Guest Post ---- Your Credit Cards Can Save You Money

Below is a great post from fellow personal finance blogger Miranda who edits for DestroyDebt.com if you enjoy her post be sure to check out Destroy Debt.


It seems counterintuitive that a personal finance writer would advocate the use of credit cards, but that's what I do -- provided that you can use your credit card responsibly and pay it off every month. Just like so much else in this life, credit cards themselves aren't evil. But using them in a way that is detrimental can result in a great deal of trouble. But if you use them the right way, your credit cards can actually save you money.

Choosing the right rewards

First of all, don't just choose any card with any old rewards program. You need to find a rewards program that works well for you -- offering you the rewards that you will actually use. Compare offers and decide what will benefit you the most. Whether you want travel points, cash or consumer goods, you need to pick a rewards program that will provide you with what you need.

Be warned: Too many different cards, with too many different rewards, can dilute the effectiveness of your rewards program. Instead, choose no more than three that you want to work on.

Create a plan for building credit card rewards that can save you money

Any financial planning tool -- including credit cards -- requires, well, a plan. You need to decide how you are going to amass rewards. However, the key here is to only spend money on things you would buy anyway. Here is an example of how I spend my money, and which credit cards I use to pay for them:

• Capital One No Hassle card: All grocery store purchases, gas and recurring bills. Receive miles that I can redeem for airfare or other travel. Last year: Free round trip ticket to New York to visit my husband's family. This year: Free round-trip ticket to Phoenix, AZ to see my grandfather. Planning to use the rest of the points for car rental and for hotel while taking a mini-vacation within the trip to New York.
• Upromise card: All online purchases. Percentage of purchases goes into an account that is in turn invested into a tax-preferred 529 college savings plan for our son.
• Cash back card: Large consumer purchases. Once the reward is $10, a check is sent. Almost every time we make a large purchase (computer, TV, sofa, etc.) we get a check in the mail. That check immediately goes into our emergency fund -- which is a high yield savings account. It's not the only money we put in there, but it gives the fund a periodic boost.
  

Retirement is our most important goal, but we find that we can work toward our next most important goals (defraying travel costs to see family and helping our son pay for college) without having to spend extra money.

Warnings when using credit cards in this manner

It is important to take heed. Without a plan, you can quickly fall into the trap of not paying off your credit cards each month, and entering the cycle of debt (and the attendant interest). Here are some things to remember when using credit cards to save you money:

• Once you start paying interest, the value of your rewards is eroded and can even be destroyed. So pay off your credit cards each month.
• Make sure that you have the money before you buy something. That way you will be able to pay off the credit card at the end of the month.
• Be aware that going over you limit or paying late can mean being locked out of your rewards. You won't be able to access them until you are back under your limit, or you've made your payment (and paid your late fees).
• Late fees and over the limit fees can erode the value of your rewards.

If you plan carefully and use your credit cards in a constructive manner, you will find that your credit card companies are paying you -- instead of you paying them.

Miranda Marquit edits information on debt consolidation for DestroyDebt.com.

Net Worth Update --- Looks Like the Stock Market Is Starting to Impact Me

Its July 1st which means that the 4th of July Holiday is right around the corner. It also means its time for me to update my net worth. Below is my new update.

	Updated 7/1/08	Change from Previous Update	Updated 5/30/08
Total Net Worth	$105,413.65	$559.93	$104,853.72
Net Worth Comprised of
Retirement Savings:	$29,881.15	$321.37	$29,559.78
401k	$23,932.15	$361.08	$23,571.07
Roth IRA	$5,949.00	-$39.71	$5,988.71
House Down Payment/CD's:	$57,401.89	$157.06	$57,244.83
Future Car Savings	$5,458.48	$157.76	$5,300.72
Emergency Fund/Money Market:	$11,435.17	$227.89	$11,207.28
"Cash"/Checking:	$1,236.96	-$304.15	$1,541.11

At first I was really concerned that I'd only increase my net worth by less than $560 because that's much less than my typical $2,000. There's two main reasons for this less than normal net worth increase, the first is that my Money Market decreased because I paid for part of my vacation that I'm taking in July the other main reason that my net worth decreased is that despite contributions of over $1700 to my retirement accounts they only increased by $321. I guess the current stock market and economy is finally taking its toll on me.

