In today’s New York Times, there is an exciting feature about the future of crowdfunding, particularly for small businesses.
Crowdfunding is a relatively new, internet age, phenomenon designed to do something quite old fashioned: connect savers with excess capital looking to invest, to entrepreneurs with an idea on how to put that capital to productive use. In an obvious way this benefits both parties. When the business works, the saver gets to see their capital appreciate in value (perhaps remarkably so), while the entrepreneur gets the opportunity to start and grow the business with a greater profit than they could without the initial funding from the investor. Of course in doing this transaction there is risk. The investor is risking that the entrepreneur will actually make a profit, and the entrepreneur is risking either default on what they have borrowed, or the loss of even greater wealth if they have given a way ownership (or equity) in the venture in exchange for the funding.
This may seem simple but it is highly regulated by the Securities and Exchange Commission. The SEC’s desire is to eliminate fraud and misrepresentation and make sure that savers are well-informed in an honest way about what they are investing in. Thus, for a long time, this age old process has been possible only for the relatively large businesses, the relatively affluent, or the relatively sophisticated. Importantly, onecould not exchange cash for equity unless one was a licensed investment professional or had a net worth of $1 million dollars,
Crowdfunding seeks to upend this, by connecting “smaller” investors (perhaps those with only a few thousand dollars to invest) with equally small businesses (perhaps those requiring only tens of thousands of dollars of investment and certainly no more than $10 million). Strange as it may seem, despite the fact that small business is always so highly touted as the job creators of the economy, there has been no good way for entrepreneurs to raise this kind of start up money other than their own credit cards, signing liens against their other property, or seeking wealthy family and friends. The JOBS act of 2012 directed the SEC to write rules to make crowdfunding possible.
Angel.co crowdtilt.com, crowdfunder.com, wefunder.com, indiegogo.com, microventures.com, secondmarket.com are all new online ventures seeking to take advantage of these more open rules. Each site is either relatively restricted (allowing a forum only for collaborators who already know each other to get get together and pool their money) or relatively vague (so as not break the law) about how they work. Soon though, the restrictions will be lifted and the curtain should rise on all of these sites.
Thus, by using these new kinds of crowdfuning sites, the possibilities for small business, the economy, and investors will be immense.
I know I am a few days late, but here are a few of my 2013 Financial Resolutions
1. Improve the cash flow on my rental property.
Last year was the third year of running a rental property, and I made a bit more money than in the previous years. Generally, I have been happy to have low maintenance tenants even with the trade-off of making a bit less money. However, now I do feel a bit more comfortable as a landlord and I think I can get even better at the job.
2. Spend less money on silly things.
I don’ t think I am a real wasteful person, but I would like to really dedicate myself to getting maximum return on investment from every dollar that passes through my greasy palms. However, the one corollary to this is that I will not do this to the detriment of my relationships with friends and family.
3. Sign up for two or three beneficial credit cards.
I would ideally like to pad my balance with Chase Ultimate Rewards program, and figure out a way to sign up for a card or two that will help me do that. I also have my eyes on Chase’s Hyatt Card and US Bank’s Club Carlson Card. I also want to take advantage of any good balance transfer offers to pay down some student loans through arbitrage plays.
4. Get better at my job.
I have a few jobs: teacher, college application tutor, and blogger. I would like to get better at all of these. Most importantly on the later two I would like to get more customers and get more readers!
5. Read a chapter a book a day.
I find myself happiest when I am learning but I also tend to waste time constantly refreshing news websites. Hopefully this year I can devote myself to more enriching reading in the form of books.
The fiscal cliff was a manufactured political crisis to try and get Congress and the President to do big and difficult things. None of these things are popular or fun, as most people don’t like having their taxes raised or losing their benefits. The Economist and other sources like David Brooks (whom I respect despite frequent disagreements) are already declaring the deal a disaster. I think this is too short-sighted.
