Wednesday, March 21, 2018

Credit Card Showdown: Costco Visa vs. Chase Freedom

I love my Chase Freedom Visa credit card. I earn 1% cash back on every purchase and 5% cash back from select merchants that change each quarter. There is no annual fee. And now that Costco takes Visa, I can use it there as well.

But the last time I was at Costco, I noticed a sign advertising a Costco branded credit card. These are the details:

Hmm.. That looks intriguing. I spend a fair amount of money at Costco and my Chase Freedom card only gives me 1% cash back there. I could double that with Costco's card. Four percent back on gas purchases sounds promising, as does 3% on restaurant spending. The base 1% on everything else matches the Freedom card's cash back rate. Perhaps it was worth looking at switching..

The Devil Is In The Details

So I checked out the fine print of Costco's card cash back program. The card is offered through Citibank and the terms can be found here. Here's my comparison, based on information obtained on March 14, 2018.

Annual Fee

Neither card has an annual fee. Winner: Tie

Annual Percentage Rate

The Costco card APR is currently 16.49%. This is determined by adding 11.99% to the Prime Rate. Chase Freedom is the same. Note that your actual rate will be determined by your credit score and may be higher. I don't carry a balance, so this isn't a big deal to me. Winner: Tie

Sign Up Bonus

Costco's card does not offer a signup bonus. Freedom offers a $150 credit after you spend $500 in the first 3 months of getting a card. You can earn another $25 by adding a second user to the card and making a charge with that card within the first three months. Winner: Chase Freedom

Reward Program And Reward Redemption

This gets a little complicated.

For the Freedom card, it's relatively straightforward: 1% cash back on all purchases, with no maximum. For selected categories, you earn 5% cash back on the first $1,500 spent in the quarter. After that, the standard 1% rate applies. You must manually activate your increased cash back bonus each quarter to earn it.

The Costco card has four reward categories:

  • 4% cash back on all gas purchases, including gas purchased at Costco, up to $7,000
  • 3% cash back on restaurant and travel purchases, which includes hotels, airfare, car rentals, etc. Purchases from Costco Travel do qualify.
  • 2% cash back on all Costco purchases.
  • 1% cash back on everything else.
If you read the fine print, you'll discover some important exceptions:

  • Bakeries do not count as restaurants, for some reason. Also, some restaurants inside stores will not count. This is typical and understandable. The main store is not categorized as a restaurant, so you will just earn 1% there. Chase Freedom has the same disclaimer for it's quarterly categories.
  • Not all gas stations qualify for 4% cash back. Costco gas stations do, but gas purchased from other warehouse stores, convenience stores, supermarkets, superstores, and non-Costco warehouse stores do NOT qualify. You only earn 1% cash back at those locations.

Chase Freedom rewards can be redeemed each month. They can be redeemed as a statement credit or used to purchase gift cards from select merchants, such as Amazon. Reward points do not expire.

Costco cash back awards are distributed once per year, at the end of your February billing cycle. You receive a certificate than must be redeemed at Costco in a single transaction. If your reward is more than your purchase, you will receive cash back. The certificate expires on December 31 of the year in which it was awarded.

Winner: Chase Freedom, for many reasons.

The restrictions on the 4% gas station rewards make it more or less useless to me. I do buy gas at Costco when I can, but there is not a location convenient to me. Most of my purchases are at the gas station at my local Safeway, which has the cheapest prices outside of Costco. Per the Costco card restrictions, I would not earn 4% there because it is a supermarket. I'd only earn 1%.

The yearly reward redemption, quite frankly, sucks. I don't want to have to wait a year to redeem my rewards. Furthermore, I don't want a paper certificate that I can only use at Costco. Sure, I shop there a lot, but why is paper even still being used? It's just another thing to keep track of or lose. And yes, I can redeem it for cash, but I resent being forced to go to a particular place to redeem it. Chase Freedom offers me the ability to credit my account monthly, online and at my convenience.

Other Requirements

Your Costco membership fee will be automatically charged to your Costco credit card. Additionally, if you cancel your Costco membership, your credit card may be cancelled as well.

And the overall winner is....

Chase Freedom.