Monday's Money Funny

No Monday Funny this week. With the project from Hell and my worse than normal hours (that unfortunately will last the duration of this project) I've not been keeping as abreast of financial news as I like to and sadly didn't open a paper, magazine or website last week.

If you're fortunate enough to keep up with the news give me a shout if you find any good Money Funnies.

Weekend Round Up

Its been an exciting week around in the PF Bloggers World this past week. A few highlights include:

Living Almost Large explains all about IRA's.
Penelope @ Our Fourpence Worth gave tips on how to Resist the Urge to Slurge.
Master Your Card's Kristy gave a great test to determine if you're smarter than a 5th Grader when it comes to Credit Cards. (I love that TV show!)
Ashley from Wide Open Wallet shared a great story about a play it forward for coupons. Such a great idea.
Girls Just Wanna have Fund's Ginger shared tips on saving money when Vacationing.
And Seb from Pinching Copper wrote another great letter to Mr. Bernake.

Budget

I recently received a reader request from Allison (shout out to Allison --- Thanks for reading!). She suggested that I share my budget as she felt readers might be interested. So here it goes…in addition to sharing my budget numbers I thought I’d take it a step further and share my philosophy on budgets which is that is has to be stretchy like a rubber band or it will never work.

My monthly budget is $1800, excluding savings and automatic withdraws from my paycheck*. This increases several months a year when I have irregular expenses like car maintenance, vacation, taxes etc. To account for these irregular expenses I save monthly so in reality I still stay with in my budget. My budget line items are pretty simple – I like to keep it easy as can be. Big Expenses include Rent ($620), Charity ($500), Dinning/Entertainment ($230), Utilities ($150), Gas ($100), Groceries/Sundries ($100), Misc-clothing, memberships, gifts etc ($100). Any left over from the month I roll over to my irregular expenses savings in addition to my normal savings.

* My health insurance, flexible spending account, renters insurance, retirement contributions etc is automatically deducted from my paycheck

While my monthly budget is $1800, I don’t hold strictly to my line item budgets. Each month is slightly different for me – one month I might eat out more often but buy less Groceries, another months I might splurge a little big more on gifts (especially around June when I have three birthdays in a row) but I’m so busy at Birthday parties that I don’t drive as much. I don’t beat myself up over this if I go over my targeted line item budget, I simply adjust for it from another category. If you don’t adjust for it then its like you’re on a really strict diet and I don’t know about you but I can never seem to follow those because eventually you just can’t take it anymore and have to splurge so I allow myself that splurging. It also allows you to do last minutes items that aren’t planned for – if my friends are going out and I don’t have to say no just because I’ve reached the $230 limit, I can just “borrow” a little for another category or if I absolutely need some toilet paper but I’ve used up my $100 groceries/sundries budget I can still get the items I need and “borrow” it from gas etc. The only two that I don’t borrow from are Rent because I prefer not to get evicted and I don’t borrow from Charity because I make that a priority. But all the rest are adjustable.

To help ensure that I’m staying on track with my budget, at least once a week I check on my total expenses for the month (excluding the irregular expenses) and calculate how much remaining money I have – this helps me to adjust my spending and help me remember my goal with my budget. I also check on each of my line items to make sure I’m in the ballpark and if I notice a trend over several months I adjust accordingly as well.

That’s my take on budgets --- how do you manage your budget and what does your budget look like?

Carnival of Personal Finance #158

The Carnival of Personal Finance #158 Hosted by Mrs. Micahis up and running.

There's a tone of great posts by fellow bloggers, but sure to check them out and while you're there check out my article which is post under Assorted Instruments.

Monday's Money Funny - Tipping

One of the regular features on my blog is "Monday's Money Funny" which are humorous (at least to me) articles/jokes/just about anything that I've discovered over the weekend when I catch up on all my on line reading that spark a need for knowledge. For example the previous Monday Money Funny was about how People that are too Happy to be Rich.

This week's Money Funny is To Tip or Not to Tip from Do the Right Thing advice column on CNN Money.

Below are the highlights. You can check out the full column by clicking here.

Question: I was at standing on a pier recently when my hat blew into the lake. A nice kid, maybe 9 or 10 years old, swam out and got it for me. I thanked him appreciatively and also thanked his mother, who was nearby. A friend says a “thank you” wasn’t enough - that I should have given the boy ten bucks, or maybe treated him and his friends to ice cream cones. What do you think?

