Small Ball (Finance). . . Earning $160,000/yr. one minute at a time

In past posts, I’ve focused on concepts that will save you thousands of dollars per year.  Today, I’m going to talk about something that is decidedly “small ball”, but nevertheless will help you achieve our goal of “living beyond your means without debt”.

I recently bought a used car for my daughter (something I swore I would never do, but so much for youthful oaths!), which requires 91 octane premium gas.  Now, I hear you saying, “doesn’t that violate the idea of spending less and saving more?”.  Well, the idea is to live better, which isn’t the same as living as cheaply as possible.  So, yes, I bought her a premium car, because it was a much better value than a crappy econo-box that cost more money.

So, when my daughter expressed concern about the cost of gas, I started thinking about to lower that cost.  Of course, I told her about CostCo, where gas is typically 5¢-15¢ cheaper per gallon than neighboring stations.  I also told her about using a credit card that will save her 4% per gallon (CostCo American Express card).  So, right off the bat we are saving 20¢-35¢ per gallon or almost 10% per gallon.  Now, where we live in Florida, premium gas is 93 octane; the car only needs 91 octane.    Essentially, drivers like me are buying octane they don’t need.  The solution: combine 93 octane and 87 octane gas to get a 91 octane blend.  The blend is 2/3 93 octane and 1/3 97 octane (if you are interested, the math is: 93x + 87(1-x) = 91).  If your tank holds 20 gallons and your typical fill-up is 15 gallons, you simply put 10 gallons of 93 premium in your tank and then another 5 gallons of 87 regular and viola, you have made your own 91 octane blend.  Remember, I started talking about “small ball”.  Well, we substituted 5 gallons of 93 octane for 87 octane; in Florida, the average price differential is about 28¢.  I know that in many parts of the country, the difference is about 20¢, so I’ll use that.  Basically, we have saved about $1 . . . for less than one minute of work (I timed it!).  Again, remember “small ball” is today’s theme.  You may be saying, “$1, who cares”.  Well, think about this, $1 dollar a week is $50/year or a free $1,000 over twenty years.  More importantly, saving $1/minute = $60/hour (after-tax), which is the same as earning over $160,000 (pre-tax).  Now, I’ve earned more and I’ve earned less, but I don’t recall a time where I ever turned down an opportunity to earn incremental money at a rate of $160,000 per year.  So, there you have it, nothing dramatic, but an easy way to “make” money, $1 at a time (or, as I like to think about it, $160,000 at a time).

My House Is Robbing Me Blind

I’m embarrassed to say (writing the financedude blog and all) that I never realized that my own house was stealing from me.  The house I lavished so much care (and paint) on was robbing me blind.  For those of you that made it this far, congratulations, you are probably saying get to the point already.  Well, every month it is taking me to the cleaners in the form of high utility bills.  Your probably saying, aren’t you the kind of guy who makes sure the lights are out when he leaves a room.  And you would be correct.  However, lights are penny ante.  The real silent killers are your hot water heaters, your crappy insulation and (though they are not so silent) your air conditioning (really a silly phrase when you think about it, “conditioning”) system.

I was playing poker at a friend’s house a couple of months ago when I noticed a piece of paper taped to his thermostat.  The paper said, “our electric bill was $176 last month (November) . . . no one touch the thermostat upon pain of death”.  Well, I was intrigued, you see, in our best month, our electric bill hasn’t dipped under a whopping $350/ per month (and can top $700 in the summer) and we don’t live in a mansion.  I still haven’t completely figured out why my electric bill is so much higher than my friend’s, but I have made some progress.

Morally, it bothered me that higher utility bills were 100% bad.  I was using some sort of scarce resource for power.  Inefficiency didn’t “get me” anything, it was “Money for Nothing” and not in the good way.  The high bills were an unnecessary source of conflict. “Why is the thermostat down so low” and “why don’t you turn off the light when you leave the room” are a couple of old chestnuts I have said more times than I’d care to remember!

