Finance and Fat

*update* I think I left the door a bit too wide open for me on this issue. I just needed to remind myself why I don’t want another credit card.  The question is still a good one to ask, but I finally know that the answer is no for me.

My article on taking a look back at our first cash only Christmas was included in this week’s Carnival of Personal Finance, hosted by We’re In Debt (great site by the way, I recommend subscribing if you don’t already). The ‘King of Debt‘ at We’re in Debt made an interesting comment on my article-

I would argue that they could have earned rewards using their credit cards, but cash only is just that, cash only with no possibility of spending more.

I don’t disagree with the comment but part of my get-out-of-debt plan is cutting up my credit cards and closing accounts as I pay them off so going out and getting a rewards credit card isn’t an option for me right now.

This topic really just brings us back to the old argument of what we are doing with PERSONAL finance and why we have to consider the emotional and non-mathematical parts of the equation. Looking strictly at the numbers, yes, you would be better off spending your money on a rewards credit card and paying off the balance early each month (never carrying a balance). That is true IF you have the discipline to pay off the balance on time AND the discipline to not spend more money because you are using your rewards credit card. Can you honestly say you are never tempted by your rewards points to buy a little more than you had planned before? Maybe you aren’t and if so, you are the person that should be using this strategy. If I am honest with myself, I know that I would be tempted to spend more money in order to earn the rewards. If I spend less money using cash (and debit cards) then that is how I need to pay for things until I develop better discipline with my spending.

Taking control of your personal finances really requires a focus on the human and emotional aspect of your money (we are starting with the assumption that your finances got out of control like mine). I can’t just look at the numbers, do a little math, and suddenly be out of debt. That is part of the process, but I have to understand what got me here. Honestly, I think I’m a shopaholic. I thought that seemed crazy at first, but after reading this great article by J.D. at Get Rich Slowly, I really think that is me. Like most men, I don’t get any joy out of going to the mall or shopping anywhere in general, but if I sit down at my laptop with a cup of coffee and visit Amazon.com, I could easily spend and spend some more without thinking about it. In fact, I did just that when I got my Amazon.com rewards credit card! Oh how I loved racking up those Amazon points- well, guess what? I couldn’t use that card wisely and it only took a few months for me to max it out. Is that stupid? Absolutely that is stupid. I am not trying to suggest that a rewards credit card is evil, but in the wrong hands it certainly is. No offense to anyone who has struggled with alcohol, but this is much the same situation- the bottle of beer in itself is not evil, but in the wrong hands it can do great damage.

I am not trying to argue with the comment regarding the benefits of rewards credit cards. If I didn’t make it clear, I absolutely agree with that opinion. However, I want to stress the fact that this strategy is not for everyone. You need to know yourself, be honest with yourself, and do what works for you to save money and take control of your finances. I am not saying that I will never use a rewards credit card. I may get to the point where I can have the discipline to use it as a personal finance tool and actually earn money with it, but I’m not there now. I actually admire the people who are able to do this- they must truly be wise and disciplined. Frankly, I love seeing people ’stick it’ to the credit card companies and earn money using the very same piece of plastic that is the downfall of so many others and costs most people thousands of dollars a year in interest charges. I can’t argue with the math, I just know I can’t trust myself in that area yet.

I guess I didn’t really know how it would go, but this Christmas came and went just as quickly as the others before it. However, the big difference this year is that Christmas won’t be lingering in the form of credit card debt or budget regret. I can’t even begin to express how good that feels!

We didn’t plan all year long and we didn’t start saving last Christmas, but we did sit down in November and make a plan for Christmas- and we stuck to that plan. We took a portion of the money that would have gone toward extra debt payments in December and budgeted $800 for Christmas. That included gifts for everyone on our list, cost of food for hosting Christmas dinner at our house, and a little extra padding for unexpected expenses. I am happy to report that we came in under budget, by about $90.

This is the first Christmas I can remember that we didn’t use a credit card and didn’t over spend. Working with a budget for every person on our list was quite liberating. It made it easy to decide what to buy for someone- if we planned to only spend $25 on someone we wanted to make sure we got the best value we could for the money.

