Good Money Blog

"Spend $40 or more two times at Walmart Stores or walmart.com and get a $20 statement credit on your card account."

Just as my wife was hoping to get an extra portable heater for the basement so that she could comfortably play the piano there, I came across this great American Express/Wal-Mart promotion.

Since I’ve been a regular Walmart shopper, I basically need to enroll for this offer, dust off my American Express Blue Cash card, and go shopping between November 18 and December 18.

Merchant Offer Redemption and Payment Terms
Registered Cardmembers must complete 2 separate transactions of at least $40 or more at any Walmart Store or online at www.walmart.com. (each, an “Eligible Transaction”) between 11/18/08 and 11:59 PM EST on 12/18/08. You may register only one Eligible Card per registration and there is a limit of one (1) statement credit per Cardmember. Certain Merchant Offers may require only one registration for all such Merchant Offers; others may require separate registration for each Merchant Offer. The Eligible Card that you register for a particular Merchant Offer is referred to as the “Registered Card” for that Merchant Offer. To receive your Merchant Offer, your Eligible Transaction(s) must be charged in full to the Registered Card for that Merchant Offer. Each Merchant Offer is only valid during the times and on the conditions specified for each such Merchant Offer. Your savings from the Merchant Offer will be credited to the Registered Card account for that Merchant Offer as a statement credit. Generally it takes 5 business days, but it may take up to 2 billing cycles from the date of your purchase for such credit to be posted to the Card account.

With the latest credit crunch, it now takes a higher credit score to be considered a good credit risk. For instance, if you want to go buy a car today, you need at least a credit score of 700 to get a loan. Mortgages are also hard to come by.

I hadn’t checked my FICO score for nearly two years. The last time I checked, it was something below 800. Since then, I took advantage of several 0% APR credit card balance transfers and earned some interest off the free money. In July, I finally paid everything off. As soon as I found out Equifax was giving out free credit scores to 10,000 people this week, I jumped right into it.

And… yes! Mine is 793 or great (760-850).

According to Equifax, there are four major factors affecting my score:

• Amount of Debt [ Great ]
  • The only debt I have is the credit card debt used for routine daily expenses.
• Amount of New Credit [ Very Good ]
  • There’re two inquiries from my new service providers. In the beginning of the year, I switched to cheaper service providers for my internet access (AT&T) and paid TV (DIRECTV). The easy moves have been saving me $50/month!
• Payment History [ Great ]
  • I’ve never missed a single payment. Need I say more?
• Length of Credit History [ Good ]
  • I’ve a total of 9 credit cards. They have an average of 6 years of history, and the oldest card is 8 years ago. To possibly pump up the average length, I’ve been thinking about closing/merging my newest card with another older card issued by the same bank.

• Net Worth
  Our net worth went up 1.5% (+$2,690).
• Cash Savings
  The stock market shows no sign of relief, so I’m not ready to dump more cash into the taxable trading account. However, I’m heavily considering paying extra to my mortgage since, at a minimum, the risk-free return is as good as the best 5-year CD rate today (~5.00% APY). The majority of our cash is now sitting at high-yield savings accounts such as HSBC Direct (3.50% APY) and E*Trade Bank (3.30% APY). We also have $10K worth of I-Bonds bought at the end of April with a guaranteed interest rate of 4.28% until September.
• House
  That’s not a Zillow estimate but the price we paid two years ago. Zestimate for our house is currjulently 9% higher than our purchase price. For the sake of simplicity, I will continue to use the purchase price unless Zestimate goes significantly below it.
• Retirement Funds and Taxable Accounts
  We have a total of $78K in 401(k) and Roth IRAs. In August, our retirement portfolios went positive (+0.3%) as the market rebounded (S&P 500: +1.2%). My new fun portfolio at Zecco (10 free trades every month) is already taking a a hit, that’s not so fun…
• Credit Card Debt
  $1.4K is my regular expenses paid with my favorite cash rebate credit cards - Chase Freedom (3% cash back in top 9 categories) and Chase Business Cash Rewards (3% cash back at gas stations,  restaurants, and home improvement stores). The total balance is to be paid off at the end of the billing cycle.
• Mortgage
  The only loan we have is the mortgage for our primary residence.

• Insurance
  It’s time to renew our homeowner’s insurance. In order to lower the insurance premium, I had the deductible amount raised from $500 to $1,000. Before the renewal, I did some price comparison shopping and confirmed that our renowned insurance carrier beat all other quotes.

By Heshan Demel
CardRatings.com

Foreign exchange fees on credit cards should be of keen interest to those traveling beyond the borders of the United States. Exchange rates offered by credit cards may or may not be the best rates out there. Of equal and perhaps greater importance, however, is the foreign transaction fee that your credit card bill might show once you have returned home from your trip.