First, as I live in Florida, I fantasized about going solar and selling power to the local utility (kind of a 21st century fantasy of, “sticking it to the man”).  I quickly realized that solar technology i snot very efficient and is very expensive; it has a long way to go and is no anywhere near economically viable without heavy government subsidies (which we don’t have in Florida) and could damage my (older) roof.  I didn’t necessarily want to make a big investment to save money, period.  I don’t know how much longer I’ll live in this house and home improvements with 3+ year paybacks never seem to work out.  Therefore, I wanted to make common-sense changes that would help cut my bill by a noticeable amount.  Here is what I learned:

•    Your hot water heater radiates heat to the outside 24/7, but is only used a couple of hours per day (for showers in the morning and whenever you run your dishwasher).  You can get an insulator (basically a large blanket made of a fiberglass type fabric) and wrap it around your hot water heater.  That should save you about $100/year.  More importantly, you can get a timer, and strategically shut off the hot water heater, except for times before use.  That should you about $250/year (you will likely need a 220 timer and, if you are not handy, an electrician).  I looked into “tankless” water heaters (they “flash” heat your water), but they are significantly more expensive and seem to be highly troublesome and don’t deliver the (hot water) goods in sufficient volume.  Also, cover the pipes that carry hot water (and your a/c) with insulation.  These exposed piples can reduce efficiency/increase costs by 1%-3% (up to $100 per year- that is worth a few bucks for insulation and a few minutes for installation).

• If you have an option, always go for the natural gas-powered appliance.  Gas is currently cheaper than electricity and thanks to tons of new gas that has recently been found, will likely be signficantly cheaper (in percentage and unit terms) for your lifetime.

• Unless you live in a house build in the last 10-15 years, you probably have less-than-optimal insulation.  Depending on where you live, it probably makes sense to add attic and wall insulation.  Windows, which can be hugely inefficient, are too expensive to replace for anything but cosmetic reasons.  I would also suggest having your duct work checked.  Crimped ducts can cost you a lot in comfort and money (imagine blowing through a coffee stirrer vs. a jumbo straw).  One trick I used when I lived “up north”, was to make sure all of my door openings were sealed.  A southern trick is to make sure you have an attic fan that is operational.  The fan pushes the hot air (that accumulates from the sun beating on the roof) out of the house, making the house a little cooler and the air conditioning system a little more efficient.  This helps quite a bit (and makes the house a lot more comfortable).  The various savings initiatives are probably good for $200-$500 per year.  You will have to make an investment.

• Timer for your a/c (and heating) unit.  Though, this can save you big bucks, most people have already figured this one out.  The simple logic is, when you are at work or sleeping let the temperature rise (in the summer; or fall in the winter).  I recommend an “apartment” thermostat, as it can be programmed with minimum and maximum temperatures, thereby avoiding unpleasant exchanges with your spouse or kids about why the thermostat is set to 49 (in the summer) or 90 (in the winter).  Prudent timer use is probably worth $300-$600 per year (depending on where you live and the size of your house).

• Close the door.  I can’t tell you how many people go outside to the pool deck and leave the door open . . . or come in from the garage and leave the door open . . . or let the dog out and leave the door open.  Temperature naturally equalizes, so every time you open the door, the hot air outside will come in, negating hours of your a/c units finest work.

• The green folks love this tip- use mini flourescent bulbs whenever possible.  Yes, they cost about 1/3 as much to operate as incandescents.  A no brainer.

I’m still working on getting my bills down to neighborhood norms, but until I do, at least I will be better off than last year.

Meds for Less . . . Or How I Learned to Love (or at least not hate) Big Pharma

Meds for Less . . . Or How I Learned to Love (or at least not hate) Big Pharma

As a professional consultant (primarily CFO and strategy work), I have to buy my own health insurance. This insurance carries a large deductible. Not a big deal for (knock on wood) healthy me, but all of a sudden a big deal after adding my not-so-healthy kids.

Saving Money on Prescription Pharmaceuticals

So, I’m faced with paying literally hundreds of dollars for the kid’s prescriptions. There has to be a better way! Guess what, there is a better way. Most (so far 100% of those I tried) drug manufacturers offer a drug discount card that cuts the cost of high dollar drugs to $15-$25 per refill!

