Tuesday, April 26, 2016

Are you financially impotent or financially capable?

While listening to the Marketplace Podcast the other day, there was discussion that led me to this article posted at The Atlantic titled The Secret Shame of Middle-Class Americans.

It is one man’s honest story about how he is part of the 47% of Americans that would not be able to come up with $400 in the event of an emergency.  It’s a frank and controversial cautionary tale about one man’s financial impotence.  The author, Neal Gabler, is a college graduate, published author of several books, journalist, movie critic and teacher.  He’s written television scripts, published hundreds of articles, and even sold movie rights a biography on gossip columnist Walter Winchell to Martin Scorsese.  Mr. Gabler and his wife own a home and have two adult daughters.  From an outside prospective, it would seem like Mr. Gabler is very successful and living the American dream.  However, that’s far from the truth. 

Mr. Gabler admits to being broke to the point of having $5 in his bank account, waiting desperately for his next paycheck to arrive.  He’s had creditors coming after him for money.  He’s been sued for not meeting a writing deadline after collecting an advance.  He’s had to borrow money from his adult daughters because he ran out of heating oil.  Mr. Gabler is financially impotent.  He can't properly provide for himself nor his family.

Mr. Gabler shares that he is now admitting his problems because he realizes that he is not alone - that millions of other Americans of all income ranges also struggle to make ends meet.  Studies consistently find that when people come across new money, whether a bonus, tax refund, or inheritance – people are more likely to spend it than to save it.  I’ve noticed this same phenomenon myself. 

People regularly share with me how much debt they have, how they are struggling to pay their bills or pay down their credit card debt.  Yet these are the same people I often see driving around in flashy luxury cars (often leased), eating out at restaurants regularly (often daily), or buying the newest gadget.  These are definitely the same people who always have the newest iPhone. 

Studies quoted by the article indicate that almost half of Americans are “financially fragile” and barely getting by.  A Bankrate survey in 2014 found that only 38% of Americans could cover a $1,000 emergency room visit, or a $500 car repair with money in their savings account.  The Pew Charitable Trust in 2015 found that 55% of households didn’t have enough savings to replace a month of lost income and that 71% of people were concerned about having enough money to cover everyday expenses.  Nearly 30% of Americans don’t save any of their income for retirement.

Mr. Gabler admits making poor financial choices, which has led to his financial impotence.  As a writer who could live anywhere in the world with lower costs of living, he chose to live in New York.  He utilized credit cards often, and would regularly only pay the minimum amount due, leaving a balance that incurred high interest fees.  Him and his wife bought a co-op apartment in Brooklyn.  They paid to send their two daughters to private schools, because they wanted to “keep up with the Joneses’ children.”  Before selling their co-op apartment, they bought another house in East Hampton.  They were barely getting by and then added a second mortgage.  Mr. Gabler handled all the household finances, keeping his wife in the dark about how financially unstable the family was.  Since Mr. & Mrs. Gabler never saved enough, they could not afford to send their daughters to college.  The grandparents ended up paying for most of the college expenses.  As if the poor financial choices could not get any worse, they emptied their 401K to pay for their younger daughter’s wedding.  WTF?!

In the end, the author pretty much blames much of his poor financial state on the fact that his income did not grow steadily over time.   He also admits that he is a financial ignoramus.  His solution is to live as frugally as possible and work seven days a week.  The author drives an old Toyota with 160,000 miles on it.  They haven’t taken a vacation in 10 years.  They claim to eat out once every 2 to 3 months.  They don’t go to the movies, they shop sales and count pennies.  Seems like he regrets the decisions he’s made and accepts that this isn’t a “rough patch” in his life but may be the way his life is permanently going to be.

