Wednesday, February 24, 2016

Update On Previous Posts (Updated) part of my Don't Leave Money On The Table series of posts, I wrote almost a year ago about saving asking for a discount. The following month, I wrote a couple of posts about using credit cards wisely and in the second of those posts, I mentioned which reward cards I used. I also wrote about Paribus, a service that monitors your online purchases for price drops and automatically files for refunds for you. Time for an update!

Asking For A Discount

A year has gone by since I asked for (and received) discounts on my internet and satellite TV bills. The discounts I was given have expired, so it was time to call and ask again. I didn't have as quite as much luck with my internet provider as I did twelve months ago. Last year, I was given a $23 per month discount. This year, the company was raising rates in February by $7 per month. I was only able to get a discount of $5 off the current full price, with that price locked in for a year. I mentioned that the price for new customers was lower. I was told that was only valid for new customers. I told them I had been a loyal customer for 10+ years and couldn't believe they would give a better deal to a new customer than to me. No go.

So I took my $5 discount and mentioned that I wasn't happy with it. About two days later, I got a call from someone else at the company saying they understood I wasn't satisfied and what could they do, blah blah blah. I went through the whole explanation again. This time I was offered an additional $2 per month discount. I took it, as it was better than nothing, but I still wasn't happy. But since my total discount now was equal to the new price increase, I considered it a minor victory.

What Happened?

As I mentioned in my original post, asking for discounts doesn't always work. I also made a strategic blunder. This time, when I called I just went through the voice prompts to speak to a customer service representative regarding billing. Last year, I asked to talk to someone about downgrading or cancelling my service. I think not doing so this year was my big mistake. I was asking for something from someone who probably didn't have the ability to give it to me.

Unfortunately, I don't have any realistic alternatives for high speed internet in my area, so I can't threaten to cancel or even price compare with another company. I'm probably stuck until (if / when) Google Fiber comes to town. Still, my phone call saved me $84 per year.

Better Results With Dish Network

The discount I got on my Dish Network bill last year expired this month and I had better luck with them. I called and followed the prompts to speak to someone about changing my service. When I finally got connected to a person, I said I wanted to cancel because the cost was too high. The rep offered to look at what channels I watched and see if there was a cheaper package I might want instead. I told them I was just going to use an over-the-air HD antenna and Netflix, so there was no need to do that. I mentioned that I was receiving a $35 per month discount and that expired, which made the cost too high now. I was offered a $20 per month discount for 10 months, which I accepted. $200 saved!

Reward Credit Cards

I have an American Express Starwood Preferred Guest card. This card earns me SPG points I use for free nights at the hotel chains owned by SPG (although you can also redeem them for frequent flyer miles on just about any airline). This isn't a huge benefit for me, as I usually only redeem them once a year, so I really only used this card at Costco, where they only accept American Express. The card comes with a $95 annual fee.

A couple of big changes happened last year that seriously reduced the value of this card to me. The biggest is that Costco dropped American Express and switched to Visa as its exclusive credit card. This change goes into effect April 1 this year. Since Costco was pretty much the only place I used this card, it was silly for me to pay the $95 annual fee for a card I would rarely use.

So I called up American Express and asked if they would waive the annual fee. I was flat out told no, they do not waive annual fees. I was offered to switch to a card that earned Delta Airline miles and only had a $55 per year fee, but I declined. I immediately asked for my card to be cancelled, which they did.

Doing so, I was struck by their complete lack of concern for losing a customer. The agent I was speaking with didn't seem flustered or bothered at all that I was cancelling my card right then and there. There was no effort to persuade me to stay (beyond the initial new card offer), no attempt to transfer me to a retention specialist, nothing. She just read me some fine print regarding the cancellation and that was it. I got the impression they could care less if I used their card or not. This was really surprising because the few times I have called their customer support in the past, I was always given incredibly helpful service. It seems like American Express is going through an identity crisis these days.

The other factor in my cancelling this card was the merger of Starwood Hotels and Marriott. Like others, I am concerned with how this merger will change the loyalty program. Starwood brand hotels are typically higher end than Marriott and the customer loyalty program has some of the best perks out there. Those will probably disappear soon. But, as I said, I really only stayed in their hotels once or twice a year, so it's not a huge loss.

