HelloMoney

Or should I say, an end-of-days fund. My husband believes an emergency fund means enough money completely liquid to live on for years after a nuclear bomb wipes out half the world. What he doesn’t realize is that his precious e-fund will merely be fancy wallpaper or firewood at that point. He reminds me of my grandmother who kept her money in a band-aid tin hidden in her headboard. At least she had the excuse that she lived through the great depression and understood the fickleness of the economy.

So what is his excuse? Well, he went through his own little great depression. After graduating college he tried to find a job during a slow job market and it took him years to get a college-level job. During the 2 years after he graduated he was without a job for long periods and experienced first hand the torture called “job search.” This torturous activity scarred him for life and now he is constantly afraid he will loose his job and never find another one, although he is very good at what he does.

While his fear is on the extreme side…It is not unfounded and can be somewhat useful during times like these. Because of his fear we have saved up enough money to pay for 100% of our expenses for 8 months if we both simultaneous and tragically lost our jobs. If only one of us lost our job, we could live for 20 months on the fund worst case scenario. So although I make fun of his dooms-day mentality toward finances, I must admit it makes me feel safe and worry-free to have an end-of-days fund.

Last year I used credit card points to pay for about half of our honeymoon flight. It saved us about $650. Not bad for doing basically nothing. This year, we would like to return to our honeymoon spot for our anniversary. The problem is, with gas prices up and food prices up our flight ticket price is up about $100 per person and our all inclusive hotel rate is up $350 per person, per week. So, we are looking to our credit card points to once again save on this trip.

I mainly use 2 rewards credit cards:

• 

  Citi Professional Card with Thank You Network.
  With this card I get 3 Thank you points per dollar at restaurants, gas stations, and office supply. Everywhere else I get 1 point per dollar. Zero annual fee.




• 

  American Express Business Rewards Gold Card.
  With this card I get 1 point per dollar. But there are other benefits to this card including travel options and higher point to reward conversion. Also, I don’t pay an annual fee on this card.

When it comes to travel rewards, the American Express wins hands down. Why? Well it actually requires slightly more points to buy the same flight through American Express than through Thank you Network. However, it is highly unlikely and close to impossible that we will accumulate the 300,000 some odd points to purchase our flight tickets. So, we will need to partially pay with points. This is where American Express is awesome.

Partially pay with points. American Express lets you use up your points and then pay for the rest with your American Express card. The amount you pay is pretty comparable to what you’ll find on the internet. So we can easily set a goal to pay for 1/2 with points and 1/2 with card that is paid in full at end of month. On the other hand, with Thank You Network, you must purchase Thank You points to fill the difference between what you have and what the flight costs in points. And these points aren’t cheap. So we would be paying much more than the face value of the tickets to purchase additional points required.

But you may be wondering about 3:1 ratio for restaurants, gas stations, and office supply with the Citi card. Since we already have a sizable balance of Thank You points we are going to use this ratio to our advantage. We will use the Citi card for purchases that fall into this category. In the end, we will use these points to partially pay for our hotel. But we will get around the partial point fiasco by using a Statement Credit. We will put the hotel room on this card, and use Thank You points to get a statement credit toward the hotel room. The statement credit is only a .07% reward, but with the 3:1 ratio, it works out in our favor.

By using these 2 cards to our advantage we are hoping to save about $850 on our trip.

If you aren’t interested in travel rewards, The Digerati Life has a great post on Cash Back Credit Cards

You can read the latest carnival of Personal Finance at No Debt Plan. My recent article on Buying Life Insurance is part of the carnival. Here are a few of my favorites from this weeks carnival:

• Squawkfox’s Printable Grocery List can help you save money at the grocery store.
• GenerationX Finance shows you in easy, visual format the benefits of diversification
• Greener Pastures tells you why you should pass on buying an extended warranty.

My husband and I recently purchased a new home with a bigger mortgage (more about that debacle later). With the new mortgage, if I got run over by a bus my husband would be stressed about paying the bills. Yes, I am the breadwinner, and it feels good. But the point is that for the first time, my income would be needed after my untimely death. So I went about researching Life Insurance and this is what I found.

First of all, who knew there was more than one type? In fact, there are all sorts of flavors of life insurance from your plain ole vanilla to your fancy pistachio.

