Wednesday, May 25, 2016

Going Overseas? Save Money On Foreign Transaction Fees With The Right Credit Card

In the old days, when you traveled overseas, the best way to protect yourself against lost or stolen funds was to use traveler's checks. You would go to your bank and purchase checks in the currency of the country you were visiting. You signed the checks in the bank when you bought them and again in the store when you spent them. The merchant in the foreign country would accept these checks as cash equivalent providing the two signatures matched. If they were somehow lost or stolen, you could get replacements sent to you just about anywhere in the world. American Express was a major provider of traveler's checks. I remember going to Europe when I was in high school and using these, back in the Stone Age.

These days, while still in use, traveler's checks are becoming archaic. Most of Europe has standardized on the euro as a common currency, so there is no need to get different currency for different countries. More importantly, credit and debit cards have made huge gains over the last couple decades and they are now accepted almost everywhere. The card you use at Wal-Mart in Phoenix can also be used at Comme des Chaussures in Paris.

The problem with cards is that most issuers will charge you a foreign transaction fee. Your purchase will be posted in the native currency of the foreign country, then converted into U.S. dollars on your bill. Immediately after that, you'll often see an additional charge, usually around 3% of the purchase price, added on as a fee. With changing currency rates, it's hard enough to figure out how much something costs in another country without having to worry about another 3% fee added in. Luckily, there are some credit cards that do not charge this fee.

My family is planning a trip to Germany at the end of the year, so I started shopping around for such a card. A great resource is Nerd Wallet and their list of Best No Foreign Transaction Fee Credit Cards. Many of these cards are geared towards frequent travelers, which is not surprising, so their rewards tend to be focused on airline perks. I opted for the Bank Of America Travel Rewards card because it has no annual fee. It comes with a 0% introductory rate for the first 12 months. Additionally, if I spend $1,000 in the first 3 months, I get 20,000 points, which translates to a $200 statement credit on travel-related purchases. I like this because it's a straight statement credit. I don't have to worry about using points for a hotel stay somewhere or trying to fly while avoiding black-out dates. (Just give me my rewards and don't make me jump through hoops, you twisted bastards!) If you have a checking or savings account with B of A (I don't),  you'll get a 10% bonus on all points earned.

I don't really want another credit card and I plan to cancel this one as soon as our trip is over. However, I did want a card that would allow me to purchase lederhosen, beer and bratwurst while avoiding foreign transaction fees. I mean really, who can pass up the opportunity to look like this?

If you are planning to go overseas, it pays to look into a card with no foreign transaction fees. Also, be sure to stick with major card issuers like Visa or MasterCard. I've been overseas a couple of times and I know that American Express is not widely accepted. I don't think I saw any place that accepted Discover cards.

Wednesday, May 18, 2016

Boy, Was I Stupid - A Look Back On My Financial Life

"If only I knew then what I know now."

Man, do those words ring true. When I look back at my first 20 or 25 years of earning income, I am appalled by the investing mistakes I made. I easily could be a millionaire at this point in my life if I had the financial knowledge then that I have now.

Those Were Heady Times

I graduated college in 1992 with a degree in electrical engineering and got my first job that same year. I was smart enough to enroll in my company's 401(k) plan as soon as I was able. I also was smart enough to contribute enough to get the full company match, but that's about where my smarts ended. I didn't contribute anything more than that. I was on my own and getting a decent paycheck for the first time - thoughts of saving money never entered my mind. I had a couple student loans, but the payments were small, around $100 a month if I recall. I did not try to pay them off early.

After working for the company for about 3 years, I realized I would never be able to afford a home in the area. (I was living and working where I grew up - in Orange County, Southern California.) Home prices were approaching a million dollars. I was making just $25,000 out of college. The math didn't work.

I decided to leave the state. Housing prices weren't the only catalyst: The Rodney King riots had just happened. I got punched in the face at Knott's Berry Farm while trying to prevent a fight. Traffic was horrendous any time of the day. Air pollution was horrible. Despite growing up there and all my family living there, I decided it was time to leave.

