a no fee account.  We don’t even have to use the card, just have it.

Not wanting a new credit card company but wanting better rewards than the 1% we get on the Discover, Chase, and 1 of 2 HSBC cards.  So we did some shopping around for a new card.  We compared all the different cards that Chase, HSBC, and Discover have.  I exported my transaction record from Mint.com to Excel.  This let me compare the rewards formulas against my spending.  I also compared some other cards not by these companies.

Most credit cards companies will change your rewards program over the phone faster than you can fill out an application for a new card.  We found that sticking with the Discover Classic Card i have*, has better rewards than the next best option of the Discover More card.  I was surprised to see this.  I figured changing was a better option.  The best card to match with the Discover was the Amazon card from Chase.  Changing cards can get us a 15% increase in reward payout.

There are advantages and disadvantages to keeping your same credit card company.  If you are (one of the few) getting good service you continue to get that good service.  You can be getting better rewards than what you have.  The length of credit on your credit report stays the same.  You can even change your rewards package with a balance.  No balance transfer often saves 3% of any balance.  Moving to another card can improve the service you get.  You get promotions for moving.  You can get better rewards.  You might get other perks as well.  Look within your own credit card companies when changing.  You might even be able to get the promotions.  But be warned, you will almost always lose any rewards (not cashback) you already have earned.

*You can no longer get this rewards package.  It was replaced with the Discover More rewards.

Is an Emergency Fund right for me?

I am a firm believer in an emergency fund.  I tell others about the benefits and why they need one.  I have it as part of my long term plan.  I just don’t have a fund right now.  Lazy Man and Money is Glad he has an emergency fund.  I am glad i don’t have a fund right now.  Dave Ramsey advocates having a $1000 emergency fund first.  My wife and i are working on our credit card debt first.  So why don’t we follow this advice yet?

The costs of an emergency fund

The first cost of an emergency fund is the fund itself.  If you have a $1000 emergency fund your first cost is $1000.  If you have credit card debt putting $1000 in to a savings account is no different than taking a $1000 loan against your credit card.  This $1000 is keeping me in debt longer.  It is $1000 not going to pay down my debt.  On our plan this is now 2 1/2 months longer with credit card debt. Had we started when we first began working to become debt free this was almost 6 months longer.

When paying down debts you pay down the lowest balance or the highest interest rate.  We chose the highest interest rate.  An emergency fund equates to a loan of $1000 at the highest interest rate.  The rate on this emergency fund loan drops each time you pay off your highest interest debt.  Each month i don’t use that $1000 toward debt lengthens the time i will be in debt.

When an emergency hits what happens?  There is no difference to my finances with or without this emergency fund.  If i have a $500 car repair hit and don’t have an emergency fund this bill gets added to my 8.24% interest rate card.  If i pull this out of my emergency fund i add $500 back to the fund before paying extra on my cards again.  This leaves the credit card with a $500 higher balance until my emergency fund is replenished.  Either way i pay the interest on the $500 on the credit card bill. Six in one hand, half dozen the other.

Financial Insurance

Having an emergency fund is an insurance policy against trouble.  It protects you from paying interest on these emergencies.  Until you are out of high interest debt the costs are the basically same.  Insurance is a gamble against yourself.  Life insurance is a gamble that you will die.  Car insurance is a gamble that you will be in an accident.  Health insurance is a gamble that you will have health problems.

When to start the emergency fund

Hopefully never.  Wait, never?  With some advance planning you can have an ING Savings fund for health costs, car repairs, lost job, etc along side your vacation fund.  Since most people don’t want to plan that much in advance they lump all of these into one “emergency fund”.  Even i don’t want to plan that much so i too will opt for the emergency fund.  If you were going to have these separate funds you don’t start until your debt has been paid down.  Using a lump “emergency” fund then i suggest starting at this same point.  Don’t take a loan against yourself.

 

What do you think?  When do you start your emergency fund?

Credit for College Students Costly

NBC News recently aired a segment on Credit Cards and College Students.  Embedded is the video from Hulu.

What key is more important: protections from credit cards or teaching about financial management?