The Savings: A Case Study

Using insurance (which put a maximum charge of $50 per prescription) and drug discount cards, I was able to save $140 on several prescriptions in one month! In another scenario, where my annual deductible had not been met, I was faced with a $180 bill for Adderal. Guess what, the manufacturer offers a drug discount card knocking the cost down $120 (still a hefty $60)! An added bonus, in this case, is that $180 goes against meeting my deductible, while I only spent $60.

How to Get the Discounts

Simply type your drug name followed by coupon (e.g. Intuniv coupon) in your browser. You will be offered a number of choices. I suggest going directly to the manufacturer site. They will typically require you to fill out a questionnaire and in return provide an on-line coupon (which you print out), followed by a card mailed to you. The discount card is usually for the shorter of 12 months or the end of the calendar year. In the current political environment, the drug companies can be expected to continue the programs (at least into 2013). Sometimes you can even get a free 30 day supply of a drug with a new prescription (just call your doctor and ask for a new prescription).

In some cases, especially with very high dollar drugs, you may have to call a special number and speak with someone about your situation. You will very likely get relief if you have a high deductible (because the drug company will get big bucks in subsequent months after your deductible is met) and more moderate relief in other cases.

At the Pharmacy

Be sure you give your coupon or savings card to the pharmacist when presenting your prescription or refill. The savings will be applied after your insurance and will typically lower your co-pay to a floor (no less than $15 is typical). If you have great insurance and only pay $4 per prescription, you will not likely save much. However, if you don’t work for the government and/or a union (or have Medicare), you will likely save big bucks on your more expensive prescriptions. Of course, if you have a high deductible, your savings can be considerable.  Remember to mention your discount every month.  Often pharmacies will only run the primary insurance and neglect these “secondary coverage” savings.  It is a pain to get pharmacies to re-run drug purchases, do be sure you remind them when initiating the prescription.

Where to Go for Discounts (selected popular pharmaceuticals)

I have noted the sites for some popular prescription drugs below. This list is by no means comprehensive and manufacturers change their programs all the time.

Abilify ($100/savings & 30 day free): http://www.abilify.com

Advair ($10/savings & 30 day free): http://www.advair.com/copd/coupons-and-special-offers/coupons-special-offers.html

Crestor ($18/prescription): http://www.crestor.com/c/crestor-patients/crestor-savings/savings-card.aspx

Diovan ($25/prescription): https://www.diovan.com/info/ways-to-save/diovan-patient-savings.jsp

Extavia ($600/mo savings): http://www.extavia.com/info/Treatment/How-will-i-pay-for-extavia.jsp?usertrack.filter_applied=true&NovaId=4029462035092501915

Intuniv ($15/prescription or $115 discount): www.intuniv.com/adhd-support/default.aspx

Lipitor ($4/prescription): https://www.lipitor.com/patients/LipitorCoPayCardRegistration.aspx

Nexium ($18/prescription): http://www.purplepill.com/taking-nexium/purple-plus-savings-card.aspx

Help from Pharmacies- Don’t Count On It

I have to give a big thumbs-down to the pharmacies. No a single pharmacist has ever suggested looking on-line for the discount card! I suspect a combination of ignorance and higher dispensing fees on larger sales (though I can’t say this with certainty).

Why Does Big Pharma “Help”?

Why do the drug companies go to the trouble of ripping us off, but giving us an “out”? There are three primary reasons. The first is, if your insurance company is willing to foot the bill, the drug companies make full, and very large profits. The second is, the pills literally cost pennies to make. Getting $15 per prescription is still extremely profitable for the patent holder. The third is PR; the drug companies are able to say that nobody is excluded from being able to afford necessary pharmaceuticals, because they are affordable through discount cards.