I had a vacation planned to visit a friend in Connecticut and before I went, I managed to set up a job interview for while I was out there. The company liked me and offered me a position. They were also willing to pay for half of my moving costs, so I packed up and headed off to Connecticut.

This Is Not The State I Was Looking For

Once there, this Southern California boy experienced some serious culture shock. People tended to stay up later. They mocked anyone who liked ham and pineapple pizzas. And, something I never got used to, the sun rose from the ocean instead of set into it. That's just wrong. I was there for one winter, but wasn't really bothered by the snow. (Although come February, I was starting to get a bit tired of it.) I later discovered that Connecticut is one of the most expensive states to live in, so moving from California to Connecticut did not really lower my cost of living.
Rising Or Setting?

When I left my company in California, I rolled my 401(k) into a traditional IRA. This let me decide what to invest in. Because I was working as an engineer in a technology field, I invested heavily in tech companies. It was what I knew. This was right before the dot-com bubble started inflating.

The Connecticut company was a publicly traded company and I participated in their employee stock purchase plan. Employees could purchase company stock through payroll deductions and get shares at a discount (about 15%) to the market price. I enthusiastically enrolled because, hey, instant 15% profit, right?

The company made Caller ID boxes and cordless phones. Cellular phones were still expensive and somewhat rare, so landlines were the norm back then. However more and more phones were being made with Caller ID built in and the need for separate Caller ID boxes was going away. Further, since we made mass-market consumer products, price competition was tremendous. Our stock price started falling.

After 1 year, I got a call from the person who used to be the president of the company I worked for in California. He was now heading the engineering department for a company in Arizona and wanted to know if I would be interested in working as a database developer for him. Even though I had only worked as a hardware engineer before, he felt I would be good at the job. I took the offer and moved to Arizona and this time, the new company paid for 100% of the move. (One lesson learned!) Shortly thereafter, the Connecticut company went belly up. The shares I had purchased were worthless. I wasn't at that company long enough to be eligible for their 401(k), so their stock purchase program was the only investing I was doing at the time. Continuing my trend from the previous years, I did not make any contributions to my IRA.

Back Out West

I worked for the Arizona company for three years. I learned SQL Server and that started me down the career path I am still on today. But the company made predictive dialers - the devices telemarketers use to call people - and I never really liked being associated with the telemarketing industry.

During this time, the tech bubble was in full swing. I was participating in the company's 401(k), but again, only enough to get the full employer match. I was also actively trading stocks in my IRA account. I wasn't a day trader, but I definitely was trying to time the market and was caught up in the bubble mentality. I bought high and sold low way too often. I remember owning a lot of Lucent and Cisco shares.

One of the few smart things I did during this time was to pay off my student loans early. I had finally gotten tired of making student loan payments, which I had been doing for four years. I started making payments more frequently, sending in a payment every three weeks, then every two weeks, instead of once a month. Eventually, I paid the loans off completely, two or three years early.

Chased Money, Didn't Like It

By this time, I had accepted a new position at the company because I was looking to increase my income. I left the engineering department and became the manager of the Professional Services department, which meant I was in charge of the teams that went to our customers to install our product and train the users. I was a manger! Now the money would come rolling in! I had a nice bonus package, but I quickly discovered it was unattainable. Upper management had structured my bonus so that it would get paid if I reduced costs and/or increased revenue. However, when I tried to do this, customers would call the CEO and complain about the fact I had the gall to ask them to pay for services. She would cave and give away for free what I was trying to charge them for (even though she had previously given me the ok to charge them). Tired of this and realizing I do not have the temperament for office politics, I started looking for a new job.

New Horizons

I found one with a company in the education field, still in the Phoenix area. When I left my old company, I once again rolled that 401(k) into an IRA. The tech bubble was still in inflating, so of course, I plowed my money in more tech stocks. This company, like the one in Connecticut, was also publicly traded. I also participated in an employee stock purchase plan here, but because I was stung the last time, I was a bit more restrained in how much I contributed.

