A number of websites, apps, and other services exist for the savvy consumer. Each of these I personally use and I have found each quite helpful in managing my personal finances. The great thing about each of these is they allow you to follow and manage your finances without obsession. These are my personal finance tools of the trade!
Perhaps the killer app of personal finance. Mint is a pretty advanced program that can track your saving and spending on just about every financial account you could possibly have. It is free, but since nothing really is on the internet, be prepared to be subjected to lots of “advice” and “recommendations” that Mint partners with. All in all though, I actually prefer it to my old version of Quicken for its ease of use. While it’s true that for those running business, trying to run payroll, or do more complicated financial recording, Quicken (or some similar product) is still probably the best tool. But for the vast majority of us, just trying to keep tabs on things, there is no better site than Mint.com It can add just about any financial account and automatically downloads your latest transactions and balances. It sends bill reminders. You can create budgets and your transactions each month are automatically (and almost always accurately) tagged and placed in the proper budget category. You can see your monthly cash flow and growth in your investments. It can even monitor your housing and property values through a relationship it has with Zillow.com. This brings me to..
Zillow is a real estate app that can allow you to search for home prices, rental prices, and also displays the property values (estimated) of any house in a given area. I think it is quite useful for anyone in the housing market, and since housing is a big expense it can save you money. When used properly and with half a brain and a decent spreadsheet, you can more or less act as your own appraiser and figure out where a bargain might lay in your next hosing search. Renters can get a lot of comparisons on a block by block basis, and, in most cases, look at photos from listed properties. Buyers can get similar information and quickly compare taxes and other information across a range of properties. While Trulia.com or Redfin.com is broadly similar, I tend to use Zillow more for reasons I can’t quite put my finger on. I am not sure if it is as effective in red hot rental markets like New York City, Washington, D.C., and San Francisco, but for my uses in Chicago it does better than an agent could in finding my next place.
Awardwallet is an awesome site that automatically downloads and tracks your frequent flier miles and award points across just about every loyalty program there is. They have cas hback sites like BigCrumbs.com, dining sites like OpenTable.com, and of course every airline and credit card program there is. It is a one stop shop to keep track of all of your valuable miles and points. With any small donation a year you get upgraded to premium and then the site even keeps track of when your miles and points might expire.
Fatwallet is my general go-to site for deals and shopping savings of all kinds. There are other similar sites that do this as well, but fatwallet also has a nice community that is helpful with ideas and advice. Milepoint is my favorite travel forum with friendly, helpful members. People will give advice on just about anything remotely related to travel. I often use it to find good restaurants and things to do in my own city, as sometimes travelers have a good eye for new experiences. You should also obviously check your banking site and credit card company from time to time just to keep an eye on charges and spending.
A short list, I know, but I hope a powerful one too. Broadly, if you can keep to a budget in Mint and monitor your spending, keep tabs on your points and miles from time to time, and find value on housing, you are well on your way to sound personal financial habits. Mint will also provide you advice on insurance, loans, and all kinds of other items if you choose to use their services for these matters. Enjoy these personal finance tools! Do you have others you enjoy? If so, please do share in the comments.
Today we are beginning a new series I am calling “Your MacroWallet” that I hope will bridge some personal finance advice with larger macroeconomic topics, politics, and more wonkish research on money and economics. Since pretty much all of government is inherently related to economic matters, and since even dense academic research is designed to have some basic insight into our personal economic lives and the operations of the economy, I am thinking this will be a rich and exciting series. I do hope you agree.
In followup to my article of a few days back on the fiscal cliff, there are more developments and insights into what might actually happen by the end of the year.
The Economist has an interesting article on the negotiations and why elections matter for economic policy. This report took a more skeptical view of a deal and also quotes research that higher marginal tax rates on the wealthy actually do little to impact their economic behavior. Another piece they have does a nice job of outlining parameters for a potential deal, suggesting the Democrats demand a progressive system that raises revenues, the GOP seems to agree, and now it is largely figuring how to get there. The paper also has some suggestions of their own about what would make the most sense here and here.