• Temporary
  • Term Life Insurance. This kind is temporary and is the cheapest. You pay a premium, which may or may not fluctuate depending on the policy, and if you keel over before the ‘term’ of the policy, they pay your beneficiary the face value. So you can buy a 1 million policy for 30 years and you pay $X per month. If you die anytime within the 30 years, your beneficiary gets 1 million dollars. If you don’t die within the 30 years, you don’t get anything- but hey, you are alive!
• Permanent
  • Whole Life Insurance. With this kind, you pay a level premium but your money goes into an account that creates an actual cash value for you. This account grows at a rate set by the insurance company, which is sometimes not a competitive savings rate. After years of paying, this cash value can be accessed by means of a loan. At the time of death, whenever that is, the death benefit is paid but this cash value is not paid. Whole life is more expensive at first, but can level out over the years.
  • Universal Life Insurance. This one is similar to Whole Life, but the savings rates can be higher (they follow the market) and the premiums are flexible. Once the cash value reaches a set point, you can stop paying the premiums. However, because this one is more flexible and interest rates follow the market, if interest rates are low, you could end up having to fork over extra money in premiums just to keep the policy.
  • Variable Universal Life Insurance. Similar to Universal but the cash account is held in a separate account that can be invested in mutual funds and is managed by a fund manager.
  • Endowments. This kind is much more expensive. These are paid out rather you live or die after a set number of years or a set age.
• Accidental Death Insurance. These are the cheapest because they very rarely pay out any benefit. As you can guess, you only get paid if you die from an accident or injury (not an illness). You can also get accidental death insurance as a rider to your regular life insurance and it generally doubles the payout if you die from a freak accident (ie. entire cast of final destination).

So which one is best? Well, I recently had a ‘financial advisor,’ that my mom swore was legit, attempt to convince me that a variable universal policy was just perfect for me. Once I researched it, I found that it was actually me buying the policy that was just perfect for HIM. Why? Because they make huge commissions off of these sort of policies. So they will try to sell it regardless of your situation.

Here is why. Your totally unbiased ‘advisor’ is making 75-100% commission off your permanent insurance premium the first year, then about 5% for each additional year you pay. Sounds like a sweet job, right? Well, when they sell you term insurance, they only make about 30% off your first year then about 4% a year for your term. So if we do the math, on a 1 million policy, thats the difference between about $5,000 for permanent and $1,000 for term. They sell these hard because for the same time/work they make about an additional $4,000 per million dollar policy (that’s a 500% gain).

I decided to go with the term policy. From all the research I have found (from people NOT invested in the sale of such policies) it is generally best to keep your insurance and your investments separate.

You see, if you take care of your finances (pay down debt, increase savings) then you really won’t need a life insurance policy in the latter part of your life. By only getting a term policy for the duration of my mortgage at a MUCH cheaper price (mine was 4% the cost of permanent), I am able to save the difference into my retirement and general savings accounts. Here, I make a higher return and I pay less in fees. Once my mortgage is paid for, my term policy will be over and if I die at that point my husband will have nothing to worry about. Our mortgage will be paid off, our debt will be paid off, and he will have a nice savings to cover any expenses, you know- like mummifying and gold-leafing my corpse.

Never upgrade your home beyond the level of your neighborhood. I found this one out the hard way earlier in the year. We used to live in a small condo/townhouse that was in college-dorm shape when we bought it. It was in a great neighborhood and perfect location. However, It had never been upgraded since it was built in the early 1980s. White walls, cheapest fixtures, cheapest floors– basically everything was cheap and plain. So, of course we wanted to renovate and upgrade our home to meet our very discerning standards.

We put down beautifully engineered mahogany wood floors over the cheapest ceramic tile Home Depot offers. We painted every room to a more elegant, white-truffle hue. We replaced the plywood staircase-o-death with a fine new cypress staircase. We put down tall, regal baseboards and crown molding. We changed every light fixture we could get our hands on. And of course the horror of a project my husband will never let me forget– the kitchen. I thought new cabinets and granite countertops would be simple, boy was I wrong. Around the time we discovered the electrical ran through the fur-down of the cabinets, I thought my head would be spiked on a curtain rod outside our condo as a warning to other over-ambitious renovators.

Granted, we did everything DIY and spent a fraction of what you would expect all of this to cost, largely due to my helpful and handy in-laws. We thought we were doing great. In the end, it looked beautiful, we were proud, and it certainly made it easier on the eyes while we lived there. But eventually we outgrew the 795 sqft. and wanted a back yard for the doggie.

