Budget Freak

If you missed the first post on making money from 0% balance transfers, please see my Introduction to Credit Card Arbitrage for a little background.

Once your ready to try making money with 0% balance transfers, you need to select a card. Luckily, there’s a wonderful personal finance community out there that has done all the work for you. My Money Blog has the Best Pre Screened 0% Offers, Five Cent Nickel keeps an updated 0% balance transfer list, and Blueprint has a nice list of 0% balance transfer cards.

When you’re searching, it’s important to look at the interest rate (obviously) and the length of the 0%, but also to look at any associated fees. Almost all cards will charge you a balance transfer fee, usually around 3%, usually with a maximum amount of $250. A few cards (the cards you should be using for this process) will waive the balance transfer fee when you initially sign up. Some offers say you need to specify a balance transfer during the applicaton, and some offers will give you up to a month (or longer) to use the free balance transfer. It’s important to read the fine print! Sometimes it could be worth paying a small fee if you can borrow a large amount, but with all the offers out there, it shouldn’t be hard to find one that offers no fee. Annual fees can also cut into profits. Again, it might be worth the fee if the card has a high balance, and some cards even waive fees for the first year, but with all the options out there, this doesn’t seem worth it to me.

After perusing through the lists, a couple companies stick out. Discover and Citi seem to be at the top of every list. Since I already have a Discover Card, I decided to try a Citi Platinum Select. They have a one year 0% offer with no balance transfer fees on any initial transfers. Turns out the 0% and no fee promotion is good for any balance transfers within the first year, so I may take advantage of that in the future. More on that in a later post. Citi also allows you to request a check (made out to you) as a balance transfer. You can even request it through their website with no hassle. The Discover card, and most others, requre you to transfer the balance to another account. To actually get the cash, you would have to transfer the balance to another card with no balance, and then request a refund from that card. It’s still possible, but by requesting a check through Citi, I’ll get my money quicker.

I filled out the application online in about 10 minutes. The only gray area on the form is a field called “Annual Household Income.” I have no idea what that legally means, but my intreptation, is that they want to know the annual income of ALL people living in your household. In my case, that would be myself and my roommate. I think the credit cards intentionally leave this field ambiguous so they can stretch your credit limit as far as possible. In this case, that works out in our favor, but be careful not to get in over your head.

After I verified my information and submitted the application, they gave me an initial approval immediately. The credit limit was $6,800, which was a bit lower than I had hoped, but it would be a good start. The next step is to wait for the card in the mail to activate and begin the balance transfers. Stay tuned!

As one of my goals for this year (a post I swear I’ll write someday), I decided to give credit card arbitrage a try. A couple months ago, I had no idea what that term even meant, but thanks to posts at Blueprint for Financial Prosperity, Five Cent Nickel, and most importantly the tutorial at My Money Blog, I decided to go for it.

Simply put, credit card arbitrage is borrowing money from a credit card company using a 0% balance transfer offer, putting that money into a high yield savings account for the length of the 0% promotion, then paying off the original loan and pocketing the interest. Taking out $10,000 with 0% interest for a year and putting that into an account earning 4.5% APY, you’ll earn (before taxes) about $450. Now, there are a TON of issues to consider, and this scheme is NOT FOR EVERYBODY.

First, for the length of the 0% promotion, you must still pay your minimum payments every month. If you miss a payment or are late, you can kiss the 0% APR goodbye and you’ll start paying around a 30% APR. It’s VERY important to stay on top of payments. It’s also important to pay off the entire balance before the end of your promotional terms. Any interest you gain could quickly get eaten up with finance charges at a regular interest rate. Also, the other major drawback is your credit score. Opening up the cards, plus maxing out your limits will put a strain on your credit score that could potentially impact any loans in the near future. In my case, I’m not looking to take out any new loans in the next 12-18 months, so it’s not an issue.

That said, if you’re on top of your finances and don’t mind a dent in your credit score, there’s a pretty easy way to earn some free money. I’ve applied for a couple cards and have requested some balance transfers already, so please stay tuned as I’ll give you all the details along the way.

Just a quick update on my cash back bonus award snafu. If you’ll recall, Discover card sent me two Borders gift cards that turned out to be inactive. After a quick call to customer service, they told me they’d refund my cash back, and send me out two new gift cards.

Well, that almost happened. I’ve been following my account activity through the Discover Card website, and they did indeed refund $40 to my cash back bonus award. However, they only resent one of the Borders gift cards. I recieved the gift card in the mail yesterday and immediately called the gift card hotline to check the balance. This card was active and had the correct balance of $25.