While it’s easy to read this guy’s story and feel sorry for him, it reminds me about another post I recently read by Financial Samurai titled Financial Independence: Maybe You Don’t Want It Bad Enough.  Financial Samurai tells it like it is.  To quote directly from his post, Being a debt welcher demonstrates bad character. If you’re not willing to scrub toilets, drive a car, get up at 5am to work extra hours, or flip burgers to pay your debts or get out of a bad financial situation, then you are going blame the world for your problems until you die”. 

Financial Samurai goes on to say that "if you want to be free, put in the extra work today, and every day until you get there!"

Mr. Gabler made a ton of financial mistakes that have left him financially impotent.  Seems like the Gabler family made as many financial blunders as possible.  I’ve noticed that people who feel like it’s impossible to save up enough for retirement simply give up and don’t bother starting to save at all.  They spend all the money they make, and then spend even more on credit.  They hope that everything is just going to magically work out on its own. 

It’s a good thing that no one in the Gabler family had any health issues and they did not go through divorce.  While he did sacrifice to provide for his daughters’ education, him and his wife may end up being a burden on their children who will probably have to support them when they can no longer work.  Will he be able to catch a break with increased hard work and more savings?  Maybe.  But putting the blame on others won’t get him anywhere.  You can read the article here.

Are you financially impotent or financially capable?

Edit: What can the Gabler family do now?  First, Mr. & Mrs. Gabler should put their pride behind them.  No one is entitled to a rich life.  They should start hustling for more money on the side.  They should also immediately start to save in their emergency fund.  If they put 5% to 10% of their income into a separate account, in no time they’ll have a healthy emergency fund (hopefully it’ll be more than $400).  There is a limit to how much they can save, but no limit to how much they can earn.  Now that their daughters are out of the home, they can consider turning the empty rooms into Airbnb rentals.  Or even sell the house and move to a community with a lower cost of living.  Mrs. Gabler is not “overqualified” for less prestigious work – she should be able to find a lower paying job.  The daughters should realize the sacrifices their parents made that helped them become successful – and maybe consider helping their parents to alleviate their financial burdens.   


Anyways, everyone’s personal financial situation is different.  It’s a good thing Mr. Gabler can recognize the mistakes that he’s made.  Better to start turning things around sooner than later.  It takes real effort to be successful and to maintain success.    

Sunday, April 17, 2016

How do we earn so many miles and points?

I regularly write about how we successfully redeem our credit card miles and points towards free flights, hotel stays, and even a free cruise.  Miles and points have given us the opportunity to travel the world for next to nothing - over and over again.  We’ve even had the pleasure of experiencing a free first class flight that retailed for $26,728!  
The two of us fit into a single Cathay Pacific first class seat!
Here’s how we earn so many miles and points.

Sign up bonuses
The easiest way to earn the most amount of points quickly is to sign up for a credit card with a large sign up bonus.  There have been some incredibly large sign up bonuses in the past, and there are still many active sign up bonuses regularly offered.

We each earned 100,000 American Airlines miles from the old 2 browser trick for applying for two American Airlines credit cards at the same time.  Later on, I applied for the Citibank AAdvantage Executive credit card to earn 100,000 American Airlines miles and a $200 statement credit, without paying for the $450 annual fee.  I wrote about that experience here.  This was probably the best credit card promotion I ever signed up for.  In retrospect, we probably could have signed up for more of these cards.  There were reports of users signing up for 4 or more of the same card!

We’ve earned plenty of Chase Ultimate Rewards points over the last few years.  I’ve been approved for a Chase Sapphire Card with 50,000 bonus points.  My wife has signed up for her own Chase Sapphire Card with 50,000 point bonus two times.  It’s probably the best rewards card to sign up for first.  When the Chase Freedom card had a 30,000 point bonus offer, me and my wife both signed up and were approved for the cards.  The best part about Chase Ultimate Rewards is that you can easily share points with your spouse for free.  I’ve been approved for the Chase Ink Bold for 50,000 bonus points, the Chase Ink Plus for 70,000 bonus points, and even the Chase Ink Cash for 25,000 bonus points.