A Few Thoughts on Big Pharma

I have long had very mixed feelings about the big drag companies. On the one hand, the advances made in pharmaceuticals in recent years have been nothing short of incredible. High blood pressure, cholesterol and depression (not to mention erectile dysfunction and toe fungus) have all been made more manageable due to drugs that have come on the market in recent years. On the other hand, Big Pharma charges a crazy high price for these drugs, with crazy high profits to match. Obviously, when possible, using generics reduces the cost significantly, but that is not always possible. Big Pharma is a master at combing out with a slightly tweaked version just as its original product is going off patent (witness the rise in “extended release” formulas as a follow-on product). Further, you can see the triumph of Big Pharma’s lobbying dollars over any sort of common sense when a US citizen cannot legally or easily purchase drugs from reputable countries (Canada, Europe, Israel, etc.) where the same pills are sold for less (by the same companies). Or more dangerously in the “Obamacare” legislation where the support of Big Pharma was purchased in the more of minimal cuts to drug reimbursement (which logically should be a huge source of savings from any comprehensive health care program).

In Closing

This is another opportunity to, “Get Money for Nothing”,  If the manufacturers are willing to provide a deep discount on their products, in this case pharmaceuticals, it is foolish to not take full advantage of the savings.  In my case, I expect the savings to amount to several thousand dollars in 2012.

Investment Advice for (Almost) Everyone

Investment Advice for (Almost) Everyone

Do you like tunafish . . . or cat food. At the rate most American’s save, you are likely to be eating a lot of these “yummies” unless you start saving for retirement NOW (and that applies equally to all of you, no matter your age).

Most of us realize Social Security, as it exists today is simply not sustainable. At some time in the not-to-distant future, benefits will be cut and the retirement age will increase. When this happens largely depends on when Congress and the President get the cojones (including our female members) to address the problem of collectively paying out more than is taken in. When you include similar reductions in benefits and/or increases in payments for Medicare, future retirees are going to get less and pay more. I don’t want to spend too much time on why this is happening as it is not the main topic of today’s blog (and I don’t want to bore the rest of you away). Suffice it to say, retirement without a substantial non-governmental entitlement payment will not be pretty and certainly will not be the “golden years”.

In the interest of time and keeping your interest, I’m going to try to keep the discussion high level, so it will be heavy on big picture facts and light on statistics and formal backup.

Big Picture Comment #1- You Need Net Assets of at least 20x retirement spending

You will need to have total net assets (assets less any debt) of about 20x your retirement spending when you retire. If you are lucky enough to have a pension, you can count 20x your annual pension as an asset (assuming it is from a large and stable organization, such as the US Government, GE, a utility, etc.).

If you expect to spend $100,000 per year in retirement, you need net assets of $2 million. Note that any “extras” like college (or grad school) for the kids or weddings are dollar-for-dollar adds to your needs. A good rule of thumb is that you can spend 4%-to-5% of your assets every year. Since you will be getting some social security payment, I feel comfortable with a 5% annual drawdown (I know the math is not exact, but you will also spend more than you think, have higher medical bills, etc.).

Big Picture Comment #2- You Need to Save Now!

All I needed to know about finance, I learned during day one of Finance 101, “A dollar today is worth more than a dollar tomorrow”. Put in the context of saving, a dollar saved today, and properly invested (keep reading) will grow in a tidy sum.

The power of investment returns is such that if you start saving 35 years before retirement (age 30 for an age 65 retirement), $100/mo month will give you almost in $110,000 in real (adjusted for inflation) dollars. If you start saving 10 years before retirement, you would need to save almost $750/month to get to the same place (and that same $100/month would give you a puny $15,000).

Ideally, you should create a lifestyle where you save 10% of your family income for retirement. I know “life” happens and that is not always possible. Again, ideally you save more and have that cushion for when life happens. Keep in mind, you will spend about 40 years working and about 20 years not working (in retirement).  So, that long time from now retirement, is really a big part of your life and can’t be “handled” with a few years of sacrifice.  If a family making an average income ($73,000; average 2010 family income) saved 10% of their income for 35 years (which also assumes nothing up to age 30), it is quite possible for retirement to have income that exceeds annual income (when taking Social Security into account)! Not easy, but doable and certainly worth it! A family in the 75th percentile of income ($118,000) that saves 10% for 35  years would take an income hit at retirement, but would still have more than 80% of their annual pre-retirement spending (remember, you don’t need to save in retirement!).