Missed Signs
The dot-com bubble began to deflate and then it eventually burst. Before it completely burst, in an attempt to boost our dropping share price, the CEO renamed the company to the same name, but with a ".com" on the end, which was the big trend back then. If there ever was a warning sign, that was it. Another warning sign I should have paid attention to: I was at the company for 5 years and no one got a raise that entire time. Can you say "RED FLAG"? It was also around this time that, while browsing though a book store, I came across Rich Dad, Poor Dad by Robert Kiyosaki. Coincidentally, the housing bubble was starting to grow.

At the time, Enron was wrapping up the final stages of its tremendous implosion. I did manage to make one smart stock move, although it was too little, too late. I managed to short Enron as it was collapsing. But I had never shorted a stock before and had read all kinds of horror stories, so I was very hesitant to pull the trigger. I ended up shorting Enron at $5 and change. (Stocks usually get delisted at $5, so I got in at the last moment). I covered at around $1, so I made some money, but just a couple hundred dollars.

My IRA however, took a big hit from the resulting market collapse. Cisco and Lucent tanked. I don't even remember what else I owned, but the total value of my already small IRA was cut in half. After 5 years, I left the company to go work for a video game developer where my high school and college friend worked. He hired me and became my manager. Shortly thereafter, the education company I just left was sold to a new company and went private. Again, I lost money on the shares I had purchased. My five years there was the longest stretch I had ever been with an employer. Considering I never got a raise during that time, it probably wasn't the best place to stay. However, inertia is a powerful thing and the whole economy was under a pall, so, right or wrong, I was happy to just have a job during those years and sat tight.

Reading Rich Dad, Poor Dad opened my eyes to the power of cash flow and passive income. I started investing in real estate and I started flipping houses and bought two rental properties. Around this time, I started my real estate blog. See that site for full details about this part of my life. I am pleased to say almost all of my real estate investments turned a profit. I sold one rental property for a profit, the other for a loss. (The loss was due to me just being stupid and buying something I shouldn't have. I was under the influence of the bubble mentality still.) All my flips made money, as did all my hard money loans. This is the period where I really began my financial education in earnest.

Finally Starting To Learn

I once again rolled my 401(k) into my IRA when I changed companies. Funny, this was the third time I had rolled money into it, but the total dollar value of my IRA was still about the same as the first time I did it 12 years prior. My new company was also a publicly traded company (THQ). I don't remember if they offered an employee stock purchase plan, but if they did, I didn't participate. Getting burned twice was enough for me. (I did get stock options when I was hired, but they soon were underwater and I never exercised them.) Around this time, I started realizing the stupidity of my frequent stock trading and chasing hot sectors. I invested my dwindling IRA assets in shares of the one company I found that I was pretty sure wouldn't collapse - Berkshire Hathaway. My love of passive income also saw me start to invest in real estate investment trusts for their high dividends.

The video game industry is inherently volatile. Gaming companies hire people to develop a game and lay them off once it ships. The process is repeated for each new title. As part of the IT department, I wasn't a member of the programming and artist groups that regularly faced layoffs, but it's still unsettling to see lots of your co-workers get let go on a regular basis. Eventually, the company started to flounder and THQ management started closing studios and laying off people to reduce costs. I survived two rounds of layoffs, but the third took me out. I can't imagine it must have been easy for my friend, who had hired me and was still my boss. Making things more awkward, our families had planned a dinner together for what turned out to be the day after my layoff. The dinner still took place. Luckily, we both knew the layoff was a business decision he really had no control over and we're still good friends to this day. Eventually, THQ went bankrupt.

A Year Of ...

I was out of work for almost a year. I was collecting unemployment and had to drastically cut my expenses. By this time, I was married, so there was additional income coming in, but it was less than half what it was before. I had purchased a house and had a monthly mortgage payment to keep up, but no real emergency fund to rely on. During this period, I truly began to understand the power of passive income. If I had enough passive income coming in, it wouldn't have mattered that I was laid off. I resolved to build up my passive income streams. I took this opportunity to convert my IRA into a Roth IRA, as my earned income was pretty low, so the tax hit wouldn't be so bad.

