Finance Gourmet Blog

A few years ago, I subscribed to Men’s Health magazine.  (I also made the mistake of subscribing to their emails which now come from Rodale and others on a daily basis filled with 3/4 ads for whatever book they are pushing, and 1/4 “tips”.  I’ve tried to unsubscribe to no avail, so now they have a home in my spam list.)  Each month, I would get new workout tips.  A hot new exercise to target my abs, or a new twist on an old routing to kick it up a notch.  The catch was, I wasn’t really going to the gym that much in the first place.  Frankly, I would have been better off doing nothing but push-ups, sit-ups, lunges, and curls three days a week than trying out new stuff and going once a week (if I was lucky).

For finance, I’m starting to see the same thing in my clients.  I have clients and friends who have read dozens of finance books.  They have opinions about all sorts of things from where the best place to invest is, to when to pay or not pay fees and so on.  Yet, many of them don’t even have a cash reserve fund, let alone enough money to worry about investing details!

Folks, it doesn’t matter if you can squeeze an extra two percent return on your investments if you have $500 in savings, $20,000 in your 401(k), and $3,000 in an eTrade account.  You are a debt problem waiting to happen.  The first major car repair, furnace repair, or medical bill wipes out your savings.  Then what?  Then people call me asking if there is a way to get to their 401(k) money.  All the while, they are obsessing over the latest trends in investments and whether the Street is crooked.  It doesn’t matter if you aren’t even going to the gym!

Start Small and Simple

Ok, let’s make it worth your while to know all about investing.  First, you’ll have to have money to invest.  It comes from saving money.  Do the easiest, simplest thing first.  Open and INGDirect account and link it to the account where the paycheck gets deposited.  If you get paid on specific days (the 1st and the 15th), then setup and automatic transfer to your ING account to occur one day later (the 2nd and the 16th).  One day later makes sure that your paycheck will be there when the withdrawal comes regardless of weekends or holidays.

Don’t worry about where you could get a tiny bit higher interest rate.  Don’t worry about whether or not now is a good time to invest in oil or gold or China.  Just build up some dough!  Go to the gym!  That is all we care about right now.

AFTER consistently going to the gym 3 days a week for 3 months, THEN we can look at routine changes.  Hey, by then we might even be in shape enough to do some of them.  Same thing for personal finances.  After we are able to build up $10,000 or more, THEN we can look at investment ideas.  Frankly, $10,000 is too low, but hey, at least you got that much.  Actually, you need $20,000.  $10,000 for those great investment ideas, and $10,000 to leave at ING, because after all, that air conditioner hasn’t been serviced since the year started with a one.

Yet another client came in bamboozled by their credit situation.  Recently, they used a handful of checks they got from various credit card companies to transfer their balances to cards where they will have 0% interest for a full year, 18 months, or whatever.

In fact, by parlaying around a few different cards they got their entire amount of credit card debt onto 0% payment plans.  Smart?

Well, maybe.  You see, 99.9% of those 0% balance transfer checks come with a transaction fee.  It isn’t anywhere prominent, so you have to look for it.  Down there in the fine print you’ll see the line, “Checks are subject to a 3% transaction fee or $25 whichever is higher.”

That means that if you took a $6,000 balance, an $8,000 balance, and a $5,000 balance and switched them around to get 0% on all of them, you paid $570 in transaction fees.   Now, if you are having some issues and you intend to take advantage of the year of 0% interest to make some smart moves in your finances, this just might work out in the long run.  A lot of that math depends on your interest rate.  If you got good cards in the first place, your rate of 9.9% or 12.1% won’t make this add up in your favor as fast.

However, the biggest catch is the other fine print down at the bottom.  It says that all of your payments will go to the lowest rate balance first.  In other words, if you put $5,000 on the card at 0% interest, and then you charge $300 you will owe interest on the $300.  If you send in $300, it won’t help because, the $300 payment will be credited to your lowest interest balance which is the 0% part.  So, after your payment you have $4,700 at 0% and $300 at 13% (or whatever).  Now, the worst part is that you will pay 13% on that $300 until you have paid off every penny of the 0% balance.  That is NOT a good deal.