Many travelers now rely on credit cards to pay for overseas travel and purchases. For many consumers, credit cards are easier to keep up with than traveler’s checks and they’re almost universally accepted now.

Foreign transaction fees charged by credit card issuers will mean you may pay a little extra for that umbrella drink in the Caribbean or that Parisian pastry.

Also, you may find surprising that purchases of certain products from web sites that are based outside the United States may be subject to this fee. For example, I paid for an Asian online TV service recently using a credit card. I found out that the actual processing of that transaction happened overseas using the bank there. So I was charged this fee even though I never left the U.S.!

Virtually every credit card assesses an international transaction fee for purchases done outside the 50 states, and that could even include U.S. territories like Puerto Rico and the U.S. Virgin Islands. Visa and MasterCard charge a 1% processing fee and most card-issuing banks add additional fees as well (on top of the 1% fee levied by MasterCard/Visa).

This fee is generally a percentage of the U.S. Dollar value of the transaction. So, even if you paid 100 Euros for a meal that was actually $125.00 (U.S. Dollars), the foreign transaction fees will be assessed on the $125.00 amount.

A March 2008 survey of credit card issuers revealed the following foreign transaction fees:

• American Express - 2%
• Bank of America - 3%
• Chase - 3%
• Citi Bank - 3%
• HSBC - 3%
• Washington Mutual - 1%
• Wells Fargo - 3%
• Capital One - No Foreign Transaction Fee
• Discover - No fees. Accepted in China, the Caribbean, Central America, Mexico and certain parts of Europe.

Despite fee hikes in the past year or so, credit cards are often still the most cost effective payment method for overseas travel, but you should consider fees when planning your trip and budget accordingly.

As described by the Bureau of Economic Analysis (BEA), "personal saving" is the amount of money out of your income that you don’t spend and don’t pay in taxes. It’s what you can put in the bank or stock market. The personal saving rate is personal saving expressed as a percentage of disposable personal income.

Despite the U.S. personal saving rate (see graph) is now positive, it’s only been ranging from 0.3% to 4.9% this year. Between the 60’s and 80’s, the saving rate was around 10% on average. This rate has been falling for 20 years. It was 10.8 percent in 1984, 4.8% in 1994, 1.8% in 2004, and 0.4% in May 2005. Are Americans simply spending too much/saving too little and relying too much on debt?

Comparing to some major Asian cities, the answer is perhaps yes. A survey conducted by HSBC shows that the people in the six major Asian cities, Taipei (Taiwan), Hong Kong (China), Shanghai (China), Seoul (South Korea), Tokyo (Japan), and Kuala Lumpur (Malaysia), put away 18%-31% of their total incomes. Is there something we can learn from here?

Reference: Taipei’s High Savings Rate May Have a Dark Lining - Taiwan Economic News

• Net Worth
  Our net worth was up 2.2% (+$3,682) as we spent within our budget and didn’t travel during the Independence Day weekend. We, however, enjoyed the free fireworks display in town.
• Cash Savings
  I understand that I should only put money I won’t need in 5 years in the stock market. As I’m pondering about my short-term goals (possible relocation/new baby/bigger house), I’m keeping my cash at a very high level. The majority of the cash is now sitting at high-yield savings accounts such as HSBC Direct (3.50% APY) and E*Trade Bank (3.30% APY). We also have $10K worth of I-Bonds bought at the end of April with a guaranteed interest rate of 4.28% until September.
• House
  That’s not a Zillow estimate but the price we paid two years ago. Zestimate for our house is currently 8% higher than our purchase price. For the sake of simplicity, I will continue to use the purchase price unless Zestimate goes significantly below it.
• Retirement Funds and Taxable Accounts
  I redeemed my 9-month CD from Countrywide Bank and immediately paid off the total balance ($22K) of my lone 0% APR credit card balance transfer offer. My credit score should be expected to jump back to the 780-800 range soon. We have a total of $76K in 401(k) and Roth IRAs. In July, our retirement portfolios went positive (+2.1%) as the market rebounded (S&P 500: -0.7%). To construct a fun portfolio, I opened a new taxable account at Zecco (10 free trades every month) with an initial amount of $5,000. I anticipate holding 5 to 10 ETFs/stocks at a time.
• Credit Card Debt
  $0.9K is basically my regular expenses paid with my favorite cash rebate credit cards, Chase Freedom (3% cash back in top 9 categories) and Chase Business Cash Rewards (3% cash back at gas stations,  restaurants, and home improvement stores). The total balance is to be paid off at the end of the billing cycle.
• Mortgage
  The only loan we have is the mortgage for our primary residence.

• Household
  We finally spent a portion of our $1,200 stimulus payment at Lowe’s. The garden now looks more lively with the new plants.