First of all, the details. Taxes were raised on those families making over $450,000 and individuals over $400,000 from 35% to 39.6%. The Alternative Minimum Tax was permanently fixed. Unemployment benefits and business tax credits were extended for a year. The massive cuts to the Pentagon were delayed for two months and the debt ceiling was not raised, so these items must be debated going forward. There were no reforms to Social Security or Medicare.
If one expected our system to produce a massive grand deal that pleases pundits and think tanks, one must also not believe much in democracy. Such a grand bargain would hurt lots of real Americans and/or violate their most deeply held philosophical convictions, so if it were to be enacted it would be against the wishes of many.
Americans generally favor higher taxes on the wealthy and reducing the deficit. Perhaps by focusing on these issues as single items, the ship of state can be steered more clearly. For example, Republicans had to cave on tax increases for the rich because the country would have held them accountable for the massive damage that would have ensued if they did not. Likewise, the upcoming budget, sequester, and debt ceiling will force Americans to focus singly on these issues, perhaps allowing politicians to more of a clear vision and public discussion to coalesce around a solution.
This crisis of debt is years down the road, and it makes some degree of sense that we get the difficult politics around doing nasty things to people’s pockets right and with a large public consensus.
An easy 1,000 Southwest Airlines Rapid Rewards Points can be had by clicking through the Southwest shopping portal to signup for Turbotax.com. The details can be found here.
I use Turbotax every year to complete my taxes, and for many people it is a great option. Its user interface is run around a series of questions and if you have used the website in the past to file your returns it automatically imports a lot of information from previous years, saving you time. Even if you are a bit more sophisticated about your taxes and understand various deductions and benefits you have, Turbotax can help you easily fill out the paperwork and file more easily than trying to wade through the IRS forms.
While 1,000 Rapids Rewards points is relatively small (worth about $10 towards a Southwest flight); it is these kinds of deals, leveraging some spending you were going to do anyway by just clicking through an airline shopping portal, that can make a big difference when done regularly.
And, as I mentioned in an earlier post, if you are like most Americans and set to receive a tax refund it makes sense to get your taxes filed as soon as possible. It’s your money!
2012 marked my first foray into the miles, points, and cash back benefit world. I discovered the various tools and tricks by accident and became pretty heavily engrossed in the practice, especially in the first half of the year. I like the hobby because it does actually improve your wealth and lifestyle if done properly and with care. For example, many of these products have minimum spending requirements and yearly fees on the card. If managed poorly, you could find yourself in an overall worse financial shape than when you began (a great example of this might be paying interest on charges made to meet a minimum spending requirement on a new credit card, since these rates are so high it would not do you any good to get 50,000 points but then pay 20% interest on a high credit card balance).
Here are my results, and I hope you find the list helpful. Many of these cards I plan to keep long term as I like their ongoing benefits and points earning power.
I received the American Express Mercedes Benz Platinum Card with a 50,000 signup bonus. This card carries a similar high yearly fee ($475) and most of the same excellent benefits as the “normal” American Express Platinum Card. These benefits include $200 in reimbursed airline charges on your airline of choice; Starwood Preferred Guest “gold” status; elite membership levels with several car rental agencies; free airport lounge access on Delta, American, and US Airways; reimbursed Global Entry fee; Priority Pass lounge admission; and a variety of other travel concierge perks. This Mercedes-Benz card also gave 5x points on Mercedes Benz products (if that’s your thing). I also signed up for the regular version of the card for 10,000 points as I was interested in getting 3x point multipliers on gas purchases and 2x points on dining.
I received a 25,000 signup bonus for the American Express Premier Rewards Gold personal card and another 50,000 targeted offer for the Gold Business Card for my rental apartment business. The Premier Rewards Gold card gives great 2x point bonus multipliers on groceries and gas with travel charges earning an outstanding 3x bonus when booked through American Express’s website. The business version of the card has American Express excellent OPEN cash back system (I got cash back on all of my Barnes and Noble purchases) and gives 2x points on advertising, gas, and shipping charges. I charge all of my Google Adwords fees to this card and get big bonuses on that every month.