At the end of the day, I got the correct amount of rewards back, and I’m satisfied. It was probably just a miscommunication between myself and the customer service rep that lead to them only sending one gift card, and the initial problem of the inactive cards was the fault of the gift card processing center, and not Discover Card.

It’s amazing what a simple phone call can accomplish. I’ve always read and heard that credit card companies will raise limits and lower rates just by giving them a phone call. I decided to try it out with my Discover Card. I called up the number on the back of my card, eventually got to a customer service representative, and asked for both a credit limit increase and a interest rate deduction. She was able to get me both. I now have $1,500 extra limit and a 2% lower rate. All told, took about 5 minutes on the phone. Now I’ve never actually carried a balance on this card, so the interest rate doesn’t help all that much, but this could potentially save you a couple hundred bucks a year if you are carrying a balance.

I was so excited after calling Discover, I tried to pull the same trick on my Capital One card. After about 10 minutes with their automated service, I finally found an automated option to request a credit increase. After selecting it, I got a very unfriendly message that my card wasn’t eligible for a limit increase, “either though the automated service or through a customer service representative.” By that point, I was so fed up with automated menus and that rude message, I just hung up without bother trying to ask for a interest rate decrease. Two thumbs down to Capital One.

I guess this trick is really dependent on your credit card company, but it’s worth a shot.

I finished up my taxes for 2006 today, thank you Turbo Tax. It was pretty easy going. I tried to add up all my deductions for the year, but it didn’t come close to the standard deduction, so I just ended up taking that. I had 3 W2’s this year, and I thought that might be a hassle, but it really wasn’t. Only took about an hour of work to fill out the forms and answer all the questions. I’m going to be getting $864 back from federal and another $110 from state. I mailed in the forms, but I’m having it deposit directly to my checking account, so I’ll hopefully be getting the refund in a couple weeks.

I ran some numbers on how much tax I actually paid for the year. 3.8% of my total gross income went to the state, and another 12.7% went to my federal taxes. When you include Social Security and Medicare withholdings, 24% of my gross income went to some form of taxes.

Also, I ran some numbers on my pre-tax contributions. I paid out $560 for health and dental insurance, and contributed a total of $2,733 to my various 401(k)’s throughout the year. That 401(k) total is a little low, in my opinion. Most of the year I was contributing around 8%. Now, it’s bumped up to 12%, and in 2 months, I’ve already stashed away $1000.

I can now close the books on 2006. It was far and away my most successful year financially. It was also the only year so far I’ve been employed full time for the entire year (save 2 weeks of in between jobs). Let’s hope I can have more success in 2007.

Here’s the most discouraging news of the week, from CNN/Money.

The Los Angeles metro area was again the nation’s least affordable market. Only 2 percent of the homes sold during the quarter there were affordable to those families bringing home the median earnings for the area, $56,200. The median sale price was $525,000.

Coming in a close second, was Orange County, just south of LA. These would be the only two markets I could possibly live in with my job. I’ve been wanting to own a home for a long time, but this is the main reason I’ve been unable to. I guess I’ll have to wait for the market to crash (which may not be too far fetched), or wait for the next big earthquake to scare everybody away.

Link: Most Affordable Housing Markets

You know I love ING’s Electric Orange Checking Account, but now, I love it just a little bit more. I just recieved this email…

Great news! The rate on Electric Orange balances up to $50,000 has increased to 4.00% Annual Percentage Yield.

4.00% on a checking account with no minimum balance? Just to compare, you need a $250,000 balance at WaMu to get a 4.00% APR, and you need a $10,000 balance at WaMu to get a 0.5% APR with no monthly fees. Crazy!

Let me preface this post by saying I absolutely love my Discover Card. I’ve had mine for over 7 years now, use it for nearly all my purchases, and, up until Saturday night, I’ve never had a single problem with it.

Last week I decided to cash in some of my Discover Card Cash Back Bonus Award for Borders gift certificate. You can turn $20 cash back into a $25 gift card. I’ve done this a few times over the years (they used to offer a $40 gift card for $20, but that was short lived), so this time, I traded in for two gift cards. This past Saturday, I went to Borders to purchase some books, went to checkout with my new gift cards, and was told the cards were inactive! The store tried calling the gift card hot line, but they were closed until Tuesday. So I was a little ticked off and a little embarrassed, but they offered to hold my books until I got the issue resolved.

As soon as I got home, I called up Discover to find out what’s going on. I got an account representative immediately and explained my situation. He was helpful and told me it was probably the the company that administers the gift cards. “Occasionally” they send the cards out without activating them. He said he’d credit the $40 cash back bonus, back to my account, and then resend out two new gift cards.