While Costco typically has good deals on most things, this credit card program just doesn't compete with the Chase Freedom program, both in terms of ability to earn rewards and the ability to redeem them. I'm sticking with Chase Freedom.

Wednesday, March 14, 2018

Tax Day!

Last week was tax day in our house. Not April 15, when taxes are due to be filed, but the day I set aside to gather all my tax-related paperwork and ship it off to my CPA.

Like always, I sat on the floor of the room we use for our home office and starting stacking papers in piles all around me. All W2s go in this pile by my left knee. All 1099 forms go the pile by my right knee. That pile over there is for receipts for charity donations. The pile my dog keeps walking over is for income from my hard money loans. That one under the desk is for gambling winnings and losses. The pile on the chair is for moving expenses.

I put a sticky note on top of each pile identifying what it contains and paperclip each group together. Once I’ve distributed all my paperwork to one pile or another, I sort the piles into an income-related group and a deduction-related group. I put a rubber band around each stack, then another rubber band around both stacks to keep them together and into a large mailing envelope they go, off to the CPA.

My CPA loves that I am so organized. I can’t help it. It’s the engineer in me.

This process could take a lot longer than it does, but I try to do as much as possible during the year. For example, we donate a lot of old clothes and other items to Goodwill. Before I drop them off, I make sure to document everything. I have a spreadsheet where I list each item donated and its value. I also take a picture of the items. (This may be overkill, but I figure if I’m going to get audited, I want as much proof of what I gave away as possible. This also helps document the condition of items in case there is a dispute over the value.) I then print out the spreadsheet and the photos, staple them to the receipt I get when I drop them off, and put that in a folder. When tax day comes, I just take the papers from that folder and hand them over. The work of assigning values and documentation was done throughout the year.

One drawback to having so many different accounts is that, come tax time, I have lots of different 1099 forms to collect. Nothing I can do about that, unfortunately.

In 2017, we had some significant moving expenses to deduct. We also sold our old house and bought a new one. That added to the paperwork this tax season. We also lived in 2 states during 2017. Luckily, Washington state does not have an income tax, so there won’t be any additional work for that, but my accountant will have to file a part time resident tax return for the time we lived in AZ. This will also be complicated because my wife and I moved out of the state at different times. It looks like our CPA will really be earning her fee this year!

The good news is that the recent tax law changes doubled the standard deduction, so it’s highly likely that next year we won’t need to itemize our taxes.

If you are itemizing this year, here’s one tip I used to always forget – you can deduct any taxes you pay when registering your vehicle. Your registration certificate should spell out exactly what portion of your fee was taxes.

Happy taxing!

Wednesday, March 7, 2018

Goal Update: End of February 2018

At the end of each month, I post an update of my goals, including a brief discussion of any notable events that might have occurred during the month. The latest month's figures can always be found under the Featured menu in the menu bar at the top of the blog.

Last updated: End of February, 2018
Current value: $38,086
Change from last Month: -$2,186
Percent of Goal:  35.02%

Note that the funds in this account are invested in stock, so there will be fluctuations in value that are outside my control. I never withdraw money from this account, so any dips are purely due to stock price changes.

Events Of Note Last Month:

Ouch. February hit me pretty hard. The price of my Realty Income stock dropped and handed me a more than $2,000 loss this month - roughly a 5% decline. It wasn't just Realty Income however. The whole stock market had a rough end of February. While the drop in value hurts on an emotional level, I viewed this as a buying opportunity and picked up more shares of O in my Tesla account, as well as purchased some more shares of Vanguard Dividend Appreciation Index (VDAIX), my favorite Vanguard fund, in my IRA account.

My SQL courses on Udemy generated $76.07 of income. Those courses also generated $9.88 on SkillShare.I earned $0.58 in ebook royalties.

Net Worth Update

Our net worth shows a $22,919 decrease this month. That marks two months in a row of a declining net worth. Again, this was mostly due to the stock market tanking.

January 2018
February 2018

If you have any questions or suggestions for topics, please drop me a line in the comments section!

Wednesday, February 21, 2018

Interview With A FIRE Millionaire

Today I'd like to present an interview with a friend I met while in college. He retired at the age of 43 and has a net worth of over one million dollars and he did this just by working as a salaried employee for a large corporation. No (successful) business start ups, no side hustles. Just a W2 paycheck.