The day after I put it up for sale on the internet I had someone come look at it and immediately put in an offer very close to my asking price. Woo-hoo, we are awesome, I thought. I had several other people come look at the condo during escrow or comment from the online ad and all said how beautiful and home-y it looked.

Then, the mean-ole appraiser came into the story. God, how I hated him. He appraised the house at over twenty thousand LESS than the offer price. I cried, I begged, and I pleaded with him. It was not pretty, trust me. The problem was that we were the only people in our complex who upgraded, so our home was well beyond the rest of the “neighborhood” and therefore just couldn’t appraise for what my beautiful baby truly deserved. In the end, we had to bite the bullet and take the cut (it was very complicated and I will spare you the details, for now). It did teach me a valuable lesson, and so far I have only put the $20 it cost me to buy new cabinet knobs into this house. This time I will wait for the neighbors to start their improvements before I start mine.

The Federal Reserve has proposed new rules that would actually help the consumer (you!) in getting out of credit card debt. You have until August 4th (next Monday) to submit your public comment on the proposal and hope to sway the decision of the all powerful Federal Reserve. Word is, they will decide on the proposal by the end of the year.

A brief overview of the proposed rules:

• Credit card companies couldn’t increase your rate on the balance you already have and they must allow you “reasonable” time to pay off the balance.
• They couldn’t apply your extra payments only toward your balance with the lowest interest (I HATE the way they do that!) This one would help out everyone who has special low interest rates on part of your balance.
• They couldn’t use the “two-cycle” method, which basically charges you interest on what you have already paid off. (Read How Two-Cycle Billing Works)
• They need to give you a reasonable amount of time to make your payments. My husband had an evil Citi Personal Loan that would continually send him the payment stub on the 2nd or 3rd of the month when it was due on the 5th… AND you couldn’t make online payments… AND pay by phone was an extra $5…. AND if you didn’t use their exact payment stub your payment would get lost in their system, trust me, we tried.

In addition to the Federal Reserve proposal, several legislatures are trying to take a stand against the credit card companies with bills that help the consumer. Rep. Carolyn Maloney of New York has created the Credit Cardholder’s Bill of Rights. Some of the items in the Bill of Rights resemble the proposal, and then takes it a bit farther to give the consumer more power. Sen. Christoper Dodd of Connecticut also has legislation that follows the proposal and adds a few more rules, like not allowing them to charge a fee to pay over the phone (hint - Citi).

Overall I think it is good that the economic turbulence has at least shined a spot light on some of the poor practices of credit card companies and mortgage companies. Maybe this unfortunate down turn will outcome in greater consumer rights and power. Power to the people, and stuff like that…

To read about the Federal Reserver proposal: Fed. Reserve Proposal
To submit a comment about the proposal: Comment on Proposal
To read about Rep. Maloney’s Bill of Rights: Credit Cardholder’s Bill of Rights
To read about Sen. Dodd’s Legislaton: Sen. Dodd’s Credit Card Reform

Mint.com is a website that allows you to track your financial accounts online. In order to use Mint you have to enter in your log in information for financial accounts (banks, credit cards, loans) into the website. There is some controversy about wether sharing your login passwords and security questions is a good idea or not. Of course, if the site was hacked, everyone using it would be in trouble. However, the same is true for any other website you shop with online. Getting past the worst-case-scenarios of identity theft, lets look at the site for it’s features.

Features I like:
• The design is great, I’m a sucker for all things slick and ajaxian.
• Trending. I like the ability to view pretty pie charts of where all my money is going. You can also easily set sliding date ranges for the pie charts.

• Budgets. You can set budgets for categories then the software auto-categorizes to tell you if you are over-spending on categories. Of course it shows you that you spent entirely too much on donuts last month in a pretty bar graph that is oh-so-slick and dynamic.
• Alerts. You can set up alerts that can send to you an email or text message to your phone when an account hits a set low, or when your bills are late, even if your interest rate changes.

The problem with Mint.com is that there is another site (the behind-the-scenes code for Mint) called Yodlee that is much more robust. Mint only has a limited number of financial institutes linked in and doesn’t have all my financial accounts available, whereas Yodlee has every single one. Yodlee lets me track and trend things with more accuracy and options. For all Mint’s slickness, it is a pain in the ass to edit a transaction’s category. And creating category rules that actually work, is also more cumbersome in Mint. Now, Yodlee can’t compete with Mint as far as design- the site is new and on the cutting edge of web apps. But when it comes down to my finances, I don’t want pretty. I want fast, usable, and robust querying of my data. So I’m sorry Mint, but your cute-as-a-button design just doesn’t make up for the features your big brother Yodlee offers.