I signed up for the Starwood Preferred Guest American Express card as well, which gives a 25,000 point signup bonus. Starwood transfers their points to a ton of airline partners and gives a 5,000 point bonus for every 20,000 points transferred, making the card extremely valuable for everyday spending as you effectively earn 1.25 points on everything.
Finally, at the end of the year, I was offered an upgrade online to the Business Platinum card, netting me and additional 25,000 point bonus. This was targeted when I logged on to my account, and does not result in a credit pull. This card provides most of the same benefits as the personal Platinum card reviewed above.
Chase has many of the best offers so they are an important relationship to manage well. Do not over apply for their cards, and be careful about playing too many games with chase.
For just 2500 points, I upgraded my regular Sapphire card to the more powerful Sapphire Preferred card. This was actually my first “move” of the year, and it shows my noob status, as I could have received a much better offer by just applying for the new card. However, the nice thing was that this upgrading does not result in a credit pull, probably key in keeping my credit rating solid despite all of these cards I was signing up for. The Sapphire Preferred card is my favorite for most spending, it gets 2x points at restaurants and travel. Restaurants being one of my largest expenses, makes this a very important points earning machine. Also, it is darn cool looking with a more metal composite makeup over the typical plastic of most cards. It always gets lots of compliments from merchants and sheepish grins from myself as I don’t want to appear all blinged out. This card also provides transfers to airline partners through Chase’s Ultimate Rewards program, the most valuable way to redeem credit card points. Partners include United, Hyatt, Southwest, Korean Airlines, and Amtrak. Even if you are not interested in airline transfers, Ultimate Rewards is by far the best Rewards program as it gives you cash back for $.01 a point.
United Explorer Visa, for 50,000 United Airlines miles. I liked that this card provides nice benefits on United; including a free checked bag, two yearly lounge passes, and priority boarding. It also had primary auto insurance coverage on rental cars, meaning your own insurance would never be touched if you charged the cost to this card. However, with no spending bonuses on purchases it is not a great card for daily spending. I did not travel United enough to have the rest of the benefits make a lot of sense for me, and anyway I can get into airport lounges with other products as well.
Chase British Airways Visa, for (so far) 75,000 points. This card provides 1.25 points on all spending and a huge signup bonus of 50k avios points on first purchase, 25k after $10,000 in spending in a year, and another 25k points if you can spend $20,000 in the first year. The avios program gets knocked a lot by frequent travel gurus, but it can be awesome for me since I live in Chicago and the British Airways avios award chart is distance based. This makes shorter travel (and one way travel) a real bargain with this program. Especially since it has a good earning rate on all of the spending you put on the card, it’s a card that works for me. If you can put $30,000 in spending on the card, you can potentially earn a travel together certificate which allows two travelers to fly together on BA metal for the cost (in points) of just one. The catch (and it’s a big one) is that BA charges crazy taxes and fuel surcharges on its transatlantic flights, making this deal more “pretty good” than “awesome”. I am not sure if I am going to go for this during 2013, but it may be do-able if I put student loan payoffs on it.
Chase Ink Bold Business Charge Card. I signed up for this card for my rental business and received 50,000 bonus points. This card is amazing in that it gets 5x points on wireless and land phone charges, cable TV, internet, and office supply stores. 5x is a stunning value for charges most everyone has to make. The office supply store benefit has been the source of much insanity in the travel points world with various gift card schemes.
American Airlines Visa and American Express cards, each for 50,000 AAdvantage miles for a total of 100k. These cards can both be had if you apply on the same day using two different browsers. The result is usually acceptance for both cards and only one credit inquiry. The two cards provide nice signup bonuses, and lots of great advantages with American Airlines, including reduced reward redemption rates with a 10% reduction in miles required, free bags, and early boarding. I went to cancel these cards and received great retention bonuses from Citi, including a 750 mile bonus after $750 spent on the American Express version of the card for the next 16 months. This effectively makes the card a 2x earner on the first $750 a month!