If you are young and disciplined enough to start saving now, I say go for it (and applaud your maturity). It is easy to forgo a few dollars today for a huge benefit (financially and peace of mind in the future). I am focusing on folks 30+ in my examples, but saving early, due to the compounding effect is hugely beneficial.

Bottom line, save as much as you can as early as you can.

Big Picture Comment #3- Use Retirement Plans to Save

Free money- is always good.  Read on to learn more.

Most employers provide a 401k plan (or 403b) to workers. About half provide some level of matching. If you are fortunate enough to be matched, even better.

Saving in a retirement account, makes saving “cheaper” and easier, because taxes are deferred. For example, if your marginal tax rate is 25% (tax paid on last dollar earned), saving $10,000 only costs you $7,500 (you avoid paying $2,500 in taxes on that $10,000).

If you are married and both of you work and both of you have employer-sponsored matching , you want to be strategic in your saving and make sure you get the maximum match from each employer. For example, a typical match is 50% of the first 6% saved. In this case, you would want to divide your 10% to maximize your retirement savings. Assuming one person makes $70,000 per year and the other $30,000, the first would only have to save 7% of $70,000 ($4,900) and the second 7% of 30,000 (or $2,100) or $7,000 combined. Through the 3% matching ($2,100 from the first employer and $900 from the second), the total saved would be 10% of your income, or $10,000, at a cost to your family of only $7,000. When you consider you are not paying taxes on the $7,000, your true cost to save $10,000 is only $5,250 ($7,000 less $1,750 in avoided taxes)!

If only one employer offers a match, make sure you shift as much of the required savings to that person. There is no reason to “share” savings in retirement; always take the best deal. Remember, you always want “money for nothing”.

Big Picture Comment #4- Your Investment Needs to Grow

If you have $2 million at retirement (to fund your $100,000 per year retirement) and put it in the bank or in CD’s, you will basically be tapped out in 20 years. However, at retirement, you have a life expectancy of 20+ years (more like 25 for you and your wife combined, because someone will outlive the other) and who knows, you could live to 100!  But since you can’t time your spending so you run out of funds on day zero- as you don’t know when day zero is going to be, you need a cushion! Therefore, you need your money to work for you. I’ll discuss this in more detail in the next section, but bottom line- you always need to be investmed and growing your money!

Big Picture Comment #5- Stocks Beat Bonds

Stocks beat bonds. Period. Assuming you have a decent investment horizon, and you do, because you either have years until you retire or you have years to live when you retire (21 years, on average, at age 65), you need to consider the long-term. Long term, stocks will always beat bonds (Treasury’s or otherwise) or cash. Why?  Because return is always risk for return. That is why Treasury’s offer virtually zero reward (actually negative when inflation is taken into account, and you must take inflation into account)- because they are perceived by many to be the (literally) least risk investment in the world.