What to do if you took on debt to pay for Christmas this year:

If you had to use credit cards to pay for Christmas this year, don’t beat yourself up over it now. Recognize the mistakes you made and take action TODAY to prepare for next Christmas and to be ready to handle it with cash. If you don’t have one yet, open a savings account for Christmas. Call it your ‘Christmas Fund‘ and only use the money for Christmas. Decide now how much you need to spend for next Christmas and divide that total by 11 or 12 (decide if you want to count this month or start in January or whatever). The best advice is to set up an automatic transfer each month for your monthly Christmas Fund contribution so that you won’t even have to think about it. Personally, I don’t like to set up automatic payments or transfers for non-essentials so I will manually move the money each month- decide what works for you here and what you can safely commit to doing.

An example- I opened our Christmas Fund yesterday (with ING Direct) and funded it with $50. I chose $50 because I always start my new ING savings accounts with $50 (no particular reason for that). We have decided to budget $1,000 for next Christmas, which leaves $950 to save from January through November (11 months = $86.36 per month). That’s it! Next Christmas is taken care of! Of course I need to make that transfer a part of my monthly budget, but we can afford it so that won’t be a problem. So whatever your budget may be for next Christmas, decide it now, plan for it now, and get started TODAY! I promise you won’t regret it.

Remember, by preparing for next Christmas now, not only are you taking control of your money and making it work for you, but you are reversing the damaging effects of interest that you would be paying to a credit card company and actually earning interest all year long on your savings account. Compound interest working against you is the enemy of financial freedom and wealth. Compound interest working for you is your greatest ally in changing your financial future and becoming wealthy. This distinction is probably the greatest difference between the poor and the wealthy- don’t let this be another year that you move in the wrong direction.

Best of luck and Merry (cash) Christmas! 

I posted a while back about the My Mile Marker website. It’s a simple online application for tracking fuel efficiency and fuel costs. Today, Clever Dude wrote an interesting article about the rising costs of fuel and that made me think this is a good time to review my history. After tracking my fuel costs for almost two months I have a decent amount of data to review.

My first recorded fill-up was on September 28, 2007 and I paid only $2.519 per gallon. My most recent fill-up was today, November 16, 2007 and I paid $2.939 per gallon. I don’t always use the same station, but I do always make an effort to go where the prices are on the lower end. That is a 16.7% increase in less than two months. If only my salary increased at such a rate!

So now the good news. My fuel efficiency has also increased, starting at 28.86 miles per gallon and hitting 29.97 miles per gallon on my last fill-up. That’s an increase of 3.8%, sadly not keeping up with the rise in prices. I’m not sure what I’m doing differently to increase my efficiency, but maybe just having this extra awareness in the back of my mind helps me to drive a little more efficiently. Now that I’m so close to 30 miles per gallon I want to see if I can break it!

You don’t need to use MyMileMarker.com to track your fuel efficiency, it’s just an easy to use tool and I like it very much so far. I’m on the Internet all the time so it’s not really any extra effort for me. I make sure to get a receipt when I buy gas and I write my odometer reading on the receipt and enter the information later on the website when it’s convenient. Whatever you do, I do think this is valuable data to have and if you see a drop in your mileage you can do something about it right away.

This isn’t an attempt to whine about fuel prices, I generally don’t give them much thought because I have to get to work so I have to pay the going rate. However, it is good to look back and see the trends and know where you stand. I just hope prices start to trend back down soon so we have a little more spending money for the holidays.

As I wrote previously, we recently made plans to purchase a new MacBook for my wife. After much consideration and planning, we made the trip to the Apple store and came home with a shiny, new laptop. This plan generated some good reader comments, both on the aforementioned post and on the post I wrote recently asking, when is it okay to spend money.

I received some support for the purchase and some advice to not go through with it. I think we made a frugal purchase, though I will say it was probably borderline frugal. We could have bought a comparable Windows based laptop for less money, but we really don’t want any more Windows computers and we are already thrilled with the new Mac operating system (Leopard). We also waited for the MacBook hardware upgrades to go through, which happened about a week ago, so we got even more for our money.