Temp To Perm Jobs

Eventually, I picked up a couple temporary jobs which each lasted around 6 months or so. The second, again with a company in the education industry, turned into a permanent position. I worked there for a year or so before management changed and I began looking for a new place. They offered a Roth 401(k) and I participated in that, but I wasn't there long enough to become vested in the employer match, so I lost that money. Again, I did not contribute to my IRA while there either.

And Here We Are Today

I found a contract-to-hire position at the largest credit union in Arizona and got hired on as a permanent employee. Being in the financial industry, they've got a much nicer financial benefits package than the other companies I was at in the past. I am participating in their Roth 401(k) and this time more than just enough to get the full match. I'm saving 10% of my salary. They match 4%, so that's a net 14% savings rate for me. This is invested in low cost Vanguard index funds. The company also has a pension plan which I have now qualified for. It's not big, but almost no company offers pension plans any more, so I'll take it. It's at no cost to me and, as of now, I am eligible for an amount equal to 4% of my salary when I retire. My wife and I are now, finally, making regular contributions to our IRAs.

It's All About The Cash Flow

My journey has made me realize how important passive income is. That's one reason why my Tesla purchase will be paid for with passive income. I'm no longer interested in spending large sums of money on things. Things wear out or become obsolete or boring and then your money is gone. If I am going to spend big bucks on something, I am going to buy an investment and let the investment pay for the item. That way, I get the item and the money.


Looking back, I cringe at how I handled my investments. I did so many stupid things. I lost years of compounded interest. I don't want others to make the same mistakes. I have two nephews who recently graduated high school and they each got a copy of The Richest Man In Babylon when they graduated. One more will be graduating in a year or two and he'll get the same thing. (Sorry to spoil the surprise, Matt.) I'm teaching my 12 year old daughter about compound interest and the power of time. Although I believe that one of the best ways to raise children is to let their mistakes be their own, maybe, just this one time, mine can be hers.

Wednesday, May 11, 2016

Privacy - A New Service To Protect Your Debit Card Number Online

Data breaches, sadly, have become commonplace. Hardly a month goes by without news of some company getting hacked and exposing customer's credit card data. The new chip and pin cards can help prevent this type of attack for locations where you physically use your card, but unfortunately, they provide no additional protection when used at online merchants.

Enter Privacy

Privacy is a new free service that lets you use random, disposable credit card numbers at online websites. Simply create an account on their website and install the browser plugin into Google Chrome or Firefox. (Support for Safari and IE is coming soon.) Whenever you have a box on a webpage to enter your credit card number, you'll see a Privacy icon. Clicking it will generate a unique credit card number for that order.


You can configure various options for each number generated - spending limits, number of users, etc. You can cancel the number at any time and prevent any further charges from being accepted. This can come in handy, not only in the event of a data breach, but also in case of problems with a company you have set up a recurring charge with. Company won't stop billing you? Simply cancel the number.


There are some limitations.

First, this only works with bank accounts and a limited number of major banks. Currently, this includes Bank Of America, Capital One 360, Chase, Wells Fargo. See here for the current list of banks.

Second, the number generated is a Visa number, so the website you use it at has to accept Visa.

My Thoughts

Reading their security policies, it seems like they do take care to secure your bank account data, so I'd be comfortable giving them my info.

I wish this service could be linked to a traditional credit card instead of a bank account. I remember years ago, credit card companies used to provide virtual card numbers to all members, but I tried to get one a while ago and found all my card issuers stopped providing that service. I don't like to use my debit card for online purchases, so I don't think service would be of much use to me.

They say you can use any name and billing address when you place an order on a website, so you've got an additional potential privacy protection there. (Obviously you'll need to use your real address for a shipping address if you want to actually receive what you purchased.)

The company makes money by getting paid the standard merchants fee as a credit card processor.

It's unclear what, if any, protections that are normally associated with credit cards would apply to purchases made using a Privacy card number. There are major differences in how much protection you have, legally, between the two types of cards. With a credit card, you are only liable for $50 in authorized charges. With a debit card, you are liable for $50 if you report the card stolen or lost within 2 days or $500 if you wait 60 days. After 60 days, you are liable for the entire amount of unauthorized charges.