Hilton HHonors RESERVE Card. This card does not provide a point signup bonus, but does give two free weekend nights at pretty much any Hilton on Earth after you spend $2,500 on the card in 4 months. It also gives Hilton gold status and another free night certificate every year you put $10k in spending on the card. I think this is a real value to keep long term as it can provide a nice getaway once a year for my wife and I, more than offsetting the annual fee.
Bank of America
With Bank of America I got the Alaskan Airlines card for 40,000 points and the Hawaiian Airlines card for 35,000 points. Alaska I particularly like as they offer a companion certificate where your travel partner pays only a $99 airline fare that you can use once per year. Hawaiian card gives a 2k point bonus each year you have the card and a one time 50% discount on Hawaiian airline full fare coach tickets.
Barclays completes my crazy year of credit card signup bonuses with their US Airways Mastercard. I actually got this twice because I was angry that my first signup was coded incorrectly (it only gave me 15k instead of the 40k I swear I signed up for), so then I just cancelled the card and signed up for it again for the right bonus. At any rate, I quite like this card and plan on keeping it long term as it has two companion certificates for $99 (similar to the Alaskan Airline Bank of America card), gives 10k bonus points every card year anniversary, and right now is giving me 5x points on a range of spending categories including groceries.
Combined with a few other little minor bonuses (like 1000 for linking a card to get Hilton texts) throughout the year, my grand total bonus after all of this was a whopping 578,100 points! In addition, I got those two free hotel nights at any Hilton in the world. The only question now is what to do with all of these points in an efficient and fun way. It was kind of a bit of work tracking all of this, but amounts to free big money for spending I would have done anyway.
The downside is that my credit score did drop to around 755 from 800, but that still is considered excellent. I will never be able to have as huge of a year again (probably) as I did in 2012, since I got most of the best deals this time already. Still, this should show you the power of leveraging a little work, organization, and good credit for big savings and free travel.
With 2012 coming to a close (Happy New Year!), now might be an important time to take a look at your financial life. There are few better times to review all of your spending, investing, and income habits than the end of the year.
One question many might have, especially with the continued craziness in Washington DC, is what exactly their tax refund might be for 2012. According to the IRS, most Americans do overpay on their federal income taxes during the course of their payroll deductions throughout the year. Many overpay, effectively giving Uncle Sam an interest free loan for the course of the year.
Since so many do get money back, now might be a good time to check through your financial records from 2012 and get excited about the potential refund (or at least prepare for the bad news on what you owe). Getting a rough estimate of this refund is very easy thanks to Turbotax’s free taxcaster online.
Simply plug in your information and in just a few minutes the program will project what your refund will look like. All you really need is a copy of your last paycheck, since this will contain your yearly income. Also helpful are any of your major deductions, like a statement from your bank that says what your home interest payments were, or returns from your investment accounts on how much interest or dividends your received during the year.
Be careful when inputting your income that you deduct all of the relevant items like health insurance payments, 401(k)/403(b) deductions, and any other tax deductions. If you do this improperly you will not get an accurate number.
This leads to a larger point: none of this is official and you will be largely working off of information that is different from what you will get as “official” tax information at the end of January. Still, it can give you a pretty rough guide, and let you plan.
Perhaps most importantly, if you are anticipating a large refund, it is probably best to start filling out a rough return on turbotax.com and then update as official information and statements come in. This way, once you have all the relevant forms, you can get your refund as early as possible. There is absolutely no sense waiting until April to get your refund, it’s your money now!
On the other hand, if you do owe money to the government, then it does make sense to wait those extra three months, so this is just as useful of an exercise.
Testing, testing, 1, 2, 3….