All told, I was fairly pleased with their response. I’m a little upset I had to go through with this at all (imagine if I had given these away as gifts!), but they handled it well. The gift cards should have gone out in the mail today, so it’ll be another week before I get the cards, so I’ll keep you updated. I guess the moral of this story is to call and check the balance before you drive to the store and spend an hour picking out books.

On Thursday’s newspaper, there were coupons for Chevy’s Restaurant: buy one entree, get one for $3.99. My girlfriend and I went there last night to take advantage of the offer. I always feel a little weird using coupons at a restaurant, or anywhere for that matter. I’m afraid we’ll get some strange looks or people will think we’re cheap, and I feel a little ashamed. Hopefully I’ll get over that someday. In the mean time, our total was only $21 and change last night, and with the coupon, we saved $7! It makes dining out a little more reasonable.

This past week, I’ve been taking a hard look at salary, savings, retirement, investments and I came up with a list of goals. I broke the list down in Long Long Term (think 10 years - retirement), Long Term (2-5 years), Year Long Goals, and Immediate Goals. This post is the first in a series on my financial goals for the rest of my life. As the week goes on, I’ll have posts on the rest of my goals, and then, in future posts, I’ll detail specifics on how I plan to achieve these goals and introduce some milestone deadlines along the way.

Long, Long Term Goals
Although I’m still really young, it’s never to early to think about the future. You might think it’s silly to look at some of these goals now, but the earlier you start, the better off you’ll be. If you’ve ever read ANY article, in ANY publication about retirement, then you know it pays off to start young. Compound Interest is your friend, and I’m hoping to compound for 40 years or so. With that in mind, lets take a look.

• Retire Early - This is vague, but pretty self-explanatory. I want to be wealthy enough to stop working at 50 or 55 (maybe earlier?). Travel the world, golf, whatever. The idea is to stop working full time and start enjoying life.
• Pay for my children’s educations - This is probably one of the most important goals for me. My parent’s were kind enough to pay for my entire college education, and I can honestly say I wouldn’t be where I am today if they hadn’t. I’d like to do that for my children, and give them a head start on their lives.
• Be a Millionaire at 35 - This might seem pretty pretty trivial and vain (and it is), but having a net worth of $1 million will get me well on my way to fulfilling my first 2 long term goals, and will keep me disciplined and focused on my journey to accumulating wealth. Not to mention I’d really like to start calling myself a millionaire. And I’d probably start wearing robes and smoking pipes.
• Never Have to Worry About Money - By this, I simply mean I never want to have to worry about making a mortgage payment, or worry about how we’re going to pay the bills or buy groceries. It’s about making smart decisions with my money and making sure I have an emergency fund to fall back on. And I’m not just talking about a ‘couple months’ emergency fund. I mean something catastrophic happens and I’m out of a job for a year, the house burns down, and all my kids need braces, and we need to buy a new car. I want to be able to live comfortably and worry free for at least two years on that emergency fund.

That should give you a big picture overview of how I’d like my financial life to unfold. Unless I win the lottery, it’s going to take serious planning, budgeting, discipline, and maybe a little luck, but I absolutely believe I can accomplish these goals.

Just a quick coupon update for y’all. Had to buy some groceries for a special Valentine’s Dinner. It was just a quick trip to the store, so I could only use 2 coupons. Still, with Ralph’s double coupons, I saved $2, or about 5% off my total bill. Better than nothing I suppose.

Also, quick note about the dinner. I found a FANTASTIC website for recipes. Recipe Zaar has over 200,000 recipes all searchable and categorized. I ended up making a Spinach Artichoke Dip for an appetizer, and a Creamy Cajun Chicken Pasta for the main course. Both were excellent.

I’ve been wondering for years how long you need to hang on to financial records, such as receipts, credit card statements and bank statements. I literally have a box full of restaurant, grocery store, gas station, and ATM receipts that date back to the late 90’s. Not to mention a file cabinet packed with old bank and credit card statements. Finally, I’ve found an anwser! Real Simple has a list to help you decide which financial records to keep.

The highlights:

• After a Month: ATM receipts, credit card receipts, and small non-warranty purchases
• After a Year: Monthly credit card and bank statements, paycheck stubs (I have stubs from 1998!), phone/utility bills
• After Seven Years: W2’s and 1099 forms
• Keep Forever: Annual Tax Returns, major purchase receipts, home improvement records

Looks like I’ll be having a shredding party this weekend!

As promised, here’s a little background on me.

Personal
I’m 25 years old and live in Los Angeles. I graduated from UCSB in 2003 with a BS in computer science. Now almost 4 years out of college, I’m in my 4th job in a data management consulting company. I don’t like the fact I’ve had to switch jobs so many times, but I suppose I’m still at that age where I’m trying to find where I best fit in.

