Wednesday, June 25, 2014

Free Bank Bill Pay And Credit Card Rewards

Four years ago, I switched as many of my monthly bills to be paperless as possible. As part of that switch, I also signed up for free online bill pay though my credit union. I've since found that the use of online bill pay makes it very easy to take advantage of credit cards that provide rewards for spending.
Personally, I like the rewards offered by the Starwood American Express card. Not only can you redeem the points for free nights at Starwood brand hotels (Sheraton, W, Westin, and Aloft to name a few), but you can also redeem them for frequent flyer miles for almost any airline. So I try to use this card as much as possible. Of course, carrying a balance on a credit card will cost you money and with an interest rate of around 15.9%, this card isn't one of the lowest rate cards around, but if you have the discipline to pay off your balance in full each month, you can rack up some good rewards. (This card does have an annual fee, so you'll also want to make sure whatever benefits you get from it are worth more than that annual fee.)

This is what I do: Each week, I use my reward card for all my spending - gas, groceries, eating out, everything. I log all my expenditures in my phone app as I spend. Sunday night, I look at how much I charged to the card that week, then log into my online checking account and schedule a payment to my credit card for that amount. I usually schedule the payment two weeks in the future because that keeps the money in my checking account earning interest (albeit, a tiny amount) for a while and the credit card is paid before I start accruing interest on the charges. (Most credit cards have a 30 day grace period before they start charging interest.)

Note that this only works if you do not carry a balance on your credit card however. If you do carry a balance, your credit card will charge you interest on your average daily balance, so you'll start being charged interest from the moment you make a charge, which will probably end up costing you more than any rewards you might earn. If your bank also charges for each online bill pay transaction, this may also end up costing you money.

Because the card I use is an American Express card, I can even use it when I buy groceries and gas at Costco.

Using this method, I've racked up enough points for several free hotel stays,  the latest of which will be happening tomorrow. We're taking a cruise to Alaska, which departs from Vancouver, Canada. We're flying up a day or two early to see a bit of Vancouver and I used points to get our hotel room for free!

The other reward card I like is the Chase Freedom card. You get 5% cash back from certain vendors / purchase types that vary by quarter and 1% cash back on everything else. There is no annual fee. I also got a 0% interest rate for the first 15 months of use. I've only had this card for two months, but so far, I've been happy with it.

Wednesday, June 18, 2014

Two Of The Finance Tools I Use

Whether you are trying to stick to a budget or create one from scratch, you'll have a hard time if you can't account for where all of your money is going. Here are a couple of apps that I have found invaluable.

Easy Money Android App - This is a money manager app that I use several times a day. I long ago gave up my paper checkbook and switched to using this app for tracking my checking account. Not only that, but I also use it to track my savings accounts and credit cards. And since it's on my phone, which I always have with me, I can enter expenses as soon as I make them. For instance, when I put gas in my car and pay with my debit or credit card, I enter the amount into the app right there at the pump. No need to get a receipt (so yay for the environment). You can easily track payments from your checking account to a credit card by using a Transfer Funds option to move money between accounts. The app tracks cleared and reconciled entries and balances, so balancing the app against your bank statement is as easy as putting a check mark next to each entry.

You can categorize expenses and create reports or budgets. You can set up recurring bills. You can even take a photo and attach it to an entry, which can be handy if you need documentation for business expenses. There are several canned reports that are readily available and you can run them for a set timeframe, such as current month, last month, etc., or a custom time frame that you define.

A nice feature is that once you have assigned a category to a vendor, subsequent entries for that vendor will default to that category, which speeds up data entry. For example, when you first create an entry for McDonald's and assign it a category of "Eating Out", then subsequent entries for McDonald's will default to that category. You can override that with a different category if you want too, however.

Once you've used the app for a while and categorized the majority of your expenses, you can create budgets. The app will track how much you spend in each category and you can view a report showing how much of your budget remains.
The app does give you the option to set a 4 digit security code that must be entered before it launches, which can help prevent strangers from seeing your finances in the event you lose your phone. - I started using about 6 months ago and have found it to be a great tool for getting a consolidated view of your finances that might be spread out over several different accounts and at several different institutions. The scary thing about Mint is that it needs your login credentials for each account you want it to track. Basically, Mint gathers data by logging into the websites of your financial institutions and gathering account data. Mint goes to great lengths to emphasize their security, often by pointing out that their system cannot initiate any transactions - it basically is a read only tool. But that is somewhat disingenuous because, although their tool is ready only, if someone hacks their system and gets your login info, there is nothing to stop someone from going to the financial institution's website directly and logging in as you and wrecking havoc. They list the security precautions they take here. Mint is owned by Intuit, makers of Quicken, so they have a vested interest in maintaining top notch security to protect the reputation of their company.