Spending to Save Money

How much added savings do you require to be willing to spend money on a money saving device?  I had always thought it was silly to spend money for devices to save money.  Recently i realized that even though i scoff at the idea i have been doing this for a long time.  I looked at these devices as scams and fake.  Look at your own feelings on the thought of spending money on something to save you money.  Buying “money saving” devices is throwing money out the door.  But maybe not…

 

Gift Cards

There is a thriving online community in the gift card trade.  You can trade your old gift cards with a full or partial balance for cash or other gift cards.  You can often buy gift cards online at a partial cost of the amount on the card.  Some locations even give free gift card of say $5-10 with the purchase of a $25-50 card.  If you are planning to shop at this store it might be worth buying the gift card to get the free one then getting back in line with your purchases to use these cards.  I recently bought a $100 gift card on ebay for $50.  This can be risky.  I did my homework and bought from someone with over 10,000 positive feedback and 0 negative.  This made my purchase at that store 50% off.  Pair this kind of savings with % off coupons or sales and you’d could have $150 or more in merchandise for pennies.  Buying a gift card for half off is not uncommon.

 

Coupons

Ebay also allows for the sale of coupons.  They require you to mail the actual coupon not just email a copy.  My sister recently bid on and won a $75 off $100 purchase at Old Navy coupon.  Coupons can just as risky as gift cards.  With proper checking these might be ok as well.  A problem might arise as most coupons state not valid for transfer or resale.  The Old Navy coupon did.  The coupon my sister bought had an individualized barcode and Old Navy accepted her coupon.  They could have just as easily said it was invalid and left her to battle ebay and the seller for her money back.  Her cost for the $75 savings was just $12.  Coupons can be found for 75% off or better.  You might just get a stack of them for free.

 

Entertainment Book

Buying a book full of coupons be worth the investment.  It is important to make sure that you will use the coupons and that you not buy something just to use a coupon.  If you were otherwise going to buy the things the coupon book has coupons for you might save money.  I have also seen coupon books sold by school groups.  A similar item to a coupon book are varsity cards.  Sports teams will sell a card that has various deals at local businesses.  These often have buy 1 get 1 offers and often have multiple pizza places on there.  I would always buy these to help whatever group is selling them if i planned to use them or not.  And normally with the varsity cards or coupon books you only need to use them 2-3 times to save your costs.

 

Club Memberships

My last group is club memberships.  I have been a Costco member for many years.  I did not group this in a similar category to the Entertainment Book until recently.  There are people that will buy membership at these locations just for 1-2 big tickets items.  If Costco has the HDTV you want for $100 less than any competitor it is worth the $50 for membership just for that one item.  You then have access to all the other club perks and prices.  Costco membership might be worth it just to buy Costco gas.  Like with other saving methods you have to make sure you use if for things you would buy even without the membership.  Also warehouse clubs prices are not always cheaper; you still have to shop around.

 

Spending money to save money can be a great investment if you make sure the “money saving” device will in fact save you money.

Our Plan

When deciding what to include and plan for in our plan it was important to remember our goals. We plan to live debt free. We want to have a large family. We expect to own a home one day. The LDS Church councils us to avoid debt, have food storage, build a financial reserve, get all the education we can, teach others. These items match with a number of the financial plans you can find.

1. Plan a budget: Most plans just assume the budget. We put it as a step. Setting a budget is important to know what resources we have available. We started by creating the budget. But sitting down and reviewing the budget every quarter is important. A company puts out quarterly earning statements to ensure the financial plans are working. This is also good advice for a person or family. Review and adjust every quarter.
   
   
2. Get out of debt: Saving $1000 dollars before paying debt is nice but we don't have as much debt as half the callers on Dave Ramsey's shows. Dave also suggests a debt snowball. We opted for a similar plan but instead of paying debts based on the amount we decided to pay them based on the interest rates. This makes the best use of our money. The emotional benefit of getting rid of smaller debts is nice, we felt the more logical approach would work for us.
   