Also in macroeconomic news yesterday was a good report on housing and housing prices. The inventory of homes is down to pre-crisis levels and the price of homes is rising. Rarely do you see in one article such a vivid portrayal of the price system at work, as consumers get more wealthy and unemployment declines, demand rises. Combine this with less supply in the market after fewer housing starts and fewer foreclosed homes, and you have a recipe for a market in more sound shape. Few things could be as positive for our near terms economic improvement. However, this does not mean you should run out and buy a house unless it makes sense for you and your family. Housing prices are still a somewhat poor bet over the long term, averaging only .6% per year after accounting for inflation.
I must admit I strongly dislike shopping. I avoid it at all costs. Sure, I like getting stuff as much as the next guy. However, the thought of parking in a lot and then having to run a 5K to get to the frigging store, elbowing through a bunch of other people, hauling bags around all day that constantly hit me in the shin, and -the worst- wearing a heavy winter coat to survive Chicago weather but then being ridiculously hot in overheated stores; all this makes me actually not want the thing I am nominally going to the store to buy. Normally, I just shop online and wait the few days for the exciting package to come. Provides a little bit of anticipation in the day too. If I have to go shopping I generally like staying in an urban area, like my downtown of Evanston, IL or on Michigan Avenue, Andersonville, State Street, or some other neighborhood in Chicago.
Yet I recognize my minority status, particularly this time of year. Millions of shoppers will descend on stores this Black Friday (with some stores even opening 10 pm on Thanksgiving Day.. when will it stop!?!?!) and consider the bargain hunting a sort of sport and adventure. Malls of all kinds and sizes will be attacked by a flock of angry shoppers.
Nothing wrong with this, of course, to each his own. But if you are looking to get the best deals that make the most financial sense for your personal finances, here are a few pieces of advice. Some of these come thanks to this MS Money article.
1. Make a budget and a plan
Figure out what you really want to buy and for whom. Establish a budget per person you are shopping for. Then, go to the stores with only these goals in mind. Do not be tempted by some “cheap” “good deal” on something you don’t really need. Remember, there is no marginal value to getting a “good deal” on something you actually don’t really need, want, or intend to use.
2. Consider not going to stores, shop online instead
By simply googling the item you want, you may find equal or better deals at other retailers online (Amazon in particular has been known to match Black Friday deals). Online also has a variety of other side benefits, often overlooked by the average shopper. Online portals like TopCashBack, BigCrumbs, Ebates, and FatWallet provide cash back through their rebate system. This is in addition to any normal cashback you might be getting on credit cards and the like. This can have real savings of several percentage points per purchase.
3. Check out various credit card points deals.
Ev Reward has an easily searchable database that will tell you where you will get the most points online shopping for a particular item. I check it all the time before buying anything. For example, one store may have a 3X points deal through the Chase shopping portal and only 1X on the American Airlines portal. Click through the most lucrative site for more points. Be sure to take screen shots of big purchases as these sites work based on putting cookies in your browser and mistakes have been known to happen. (to take a screen shot hit “Print Scr” this will snap whats on your screen to the clipboard, and then you can paste into a Word document) Chase Freedom and Discover are also famous for rolling 5X point bonuses on select shopping each quarter.
4. Don’t worry about shipping fees, but try to avoid them if you can
Shipping fees can suck when shopping online, but may not be as annoying if you think of the cost of gas and parking you might incur by shopping in person (my Michigan Avenue trips can easily be $30 in robbery garage fees). Many sites do waive shipping costs this time of year or eliminate them for purchases above a certain dollar amount. If this sounds like a pan to check out they can easily be compared on Google Shopping or Bing.com.
5. Enjoy the experience if you do go in person
Try not to get too stressed out by winning the game and clubbing someone for the last cheap TV. Remember these sales are designed primarily to pull you in the store and make you crazy and are purposely of limited quantity. Getting mad over it would be like getting upset about not winning the lottery. If you do go out to try and hunt for deals, treat it as an experience and enjoy the quest. Ticking up your blood pressure and making your family hate you is probably not worth saving $50 or so.
A quick Sunday update on checking accounts.
