Category Archives: credit cards

Just-Cash June: Final Thoughts

June is over and I’ve removed the tape from inside my wallet. My credit and debit cards are free! Let’s take a look at how my household spending changed this month compared to an average taken over the past year:

Total spending down 22%. We invested the difference towards retirement. If we’re able to permanently keep up this savings level, I could retire 7 years sooner! Think about that for a minute…

Spending in “Auto” and “Entertainment” were cut in half. When’s the last time you paid for gas with cash? It’s a pain in the ass! And I remember turning down those extra drinks at the bar, since I never had an open tab. Amazingly, I got everywhere I needed to go this month, and felt as entertained as always.

Spending in “Personal Care” and “Shopping” categories down 75%. I guess the added hassle of paying with cash and tracking my purchases was enough to get me to stop buying shampoo and other non-essentials.

[A few notes on the results: I deferred a couple expenses that couldn’t be made with cash (e.g. new tabs for the scooter), so my spending for the month should be a tiny bit higher. Also, I paid no yearly bills this month (e.g. auto insurance), which makes this a relatively inexpensive month.]

I must admit I cheated a couple more times towards the end of the month: once to pitch in towards a class gift for my son’s teacher (money was being collected online), and once to have some books shipped to the boys at summer camp.

This exercise was eye-opening for me as it reaffirmed my belief that money is actually intangible and the paper or plastic we throw around are just abstractions of the concept of “money.”

The paper abstraction (dollar bills) are simply wired into our brains at a lower level than credit or debit cards, so it’s easer to remember what you’re trading away when you spend paper money. This concept is why casinos use chips for gambling. Chips are even more abstract than bills or cards, which makes people more likely to spend a lot of money at the casino. Imagine if you had to gamble with cash at the roulette wheel? That’s pretty much what I did all last month.

From now on, the trick will be keeping this mindset of being at one with my money, but adding the various convenient payment forms back into the mix. Let’s see how it goes!

A final thought: By not using credit cards, I kept about $60 in the local economy that otherwise would have gone to credit card companies in the form of transaction fees. Money-savvy people often like to boast about how they’re not helping the big banks get rich, but if you’re using a credit card, you’re syphoning profits off the stores you patronize, and moving that money to the banks’ bottom line.

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An inside look into your credit score

I did the yearly (or whenever) shopping around for cheaper insurance, and found that I was overpaying for renter’s insurance, so I switched from PEMCO to American Family. I was getting frustrated with PEMCO’s customer service at any rate.

When I got my new insurance policy, it came with a credit notice (which apparently is the law now) stating how my credit impacted my insurance premium. The interesting part is that it itemized some of my personal credit criteria, and told me the optimal values for these criteria (according to Transunion, at least).

Since I’m a nice guy, you can now see how to optimize your credit score without the hassle of changing insurance policies.  I’ll also give you some hints on improving your credit:

  • Your oldest revolving account (i.e. credit card) should be 18 years old! Mine is only 10 years old. It’s important to hold on to your oldest credit card. If your oldest card charges a yearly fee, switch cards now so that you can get a new “oldest” card asap.
  • Your most recent credit application should be over two years ago. Mine was 7 months ago, but well worth the temporary ding to my credit. However, if you plan on getting a loan, do not apply for any credit cards for 2 years prior!
  • This one is the most fascinating: A quarter to a half of your credit accounts should have a balance greater than 50% of their credit limit. Only 15% of my accounts had such a balance, which I consider a good thing.

It’s interesting that you’re penalized for keeping your balances low. I guess the credit agencies want to see that you can leverage your credit but still make your monthly payments.

All this was just a long way of reminding you to shop around for insurance from time to time. My next post will explain how to do that.

Just-Cash June

Want to join me on a little experiment I’m trying next month? I’m going to only spend cash in the month of June. It’s called “Just-Cash June” (unless someone can think of a better name).