I’ve also written before about all the points we earned through big credit card sign ups from the Starwood Preferred Guest credit cards (Personal and Business), Citibank ThankYou credit cards, Barclaycard Arrival Points, and AMEX Membership Rewards earning cards.  There are many, many credit card promotions out there.

Earning points with normal spending
We earn plenty of points with normal spending, and we try to use a credit card to make purchases whenever possible.  This helps us collect points very quickly.  Different credit cards have different point earning structures, and it’s best to figure out which type of card to use for which type of purchase. 

When we are dining out at a restaurant, we will make the purchase with our Citibank Forward card, which earns 5x points at restaurants (sorry this card is no longer available).  The Chase Ink Cash card, Chase Sapphire Preferred card, AMEX Premier Rewards Gold and Citibank ThankYou Premier cards all earn 2x points at restaurants.  Combine restaurant purchases with a dining program such as MileagePlus Dining or Rapid Rewards Dining to earn extra points.

I pay our cable and cell phone bills with my Chase Ink Plus card, since it earns 5x points on those purchases.  When getting fuel at the gas stations, we use our Citibank ThankYou Premier card to earn 3x points.  Whenever we are at an office supply store (such as Staples or Office Depot), we stock up on Shell gas gift cards, which earn 5x points with our Chase Ink cards.  We also purchase various gift cards at Staples to use for normal transactions such as Netflix gift cards, Amazon gift cards, Visa gift cards, Nordstrom gift cards and more– which all earn 5x points. 

When shopping at Amazon.com, we use my Citibank Forward card, which earns 5x on all purchases at Amazon (again, this card not available to the public anymore).  The other option for making purchases at Amazon is to buy Amazon gift cards at Staples for 5x points.  Our Chase Freedom credit card has rotating categories that allow us to earn 5x points in various categories such as grocery stores, Amazon, gas stations, restaurants, and more.  When shopping at grocery stores, we use our AMEX Premier Rewards gold which earns 2x on purchases.  For the next 3 months, we earn 5x points at grocery stores with our Chase Freedom credit card.  For regularly purchases that don’t meet any spending category, we have been using my Chase Freedom Unlimited credit card, which earns 1.5x points on all purchases.  Or we will use the Citibank Double Cash card, which earns 2% cash back on all purchases. 

When purchasing anything online, we also like to use shopping portals to double dip points.  I often shop through the Chase Ultimate Rewards portal to earn additional Ultimate Rewards points on all qualifying purchases.  I will also use Mr. Rebates often to get some cash back from the site on top of the points my credit card purchase would earn.  I use evreward.com to find out which shopping portal will earn the most bonus points.  

As you can see, I can go on and on about earning extra points with just normal spending.  Whenever making a purchase, we try to consider which card will earn the most points for that purchase.  For example, if your family cell phone bill is $100 a month, you will spend $1,200 a year.  If you use a normal credit card earning 1 point per dollar spent, you would only earn 1,200 points.  If you use a Chase Ink card, you will earn 5x points, or 6,000 points on your cell phone bill for the year.  Now try to optimize all your credit card purchases and you can see how the points really add up very quickly.

Combining points between me and my wife
Chase Ultimate Rewards points can be instantly shared between spouses and significant others.  Citibank ThankYou points can be shared between any two people, however shared points expire after 90 days.  Starwood Preferred Guest points can also be shared between your spouse if you live at the same address.  Unfortunately, American Express Membership Rewards points cannot be shared.  Combine great sign up bonuses and points earned with normal spending with your spouse and you can rack up your total points in double the time. 

Traveling during off peak season

While redeeming points, we try to aim for travel in off peak seasons, since the cost of mileage redemption may be 50% less during these times.  It’s also more fun traveling when it’s less crowded.  While the weather may not be ideal, we prefer cooler weather anyways.  Saving points on our trip allows us to use them for our next trip.