Additionally, debit cards take money out of your account immediately. If you dispute a charge, you are out that money until (if) the dispute is resolved in your favor, a process which could take up to 10 days. With a credit card, you do not have to pay any amount under dispute until the dispute is resolved.

Although Privacy does say they will assist you in resolving any problems with a merchant, including filing a chargeback, they don't really specify what your liability is. With a credit card, federal law explicitly states your rights and maximum liability.

The Final Word

If you are someone who has poor credit and cannot get a credit card, this might be a good option. Or, if you are someone who is against credit cards on principle and refuses to use them, you might find this service useful. Otherwise, I think the benefits of a traditional credit card outweigh the benefits of Privacy.

Wednesday, May 4, 2016

Goal Update: End Of April 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 April, 2016
Current value: $22,818
Change from last month: +$755
Percent of Goal:  20.98%

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 was a respectable $295. I received an unexpected $100 in blog income. I also received a $300 quarterly bonus at work, but after taxes and my 401(k) contributions were taken out, I netted just $193. My hard money loan continues to pay on time ($133.33 a month). I also received a $16 payment from Amazon for their referral program. (That represents about 9 months of Amazon referrals, so this is a fairly rare event.) All this cash income allowed me to pick up another 11 shares of Realty Income stock. Whee.

I read The Bogleheads' Guide To Investing this month. Nothing in it was news to me. The book gives solid basic financial advice and I recommend it for those wanting to learn the basics of investing. As you might expect from the title, which refers to fans of John C. Bogle, the book places an emphasis on simple, low-cost investments, particularly index mutual funds. Having read Bogle's book, I was already familiar with most of the concepts mentioned.

Net Worth Update

Our net worth continues to grow, increasing by $7,832 from last month to a new total of $629,388. If we ignore stock market fluctuations, I should be seeing our net worth grow by at least $2,000 a month - we are saving over $1,100 a month in my 401(k) and paying down about $900 in combined principle on our mortgage and HELOC loans each month. Of course, stock and property valuations will also affect our net worth, but as a rule of thumb, I expect at least a $2,000 increase each month just for paying my bills as normal.

I'm using to track our net worth and rather than just report a single number, I'm going to report the various figures that make up the net worth number, so we can get some insight into why my bottom line is changing. Here we go:

Our Credit Card debt looks crazy high, but there is an explanation. Mint categorizes my home equity line of credit as a credit card debit. There's no way around this and Mint is aware of this issue, but they don't seem to be in any hurry to change it because it's been this way for over a year. Our HELOC balance is about $118,000, which means our actual credit card debt really just $2,998.

While I usually don't carry a credit card balance, I currently have about $1,300 on one card that is at 0% interest until December, so I'm paying that down slowly. It will be gone before I start getting charged interest. The rest of the credit card debt is just my standard day-to-day charges. I use my card as much as possible in order to earn cash back and I schedule payments to be made two to three weeks after I make the charges. This lets me keep my money in the bank earning interest for a while, but still pay off the debt before the credit card starts charging me interest. One side effect of this method is that it always looks like I have a credit card balance, even though I am, in effect, paying the cards off in full each month.

The Loans figure consists solely of my mortgage. We have no other loans (besides my HELOC, mentioned above).

The Investments figure includes my wife's work retirement plan, a couple IRAs, and some various brokerage accounts.

Our Property number is inflated for a reason similar to why our credit card number is inflated - it's just how Mint works. My work 401(k) is through a provider that Mint cannot access, so I have to enter that figure manually. All manual account entries are categorized as "Property" on Mint's website. Stupid, but that's how it is. So for a true accounting, the $67,000 or so I have in my 401(k) should be subtracted from the Property figure and added to the Investments figure. I also have several hard money loans entered there, but since they are basically mortgages I have written, I feel they are correctly identified as belonging in the Property classification. Other included property assets are our house and cars. Mint updates values for these automagically using the Zillow and Kelly Blue Book web sites.

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