I attempted to get my card's annual fee waived for a year just so I could see how useful the card would be to me with these changes. I'm not willing to pay $95 to perform that experiment, so I canceled it. As an added bonus, this card had the highest interest rate of all my cards (not that I carry a balance) and was my only card that had an annual fee, so it felt good to toss it.

The Costco switch to Visa is actually better for me, since my Chase Freedom Visa is the card I used almost daily and it will now be accepted at Costco. I earn 1% to 5% cash back with that card and it has no annual fee.


In August last year, I wrote about Paribus, a company that monitors your online purchases from a couple of select websites and automatically files requests for refunds if something you purchased drops in price. When I signed up, Paribus almost immediately found me a $25 refund on a pair of shoes my wife bought. Since then, they haven't found a ton of refunds for me. According to their website, I've made 57 purchases that they have logged and I've received $53 in refunds. Nothing exciting, but nothing to sneeze at either. I suspect my lack of savings is simply due to the type of items I purchase from Amazon. I tend to buy smaller items such as books and various household sundries. I rarely buy big ticket items or fancy electronics, but Paribus still manages to find some rebates for me. For example, I got $2.33 back on a replacement water heater sacrificial anode I bought last month.

That changed yesterday. We've started doing some improvements to our house (after saving up funds through our budget) and one of the projects we are doing is upgrading our TV systems. We're trading out our old rear projection non-HD TV that was 15 years old for a new LED flat screen. I purchased this through Amazon - not only because the price was good, but because I specifically wanted Paribus to monitor the price for me. A week after the purchase, I got notification from Paribus that the price had dropped $200 and they submitted a refund request for me. The next day, I got confirmation from Amazon that I would be getting a $213 credit applied to my credit card! Paribus charges 25% for their service, so I only get a net $160 refund, but I'm not complaining. (Looking back at my previous post, I noticed my first refunds were given in the form of Amazon credits. The last two I have gotten have been actual credits posted to my credit card, which is even nicer than Amazon credit.)

As part of this project, I also purchased a TV wall mount, a DVD player and a new AV receiver. I'm hoping Paribus will find some rebates for those as well. If you are interested in joining Paribus, drop me a note or leave a comment and I can get you a code good for a discount on your first refund.

(UPDATE: 5-23-16) Amazon has changed their price matching policy. From now on, they will only price match televisions. Given this, I have cancelled my Paribus account, as Amazon was the only retailer I used it with. I wonder if the popularity of sites like Paribus and Earny, which tracked Amazon prices for users, was a contributing factor to this change.

Wednesday, February 17, 2016

Everyone Will End Up In The Same Career

"What do you want to be when you grow up?" got that question a lot when I was little. Later on, when I was in high school, that changed to "What's your college major going to be?"

There are probably as many answers to those questions as there are people answering them. Society needs all sorts of people to function smoothly - doctors, front desk clerks, engineers, trash collectors, cashiers, CEOs, bankers, and bus drivers. Some people go to school for years to get the knowledge they need before entering the work force. Other people opt for positions that need little more than a high school education. Either way, people spend decades working in their chosen field. You may think that once you've chosen your field, that's your career for life. Or, if you've hopped around from position to position, that your career is whatever field you worked in the longest. It's not.

In the end, everyone ends up in the same career - investing.

We All Must Become Investors

I came across this while reading the Get Rich Slowly blog:

Like it or not, investing will be your ultimate career. Whether you are an engineer, administrative assistant or plumber, there will come a day when you no longer make the majority of your money from that career, i.e., your labor. When that day comes, you’ll derive most of your income from your investments, i.e., your capital.
It never occurred to me to look at it that way, but it is true. The very definition of retirement is that you stop working for a paycheck. You then live off some sort of passive income, be it Social Security, investments, a pension, whatever.

In order to have a decent life after retirement, you have to become an investor. You have to understand how to use money to make money. Furthermore, the sooner you learn this, the better. The biggest asset in investing is time and the longer your money has to create more money, the better.

Thankfully, It's Not A Tough Career

Becoming an investor is not that complicated. You might think it is because ads for financial advisors and brokerages have been telling you that for years, but they are just trying to sell you their services.