When should you tip? I know when I'm out with my mom she is always asking me should I give him a tip, how much? Well I've scored all of Emily Post's Guidelines, Encyclopedias, and just about every resource I know and have found the best all inclusive guidelines for you at Findalink. It covers everything from tipping at restaurant to tipping at a funeral and all things in between so all of your bases are covered.

Personally I try and follow common courtesy but in general I tip when I feel its appropriate and I tend to "over tip". I'm an extremely generous tipping when I receive good service. It just makes sense to appreciate job well done. For example I tip my hair dresser around 30% despite the guide calling for 10-20%, I do this because this the the woman who controls whether I have a good hair day or bad hair day for the next 4 months, so when she does a great job I let her know. Plus when I come back she remembers (although I've been going to Leslie since I was in elementary school so I think she remembers me, but the large tips help her remember to take good care of me). The same is true of a waiter or waitress, I tip large when I've had really good service, not because I think I'm going to get the same server the next time but by tipping large I'm reinforcing the good service that they offered so they will continue this habit. That's just my two cents on tipping.

Stay tuned for next week's Monday's Money Funny. If you run across any Money Funnies please email them to me at future.millionaire.blog@gmail.com and if I use them I will give you credit and link to your blog.

Weekend Round Up -- The Neglected Edition

Ugh -- this past week has been exceptionally rough on the Project from Hell. This week we were trying to top out the building so it meant even more exceptionally long hours (Thursday I was at the job site for a solid 20 hours yuck!) -- I think I'm still sleep walking trying to catch up on sleep. I'm now trying to spend a lazy Sunday on the sofa sleeping and catching up on the PF Bloggers World -- while I was sleep walking my peers on PF Blogger were busy keeping up informed.

A few highlights from this past were include:

Ashley from Wide Open Wallet featured another guest post from Bruce the Tax Guy about how to hire a professional. Very good advice - especially since I've started thinking I might want to hire a professional financial adviser but that discussion is for another post.

Kevin from No Debt Plan discusses Target Date Retirement Funds. This is what the bulk of my retirement is housed in because its really easy to manage.

Master Your Card's Kristy shared how to Get Perfect Credit -- looks like no matter what I'm going to have to wait another 20 years before I can potentially have perfect credit, I guess I'm okay settling for near perfect credit ;)

Penelope from Our Four Pence Worth shared an interesting twist on Monopoly with accounts.

Living Almost Large raised some interesting questions about are Credit Cards really the cause of debt or is it simply the people using them. Personally I use a credit card for every purchase, I think for the last month I've had the same $12 in my wallet. I'd be in real trouble if I could only use cash. Until Mr. Be Mine I'd never met anyone who was a strickly cash person, to me it seems a lot more difficult and more expense - always having to drive to the bank plus you have to keep all of your receipts to keep track of your spending. Are you a cash or credit person?

Weekdend Round Up - Happy Dad's Day Ya'll

Hope everyone's having a wonderful Sunday with their Dad's.

This past week in the PF Bloggers World was most exciting a few highlights to check out are:

This week Ashley from Wide Open Wallet and I exchanged financial data and posted Millionaire in the Making Stories about each other.

Kristy from Master Your Card posted about how young is too young to have a credit card. I have to say I got my first card that I was responsible for when I was 18 however I listed as an authorized user on one of my mom's credit cards since I was 12. About a year ago I had to ask my mom to take me off of as being an authorized user because it was great when I was younger to have a long credit history but the balance my mom carried on that card was hurting my debt to credit limit since she was close to maxed out on the credit card.

No Debt Plan's Kevin shared about do-it-your-self projects. I think I'm like Kevin a lot in that my DIY project end up taking forever and a day longer than planned. About 4 months ago I bought an unfinished side table and you guessed it - it only have one coat on it right now. Maybe Kevin's success story will help motivate me to finish it up.

Living Almost Large posted about Medical Costs in Retirement. I know that's a big concern for a lot of retirees. I guess I'll have to make sure my mortgage is paid off so I can afford medical care in retirement.

Congrats go out to Ginger from Girls Just Wanna Have Funds for being featured on Good Morning America. -- You go girl!

Also out side of the PF Bloggers World Banker Girl posted 6 Secrets for Fast-Tracking your climb up the corporate ladder. Very useful to me since I'm aiming to make it to the next rung this year.