How to Use 0% Interest Offers

If you are going to use a 0% interest offer, you must NOT USE that credit card again until your balance transfer is paid off.  In other words, you need another card that will be your regular card that you make charges on and pay off each month.  Otherwise, you will just get killed in the end.  Why do you think credit card companies are always making these offers?  Do you actually think that they would do something that loses them money like giving you money interest free for 12 months or longer?

You can still win, but you must be smart.  Use your 0% offer and then put that card away in your lock box until it is completely paid off.  Otherwise, you are just throwing money down the toilet and feeling good while you do it.

There is a great scene in the movie The Paper with Michael Keaton in which the characters are sitting in a conference room discussing the next day’s front page.  There has been a big sensational story, and they ponder over how to best deliver a headline.  When they finish, one of the characters says, “With a slammer (exclamation point).”  At which point, one of the characters rolls her eyes and says something about heaven forbid if they ever ran a headline with an exclamation point.

I’ve never worked in a newsroom and I have no idea how accurate the movie is, but I do know that newspapers and magazines work very hard to grab our attention with their headlines, and if they can use a powerful buzz word, then so much the better.

Yeah! It’s a Bear Market…Not.

On Monday, the stock market closed just over 19.5% down from the last high point.  This is significant, because the definition of a Bear Market is when the stock market is down 20% from its previous high.  Yesterday, the markets started the day lower dipping enough to slide below the magic 20% number.  The results were almost instant.  On every major business web site and even on numerous regular news sites, the headlines flew up in large bold characters.  Bear Market were the key words in whatever clever phrasing they came up with.  The press was happy.  Bear Market makes for a great buzzword especially as confidence in the overall economy is slipping.

There was just one problem.  Shortly after dipping into bear market territory, stocks started moving back up.  By noon, they were in positive territory quashing the bear market generated ever so briefly earlier.  I could almost hear the grumbling in the newsrooms.

In fact, GM reported lower than expected losses and the markets finished the day up.  No big bold Bear Market headlines for today’s newspapers.  They would have to go with something less powerful (although, I’m sure, just as gloomy).

Media Outlets and the Markets

It is useful to keep this story in mind.  Various publications whether they be newspapers, web sites, magazines, or T.V. shows figure they have just seconds to grab your attention.  To do that they use flashy buzz filled headlines that they hope will inspire you to give them a chance.  There is nothing wrong with this, but it does mean that thoughtful, well-researched money stories must be sought out by intelligent investors and financial advisors.

Top Ten Best Whatever is hardly a good way to get solid analysis.  Look beyond the flashy headlines and read the details.  Educate yourself by reading the Finance Gourmet and other resources that provide in-depth looks.  Then, make sure you use your brain and think for yourself.  After all, does it really matter if the markets are down 19.5 percent or 20.1 percent?  Does that affect your portfolio or finances in any way?  The answer is it shouldn’t.  Your long term financial plan should not react to these short term events, and your short term financial plan should not involve the stock market.  So, either way, these headlines are nothing more than entertainment for the smart investor.

Some of you have followed along as we try and sell our house without a real estate agent.  I have documented how we were using Iggyshouse.com to this.  But, the site has been down for the last several days.  I was finally able to find this article suggesting that this is not a temporary glitch.

Needless to say, we are re-evaluating.  Even if it does come back online, this is disconcerting to say the least.  If we were off MLS for even one weekend, that might have cost us a sale.  So, I cannot recommend using iggyshouse.com at this time.

Stay tuned.  I’ll post a follow up when I have more details.

Every so often I get an email from somewhere offering me a trial membership to myFICO or something like it.  And, every so often, I have to get a client to cancel the subscription.  myFICO and the others are NOT worth it.