Although the emphasis of this blog is not really FIRE (Financial Independence, Retire Early), there are many common themes between those who want to take control of their personal finances and those looking to retire early. Passive income, which I am going to use to purchase my Tesla, plays a big role in both cases.

If you or someone you know is either a millionaire or has retired early (or both) and would be interested in being interviewed, please send me a note using the contact form on this site.

Here's the interview:

How old are you, your spouse, and children?
I am 48, my wife is 37 and my children are 12, 10 and 6.

At what age did you retire?

I retired at age 43.

Were you married before you retired? If so, how supportive of your retirement was your spouse?

Yes, she was supportive.  It gave her the opportunity to become a full-time student so that she could finish her undergraduate degree from Portland State University.

What is your current net worth?

Approximately $1.2 million

What does your net worth consist of, i.e. how do you hold your wealth?

$260K Primary Residence (paid in full at 4/1/2016 closing, FMV may be higher today)
$769K Retirement Accounts (mostly 401k)
$104K Oregon College Savings Plan (529 accounts for daughters)
$46K Liquid Assets (mostly cash)
$18K Automobiles (all three paid in full, two mostly depreciated by now)

What was your job before retiring?

Senior Product Manager at Intel Corporation

What is your annual income when you decided to retire and what is it now?

$164K then
$57K now

What are your sources of income now that you are retired?

Wife's salary and bonuses as a middle school teacher & investment income

What was your first job and the starting salary?

Graduate Rotation Engineer at Intel Corporation $36,600 base salary (1993)

Was your career the sole source of your income or did you work at other side hustles?

Career was the sole source.

Was it a life-long goal to retire early? If so, why?

Yes, my father retired at age 50 after working 20 years as a social worker.  He encouraged me to “get out of the rat race as soon as possible.”

Did you know anyone else who had retired early?

Yes, many males in their 40's and 50's retire from Intel.

Do you participate in / follow the FIRE (financial independence, retire early) community online?


How did you know you reached the point where you could retire early? Did you have a savings goal or a passive income goal?

The house was paid off and I had no outstanding debt.  My daughter's college accounts were fully funded for in-state tuition.  My retirement accounts had surpassed a half a million and the gains each year were greater than my contributions which I always max out.  I was within a year of exiting my money losing retail business that was costing me about $4K a month due to a 5 year lease that my wife and I foolishly signed a personal guarantee for making our LLC protection null and void for Kimco Realty.  My father had died and left me his house; although an old ranch house in desperate need of repairs, I still managed to net $130K after selling it.  As part of the voluntarily separation plan, I got a severance package from Intel.  Last, but not least, my wife wanted to finish her college degree and enter the workforce.

What steps did you take to reach that goal and how difficult where they?

Saved as much as I could when I was single.  It became more difficult once I got married because my wife is a spender and not a saver like me; case in point, she will go to the store to buy dental floss, zig zag for hours and buy $100 to $200 worth of stuff, then come home and realize she forgot to buy dental floss.  Still, I still managed to max out the 401K and Intel Stock Participation Plans until the very end.

How important are taxes and tax planning for you, both before and after retiring?

Extremely important.  Before retiring, there was a silver lining in having a money losing retail business since I was able to offset that with my income when I had no other deductions, except the standard one, because I had paid off my mortgage the year I got married.  After retiring, our “earned” income is low enough now where we don't pay any Federal taxes at all (except FICA and DI) since teachers in Arizona are among some of the worst paid in the nation.

Do you feel the need to track your spending in retirement? Did you do so prior to retiring?

Yes.  After retiring, we were still in spending mode without any real budget.  For instance, we spent $100K just in eating out for the three years post-retirement.  Having an earned income again after spending down cash for five years has enabled us to set up a target budget.  I realized recently that we were spending over $3K a year eating sushi alone, so there are clearly some places of low hanging fruit to cut. Before retiring, we did not have a budget and were on the “unrestrictive spending” plan.  In addition eating out every day before retirement, we would buy a brand new car every three years.

Do you have a budget? If so, how do you implement it?