After some research, I decided to go ahead and start using Mint and I gave it the keys to my financial kingdom. I do however, utilize unique, randomly generated passwords for each site and use a secure password manager to keep track of them. That won't help me if Mint is hacked and all my logins are stolen, but if only some are stolen, the damage would be limited.

Anyway, once you give Mint access to your bank accounts, every single transaction is automatically loaded. You don't have to worry about forgetting to enter transactions. Mint can also track your brokerage accounts and company 401(k) accounts. They can't do everything however. For example, the 401(k) provider my company uses is not supported by Mint, so they can't automatically download the info from their website. I've submitted a request for them to support that company and once enough people make the same request, they will add support for it.

Like the EasyMoney app, Mint works by assigning categories to each vendor. The nice thing is that Mint already knows how many vendors should be categorized. And again, if you select a different category, it will continue to use that categorization for subsequent entries.

A function called Trends lets you see exactly how much you are spending  on each category. You can even break it down to individual stores, if you want. This is a great way to see where your money is going and is immensely useful if you have not yet set up a budget.
It's also easy to create comparisons between two time periods, so you can see how your spending has changed.

Mint can also be configured to send out email alerts when something happens in your accounts - when you drop below a certain balance, get hit with a finance charge, etc. It can also send out a weekly summary email.

One of the features I like is the Goals feature. You can define certain goals and a deadline for meeting those goals. Mint will then determine how much you need to save weekly to reach that goal. If you are saving for that goal in a dedicated account, you can link that account (or accounts) to a goal and Mint will automatically track your progress.
I'm a bit behind on my Tesla goal.

There are some limitations to this. For one, an account can only be assigned to one goal. Another limitation, and one that really affects me, has to do with how Mint handles accounts it can't get info on.

For example, I have several hard money loans. They obviously don't have a website that Mint can access to obtain transaction info, so to enter this data into Mint, I need to enter it as an asset type of "Other." When you do this, you basically give Mint a lump sum value for the account and you have to update it manually. But these types of accounts are not allowed to be assigned to Goals. This can create some discrepancies. For instance, I have a retirement goal set up, but because my company's 401(k) provider is not recognized by Mint, I had to set it up as an "Other" asset type and I can't include it in my retirement goal. This causes my goal progress to be understated. There are similar issues with vehicles. You can tell Mint the year, make, and mileage of your car, and it will figure out the Kelly Blue Book value and include that in your net worth calculations. I'd like to include this amount in my Tesla goal, because when I sell the car, the money will be put towards the Tesla. Mint won't let me do that.

Mint does have a a community message board and you can request features and changes. From what I have seen however, they are not very responsive. I've seen requests to make the above changes from many people over a couple years and they have still not been implemented.

Mint is free to use and they make their money by offering you ads and suggestions for financial services. For example, if Mint detects you got charged a yearly fee on a credit card, it will pop up a suggestion that you apply for one without a yearly fee from one of their partners. These are fairly unobtrusive ads and you can disable most of them.

Wednesday, June 11, 2014

How I'm Saving And Investing

The sharp-eyed reader will have noticed what seems to be a discrepancy between my words here and my actions. In my first post, I wrote this about stocks as a vehicle for passive income for this project:
If you are trying to save money over an extended period and you make frequent purchases of stock, your commission costs will likely eat up any profits you might get from dividends. Furthermore, the changing stock price will make it very difficult to earn a consistent rate of return. So this isn't the best option either.
But if you look at my Goal Progress page, I say this:
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.

So what's going on? Do I believe in using stocks for passive income or not?

For the long term, as a method of ultimately covering my auto loan payments and paying for my Tesla, no. What I am doing now, however, is using stocks as a temporary investment until I accrue enough funds to invest in a hard money real estate loan - about $20,000.

Because the interest rate environment right now is so bad, it doesn't make sense to just let money sit in a bank and earn next to nothing. Instead, I am investing in a dividend paying stock that pays around 5%. Once I hit the $20,000 milestone, I'll sell the stock and then invest that money in a hard money loan earning 9%.

But, as I mentioned earlier, I do need to watch out for commission expenses and stock price fluctuations. To help keep commission expenses low, I don't buy any stock until I have enough funds to buy at least 10 shares. (I'm using Scottrade, which has a $7 commission.)