   
3. Three months supply: Different from Dave's 3-6 month emergency fund. A 3 month's supply includes 3 months worth of cash on hand and 3 months worth of food and water. Three months worth of budget and three months worth of basic food supplies. Grains, dried beans, rice, canned or dried fruits and vegetables.
   
   
4. Retirement fund: 15% of income into retirement investment accounts.
   
   
5. 1 Year Emergency Fund: Build up financial reserves to cover one year. Use your income as a basic starting point. Up until this point you are spending less than you make so you don't need a full year's salary. Figure out what you do need and save it.
   
   
6. 1 Year Food Storage: Increase your 3 months of stored food to enough to sustain for 12 months. Well stored staples like sugar, grains, beans, etc can store for 30 years or more. Rotate the staples you have with your new purchases.
   
   
7. Pay off the home: Get rid of this last debt as fast as possible. Get rid of the mortgage.
   
   
8. Children's college funds: It is possible to work your way through school. Once you are clear of all debt and working for the future you can begin helping others. Paying for children's college is a bonus.
   
   
9. Build wealth and give: This point is the last point of almost every source of financial information. The what's next step. Now that you are sound you can help others financially. Give substantially to charity, start your own organization, do what you want. Just use your wealth to help others.

Dave Ramsey's 7 Baby Steps

Quite possible the largest financial program i know of is Dave Ramsey's 7 Baby Steps. Dave is often the person that got other bloggers and financial analysts into the field. He has a number of books and programs to not only teach you how to establish financial freedom but to help you complete the program and path. Before beginning his program he suggests you have a plasectomy. This is a process of removing your ability to produce more debt. On his TV show he even shows the creative videos people send of destroying their credit cards. Let me explain the steps.

1. $1000 Emergency Fund : Things happen we don't plan for. When starting out we often have been using our Credit Cards for Emergencies. This fund is to replace the credit card for emergencies.
   
   
2. Debt Snowball : List all debts and minimum payments from smallest to largest balances (don't include the mortgage as this comes latter). Do everything possible to pay off that first debt. Once the first is gone take the full amount you were paying and add it to the second debt until all debt is gone.
   
   
3. 3 to 6 month Emergency Fund : Take your emergency fund and increase it to be large enough to live on for 3 to 6 months. Now you can survive if you lose a job instead of just fixing a broken appliance.
   
   
4. Invest 15% of your income : Use your pre-tax (401K, 403B, etc) to its max then put the rest of the 15% into a Roth IRA. This is creating your retirement fund.
   
   
5. Create a college fund for each child : Save enough to pay for their college. Since Dave wants you out of debt he does not want you children to start with college loan debt.
   
   
6. Pay off the home : Once the college tuitions are secure; pay off the home as quickly as possible. Get rid of the mortgage payment.
   
   
7. Build wealth and give : Invest in mutual funds and real estate to build wealth. Use this wealth to help those in need. Help how you feel best.

Dave has a great program. I feel it is not the best plan for me. I know what motivates me and how my mind works. In the next post i'll show our plan and compare it to Dave's Baby Steps. Dave's plan is fundamentally sound and more can be found in his book The Total Money Makeover.

An Introduction

Money is hard work. Having money is hard work. Being broke is hard work. Saving is hard work. Making budgets is hard work. Financial planning is hard work. Finding a job is hard work. Making money is hard work. Everything about money is hard work. Spending money can even be hard work. I like money. I like spending money. I like enjoying what i've spent money on. Money does not always like me. I am currently undertaking some of the hardest money challenges almost anyone ever makes. Being unemployed and paying down debt.

I have not always been the best at managing money. I have made plenty of mistakes. I have also made some smart money decisions. I do some money planning. Now that i am married i have someone to help me with money. We can make the same mistakes we have in the past or we can continue on the path of financial prosperity. We are on that path now. We are not yet to our destination. Hopefully following my journey will help you find your path the financial prosperity. I get advice from Dave Ramsey. I get advice from other blogs (perhaps some will guest post here one day). Each has it's own plan. My wife and I have taken all those and developed one that we feel will work for us. It is working for us. If someone learns from our mistakes and grows from it i will consider this blog a success.