While it is impossible to predict the future, I think it is reasonable to assume stocks will return about 8% over the long-term (note that this is a lower projection than the 9.6% US equities earned on average through 1996). Assuming average inflation of 3%, stocks will provide a real (net of inflation) return of 5% per year. Many “experts” suggest using bonds. Personally, given a long time horizon, I think bonds will only drag down your long-term returns. I will grant you that investing only in stocks will give more increased volatility (changes from period-to-period), but keeping in mind you still have a 20+ year time horizon at 65 (and that you should expect to live to at least 85 no matter your age) and need to be thinking long-term. I suggest keeping your long-term (and it’s all long-term) portfolio in stocks. Now, I’m not saying you chase the latest hot stock.  I am saying you should invest in a diversified pool of stocks through low-cost index funds. Ideally, you want to have about 65% of your money in US stocks and 35% in foreign stocks (not just European stocks). You may say, aren’t foreign stocks risky? Well, yes there is risk, especially in the short-term (of course that is true of the US market as well), but in the long-term the rest of the world is going to grow faster relative to the US and having a diversified portfolio will reduce your risk and likely enhance your returns. Enhance? While the US continues to have a lot of advantages (especially compared to Europe), we are growing slower than the emerging global economic powers (Brazil, China, India, today- who knows what the world will look like in 20 years!)- keep in mind the base they are starting from (especially in terms of standard-of-living) and where we are today. I suggest allocating your money as follows: 40% to a low-cost S&P index 500 fund, 25% to a low-cost Russell 2000 index fund and the remaining 35% to a low-cost (are you seeing a theme?) global index fund. You can buy these funds as mutual funds or ETF’s (exchange traded funds; bought and sold through a stock exchange). If you are buying through a 401k, you may have limited choices. However, always look for an index, as opposed, to an actively managed fund. Index funds generally charge very low fees (and historically outperform actively managed funds on a net basis- so you are essentially paying more for an inferior product!). This is hugely important. If you are going to return 8% per year (5% after inflation) a small sounding 1% fee will eat over 10% of your return (1% / 8% =12.5% of your return, reducing it to 7%, or 4% after inflation)! Always look at fees/costs and pick the index with the lowest fees. Since an index basically copies a pre-determined basket of stocks, there can really be no performance advantage within an index type, the only way to gain an advantage is through higher net returns driven by lower fees!

I recommend (and use) discount brokers, ETrade (www.Etrade.com) and TD Ameritrade (www.TDAmeritrade.com); they are both strong, low-cost and full featured. Both charge under $10/trade (with some ETFs and funds at no cost) and both have robust research and sophisticated on-line trading platforms. I also recommend (and use) mutual fund companies Fidelity (www.Fidelity.com) and Vanguard (www.Vanguard.com).  There are, of course, other good discount brokers and mutual fund companies.

Big Picture Comment #6- Never Hire An Investment Advisor

There is an old saying on Wall Street, “Where are the customers’ yachts?”. Simply put, advisors make money from your money. The more they get the less you get. As I recommend index funds, with cost being the only reach variable, what are you paying for?  In today’s world, you can invest on-line and have access to all the research you need (if an advisor really had “inside information”, he would go to jail for using it). Simply put, unless you fancy yourself to be a modern-day Peter Lynch, buy index funds. You will save money, save time (researching individual stocks) and likely do (much) better. As I mentioned in the last section, assuming a return of 8% per year, paying 1% (or 2% sometimes) will cost you over 10% of your return. Interesting tidbit, Merrill Lynch announced that they are dis-incentivising brokers from taking on new clients with portfolios of less than $250,000. Why, because it is easier to make the large profits the firm wants from larger portfolios. Anyhow, unless you are really wealthy (the “1%” that is in the news so much these days), I would stay away from an investment advisor.

Why are investment advisors such a bad idea? First, you need to pay them. Lets assume 1% for them. Second, they will put you into the products their firm pushes. Lets assume 1%-2% extra for these products (in upfront fees or recurring costs, or both). Third, they push stocks from their research list, which you get after the “insiders”. Any benefit that may exist from proprietary research disappears the second it is “out”- you will not be buying in before the research is out.

I think I’ve said enough on this. Buy low-cost index funds. Buy them yourself. You are investing for the long-term, do not worry about ups and downs in any given year.

Let’s Recap

To avoid eating cat food, you need lots of money when you retire. Plan on taking out 5% of your retirement each year. If you want to spend $100,000 per year, you should retire with $2 million. Social Security and Medicare are not going to be as lucrative when you retire. The costs of the programs are unsustainable and will change.

Save early, save often. The power of compounding means modest savings early in life yields big dollars later. Remember, you work for 40 years and retire for 20 years.  Twenty years are a long time!  It is really hard to play catch up with respect to saving.

Always take advantage of free money. Save through retirement accounts like 401k’s and take maximum advantage of employer matches.

You are going to live for a long time- invest in stocks (and ignore the market). Diversify your stocks (US and International).

Buy stocks through low-cost index funds. Don’t use a financial advisor. Don’t buy an actively managed fund.

Good luck. Invest early, invest often and save the cat food for the cats!

