The gift that gives back

When I was young I had it drilled into me that there’s no such thing as a free lunch.

Well, that’s pretty much a universal truth.

Sometimes though you can find a deal that looks like a free lunch but only because you and other people are already paying for it.

Imagine for every $100 you spend someone slips a dollar back into your account. Now it may only be 1% but with an average annual spend of over $18,000 per credit card that’s $180 that you could put back in your pocket that you’d otherwise not see.

Surely there’s a catch? What about fees or extra conditions? Well, HSBC and American Express both offer cash back options with no fees to well qualified card members with differing rates of payback. Capital One and others do have an up-front fee but depending on how actively you use your card you can quickly recoup that and earn cash back.

Like cards that offer reward points or travel miles someone has to pay for the cash-back and in most cases it’s cardholders and merchants through the fees that the credit card companies charge, and the interest that you’ll get charged if you don’t pay off your card in full each month.

With most points or air miles schemes you’re often not going to get what you want – either because the rewards expire, blackout dates on the flights restrict when you travel or you don’t have quite enough of the relevant virtual currency in the bank for what you need. With the cash rewards it might not seem as attractive but it’s a reward you can take to the bank, and unless you are saving for something specific and know you’ll amass the points or miles and be able to use them I’d take the money and run.

As we’re consolidating around HSBC we’ve getting one of their cash-back cards and we’ll see how that goes. Of course we’ll continue to obsess about paying the card off in full each month as missing just one of those would probably wipe out any value of the cash-back.

What have you done for me lately?

You ought to be thankful for the little things…

When I realized that, unlike some others I’d seen advertised recently, my bank (a local Credit Union) didn’t charge me a regular account keeping fee I was pretty happy (though, even as a user friendly Credit Union, they have some fees that they are more than happy to slap on you). ATMs were free as long as I used a Credit Union and there was no minimum balance.

…but little things are all you seem to give

However when I realized that the interest they offered (0% on my checking account and 0.10% on my so called Savings account) I wondered if perhaps it wasn’t such a good deal.

Looking around I discovered than banks like HSBC Advance, ING Direct or Capital One have online accounts that provide instant access and a much better rate of interest and no fees. Some of the accounts provide a debit card, some provide checks and all make it easy to pay bills or transfer money to and from your existing bank or 3rd parties.

The initial change we’re making is to open up a savings and an online payment account with HSBC. They are currently paying 1.10% interest on the savings and  0.85% on the payment account. My salary will go straight into the savings account so it’s earning interest from the moment it arrives and we’ll schedule transfers to the online payment account (transfers are free) to cover things like the mortgage and the car loan.

We’re keeping the credit union checking account for the time being but just with minimal balance in there to see if we actually need physical checks. As long as we plan right and transfer money in good time we won’t lose out and it will help with the transition.

While there are other good deals to be had HSBC seemed to have the right balance of features, a good interest rate, no account keeping fees and the added benefit that we’ve had good experience with them in the past overseas.

Homework

Have a look at the accounts you have at the moment:

• Do they charge fees that impact you on  a regular basis?
• Do they pay you interest, and if so how much?
• Do you need all the “added features” they offer to justify any charges or low/no interest rates?
• What features do you need (scheduled payments, ATM, physical checks)

Depending on the answers you might want to see if there are any downsides in moving your primary account to a better online experience. Shop around for good interest rates and keep an eye out for added icing on the cake such as sign-up bonuses or bonus interest on your initial deposit. Just don’t get suckered in by “free” piggybanks or non monetary rewards (unless you really, really need another $1.95 calculator!)

If you don’t know where you’re going, how do you know when you get there?

“Yogi” Berra once said “If you don't know where you're going, you might not get there”¹ and that's true of anything in life, be it saving for your first car, buying your first house or planning your retirement.

Lao Tzu said 千里之行， 始于足下 though thankfully later it was translated to “A journey of a thousand miles begins at your feet”² and when you’re setting out to actually get a handle on your finances that is equally important as knowing where you are going and how far you have got to travel to get there.

Luckily there are some services that are available to give you a good overview of your current financial situation – how much you owe, what money you have, and, sometimes most importantly, where it’s going. They link to your existing accounts and analyze your transactions to plot your spending and track your income.