$90 per year

The myFICO service that allows you to check your credit score daily costs approximately $90 per year.  Just do some quick math.  I see people transfer their money all over the place to pick up an extra 0.5% on their savings or money market account.  Instead of transferring your money and setting up direct deposit and whatever other gymnastics are required, you might want to consider how you could end up with the same net worth.  That $90 per year adds up to the same amount as the total extra interest you would earn in an entire year on $18,000 in savings by getting a interest rate that is 0.5% better.

Easy Way to Get A Free Credit Score

First, see if your financial institution will tell you your credit score for free.  Some forward thinking customer focused banks and credit unions are actively reporting their customer’s FICO score on statements or on your online banking.  Typically, these scores are updated quarterly.  Even if your bank doesn’t print your score out somewhere, that doesn’t mean that they won’t tell you if you ask.  Call the regular customer service number and ask if they have a recent credit score for you on file.  Chances are they do.  Many financial institutions update your credit score on a quarterly or semi-annual basis so that they can target you with the right kinds of services.  After all, a customer with a 780 credit score is someone you don’t have to worry about bouncing a lot of checks or or over-running a credit-line.  When you talk to them, get your score and the date it was from.  There you go, free credit score.

If your bank won’t tell you your credit score, frankly, I’d start looking for another bank.  Even saying the words, “Oh, well, that’s unfortunate because a friend of mine can always ask his bank.  Maybe I should switch,” might get you bumped up to a different level of service, and your file noted so that you can get your score next quarter.

How to Manage Your Credit Score

Knowing your credit score number is not as important as what you are doing to it.  Think about it this way, if a highly calibrated NASA scale says you weigh 197 lbs. does it really matter that your home scale says 194 lbs?  What matters is whether the number is going up or down.  While it is true that the exact number may determine your lending rate, you don’t know what those numbers will be.  Some lenders will give you the best rate with a 715, others may require a 730.  So, while it helps to know about what your credit score is, don’t obsess over the exact number.

So, how do you make sure your credit score keeps going up?  Pay every bill, every month, on time.  That’s it!

The only other time you even have to worry about it, is when you get different credit than you already have.  That is, if you get a new credit card or refinance your house, or trade in your car for another.  Then, it’s time to call the bank again and find out what your score it.  You’ll need to wait a month or two before the change takes affect, but it doesn’t hurt to call right away.  Then, you can ask if they know when it will be updated by their system again. 

There you go.  Absolutely FREE CREDIT SCORE management, no strings attached.

These days, medical expenses are a big burden to many family’s budgets. Unfortunately, it isn’t always easy to figure out just how and when you can save money without endangering your health. However, here are some tips that could save you plenty of money on your prescriptions.

Costco, Sam’s Club, and Other Warehouse Clubs

It is no secret that places like Costco and Sam’s Club have pharmacies, and yes, they have good prices on prescriptions as well. Not a member? No problem. Most states have laws requiring any business establishment to permit public access to the pharmacy. In other words, you can march right into Sam’s Club without a membership and have your prescription filled. Just tell the person at the door that you are having a prescription filled in the pharmacy and they’ll let you right in. These places tend to train their people pretty well on this rule so they don’t get into trouble.

The one catch is that both Costco and Sam’s Club have restrictive payment options so make sure you have the right kind of credit card or are prepared to pay by check. For more expensive prescriptions this may not be a very palatable option, so if you are going to go this route a lot, look into a no annual fee version of the right credit card.

Wal-Mart and $4 Prescriptions

Unless you’ve been living under a rock, you no doubt have heard about Wal-mart introducing $4 prescriptions for certain medications. Keep in mind that this is only for certain GENERIC prescriptions. You can’t get a generic version of a drug that is still under patent protection. However, if you are getting a prescription for an “extended release” or other “all day” type prescription and are responsible enough to take more than one dose per day, see if there is a non-extended version availible and discuss having your doctor re-write your prescription to it. A sneaky trick that a lot of pharmaceutical companies use is to sell a “regular” release formula for the full length of the patent. Then, just as the patent is about to expire they come out with a “new” extended release version and get a few more years of patent protection to sell that one. The regular version is just as good, only you’ll have to take it more than once a day. If it’s generic it might be on the $4 list. If not, it will still be a lot cheaper than the brand name extended formula is.