Petty politics on substantial issues again? The fiscal cliff negotiations are down to the wire, and many news outlets report that the Senate is furiously working on a deal. The deal is actually more of a stopgap. It will probably extend the Bush tax cuts for all those making under $400,000. While the President wants this threshold lower, at $250,000, this is probably just negotiating positioning and his threat to put this to a vote and dare the GOP to oppose it is a way to get real leverage. Along with this tax deal, it appears as though the bill would fix the AMT system for another year, extend the “doc fix” for Medicare payments, and extend unemployment insurance. It most definitely will not change the cuts to the military or raise the debt ceiling. It also will not fundamentally address cuts or changes to Medicare or Social Security.
Is this deal a good thing? Well, politically, it is mostly a win for the Democrats as they get much of what they want. It is not a big, grand long term fix that the press intelligentsia or the very important people will love. David Brooks will probably not be thrilled, nor will The Economist. Will we be subjected to more weeks, months, and years of press coverage about our broken political system and dysfunctional democracy. Petty politics and the brokenness of Washington will be discussed ad nauseum.
I think this, though, is precisely what makes this a good thing. We are fundamentally debating the nature of our society, the size of our government, and what mix of social welfare and taxes we will have for the next half century. We are in the early stages of even beginning to realize what the discussion is all about. It is unrealistic to expect this conversation to be resolved in a matter of weeks, or for one or two elections to decide such questions. Other big debates in our history; from the nature of government at the turn of the 19th century, to slavery, to the modern regulatory system of business; all took decades to conclude. While it may be that we run out of time on these matters, particularly with health care costs rising, the closer we get to a more immediate crisis the more the politics around the issue will change and the greater chance there will be of a conclusion.
It is unreasonable to expect a true democracy of free people with fundamental and reasonable philosophical disagreements around massive issues to move quickly. American democracy is not broken, it is working just as one might expect.
American Express captured my attention when they, long ago in 2008, sent me a somewhat random letter that if I signed up for their Premier Rewards Gold Card, I would earn two free round trip flights to anywhere in the United States. I had never traveled much, and this sounded pretty dawg gone thrilling. I could visit a friend in law school! I could see a city I had never been to before! I could get some free goodies that I otherwise would have been too frugal to spend money on as a young teacher.
I never made travel plans with those points right away. I got busy, and then the next summer (2009) I adopted a young puppy and travel seemed out of the question. Then, my girlfriend moved in. Then we got engaged. So, finally, in the summer of 2010, I found myself logged into my American Express account and tried my darndest to figure out what happened to those two free round trip flights. I wanted to use them for our honeymoon flight to Seattle. We were then going to drive up to ski at Whistler in British Columbia. I noticed I had something like 80,000 points. I also noticed that I could move my points into frequent flier programs. At the time I had no idea how these worked and it seemed risky. What if my points disappeared? What if I messed this up? What then!?
I wish I would have had this article, as I would have been more aware of my options. Below are the major ways to redeem American Express Membership Rewards poins:
1. Pay for Travel Through American Express with your points.
This is what I ended up doing back in 2010. I was too confused to do anything else. I booked two round trip flights from O’Hare to Seattle on Alaskan Airlines. Then, I offset the cost of these tickets with Membership Rewards points at a rate of $.01 each. Thus, I paid for about $800 of our flight with points, and I think had around a $100 left over. While not exactly “two free round trip flights” I was happy. I figured I was traveling during a peak time (the Christmas season) and to a pretty far corner of the country in Seattle.
You can still do this with your points and it isn’t always so bad. The nice thing is that you can still earn frequent flier points on the airline and there are no blackout dates since you are really just buying the tickets as you normally would and getting a deep discount with your points. This, on cheap domestic tickets this isn’t actually that horrible of an option. It’s not great, but its simplicity and ease is popular with consumers. This why many favor programs like Southwest’s that do this all the time, and even big Delta Airlines is rumored to be moving to a similar systemm
2. Pay for a Purchase with Points
When I log on to my account American Express shows me this screen:
You are allowed to pay with points on items like gas, groceries, mobile phones, cable and internet, office supplies, fast food, and coffee shops. I had no such charges on my account so I couldn’t even see my options but rumor has it that the transfer rate is around $.006 of a cent per point. A horrible deal.