We are using my wife's monthly income and earnings from my investments as a target.  Implementation is still a challenge because going all cash or using credit cards, it does not seem to make a difference with my wife.

Prior to retiring, what percentage of your gross income did you save?

About 15%.  When I was single, I was probably savings more than 50%.

What is your investment philosophy? Did it change when you made the switch from working to retired?

I love low cost Index funds since in 25 years of investing, my stock picks have not done as well except in brief periods of irrational exuberance.  I also was disciplined in dollar cost averaging and I double downed whenever the markets have tanked (2000 and 2008) by buying more Index funds.  In retirement, I pay more attention to diversification now.

What has been your best investment?

Vanguard Institutional Index fund (long term)
Microsoft (do not have a position now, but used capital gains from it to buy a BMW Z3 back in the 1990s)

What has been your worst investment?

Linn Energy

How often do you monitor / review your portfolio?

Every single day.

Do big swings in the stock market worry you excessively?

No, I see them as buying opportunities.

What problems did you face along the way to early retirement and how did you handle them?

Our retail business was actually part of the original retirement plan.  Instead we lost $300K over the 5 years we operated the business.   There was nothing we could have done to handle the situation since it was caused by the great Recession.

What are you currently doing (if anything) to maintain or grow your net worth?

My net worth now is roughly the same as it was when it peaked last back in 2014.  Now that we aren't burning down cash anymore, the net worth should continue to grow organically without any additional savings.

Are you satisfied with your current net worth?

Yes, otherwise I would have stayed at Intel for a few more years.

Are you actively taking any steps to increase it?


How did you learn about finances and at what age? Did your family and friends play any role in your financial education?

My parents did not have a great financial education and did what most Americans do (they got in debt).  I was always a good saver since I was a child, but I didn't learn the fundamentals of investing until after college.

If you could go back to when you first start working, what, if anything, would you do differently?


What money mistakes have you made that others can learn from?

Not diversifying out of Intel stock.  Most of my net worth prior to the .com crash was in Intel stock.  I was on my first sabbatical when Intel stock peaked at around 76.  The day after I got back from my first sabbatical, the stock tanked to 48 and then traded as low as the teens.  Intel stock did not reach 48 again until very recently which would have essentially made it dead money for almost 18 years if it wasn't for the good dividend.

Is your life in early retirement different from what you thought it would be?

Yes.  I had children relatively late in life, so being a Mr. Mom is almost a full-time job in itself.  That said, I would rather be a Mr. Mom than sit in boring meetings every day and reading endless emails and crafting Power Point slides.  I do miss some of the travel that allowed me to eat on Intel's dime though.

How do you spend your time on a typical day?

The time when the kids are at school is the “me” time where I get a chance to do reading, catching up on the shows that I like to watch and to take online courses occasionally.  Most recently, I completed an Astronomy course from the University of Arizona.  After I pick up the kids, I do some household chores and now I try to cook dinner on the weekdays; the climate in Arizona is ideal since I get to grill steak at least twice a week!  During the late evenings, I like to check my various accounts and update my net worth.

Do you donate financially to or volunteer for charity?

I volunteer at the Titan Missile Museum in near Tucson, Arizona.

What worries you and keeps you up at night?

I am retired, so nothing keeps me up at night.

Most people have medical insurance through their employer. Is finding / affording medical insurance more difficult / expensive now that you are retired?

As part of the voluntary separation plan, I got 18 months of Cobra which was based on the best health insurance you could buy through Intel.  Starting in 2014, the best health insurance at Intel starting cutting benefits and they stopped paying for Occupational Therapy for one of my daughters and I got a surprise bill for $700.  Today, my wife gets health insurance fully paid through her employer (I believe it is equivalent to a silver plan) and my kids get free health insurance since eligibility is income based (not asset based).  I suppose this is the silver lining of having a spouse who is poorly compensated as a teacher since paying for health insurance for my daughters would cost more per month than what my wife nets per month.

Do you have any advice for my readers about how to retire early?

Cost of living is key.  I lived and worked in the Pacific Northwest for most of my career at Intel, but was paid above market wages since my peers worked in silicon valley.  After retiring, we moved from the Pacific Northwest to the low cost state of Arizona.

Do you have any regrets about retiring early?