All you need to do is save and invest. I know. It sounds so easy when you say it like that. Of those two, the hardest part is saving and that is something that requires no education. Just spend less than you earn.

I will admit, that isn't always easy. Sometimes, it may seem impossible. But here's the thing - you don't need any special knowledge to do it. Just stop buying things. You don't need a financial advisor to tell you this. You don't need to pay a brokerage to do this for you. You just need willpower. And this is the hard part!

So once you've saved money, how do you invest it? That is the question that scares people into throwing buckets of money at the financial industry.

Index Fund Investing Is So Easy, Even A Caveman Can Do It

In the United States, investing for retirement generally means investing in the stock market. There are thousands of stocks trading on the stock market! How do you know which one to pick?

Hint: it doesn't matter. Buy a bucket of all of the biggest by investing in a mutual fund.

Mutual funds are collections of stocks that trade under a single ticker symbol. When you buy a share of a mutual fund, you get shares of all the companies that the mutual fund invests in. Some funds are actively managed funds, meaning there is a person or team of people who research companies and try to find stocks that they think will appreciate in value. Other funds are index funds, meaning they just buy stocks based on a predefined criteria. The most common of these are funds that track major indices - the S&P 500, the Dow Jones Industrial Average, etc. These funds buy stocks in the same proportion that they are represented in the index. As a result, they almost perfectly mirror the index they are patterned on.

When it comes to mutual funds, the biggest indicator of performance is the expense ratio. As Morningstar discovered:
If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.
And, between actively managed and index funds, guess which have the consistently lowest expense ratios? Index funds.

This Isn't Lake Wobegon

Investment firms like to tout their fund managers. They want you to think they are all stellar stock pickers and can beat the market averages with regularity. They don't and studies prove this out. They can't all be above average. That's not how math works.

What's more, you don't need to beat the market. Just matching the market will provide you with all the returns you need to retire - provided you invest regularly and for a long enough amount of time.

So although we all need to eventually end up making a career in investing, it's not that hard. Start investing early in low cost index mutual funds (with some of the lowest expense ratios out there, I like Vanguard's index funds, myself) and you'll do fine.

Wednesday, February 10, 2016

Are CD Ladders Worth It These Days?

After more than a year of slowly building it up, I'm approaching the point where I will have reached my goal of saving $10,000 in an emergency fund. The question I now need to address is where should I keep that money. Because it is an emergency fund, it should be in a risk-free, non-volatile investment. That rules out stocks and mutual funds. It also needs to be readily accessible. Finally, I'd like it to earn as much interest as possible under these constraints.

CD Ladders

The requirements that the emergency fund be readily accessible and safe means the options are limited to a product from a bank or credit union - something FDIC insured and that won't lose value. Typically, the choices come down to either a savings account or certificates of deposit (CDs). In normal economic environments, CDs have higher rates than savings accounts because your funds are locked up for a period of time. CDs typically have a penalty for early withdrawal, usually an amount equal to the interest you would have been paid for some amount of time. But because interest rates change, you don't really want to be locked into a low interest rate for an extended period of time. If rates go up, you want to be able to move your money into a CD that pays the higher rate. So the concept of a CD ladder was invented. A CD ladder gives you two benefits: frequent availability of your funds and typically higher interest income than can be found in a savings account.

How They Work

A CD ladder is actually a series of individual CDs created initially with differing maturity dates. Each CD is a rung of the ladder. The availability of your funds is determined by the length of time between your rungs. Let's call this an interval. As each rung comes to maturity, you renew it for the length of your biggest rung. As time passes, you'll end up with several CDs, each maturing every interval. The below image shows a three rung ladder with an interval of one year. (Click image to enlarge.)

Let's look at how I want to build my ladder. I have $10,000. I want the intervals of my rungs to be three months, meaning every three months, I want one of my CDs to be maturing. To put it another way, I want a portion of my emergency fund cash available to me every three months. The maximum length of my ladder will be 1 year. Thus, my ladder will have four rungs, each coming due every three months.