Right after college, I moved back home with my parents. I didn’t have a job right away, so it was really the only option I had. I was there for more than 2 years, and it really allowed me to save some money (although my spending habits were much worse so I didn’t save as much as I could have). This past September, I finally moved out on my own. I switched jobs and my commute was too long from where I was living. Now, I’m renting an apartment with a good friend and having to deal with grocery shopping and cooking once again.

Financial
Here’s a quick rundown of my personal finances. I have a WaMu checking account (which is slowly being phased out), an ING Savings account, and the incredible ING Electric Orange Checking account. In a nutshell, paychecks are deposited to the ING Checking, bills are paid, and whatever is left (hopefully) goes into the ING Savings.

I have an employee matched (50% match, up to 3% of income) 401(k) program, to which I currently contribute 12% of my pre-tax income. I have an IRA account through Smith Barney with a few thousand dollars I’ve rolled in from my previous employers 401(k) programs.

I have 5 credit cards: Discover, Capital One Visa, Sears Card, Express Card, and a Gap Card. It seems like a lot, but I’ve never carried a balance (a balance that earned interest anyway) on any of my cards. I like the cashback program at Discover, so that’s my main card. I just switched to their Gas Card, which earns 5% back on all gas purchases. The rewards are nice, in that a lot of times you can turn $20 worth of rewards into a $25-$40 gift card. I few months back, I turned $180 cash back into a $225 Crutchfield gift card and bought a digital camera. My Capital One Visa is only used when businesses don’t take Discover. The specialty cards are strictly used at their respective locations. By having those cards, I routinely get invitations to 10-50% off or 0% financing events.

That should give you a little background on where I’m coming from. Soon, I’ll be posting my goals for the upcoming months and quarters to hopefully give you an idea of where I’d like to go. Thanks for reading!

Since I bought my truck (a 2005 Nissan Frontier) in April of 2005, I’ve been keeping a log of every time I’ve filled up with gas. There were times I forgot the receipt or the machine ran out of receipt paper, but overall, I’ve managed to record about 90% of my fill-ups. I love looking at statistics, so below some fun gas facts from 2006.

• I recorded 41 trips to the gas station, pumping 742.3 gallons of gas, costing me $2,133.98, and covering 13,777.1 miles
• My average cost per gallon in 2006 was $2.87, and my average cost per mile was $0.155
• The cheapest gallon of gas was the first fill up in 2006, of January 6th, costing me $2.27
• The most expensive gallon was on May 18th, costing me $3.40 (OUCH!)
• I averaged 18.55 miles per gallon in 2006, with a maximum of 20.69 mpg and a minimum of 14.64 mpg
• I averaged 336.02 miles per fill up, with a maximum of 407.6 miles
• The most I paid to fill up in 2006 was $67.46, and the least was $39.15
• When I started by new job in September, my commute was about the same distance, 30 miles each way, but the breakdown between highway and city streets went from 50% city/50% highway to 10% city/90% highway. The average cost per mile went from $0.167 from January to August, to now $0.129 from September to December

I graphed out the price of a gallon over the year (note I missed a few readings between August and September, hence the sudden drop during that time), but overall, it’s almost a perfect bell curve, with prices rising in summer, and then cooling off in the winter.

If the last few months of my gas usage is any indication, 2007 should be much less expensive for me. Let’s hope anyway.

I finally had a chance to close the books on January tonight. Expenses for the month totaled $1,495.61. Here’s the breakdown:

Rent: $650.00
Automobile : Gas: $189.56
Automobile : Parking: $1.00
Bills : Telephone: $63.46
Bills : Gas: $8.93
Bills : Cable TV/Internet: $76.32
Bills : Cell Phone: $52.10
Food : Groceries: $213.20
Food : Dining out: $131.47
Healthcare: $20.00
Leisure : Gym Membership: $29.99
Leisure : Newspaper: $7.28
Miscellaneous: $52.30
Total: $1,495.61

A quicks caveats, I did not make a car payment this month. The way I’ve been handling car payments is making larger lump sum payments every so often. I’m ahead of my payment schedule, so nothing was due this month, so I put more money into savings. They’ll be a large car payment on next months report.

All told, I’m quite happy with how I’ve done so far. I think there’s definitely room for improvement. The dining out total is higher than I’d like, but then my automobile gas category is way down (I budgeted $240/month). In a month where too many people were struggling to pay off Christmas debt, I was able to more more than $1,000 into my savings account. Off to a pretty good start.