Everyone who participates is allowed one non-cash expenditure. I’m not sure what mine will be yet. For many, I assume it will be rent, but I pay my landord via popmoney so I can save mine for something else.

I figured I’d give everyone advance notice so you can get to a cash machine in time.

FAQ

What are the rules?
If you choose to accept, you can spend only cash from June 1 to July 1. Everyone gets ONE get-out-of-jail-free card, where you can use any payment method you want. Optionally, blog or tweet about your experiences. Did your spending habits change? Was it freeing or annoying? Let me know in a comment below if you’re joining the experiment.

Why are you doing this?
I’ve experimented with Credit Card vs Debit Card spending, and found that I spend less when I use a Debit Card for everyday spending. So I want to continue the experiment to see if I’ll spend even less if I have to physically hand someone cash to make a purchase. I’m still a big fan of credit cards, especially sign-up bonuses, but I’m also a fan of spending less and conscious spending.

What about online purchases?
Unless you can figure out how to pay e-merchants with cash, you have to shop online now or wait till July. Humans somehow survived for 10,000 years without online shopping, so I think we can do another month.

What about bills?
Most bills have an auto-pay feature, which I highly suggest you sign up for anyway. It deducts the amount due from your checking account each month, so you never need to remember to pay bills any more. This is one step to “automating” your finances.*

How will you track your spending for June?
I’ll use Mint’s mobile app, which integrates with their website and lets you add cash purchases. You could use a piece of paper in your pocket if you want to go low-tech.

* The other main step is automatic savings plans such as having your 401k deducted from your paycheck, or setting up a monthly transfer from checking to savings. Set these things up too and you’ll be well on your way to automated, worry-free finances.

It never hurts to ask

I love asking for things because it never hurts to ask. As long as you’re polite, reasonable, and ethical, there’s no reason not to ask for what you want.

Lowering prices: I recently called my auto insurance company (Pemco) and asked them to lower my premium. They said no but it didn’t hurt. On the other hand, I asked my credit card company to remove my yearly fee and they said yes. The 5 minute call saved me $70.

Improving your credit score: Since having higher credit limits helps your credit score, it never hurts to call your credit card companies every year and ask them to raise your credit limits.¹ Say “I’ve been a loyal customer for X years and always paid off my balance in full. I’m planning on making some purchases in the near future. Can I have my credit limit raised to…?” Also ask if they’ll bypass the credit check, since that temporarily hurts your score.

Other requests: I emailed my Congressman to see if he’d fly a flag over the Capitol in honor of my Grandpa (a World War II veteran) and Venessa’s Grandma. It took a while to get a reply, but his staffer obliged and also offered to send me the flag for a reasonable price. Whenever I buy something on craigslist I ask if the seller is willing to deliver it to me, or at least meet me somewhere convenient. Failing that, I ask for a small reduction on the price.

On being asked: When it comes to the kids, I try to start answers with “No” as infrequently as possible. But when they make an especially outrageous demand, I’ll say, “No, but it didn’t hurt to ask.” I wonder if my folks said the same thing to me?²

I have a feeling that most children are reprimanded when they ask unreasonable questions, so by the time they’re adults they’re literally afraid to ask. It’s a shame, because that same part of the brain is also what drives curiosity. We should praise our children for asking all sorts of questions, everything from “Why is this the way it is?” to “Can I have …?”  It’s the latter type of question, when combined with a good work ethic, that leads to new inventions and discoveries:

Q: Can I have an iPod?

A: Yes. How do you plan to save up for it?

or

Q: Can I have an iPod that also plays 3D movies?

A: Yes but you’ll have to invent it first!

¹ Do not do this if you abuse credit cards. This is for people who pay in full each month and generally have their financial house in order.
² I definitely remember my parents doing this: if they bought something at the store and then saw it went on sale soon after, they’d bring the item back, along with their receipt and ask for the difference in cash. It must have worked or they wouldn’t have done it all the time.