The four biggest players this area are Mint, Yodlee, Buxfer and MoneyStrands and they all have unique features which may be right for you – though there’s no reason not to use all three I’ve chosen to focus on one for the time being though time will tell if they continue to evolve to close the gap. Many banks also offer similar services (free, or for a fee) but as I value independence as part of this process I’ve not done much beyond have a quick look at what my banks offered (and it’s actually very similar … and I suspect the reason for that will become clear as you read on)

 

Yodlee

Yodlee is the grand-daddy of the bunch and actually provide the secure communications with banks and financial institutions behind the scenes for the other services and banks described here. As well as giving you a birds eye view of your accounts Yodlee (with your permission of course) can be used to initiate transactions on your behalf (eg make regular loan payments or schedule and pay utility bills). Their analysis and reporting is no frills and, as it’s not their core business, may appear a little less flashy than their counterparts though is is very capable.

Mint

Mint, now owned by Intuit (best known for their accounting product Quicken) has the most comprehensive reporting and analysis tools of all three and once you’ve started to categorize your income and spending it helps you pinpoint areas to improve very quickly.

Since their acquisition and a period of considerable growth there have been some grumbles in the user forums that their support is not as responsive as it used to be and that the roll out of new features has slowed down – the counter to this is that they are working on an integration with their Quicken Online product to bring the best of both to all their users… hopefully an integration that will bear fruit soon.

The one feature I would like to see with Mint is an intelligent prediction of cashflow – income and bills – to give me plenty of warning if I’ll need to move money around to pay at least my regular bills.

Buxfer

Buxfer is the newest of the three and still the smallest, but growing steadily has a very personal feel to it. A lot of that comes from their unique feature which is tracking IOUs between friends but also their very open login scheme – rather than create an account with them and use that to login you can associate them with many existing logins so there’s one less password to remember. Buxfer also have the widest selection of mobile interfaces at the moment which is good to consider if you need up-to-date info on the go (for instance if you don’t have regular access to a computer). They also support optional offline storage of data (using HTML5 features in Safari and Firefox, or Google Gears) which may be a bonus or a security risk depending on how safe your machine is.

MoneyStrands

MoneyStrands are very similar to Mint in how they work but they have a very friendly, approachable style. They use very strong graphics and provide a lot of supporting illustrations to guide you down the right path. Their mobile solution is via a webapp, which while not as usable as some native apps that run on the phone it means it can be used on any device with a reasonable browser. They have a stronger focus on budgets and planning than any of the other solutions which may make them a really good choice for many people – I suspect if I’d not invested so much time getting Mint set up initially I might have become a MoneyStrands customer…

Wesabe

Sadly while Wesabe got off to a promising start they are no longer active.

eWise

I also have to give a shout out to eWise – this awesome Australian company have built an amazing platform that provides a similar service but not limited to any one country… I use them to track accounts in 4 countries and while they don’t offer the same level of planning and analysis that the others here do they to act as a one-stop login portal (with your passwords securely encrypted on a flash drive or memory stick). For end users the application is free, and they provide commercial services if you are a bank, credit union or ISP and what to extend your customer offering.

Homework

If you’ve not already signed up for one of these services – Buxfer, Mint or Yodlee, or via your current bank – you should. Getting a clear picture where my money was going each month – and enforcing the rigor of actually classifying each transaction – is a really good starting point.

Simply by doing this I was able to identify some simple ways to cut back on our monthly expenditure immediately and start to get an idea where we needed to look to have the most impact going forward

 

1. ref:When You Come to a Fork in the Road, Take It!: Inspiration and Wisdom From One of Baseball's Greatest Heroes page 53
2. ref:The Tao Te Ching of Lao Tzu page 74

It’s your cash – make it work for you

So here I am. A 40-something guy with a family, a job, a couple of dogs, a mortgage, two cars, a 401K and some random money scattered around helping bankers drive nicer cars than me and live in bigger houses than I can afford.

To complicate matters I’ve moved country a couple of times so while I’ve got pension/superannuation schemes in those countries they’re worth next to squat which means as we’re planning to stay here in the US I need to try and secure a more reliable future.

It’s probably too late for a total reboot but hopefully it’s not too late to get smart about things and take a bit more control and at least make my money work a little harder.

This blog will detail the things I find along the way, hopefully document some mistakes so you don’t stumble into them and who knows… maybe some folks smarter than me will share some insights in the comments as well

Most of the links I’ll give won’t be affiliate scheme links. If there are clicks that I might make a penny on I’ll let you know or give an alternate option so you can make the choice.