To create this ladder, I have to open four certificates of deposit containing $2,500 each. The first will mature in three months, the second in six months, the third in nine months, and the last in one year. After three months pass, I'll roll my maturing three month CD into a new 1 year CD. Similarly, three months later, I'll roll my now maturing six month CD into a new 1 year CD, and so on. After one year, I'll have 4 CDs, each with a 1 year term, with one coming due every three months. Because longer term CDs pay higher interest rates, this process lets you earn the higher interest rate while keeping a portion of your funds more liquid than they would be if they were all in a single long term CD.


There are a couple downsides to this. The biggest is that it is up to you to manage your rungs for the first year (or however long your ladder is), while the ladder is building out. Unless your bank hears differently, when your CD matures, they will just roll it over into a new CD of the same term. Once your ladder has been populated with the longest term CDs, this is what you want, but for that initial year or so, it will be up to you to roll the short term CDs into the longer terms CDs as they mature.

Another drawback is not all of your funds are constantly available. For example, in the above situation, if I have an emergency and need $5,000 immediately instead of just $2,500, I would have to liquidate two rungs of the ladder and possibly face early withdrawal penalties.

Early withdrawal penalties vary, depending on the financial institution and the length of the CD. In some cases, you may just lose all accrued interest to date. In others, you might be charged a penalty of x days interest. If you have not accrued that much interest at the time of your withdrawal, the financial institution will take that fee out of your principle.

These Are Strange Times

In the current historically-anomalous ultra-low interest rate environment, the CD ladder also has a surprising drawback: it may not be worth it. As I started looking into setting up my own CD ladder, I quickly discovered something. Take a look at these rates from Ally Bank (screenshots taken on Dec 23, 2015, when I am writing this):

Notice anything? The interest rate on a plain savings account is higher than the 3, 6, and 9 month CD rates! And it's only 0.05% less than the 1 year CD rate. So right now, it doesn't make sense to build a CD ladder of 1 year in length. You'd earn more interest just keeping your funds in a plain old savings account for the first year and after that, you'd only be losing out on 0.05% interest.That's worth the convenience of having all your funds fully available without any early termination fees.

If you have more funds available or are willing to accept longer time frames for your CDs,  a CD ladder might still be worth it. Try looking at 5 year CDs. As of this writing, Ally Bank offers a 5 year CD at 2% interest.

As the Fed starts raising rates, this situation will probably reverse, so keep your eyes open and be ready to build your ladder when the interest rate environment returns to normal.

Wednesday, February 3, 2016

Goal Update: End of January 2016

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 January, 2016
Current value: $20,820
Change from last month: +$819
Percent of Goal:  19.15%

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:

Income this month from my online courses sales was $353. I also earned a whopping $0.04 in ebook royalties. Woo hoo! That wasn't even for a sale. My book is part of the Kindle Unlimited program where subscribers can read ebooks for free. Authors are paid based on the percentage of a book someone reads. Someone read 7 pages of my book, so I got 4 cents. Other income included a $205 quarterly bonus at work that I put into my Tesla fund.

Last month, I mentioned I sold some covered calls as a way to try to get some extra cash out of selling my stock. Those options expired on January 15 above the strike price, so they were executed and I had to sell my shares. I sold $50 calls at $1.70 per share, so my net sales price was $51.70. The stock closed on the 15th at $52.19 per share, so I lost a total of $147 compared to if I just straight up sold them without the options on that day. The stock continued to climb the remainder of the month, crossing the $55 mark. Remember how I said option trading was legalized gambling? Missing out on that gain cost me another $1,000 or so, but, oh well. No one can predict the future and the stock could have just as easily fallen. I stuck to my plan, which is all you can do.

Speaking of my plan, I sent my lending partner $20,000 to lend out. He doesn't have anything immediately available, but he's got some deals in the pipeline. Hopefully, I'll get that money invested soon.

My online course payment for next month looks pretty low - under $200. That represents sales in December, which is a traditionally slow month. But sales for January are looking awesome. So far, it's shaping up to be my second highest grossing month to date. Because people can cancel within 30 days and get a refund, we'll have to see if it holds up.

As a reminder, if you have any questions or suggestions for topics, feel free to contact me by clicking on the Contact link at the top of the page!