Millionaire in the Making

I’m a huge fan of the Millionaire in the Making stories that CNN Money publishes. Ashley from Wide Open Wallet and I decided to swap financial data and write each other’s Millionaire in the Makings stories. You can view my story written by Ashley at her blog Wide Open Wallet, below is her story.

Millionaires in the Making:

Ashley and her Dear Husband (DH)

Ages: Ashley 31, DH 42
Occupations: SAHM and Telecommunications Installer
Salary: Approximately $91,000 combined
Home and Land Value: $110,000 estimated equity
Retirement: $17,200
Cash on Hand: Approx $20,000
Monthly Expenses: $4,000 - $5,000
Debt: $34,732 outside of mortgage

Ashley started her blog, Wide Open Wallet, because she wanted an outlet to share her financial views since according to Ashley her friends grew tired of listening to her talk about personal finance. So you know this couple has to have their head on straight when it comes to money.

The couple has two young children, a girl and a boy. Ashley’s DH works in telecommunication as a telephone system installer and she stays home with the children. Ashley plans to eventually return to work after their youngest goes back to school but that won’t be for a few more years. However, she had tried a few part time jobs such as elder care but it’s not really worked out for the time and energy involved.

Currently the household earns around $91,000 a year. This is great considering the household expenses are between $4,000 and $5,000 each month. They have minimum debt out side of their mortgage. Their total non-mortgage debt is $34,732, which is comprised mainly of car loans.

The couple bought their current home in 2004 for $184,000. The home is in a great location in Arizona and has appreciated in value since purchasing. Currently the house is appraised at over $250,000 despite the current housing crisis.

Unfortunately, the couple got a late start saving for retirement. Currently DH has $2,700 in an IRA and is contributing $100 a month. Ashley has a retirement plan that’s currently valued at $14,500 and is saving $50 a month towards her retirement.

The couple’s financial goals include providing for their children and one day retiring.

Future Millionaire’s Take

With their current savings and home value Mom and her DH are well on their way to becoming millionaires – it’s just a matter of when. Calculating a modest return of 7% they will become millionaires in 43 years.

But the even bigger question for this couple will be “Is a Million Dollars Enough for Retirement?” This is a big question for Mom and her DH that needs to be investigated. I recommend they review their current spending and determine which expenses they will still have in retirement and any future expenses, including medical, they might have. Then develop an approximate monthly budget for retirement and add at least a 10% safety net. This will give Ashley and her DH a goal amount and can adjust their savings accordingly. Then determine what monthly contribution is needed to reach this goal. One can determine this by using Bankrate’s calculator for saving goal.

While they are starting to work towards their retirement goal Ashley and her DH should tackle some other financial objectives. Priority number one should be building up their emergency fund to have between 8 – 12 months of living expenses. Even at their bare minimum expenses of $4,000 they only have 5 months and that includes liquidating all sources of cash on hand, not just their emergency fund. The other piece of securing their emergency fund is to make sure it’s earning some money, put it in a high yield Money Market or On-line savings account where they still have easy access but are gaining some interest at the same time.

Ashley and her DH should also look into starting to plan for their kid’s college. As young as their children are who knows if Daughter or Son will go to college but by starting to save for them now will save their children from the burden of working full time while in college or having to take out student loans. (I fully support kids being responsible for a portion of their education, it will make them value it more but if possible it’s nice if parents are able to help them out). The best way to start saving for their children’s college expenses is via a state 529 plan. This allows for tax exempt dollars to be saved and grow to be used towards college expenses much like a 401k except you’re not taxed on the money at the time of withdraw if its used for college expenses. If they are not sure if Daughter or Son will attend college they can still save because they can change the beneficiary to another qualifying family member at any time in order to keep the account going and avoid taking non-qualified withdrawals when the original beneficiary doesn't need those funds. And even if all else fails 529 Federal law only imposed a 10% penalty on the earnings from this plan.

Once their Emergency Fund contains between 8-12 months of living expenses and college savings has been started for their children Mom and her DH should look into accelerating their debt pay off and then establish a future car savings account so that any future car purchases can be paid in full and avoid paying interest. After that Ashley and her DH should just focus on enjoying a good financial future.

All in all Ashley and her DH are right on track to be Millionaires in the Making.