Banks of late seem to be actively pursuing new checking and savings account customers. Perhaps as part of their need to comply with Dodd-Frank and generally rehabilitate themselves after the Financial Crisis of 2008, banks have made more stringent their lending standards, and also attempted to raise deposits and capital in order to create stability. This somewhat wonky article at http://www.economist.com/node/18654640 describes how the banking is system is capitalized.
However banks have a very hard time recruiting people to save more as our entire national economic policy is designed to get people to save less and spend more. Interest rates are at an all time low and few savers would be enticed by rates below 1% or even below .5%. The result is that some banks have aggressively pushed various sign up bonuses for their accounts. Bank of America was offering a $100 cashback bonus last time I logged on. ING was offering sign up bonuses and bonuses for recommending new customers to them. Yesterday, I took an offer that Bank of America sent me for 10,000 Alaska Airlines miles for a new checking account. Citi similarly has bonuses to the American Airlines program currently running for those opening various kinds of new checking accounts.
This presents some juicy opportunities for the savvy willing to devote some time to account-hopping. Since checking accounts require no credit pull, you could take advantage of all of these offers, have your spouse to do the same, and end up with a tidy little sum of cash back offers and miles at the end of the year. So why not?
A couple caveats. First, be sure to carefully read the fine print. There are usually terms and conditions, most frequently a certain number of transactions, bill payments, or even direct deposits must be made to the account in order to trigger the bonus. Perhaps even more importantly, most of these require a minimum opening deposit, and a certain average daily balance in order to avoid a monthly fee, often times this fee is something like $15 or so. Needless to say then, if you don’t pay attention to this you could negate the value of your bonus. It may also be annoying to bother your payroll/HR department with a new direct deposit change every two months (although fatwallet often has results of ING transfers or Paypal transfers counting as direct deposits).
Still for those who have a bit of time to organize this, a friendly payroll/HR department (why not buy them off with a box of donuts or Christmas cookies?) the benefits could be real. A $100 a month bonus is a nice little date night. Then, your spouse could do it again the next month (just be sure NOT to put his/her name on the account the first time so they are still a new customer). 10,000 Alaska Airlines miles, the offer I bit on, is about halfway or so towards a round trip domestic award ticket.
Consider your situation and what you are comfortable with, but this could be an easy bonus game to play and one that doesn’t harm your credit score like credit card sign up bonuses temporarily do.
Signup bonus I bit on for Alaska and BofA.
In our last post we covered how credit cards, if used properly, can bring value to consumers. Credit card companies give points/miles – glorified rebates- to their customers. For the purposes of discussion I will use the words interchangebly, but generally points are specific to a credit card company, like American Express Membership Rewards or Chase Ultimate Rewards, while miles usually come with an airline affiliated card and go directly to said airline’s frequent flyer program.. These points can be valuable little currencies to improve your life and allow you to buy or experience things that you might not otherwise be able to afford. This is great as it improves life at the margin, meaning that it allows you to do something you otherwise wouldn’t and therefore provides a greater return and satisfaction to you. In short, without miles and points you may not take that trip or buy that tablet.
To demonstrate the value of miles and points I will provide two quick examples of how miles work and how you might be able to use them.
Example #1: Shopping:
Below is a sample screen shot from the American Express Membership Rewards Mall. I believe it speaks for itself, but does provide some idea of the kinds of items available.
When one considers that a good credit card sign up bonus is often 50,000 points, and you can apply for multiple cards in a year and link to the same account, these numbers become do-able. Also, American Express offers frequent discounts on the points required for purchasing these items. Moreover, if one pays attention to bonus spending categories (American Express offers 2X points on groceries for its Premier Rewards Gold Card and 3X points on airfare), it can be reasonable to rack up 200k points every few years. As you can see above, that could equate to a fairly high end laptop computer, or at the very least, a Kindle Fire. Not bad at all for signing up for some cards with bonuses and putting spending on the right card. This past year, for example, I received a 50k bonus for upgrading to the Platinum Card, another 50k bonus for the Premier Rewards Card, and a final 50K bonus for the Business Rewards Gold card. As long as you are comfortable with yearly fees and/or cancel the card before the yearly fee comes due, you have some pretty lucrative points to transfer into shopping.