Rating:

One financial blunder I will never live down is opening a stupid bebe store credit card. They make it so enticing…you are about to check out, thinking about how much this will all cost, and they offer an oh-so convenient way to save 15% (or maybe it’s 10% or 20% depending on the store). I made this egregious mistake while I was in college and had no right to be spending $100 on a single piece of clothing at bebe! What you don’t think about when offered this one time discount is the interest rates this new card will now tax you with. You also don’t think about how much more money you will spend with the store simply because you have a branded card for the store.

Ever wonder why the stores offer you these cards? Retail stores aren’t in the banking business. They want loyal customers who come back time and time again to their store. Research has shown that if a customer owns a store branded card, they are more likely to return and to spend more at the store. Anecdotally speaking, this has been true for me. I got a Victoria’s Secret card, now I buy things from them JUST because I have a coupon if I spend $50 or because I get a cute tote bag with…the Victoria’s Secret logo plastered all over (great, now I’m their walking billboard).

But let’s get back to the bebe card. I opened the card while I was purchasing a skirt and a pair of earrings. The skirt was expensive but the earrings were on sale and only $8. So with my 10-20% discount I might have saved $10 that day. After I got home and tried on the skirt with my shirts, I realized I didn’t like it so I returned it. I was new to credit cards at the time, and I didn’t understand how returns worked on the credit card. So I get a bill for maybe $108. I call the phone number on the bill to ask about what to do since I returned the skirt and the bill should only be about $8. They told me they would send me another bill right away. Stupid me, I don’t know why I didn’t just pay the minimum payment (more than the cost of the earrings) and be done with it. Instead I let it linger, waiting for an updated bill, the skirt didn’t get removed, so on and so forth… (plus I was bad at checking the mail at this time, so let’s be clear- this was MY money mistake and not bebe’s). In the end they sent it to the credit bureau. After the dust settled they did remove the skirt from the bill, but only AFTER my credit score was dinged! I will forever refer to this pair of earrings as my $500 earrings because god know how much they actually cost me when you consider all the problems it caused. And all for a $10 discount!

The moral of this mistake: THINK before all your financial decisions, even the small ones can turn into giant hair-balls if you don’t use your brain.

Credit card companies are already raping you with interest rates. Why oh why would anyone want to say, “Here credit card company please take $X per year from me because I am a sucker. Thank you.”

Now, I have to admit that I am a credit card point whore…I’ll do anything for those little points, don’t test me. So I signed up for 2 American Express cards that had annuals fees just to get the points. However, they waived the fee the first year. So I diligently counted my months and right before time I called them and cancelled one and got them to remove the fee on the other.

Lately, American Express has been sending me letters every week about how I am “invited” (don’t you love the terminology) to fork over $400 of my hard earned money every year for a super-shiny, ultra-exclusive platinum card. I get a good laugh at how they try to market these to customers by making you feel oh-so-special and playing to our natural desire to be better than those average folks with average credit cards. Then I swiftly throw the letter into the trash.

A few weeks ago my mom tells me she got a posh new card that has so many benefits. Of course, my poor mom fell for their gimmick. She’s only human and was particularly enticed by the offer that you get one free plane ticket with every ticket you purchase on the card. Oh, and did I mention you get to go into the airport lounge? Once again, pandering to our desire to feel special. I told her this was a bad idea, but she didn’t believe me. She said she would call me from the fancy-pants lounge with her mimosa in hand to tell me how absolutely fabulous it is. She was happy with her decision, until she found the catch.

Her platinum card didn’t get her a free ticket with every run-of-the-mill ticket she purchased, nope. She had to purchase a business class ticket to get the free one. And since business class is well over double the price of low-life-coach, this is really not a deal at all.

BTW- My mom isn’t the only one who fell for this, apparently Tina Fey did as well.

In this series of posts, we will poke fun of and laugh at our mistakes. We all have made money mistakes some time in our lives, and I find having a hearty laugh at our embarrassing oopsies can help us avoid them in the future. Feel free to share your own money mistakes through the series- your personal financial blunder may help others…that is after their judgmental laughter subsides.

“Don’t ever make the same mistake twice, unless it pays.”
-Mae West