Manufactured Spending
Several years ago, it was extremely easy to manufacture spending for very little cost.  Manufactured spending is a process where turn credit card spending into cash.  It mostly involves buying pre-paid gift cards or cash equivalents and then using the money to turn around and pay off the credit card.   Manufactured spending can help you reach your minimum spending requirements to earn a credit card sign up bonus, and it can also help you earn tons of miles and points without spending a lot of money.  
In the good old days of manufactured spending, there were many easy methods to earn points.  At one time, you could buy dollar coins at the US Mint and then deposit those coins straight into your bank account.  Amazon Payments would let you pay someone up to $1,000 a month with a credit card without any fees.  We had several Amazon Payments accounts between family and friends.  Vanilla Reload cards allowed you to buy a $500 card at CVS for a $3.95 fee, earning 504 points, or more if your credit card offered more points at drugstores.  The money could be loaded into your Bluebird account and then used to pay off your credit card bill.  For a while, we were purchasing $500 PayPal reload cards for $3.95 fee at Rite Aid stores, and earning tons of points as we used our PayPal balance to pay off our credit card bill.  All of the previous methods for manufactured spending have been shut down.

We have dabbled in other forms of manufactured spending, but since having a baby, it’s been more difficult to find the time to earn points this way.  Manufactured spending is still alive and well; you can read more about it on Flyertalk or reddit. 


Summary
Saving money and investing is an important part of our journey towards financial freedom.  Getting rewarded with miles and points from our credit card purchases makes the journey more fun and exciting.  


Before applying for any credit cards, my first recommendation is to always make sure you have a good credit score.  My favorite sites to check my credit score for free are: Credit Karma and Credit Sesame.

My favorite resources for up to date news on credit card points are: Flyertalk, Doctor of Credit, and the Frequent Miler.  Time to go earn some more points!   

Thursday, April 7, 2016

Your financial advisor can no longer be a glorified salesperson

New rules designed to protect Americans from excessive fees and sales commissions paid to financial advisors were finalized in the White House on Wednesday, April 6th.

If you invest in a mutual fund or ETF, there are going to be fees.  The key is to minimize those fees so that they don’t put a drag on your investment returns.  Different investment fees include: expense ratios, 12b-1 fees, loads, account management fees, and assets under management fees. 

Previously, the law allowed financial advisors to recommend and push investments that may not have been in the best interest of the client.  When advisors are helping their clients choose between multiple funds, there was nothing stopping them from recommending investments that earned them higher commissions.  Instead of protecting their clients, many financial advisers were really just glorified salespersons trying to earn the biggest commission possible.  These fees and expenses are often hidden in the fine print and most consumers just don’t know about it.

Even just 1% extra in fees may reduce your available retirement funds by 10 years!  Fees associated with a fund lower your return by being taken from your fund’s assets.  Often times, these fees do nothing to enhance the performance of your investment fund.  Loads are basically commissions paid to agents, advisors, or brokers who sell you a fund.  If you are working with a financial advisor, you are likely paying loads on your funds.  These commissions can be applied on the front end (A shares), back end (B shares), or ongoing (C shares). 

Quoting from Labor Secretary Tom Perez: “advisers says things like ‘we put our clients first,’ but going forward this is no longer a slogan.  It’s the law.”  Financial advisors are now obligated to recommend an investment that is in their client’s best interest.  This rule is set to be phased in next year.  Naturally, much of Wall Street is opposed to the new guidelines and have fought hard to block this rule.


I hope more investors realize that they can be much more successful investing in index funds on their own rather than working with brokers and financial advisors.  We invest mostly in Vanguard mutual funds, which have the lowest fees in the industry.  While we can’t control what happens to the stock market, we can definitely control the amount of fees and commissions we pay.  Read more about fees and minimizing costs in my previous post here.  Here's one (of many) threads on Bogleheads about an investor realizing that he's been paying way too much in fees through his financial advisor.
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