Bank Transfer Day: politics aside, it just makes sense

November 5th is Bank Transfer Day, when everyone who keeps their money in big, for-profit banks is supposed to close their accounts and move them to a not-for-profit credit union (CU). This is different than the run on banks that preceded the Great Depression, since nobody is recommending you put your cash under a mattress. Instead, you’re moving it from one type financial institution to another.

I’m not a huge fan of the Guy Fawkes stuff (the guy was sort of a terrorist), but this event simply makes financial sense, politics aside. Since executives at Credit Unions aren’t making big bucks like their colleagues in the for-profit banks, they’re able to offer lower rates on loans, higher rates on savings accounts, and other perks, such as reimbursing you for other banks’ ATM fees. In short, their business model isn’t built around squeezing every last penny out of you, because credit unions don’t answer to Wall Street.

My biggest gripe with CU’s used to be lack of ATMs, but if you bank with a CU that belongs to the co-op network, you have almost 30,000 ATMs to choose from.

I recommend a slow approach to changing banks. It takes a month, but if you forget about any auto-pay stuff being deducted from your old account, it won’t bounce.

Here’s how to make the switch:

  1. Find a credit union near you and open an account there. Deposit a good part of your money at the CU, but not all. The amounts are up to you.
  2. Cancel all automatic withdrawals & deposits from your old bank and move them to the new bank. (This is the most time-consuming step)
  3. Wait a month, and check your old bank account to see if any auto-pay deductions occurred.
  4. Transfer the rest of your money out of your old account and close it.
Anyone planning to (or recently did) a bank transfer? I was lucky enough to start out at a credit union, though I did have the experience of switching from one credit union to another (FirstTech to BECU). It was mostly painless.

How we got paid $200 to fly to San Francisco

This week, Venessa and I are taking a short trip to San Francisco. We don’t travel often, especially not by air. It’s bad for the environment, I don’t like what the government has done to our freedoms, and there are so many places in the Pacific Northwest that I haven’t explored yet, it seems like a shame to go somewhere else.

Largest caggage at the local fair

But every once in a while we get a travel bug that can’t be satiated by our environs. This one was prompted by some junk mail I got a few months ago. It was one of those frequent flyer credit cards offering a 50,000 point signup bonus. Equivalent to two free flights, they said.

A side note on credit cards: I have 2 rewards cards (REI and Amazon) and a Schwab cash-back card that just got bought out by Bank of America so I’m going to cancel it. Trent from The Simple Dollar has two good rules governing rewards cards:

1. It doesn’t matter what rewards card you have if you’re carrying a balance. If you won’t be able to pay your balance in full every month, cut up that card.
2. The best rewards program is the one that most closely matches what you buy and where you buy it.

Since I don’t buy airplane tickets very often, why’d I sign up for this card? Here’s the story:

I looked at the airline’s website and saw how many “points” out of my signup bonus a trip for 2 to San Francisco would cost. Then I looked at the same trip in dollars. It was $600, more than twice as much as the cheapest flight to San Francisco from Seattle, offered by Virgin America.

So here’s what I did. I signed up for the card anyway, and got the 50,000 points. Then I went over to the “other ways to redeem your points” section of the website, and spent all the points on $500 worth of Amazon.com gift cards. (I can’t believe they let you do this.) Amazon is a big enough website that their gift cards are extremely liquid, and we use it frequently enough that the cards about have the same value as cash for us anyway.

We booked the Virgin America flight for $300, and pocketed the $200 difference to use as spending money on the trip. After the gift cards came, I called the credit card company and canceled the credit card. I’m sure my credit score took a hit for this, but I don’t plan on borrowing money any time soon (if ever), so it’s not a problem. I even got the yearly card fee refunded since I had the card for such a short time. Never hurts to ask.

I might take a break from posting here since I’m not taking a laptop on the trip. See ya!