How to Legally Rip Off the Credit Card Companies

How to Legally Rip Off the Credit Card Companies

Did you know that credit card issuers engage in legal usury? While most states have laws limiting interest rates (including fees) to 18% per year, credit card companies often charge an interest rate that exceeds 25% and earn over 30% when taking late payment, over limit and other “junk’ fees into account. As credit card companies truly believe in win-lose behavior, I have long felt it is almost a duty to extract as much money as possible from these credit card companies.

Let’s talk about some strategies to make money from credit card companies.

Strategy One: Sign-up Inducements

As bank capital requirements have tightened, credit card issuers are increasingly looking for ways to increase their bottom line (at your expense). That has led them to be extremely aggressive with their inducements (come-ons in the form of cash or cash equivalent “points”) to new customers. Their business model says they can make-up the cost of the inducements by switching your business from another company and by charging you interest and fees. What I suggest is using these inducements to your advantage and (screwing the credit card issuers). As I write this, it is pretty easy to get the equivalent of $500 (in cash, points or the equivalent) simply by signing up for a credit card and making $3,000 or less in purchases. The strategy is simple, sign up for one (or more) cards, make the minimum purchases (NEVER carry a balance; always pay your monthly balance off on time), redeem the reward and putting the card in a drawer. You win big and as an added benefit, the issuer loses (big).

Let me give you tangible examples (these offers may change, but these or similar offers are commonly available) in declining order of value:

• Chase Sapphire Preferred: 50,000 points (worth $500 in gift cards and over $600 in travel); you need to spend $3,000 within three months
• Citibank ThankYou Premier: 50,000 points (worth $500 in gift cards and over $600 in travel; includes “free” companion air ticket); you need to spend $2,500
• Marriott Rewards Premier (Chase): 50,000 points (worth about $500, free night and “Silver” status); get points after first purchase.

Sometimes the card issuers will provide targeted offers (not available to the general public).  You need to be smart about taking advantage of the offer (and identifying and following through on the reward conditions).  For example, this summer American Express offered me a $750 Home Depot gift card for getting a new Amex card (no annual fee in first year) and spending $2,000.  It took me about 30 seconds to send that offer in!  Even if you don’t want the gift card, there are secondary markets in gift cards (Cardpool.com and Plasticjungle.com) that can turn a gift card into cold cash (though you may get 80-85 cents on the dollar)!

Please be aware that your credit rating will decrease slightly with each application and you need good credit to qualify for these offers.  However, the opportunity to “make” as much as $1,500 for “free” is extremely exciting to me!  All of these cards waive annual fees for the first year.  At the end of a year, you can either drop the card (another small ding to your credit) or request to be transferred to a non-fee version (not available with the Marriott card, some American Express and most airline cards).  Often the issuer will either waive the fee or provide an inducement equal to the cost of the fee- your choice at that point.

Strategy Two: Maximizing Rebates

I have always liked the phrase from the old Dire Straits song, “Money for Nothing”.  For that reason, I charge every possible expense to get a rebate from the credit card company (except when I am charged a “convenience fee” to use my card).  I’m sure many of you do the same.  However, all rebates are not created equal.  For example, airline points are generally horrible (unless you are one of the three percent who uses their rebates for last-minute business class international travel).  One percent back is a bush league rebate.  I prefer cash or cash equivalents (points that can be turned into cash or gift cards at common retailers like Wal-Mart) that provide a minimum rebate of 2% (Fidelity American Express, no annual fee).  However, to maximize your “money for nothing” you have to use a couple of cards.  Chase’s Ink card gives you 3% back on gas, restaurants and home improvement store purchases.  The American Express Business Platinum card gives you 5% back on your cell phone bill, FedEx and at selected merchants.  The CostCo Amex (you need to be a CostCo member) gives you up to 4% (for the business version) back on gas purchases.  It does require a little juggling, but if you think before you swipe, you can get more than a little “money for nothing”.