Bills.com introduced the BillsIQ test to help people measure their financial health. Since I read that people who’d completed this test claimed that it is accurate, I gave it a try. The test consists of 25 questions and is separated into 5 major sections:

• Credit - Monthly bills, credit score, balance ratio, bankruptcy
• Debt - Credit card debt, credit card rates, loan, debt, monthly payments
• Budget - Emergency fund, budget, saving plan, insurance shopping, saving ratio
• Wealth - Housing, retirement, automatic savings plan, life insurance, investment decisions
• Life Plan - Career goals, retirement forecast, education fund, will, financial security

And… my check-up is complete:

Here’s a summary of my Bills IQ results plus some of my tips and comments:

• Paying Bills On Time - Taking advantage of automatic payments and E-mail reminders 
• Understanding Credit Score - Maximizing the credit score by combining credit cards and keeping oldest credit cards
• Debt Free (Excluding Mortgage) - Simply no overspending!
• Adequate Emergency Fund - Keeping 6-9+ months worth of expenses in high yield savings accounts such as E*Trade Bank and HSBC Direct
• Budget Tracking - Using a personal finance software like Microsoft Money (or Quicken)
• Comparison Shopping - Saving easy hundreds to thousands by shopping wisely
• Saving and Investing Plan - Saving and investing during both good and bad times with automatic plans
• Being a Homeowner - Affordable housing is the key (with at least 20% down, if possible)
• Retirement Planning - Maximizing all available retirement plans; Money and many online calculators are helpful tools to help forecast and plan into the future
• Insurance - It’s peace of mind and, more importantly, asset protection: Auto, home, health, life, dental, disability
• Diversified Portfolio - Asset allocation: Large, mid, small, international, emerging market, bonds, (and REITs when the time comes)
• Career Path - Understanding that young professionals should take experience and responsibilities over money

My old college roommate asked me several times recently if I’d be interested in moving from the Midwest to New York City. Speaking of relocation, I understand that everyone has different situations - job, family ties, and lifestyle. If I move to an area with higher living costs, I could very likely end up with a lower standard of living - even if I’m making more money. On the other hand, a lower cost location can help me live rich - even if I am not. So, how can I possibly look at it from a financial standpoint?

There’re many cost-of-living calculators online but they all use different formulas and general figures that may or may not match one’s specific situation or special needs: Sperling’s Bestplaces, CNNMoney, Bankrate.com, Salary.com, PayScale

To obtain a personalized estimate for the cost of relocation, let’s look at the following key factors:

• Income
  • Salaries - Expected salary and benefits
  • Investments - Business and landlord opportunities
• Expenses
  • Housing - Cost of housing including monthly mortgage/rent and condo fees
  • Bills - Utility bills such as water, gas, electric, and trash collection
  • Taxes - State/local income taxes and property taxes
  • Insurance - Homeowners and auto insurance
  • Transportation - Gasoline prices and parking, bus/subway/train fares
  • Food - Groceries and restaurant meals
  • Entertainment - Shopping, nightlife, attractions, parks, museums, and sports
  • Vacations - Cost of road trips and weekend getaways
• Net Cost
  • Change of income - Change of net expenses

If the net cost comes out negative, the move may not be a financially smart decision. You should expect to save less money or to accept a lower standard of living.

Example

As an exercise, I am going to estimate how much my new life in New York City can cost me:

• Income: +$17,600
  • Salaries: +$20,000
    • Type in my job title and obtain an average from the leading salary calculators: Salary.com, Indeed, Simply Hired
  • Investments: -$2,400
    • Loss of interest (4%) for the down payment on the new house (see housing)
• Expenses: +$28,200
  • Housing: +$20,000
    • According to REALTOR.com, a similar house in an average neighborhood of Queens/Brooklyn will cost 2.5x or $500K, so the mortgage payment will mushroom.
  • Bills: +$1,200
    • A very lowball estimate…
  • Taxes: +$8,000
    • As shown in State Income Taxes, NY state income tax is 6.85% and NYC income tax is 3.65%.
  • Insurance: N/A
    • A higher homeowners insurance is offset by the auto insurance I won’t need (see transportation). Get comparative insurance quotes at Netquote.com.
  • Transportation: -$2,000
    • Instead of owning a car (therefore no gas), I’ll get around with a 30-day unlimited ride metrocard for $81 every month.
  • Food: +$1,000
    • Expect higher grocery and restaurant bills even if I won’t be tempted to dine out more often…
  • Entertainment: N/A
    • Again, assuming I won’t shop more and will take advantage of free entertainment.
  • Vacations: N/A
    • Even if I don’t travel more, there will be more interesting destinations in nearby cities that I can choose from.
• Net Cost: -$10,600

As I mentioned, everyone has different situations, so the net cost can also come out very different. For some, relocation can be a totally emotional decision, so the numbers may not matter. For instance, they move for reasons like: getting a lifestyle that they dream of, living closer to family, relatives, or friends, or looking for better career opportunities.