Example #2, Transferring to Airline Miles
Most miles and points experts recommend transferring your points into an airline mileage program, or using a card that directly deposits points in an affiliated airline frequent flier account. AMEX and Chase offer the ability to directly transfer their points into affiliated airline frequent flier accounts, and nearly every airline has some sort of affiliated credit card that gives at least 1 mile per dollar of spending on the card. To see how this can add up, observe the United Airlines chart below:
While perhaps difficult to read, the mileage redemptions should make you take note of the value of your miles. A trip in the US at the Saver level is just 25,000 miles round trip. Therefore, a sign up bonus of 50,000 miles nets two round trip tickets. Again, though many experts recommend shifting to the international first class awards. A Saver level trip in first class between the US and Europe is just 135,000 miles or so, and only 100,000 in business. The retail value of these tickets is in the many thousands of dollars.
Of course, each program is different and each airline may have various availability challenges. Nonetheless, the clear fact remains: you can buy and travel in ways you didn’t think possible all through clever credit card usage.
Heavily promoted and marketed, but little understood, credit card mileage and points schemes offer an exciting way for savvy consumers to improve their lives at the margin. While they cannot create happiness (only a warm gun can), when used properly, particularly with large sign-up bonuses often on offer by banks and credit card companies, it can allow you to afford that trip you’ve dreamed of, that new gadget you’ve had your eye on, or simply get a good chunk of cash back.
Since credit cards, their swipe fees, and their high interest rates are so profitable to banks and credit card companies, they can afford to essentially “kick-back” some of those profits to their customers in the hope of luring in still more customers in a virtuous feedback loop. When you earn miles and points, you are essentially dipping your cup in the money stream and taking a little piece of the action back for yourself. It can take as few as 25,000 miles for a domestic round trip airline ticket, which can easily have a retail value of $500-$800 meaning you are getting more than a 1% rebate on all of your spending. Many who are “professional” miles and points afficionados can do even better if they save up their miles for international first class and business class flights which can easily cost several thousand or even tens of thousands of dollars. Many times these tickets can be procured with somewhere around 100,000 points, not so hard if you get a few big sign up bonuses and put your spending in the right bonusable categories (for example Chase on their INK cards gives 5 points per dollar spent at office supply stores).
Banks and credit card companies have a variety of ways of making this work for them. First, they know that by bringing in more customers they only need a few to run up fees and interest payments to balance out all the other folks who play the game well and earn points. Also of course, the more you use your cards for the points, the more swipe fees they get and the greater potential for fees and interest payments to eventually arise. If you return points for items on their various malls (Chase and American Express both have points malls to buy items with points), those items are usually being sold at 1 cent a point or less(meaning a $1000 laptop would cost 100,000 points). This is a fine deal for them as likely these companies are buying the items at wholesale prices to boot. So in the end, for every cent they give you, they are probably making at least three by enticing you to charge more.
Transfering points to airline miles can be among the best deals for customers, but even here banks come out fine. They usually have some kind of partnership arrangement with various airlines and therefore use it as a way to bring in more business. For example, you might not be carrying a Chase card at all if you are a United Airlines flyer and United was not a partner with Chase. Few airlines have relationships with more than one of the major banks so this is a way to create customer loyalty and bring in new business.
The airlines, of course, are also quite happy with this arrangement as they sell vast quantities of their miles/points to credit card companies and banks. Many mileage programs are far more profitable than the airlines themselves. Some, like aeroplan, have even come out as independent businesses.
All this explanation is really just my way of proving to you that everyone is making money in this game, and if you do not understand or don’t play it well you are leaving thousands of dollars a year in “income” on the table. Whether it is simple cash back, points for merchandise, or the potentially most lucrative of all in absolute terms – premium cabin air travel – you have a lot to gain by playing the game properly. While this can become a bit obsessive and even judgmental, true points/miles gamers look down upon those who merely take cash back or buy a toaster, it is a powerful way to make a little money every time you spend any amount of money.
After my post today on how credit cards work I thought I would post a few links as follow-ups. Some are short and interesting, while others like the PBS Frontline series on “The Secret History of the Credit Card” might require a bowl of popcorn. Enjoy!