Strategy Three: Gaming the Promotions

The credit card companies often try (and succeed) to manipulate your behavior be providing special deals like 5% off on a select type of purchase.  These are almost always not worth it- they tend to be limited to a certain spend per period and are really too complicated to keep track of.  However, sometimes you are presented with a lay-up that is too good to ignore.  For example, Discover (which I have had for years but don’t use except for promotional periods) offered me $1 back for the next 20 charges I make.  OK, not a huge amount of money, but easy to track.  Basically, every time I make a small purchase, I use my Discover card.  My effective rebate is about 20%.  Similarly, the Gap Visa I took out (but never use) offered a $20 “reward card” for making any purchase.  My point here is to take advantage of the offers, but don’t be so silly as to go crazy for an extra $3 per month.

Ground Rules

As I previously mentioned, every new credit card opened (or closed) has a small impact on your credit.  Generally speaking, I will consider dinging my credit for $100 in value.  However, in today’s environment I am holding out for $300.  You should have your own internal over/under as you evaluate offers.  This also holds true for stores that offer 10% off your purchase if you open a credit card.  Sure I want the 10% off, but I don’t want to ding my credit for a measly $15 bucks.

Remember, credit card issuers are out to screw you by every legal (and sometimes legally dubious) means possible.  Use their offers against them; take advantage of their promotions, but only on YOUR terms!

Smarter On-line Shopping

Hi and welcome!

I’ve always liked nice things, but never wanted to pay “asking price”. I quickly discovered that there are plenty of merchants willing to make a smaller profit and earn my business. The trick is finding the best deal where merchants want you to buy based on their advertising. No thank you! Well, I have been able to find “deals” for pretty much anything I need. I’m not talking about saving $0.50 cents on cereal- I actually don’t really get into coupons as the return on investment is typically pretty darn small (who wants to make the equivalent of $3/hour clipping coupons), so my efforts were focused on saving real money (or saving a little money everytime I buy a many times a year item, like gas).

I plan to share my tips in a series of posts. I hope you enjoy and save!

With the holiday shopping season officially open, I think it’s a good time to talk about how to shop on-line for less.

First, narrow in on what you want. For example, you may be looking for a computer generically or the Sony Vaio PCG-71314. If you are able to identify the exact model you want, go to a price comparison site like Nextag (www.nextag.com) or Price Grabber (www.pricegrabber.com) and enter the description. Ideally, you will have the UPC code, which is most precise. Often you will be able to compare the prices offered from multiple sellers (when comparing, make sure you take shipping and tax into account). Sometimes it’s as simple as the search and you have found your best seller. However, sometimes, when I am not so set on a specific product, I am able to use my target product to find a great seller and then see if that seller offers a better deal on a comparable product. You would be surprised how many times I’ve started looking for product A, and wound up buying product B (often a more featured product for less money)! If you are buying an electronic product, you may also want to check a consolidator such as ECost (www.ECost.com) for a similar but potentially cheaper product (this works best for “commodity” items like TV’s, monitors, Bluetooth headsets and the like).

That was a long “first”. Your second step is to go to Google and search for a merchant coupon (type, “merchant name” and “coupon code”). Many larger merchants have coupons that will save you anywhere from 10% to $25 on common transactions. Coupons are especially common with clothing, office supply and housewares. Often there are multiple coupon codes. Either write these down or open a new tab on your browser.

Your third step is, prior to making your purchase, to check with a rebate site such as Ebates (www.ebates.com) or Mr. Rebates (www.mrrebates.com) and see if your chosen retailer has an associated rebate. For example, if I want to buy the Vaio at Sony’s site, I could get a 4% rebate (off of the total transaction) at the Mr. Rebate site or 3% from Ebates. What you need to do is register with the rebate site sometimes you will get a sign-on bonus and then click on the merchant link to get your rebate.

Finally you are ready to buy! Click on the rebate site to get to your merchant. Put your product in the electronic shopping cart and look out for the box that says “Promotion Code” or “Coupon Code”. Enter your coupon code here. Sometimes a code may have expired, which is why you should check your list or toggle back to the other open tab. Pay. Congratulations, you have probably saved serious money over going to your favorite store or just buying from an ad!

Good luck and good shopping!