Salary Value Index

To uncover the top (and bottom) US cities for building personal net worth, Salary.com recently ranked 69 US cities with population over 250,000 with the Salary Value Index (SVI). The index measured local salaries, cost of living, unemployment relative to the national average, diversity of industry, education level of the cities’ population, proximity to post secondary institutions, percent of population below poverty level, and median travel time to work:

Reference: 2008 Salary Value Index - Salary.com

Each city at the top of the list is fast growing and offers the largest difference between pay and costs. On the other hand, the cities at the bottom of the list may have some of the highest average wages in the country but they also represent the places where living is the most expensive, and pay differentials are not proportionately inflated. So, when it comes time to stretching the money and accumulating a nest egg for retirement, it becomes difficult to do in these cities. That’s something to think about.

IndyMac Bancorp (IMB), the latest victim of the subprime mortgage crisis, has been shut down by the Office of Thrift Supervision (OTS) today. To avoid selling IndyMac’s assets at fire-sale prices, the FDIC will take over its operations and run the bank until it can find a buyer. The bank will be reopened on Monday as IndyMac Federal Bank, a successor institution.

The FDIC insures up to $100,000 per deposit and up to $250,000 per retirement account. The depositors with funds below the insured limit should only experience minimal service outage. However, the FDIC said that there’re some 10,000 depositors who had funds in excess of the insured limit, for a total of $1 billion in potentially uninsured funds. The bank’s creditors and customers with uninsured deposits will be notified by the FDIC to submit proof of their claims to the receiver.

Are banks too big to fail? IndyMac is indeed the second largest financial institution to close in U.S. history. At the end of the first quarter of 2008, it had assets of $32 billion, 33 retail branches, and 7,200 employees. Think about it…

As a former customer of IndyMac, I put around $22,000 from a 0% APR deal into a 6-month CD that offered an interest of 5.7% APR last Fall. Thinking back, I did anticipate a possible bankruptcy/closure but realized that my risk was limited with the FDIC insurance limit of $100,000.

Credit cards can work or against us. It depends how we use them.

As a consumer who pays off balance every month (except 0% APR deals), I have been taking advantage of cash reward credit cards for years. In the past 12 months alone, I earned 2.68% cash back (equivalent to a pre-tax return of 3.83%) for all my purchases charged to credit cards - Here we’re talking about $500-$1,000+ per year!

These are the best credit cards that I used to maximize my cash rebate:

• Chase Freedom Cash - 3% cash back in the top 3 of 15 everyday categories, 1% everywhere else. Get a $50 bonus with $200 in rewards
  • My cash rebate: 2.61%
• Chase PerfectCard - 3% cash back at gas stations, 1% everywhere else
  • My cash rebate: 2.97%
• Chase Business Cash Rewards - 3% cash back at gas stations, restaurants, office supply stores, hardware and home improvement stores, 1% everywhere else
  • My cash rebate: 3.00%

To go a step further, I recently converted Chase PerfectCard to Chase Freedom Cash (2nd) and successfully persuaded my wife to apply for a new Chase Freedom (3rd). Therefore, I anticipate to earn more than 2.68% (inch closer to 3.00+% overall) from here on forward by combining three Chase Freedom’s and Chase Business Cash.

My maximizing strategy will read like this:

F1-F3: Chase Freedom 1-3, B: Chase Business Cash

• Chase Freedom 1
  • This is my primary credit card in my wallet. I’ll use it for groceries (such as local chains, Whole Foods, and Trader Joe’s), some seldomly used categories, and everything else.
• Chase Freedom 2
  • This card sits at home in the drawer. I’ll only use it to pay monthly/quarterly bills for trash collection (Waste Management), satellite TV/internet provider (DirecTV and AT&T DSL), and cell phone (T-Mobile).
• Chase Freedom 3
  • My wife will mainly use it in department stores (Macy’s), pet stores (PetSmart and PETCO), and other seldomly used categories. This is also the card to be used when I max out my top 3 categories of Chase Freedom 1.
• Chase Business Cash 
  • Other than gas, I’ll bring this card out for the categories that aren’t covered by Chase Freedom - Restaurants, Home Improvement (Lowe’s and Home Depot), and Office Supplies (Office Depot and OfficeMax).

More importantly, since Chase Freedom offers a $50 bonus with $200 in cash rewards (in the other words, 1% will become 1.25%; 3% will become 3.75%), I’ll occasionally rotate my Chase Freedom cards so that each of them will be able to reach the $200 threshold much faster.

After reading this, are you still sure you want to give up the free cash?