Here are the details of the transaction. The retail price for the model we chose is $1,299. However, I work at a University and I saved $100 with my education discount. (Savings -$100)

We added a DVI to VGA adapter for $19, though we noticed that we did not get the education rate of $17 I had seen on the Apple store the day before (I didn’t notice or bring it up as we were paying). (Savings +$2)

Now for an unplanned part of the purchase, it turns out that Apple is offering a $100 rebate when you buy a computer and a printer, conveniently priced at $99.95. We went for that deal since our office printer has been running rather poorly for a while now. That was $100 more than we had planned to spend, yet if I assume we actually get the rebate (I already have it in an envelope ready for the mail) we are really only out the extra sales tax on the printer’s portion of the total. (Savings +$6.10 extra sales tax)

We went to the Apple store outside of the city sales tax area (8.1%), and only had to pay the county tax rate of 6.1%. On a side note, it’s rather sad that the rich part of town has a lower tax rate than the rest of the city, but we used it to our advantage. (Savings -$26.36)

I used my PayPal debit card with 1% cash back bonus to save an extra $13.98 on the final purchase price of $1,398.34. Hopefully we will receive our $100 rebate in 4 - 6 weeks without any problems. The printer is probably the worst part of the deal, but if we actually get the rebate it will turn out to be a good price for what seems to be a good printer (so far).

It is also worth noting that I was ready with an answer of ‘no’ for all of the extras the Apple salesperson was trying to get us to buy. She actually seemed visibly upset that I didn’t want Apple Care or want to pay for some service that would make me ‘first in line’ for the ‘genius bar’. I guess they must get nice commissions on those services, but they should really focus on being more helpful and friendly.

I budgeted $1,400 this month for the MacBook so we managed to stay just below that even with the extra cost of the printer. If the rebate works out as planned, we saved a total of $132.24 for our efforts.

So that’s it. That is our frugal (or extravagant) purchase for the month. I think we got a great quality computer, one that we really wanted and really enjoy. It’s a solid piece of hardware that if we take good care of will give us many years of great service. My wife is already letting her creativity run wild with the incredible software Apple includes for free and I think this is going to be a tremendous help to her at work (she’s a middle school teacher) and it will give her a great deal more flexibility to do her job (lots of grading and planning that she has to do at home).

The frugal/cheap/quality debate will continue- I think we made a wise purchase. What do you think?

Since the topic of cash back debit cards came up with the recent ING Direct 1% cash back offer (temporary promotion), I thought it was a good time to talk about how I am using my PayPal debit card to earn 1% cash back on my purchases all of the time.

I have had this PayPal account for a number of years, but rarely used it for everyday purchases. Last month it occurred to me that I could start transferring my spending money there as a way to help budget my spending (similar to the envelope system) and earn the 1% cash back bonus.

Not only do you earn cash back on purchases, but the money sitting in your PayPal account earns interest too (currently 4.88%). It is free to transfer money to and from your checking account, but it does take 3-4 business days so always give yourself plenty of time. You can make instant transfers, but I believe you can only do so with a fee.

For part of the month of October (only about two weeks of the month), I earned $5.35 cash back on this card. That isn’t a lot of money, but if you think about the interest you earn on regular checking and savings accounts, it’s a pretty good return on your dollars (it certainly blows away the interest earned on my small emergency fund). I put this money in my passive income fund, a category I am always looking for ways to grow, so I am working hard to try to maximize the bonus.

My plan for November is to use it a lot more and I will pay all of the bills I can with it, such as utilities and any other merchants who will accept it. I think I’ll earn quite a bit more this month and I will share the details next month. It takes some planning to get this done right because of the delay in transferring money so I started by looking at the money I would need to spend for the first two weeks of the month and made that transfer as early as I could.

Risk: Here is the biggest caveat, PayPal accounts are not FDIC insured! If PayPal fails and I lose my capital, all of this effort will be for nothing. For that reason, I don’t keep a lot of money in the account- only what I expect to need to spend for the month on things I can buy with a debit card. That being said, the fact that Ebay owns PayPal and PayPal is used all over the Internet for processing payments takes away most of my fear that it will go out of business.

I know there are better deals out there on rewards credit cards, but if you don’t want to use credit cards, this 1% deal is quite nice. Like any debit card, you can use it anywhere that takes credit. The cash back appears instantly on your account with each transaction that clears.

If you want to sign up and don’t yet have a PayPal account, you can use the link below to check it out. This is an affiliate link and I will get a bonus for new accounts. I didn’t write this post to try to earn a bonus, I only figured that since I’ve given PayPal this free promotion the least they could do is send me a little money.