The next big question is what stock am I buying? I am quite partial to Realty Income (O). It's a real estate investment trust, so I understand the business. As a REIT, they are required to pay out 90% of their profits as dividends. Furthermore, Realty Income is somewhat unique in that they pay a dividend monthly, instead of quarterly, like most stocks. They also have a solid history of paying dividends and increasing their dividend. They've paid 524 dividends, increased the dividend 75 times, and have had 66 consecutive quarterly dividend increases. In fact, they promote themselves as The Monthly Dividend Company. Their dividend track record is here. Monthly payouts also mean faster compounding of the dividends.

I'm not too worried about changes in the stock price. I've been investing in this company for years and have seen the price vary from $38 to $54 per share. I buy this stock for the dividends and if the price drops so low that selling some would cause me to lose money, I can afford to sit and wait until it rises again. Saving for my Tesla is a multi-year journey and I can afford to ride out the dips in price.

At the current price of around $44 and a $2.18 per share dividend, O is providing a 4.9% dividend yield. So my mid-term goal is to save money and invest in O until I reach $20,000. Then I'll sell the stock and invest that $20,000 in a hard money loan earning 9%, which is almost double what O is giving me. I'll take the monthly payments from that and funnel them back into O stock. Rinse and repeat every $20,000.

Why am I waiting until I save $20,000 before investing in a hard money loan? At 9%, that amount gives me $150 per month. Anything smaller isn't really worth the effort and paperwork for me or my hard money lending partner. As anyone who has bought a house knows, real estate transactions involve lots of paperwork, lots of signatures, and lots of shuffling papers around between parties. And title companies always seem to wait until the last minute before telling you they have to have you sign this document, get this document signed and notarized, etc. There's always a flurry of activity when a loan closes. If I'm going to go through that on a regular basis, I want to get a decent chunk of change out of it.

Now, for legal reasons, I better be sure to tell you that this post is not a solicitation to buy or sell any securities. I am not an investment adviser. Consult your own financial professional. Some assembly required. Your parents have to put it together. By Meco.

Thursday, June 5, 2014

Slight Adjustment

I've decided to make a slight adjustment to my goal. I've been doing some reading of blogs of Tesla owners and forums and such and decided I can probably scale back on what I want. My original goal amount of $113,925 was based on the Tesla P85 Performance package. After further consideration, I don't think I need the performance package. The package basically gets me 0-60 MPH one second faster and the top speed goes from 125 MPH to 130 MPH. It also includes red brake calipers, which I really like. It includes some other things, but these are the two main things the package gives you that I care about. The increase in price for this is about $10,000. I'm not sure I like the red calipers that much. I also don't think I need the extra second in the zero to sixty time.
Pretty, but $10,000 pretty?

So I revisited the Tesla website and respec'ed the car. In the process of doing so, I discovered their website already subtracts the $7,500 tax credit from the price, which my spreadsheet also did, so I was subtracting that amount twice.

For documentation, here's the options I'm going with:

  • 85 kWh battery
  • Dual chargers
  • Wall connector
  • Tech package
  • Smart air suspension
  • Parking sensors (for my wife, who routinely hits the concrete stops in front of parking spaces)
  • Premium interior lighting
  • Parcel shelf
  • Leather performance seats

Anything not mentioned will be the standard option.

Using this new configuration and correcting for the tax credit mistake, my new goal amount is $108,743. That will be the figure I use going forward for calculating the Percent Of Goal figure on my goal updates.

In reality, this will probably change again in the future. I'm sure the price will change (hopefully, it will drop after the new battery gigafactory comes online) and the tax credit will go away at some point. And it's entirely possible I will change my mind on the options again. (I'm still unsure about the air suspension. That's a $2,250 option and I suppose I'd have to drive a car with and without it to see which I prefer.) But for now, this is what I'm shooting for.

Wednesday, June 4, 2014

Goal Progress: Start of June 2014

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 update: May 31, 2014
Last value: $5,750
Change from last month: + $869
Percent of Goal:  5.04%

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: All my gains this month came from eBay. Around 15 years ago, I was really into Stephen King and bought a couple signed and numbered limited editions of his books. A few weeks ago, I saw those books on my shelf and realized I should get rid of them. My plan when I bought them was to hold on to them until King died, at which point I figured the price would skyrocket. While that may still happen, I realized I should probably sell them now. I'm not that into Stephen King any more (I was so disappointed with the end of the Dark Tower series, that I haven't read another King book since) and I figure the longer I hold on to them, the greater the chance that they'll get damaged somehow, thus reducing their value. So I sold three of the six books I have and netted almost $1,000 after all the eBay and PayPal fees. Considering I bought the books at retail (about $75 - $100 each), that's a decent return. The other three are still up for sale, but probably won't bring in as much as the first three did.