An article on Dodd-Frank and why your debit card probably doesn’t earn points. Also written from a small business perspective.
PBS Frontline show on credit cards.
An encyclopedic series on credit cards from TheFool.com
An article from the HuffPost geared to younger readers looking for their first credit card.
Nearly every American owns at least one credit card, and many of us (myself included) use so many different cards for different purposes that there is probably not a wallet around that would hold all of them. But how, exactly, do credit cards work? This is an important question as it allows you to better understand how credit cards can be useful for you, how you can benefit from using them them instead of cash; but also how they even more greatly benefit both the merchant and the bank and can therefore hurt your financial well-being if not used with wisdom. Essentially, credit cards are key components of the financial system, a network of banks and intermediaries that help buyers and sellers come together while also connecting savers with borrowers. In this way, credit cards are not much different than larger and more serious kinds of loans (like mortgages and car loans), and play a similar role to stocks and bonds as well. Let’s look at how this all works.
Above is a basic graphical outline I did not make that shows how a credit card transaction works. This is useful because it helps you to better understand all of the parties involved. This diagram is written from the perspective of a business charging your credit card, so keep that in mind when reading. The “acquirer” is the bank for the merchant. What is not shown are the steps between the issuer and acquirer where payment processing takes place between these banks. This is where companies like Visa and Mastercard come in, as they help quickly and accurately speed the transaction between the two big banks.
Let’s provide a case study. Say Susan with her Chase Freedom Credit Card goes to buy a $3.00 latte at Starbucks. Susan is represented in her purchase by her bank, Chase, who has approved her for a line of credit to go and buy things on based on her history and credit score. The “Freedom” Card is just a type of credit card product issued by Chase, similar to how a single car company like Ford might have multiple styles of cars (Mustang, Taurus, F-150, etc.). Starbucks then will have an account with a bank of their own. This bank will instantly reimburse the merchant for the value of the latte, minus a transaction fee of 3% or so. Starbucks bank will then go and request $3 from Susan’s bank, Chase, via the payment processing system known as Visa or Mastercard. These companies take a cut of the action on processing the payment. Susan’s bank then sends the $3 to the merchant bank and marks her account up for $3. When Susan’s credit statement closes she will owe payment on that $3. If she does not pay it off, she will have quite high interest charges plus penalty fees to pay.
Along the way rebates are given to the customer (Susan) in order to entice her to use the card more.
So how does this benefit all parties? Let me explain via the following diagram which I have drawn.
This shows the interests that each actor has in the process. You can clearly see that Susan and the merchant Starbucks gain substantially from their use if credit cards. Susan, however, does also take on risk, but mostly controllable risk in that she can control her own spending habits.
In fact the largest uncontrollable risk you could say is clearly from Susan’s bank even though I have drawn this as though everyone is paying off what they owe. The bank has no way of being completely assured Susan will pay off her debts even if it runs her credit score and fully knows her payment history.
However the bank probably is little concerned by this as they can run up fees and interest charges on Susan’s account, revoke or lower her credit line, and close her account. In fact they probably want a lot of these things to happen as most customers will (eventually) pay off these fees and charges and the bank is maximizing its returns by being aggressive in giving credit to more risky customers who will incur these fees while writing off losses to the few that are complete deadbeats. This is akin to an aggressive poker player losing some hands big but winning many more they otherwise would have folded.
Therefore it is really in the bank’s interest to get a lot of customers of different kinds and entice them to use a lot of their products for most transactions. They will make a small steady profit in the churn and percent transaction fees from good customers with 800+ credit scores while potentially also charging the real premium products a yearly fee. They will make easy money from the middle class who may carry some balances and incur some fees but generally pay their balances eventually. And they will lose big on very risky customers but hit even bigger on many others in the high risk category as discussed above. Banks get a lot of customers by aggressively promoting new products and offering various rebate and point schemes. This benefits them enormously in the aggregate macro environment.
But it can benefit you the individual customer as well as points, rebates, and sign up bonuses can add real value. It is this system we will discuss more in our next article.