3. Shop at the American Express Online Mall
Another lackluster value proposition. American Express buys merchandise like electronics and then allows you to buy it for points. This is almost always less than $.01 per point. It can be okay if it was working at the margin, meaning you needed a new item from the store like an iPad and points were your only way to get it. In such a scenario the points make sense. Also, it’s better value than nothing or forgetting you had the points at all. However, if you could just go and buy the item outright, you’d probably get better value. Occasionally, American Express runs a discount and then the value gets close to a cent a point on many items.
4. Various Gift Cards
Some of these are good deals, but often times for somewhat silly things like a credit on facebook. For cash equivalents, like American Express Gift Cards, the value is usually half of a cent per point. Not super great, but cash is king and this could be used on any item where the gift card is accepted.
5. Transfer to travel partners
American Express partners with dozens of airlines and hotel programs.
With any partner, American Express points transfer to the partner’s program at a fixed rate. Most airlines are 1-1 partners (but not all, Virgin being a notable exception) and many hotel programs are as well. Thus, to understand the value of your points, you should first go and look at the reward program chart of the partner you are considering transferring the points over to. For example, if considering a flight on Cathay Pacific you should go to their site and find their redemption charts. If using British Aviois you should head over to BritishAirways.com and use their Avios calculator to decipher how many are required for your travels.
This is cumbersome and not very simple. You would also have to be sure that their are reward flights actually available on the days you are planning to travel. Many times this is not the case. Moreover, it can be time consuming to compare all the options. It is not always easy to figure out if something like Aeroplan or Singapore Airlines would be best. You would have to know your travel plans, compare each plans award chart, and then make sure there is actually award flight availability during your travel times. Don’t forget that many programs impose hefty fuel surcharges on award travel, negating the value of your points. British Airways is notorious for this, so much so that it is a horrible value to fly in coach across the Atlantic with their plan.
If you can do all of this there is a rainbow at the end of the road, as jumping through all these hoops provides great value for your points. Particularly if you redeem for premium class of travel to far-away international destinations, you can sometimes get $.03 cents per point and up in value.
So this is how to use American Express Membership Rewards points. At the end of the day, your best bet if you can do it is option #5: transferring to travel partners. If you can’t do that, though, I inadvertently did the next best thing back in 2010 and paid for airline tickets through Amex Travel and got $.01 per point in value.
With the failure of Speaker Boehner’s plan to raise taxes on those making only over $1M dollars in the House, it is clear that no plan that increases taxes on anybody can get through the House Republican Caucus. This means that a bill must be designed with the support of Democrats in mind. House Democrats, though, will likely not endorse any plan that cuts Social Security and Medicare to the extent that was suggested last week.
The “fiscal cliff” largely leaves these two programs unaffected, while it does raise taxes on all Americans and significantly damages military funding. So will Democrats allow the country to merely go over the cliff? Probably not without a fight and here’s why:
Annual income: $20,000 to $30,000.
Average tax increase: $1,064.
Annual income: $40,000 to $50,000.
Average tax increase: $1,729.
Annual income: $50,000 to $75,000.
Average tax increase: $2,399.
Annual income: $75,000 to $100,000.
Average tax increase: $3,688.
Annual income: $100,000 to $200,000.
Average tax increase: $6,662.
Annual income: $200,000 to $500,000.
Average tax increase: $14,643.
Annual income: $500,000 to $1 million.
Average tax increase: $38,969.
Annual income: More than $1 million.
Average tax increase: $254,637.
These numbers come from the Tax Policy Center via CNBC. So, Senator Reid, McConnell, and President Obama will likely come up with a stopgap plan that taxes over those over $400k at a higher rate, extends the cuts for those under that threshold and kicks the can down the road on budget cuts, at least until the summer but perhaps longer. This would surely pass both Houses, the Senate easily, and the House if Boehner throws his weight behind it. We will see if a larger deal will happen when the cliff is pushed back. Signs point to “no” until there is a political change in Congress or the White House.