Other stores are following Wal-mart’s move. Target offers a list of $4 prescriptions as well. Here in Colorado, Safeway offers a list. One thing to keep an eye out for is stores that will match other prices. That means you could be getting your prescription for $4, but only if you ask!

Insurance

Obviously, the best scenario is to have good insurance. But, even if you do, chances are you pay a smaller co-pay for generic drugs. Also, there is a good chance that you can get a discount if you buy certain “maintenance” drugs via mail. With this system, you get a 90-day supply for a 60-day price or something along those lines. This can save you a lot if you have multiple prescriptions. Make sure it is worth it to you though. Someone with asthma getting a generic inhaler once a month probably isn’t going to save enough to make it worth the hassle.

Shop Around

The price difference between pharmacies can be huge! In general, the big box stores like Target and Wal-mart will have cheaper prices than stand alone pharmacies. Walgreens can be one of the most expensive, so you might want to check. Most places don’t list prices on the Internet, but they’ll be willing to tell you if you call, especially if you say you are thinking about transferring a prescription. Call up Target, or whoever, and say, “I’m thinking about switching my whatever prescription over to you. Can you tell me what it would cost? Have your bottle ready because they’ll probably ask you questions you don’t know the answer to. “Is that the diffused formula or the titrated formula?” It probably says on the bottle.

So, here is something interesting. Capital One has a “credit card lab” on their website. Basically, the way it works is, you get a screen with several options available to you. As you choose the options you want, some of the other options get grayed out because you can’t choose them any more. For example, this is the screen if you choose “Excellent Credit”

You can choose all kinds of things like how many points you earn per dollar charged, and even “Additional Rewards” like a 25% Annual Bonus, or 0% APR on Balance Transfers.

What makes this so interesting is you can see exactly how your choices impact the remainder of your card features.

Credit Cards and Free Lunch

It is often said that there is no such thing as a free lunch. With the Capital One Credit Card Lab, you can see exactly that. Choosing 2 points per $1 spent for example, eliminates your ability to get the lowest interest rate, all “additional rewards” and even requires you to select an annual fee of $39.

By playing around with the various options you can see two things. One, what kind of card could you build if you wanted to? And, two, how much certain features are worth.

How to Use Credit Card Builder

So, how do you take maximum advantage of this tool?

1. Select $0 Annual Fee first — Nothing on that screen is worth paying an annual fee for unless you have a HUGE balance. Then, the 7.9% APR might be worth it, but make sure you do the math first.
2. Set A Specific Use - Decide on what you want to use this card for. For example, if you used this card exclusively to purchase all your gas and groceries, you could select 1% cash back and 2x Rewards on all Gas & Groceries.
3. Ignore Intro Rates - If you aren’t going to be transferring any balances to your new card, don’t bother wasting features on the transfer features. Instead choose the lowest interest rate.
4. Lowest Interest Rate - It goes without saying that you want the lowest interest rate, but if you pay off your cards every month does it really matter what the interest rate is? Get all the features you want and take the higher rate. Just make sure to use a different card if you ever have to carry a balance.
5. Comparison Shop - One of the hardest things to do is compare rewards credit cards. Now, you have a good tool to do so. When you see an offer that looks interesting, get all the details and then come to the Credit Card Lab. Try and match the features. If the offer you have comes up better than what you can get here, then it might be a good deal. If you can beat it with the Credit Card Lab, then keep shopping.

Monitor Your Credit Score

Before making any changes to your credit lineup, it is a good idea to get your credit score, and then monitor its reaction to your new card. Sign up for a 90-day (or more) free trial offer with a temporary credit card number that expires before the 90-day period is up (so it can’t automatically renew) and make sure to cancel before your free trial period is up.

Get your credit score before you apply. Then apply and check your score for as long as you can during the trial period to see the affect. If you need to monitor for longer, sign up for a different trial offer until you know how this new credit line will affect you.

For More Credit Card Information