A friend of mine sent me this link, and I think he was trying to mock me! 😉 It’s an article from the Wall Street Journal entitled Nickel-and-Diming Your Way To Riches, if That’s Your Thing Here’s an excerpt:
I thought I was fairly deft at handling money. But that was before I met the maestros of money management.
We’re talking here about the legions of Americans who manipulate their monthly cash flow like chess masters, along the way snagging frequent-flier miles, cash rewards and interest income.
Am I such a maestro? Are you? Let’s see:
Maestro Activity #1: Maximizing Bank Interest
Consider Dan Goldzband, a cost accountant in San Diego. He has his paycheck deposited directly into a high-yield savings account, where the money sits until he transfers it to his checking account to pay bills. His reward: $35 to $85 in interest each month.
“My checking-account balance rarely exceeds $100,” Mr. Goldzband says. “If it does for more than a couple of days, I am doing something wrong. Of course, only a compulsive like me could make this work. But the general idea, less rigorously applied, would still work for many people.”
Well, my checking account usually hovers around $500-$2,000, because we often have to write paper checks for weddings/graduations/baby showers/birthdays/donations. It’s not writing the checks that’s the problem, it’s that we can never tell when people are actually going to deposit them. Shrug. I also have one free overdraft per year on my Washington Mutual free checking account (review) as a backup anyhow.
But someone is exaggerating… At $35 a month in a 5% APY account, that is suggesting that he would otherwise have $8,000 sitting around earning 0%. ($85 would be $20,000+!) I doubt he needs that much for everyday cashflow. I would bet a good chunk of that is considered his emergency fund or other cushion. Not putting that away into a high-yield saving account would just be silly. The author agrees:
Meanwhile, if your checking account is on the plump side, keep enough there to avoid triggering fees and move the rest into a high-yield savings account or a money-market fund. If you shift $5,000 into an account paying 5%, you will pick up $250 in interest over the next 12 months.
Maestro Activity #2: Credit Card Arbitrage
Don’t have much money in your savings account? No problem. Maestros will borrow from credit cards with 0% introductory rates and then use the money to earn a little interest, often stashing the cash at EmigrantDirect, HSBC Direct or one of the other banks with high-yield online savings accounts.
Okay, I’m definitely guilty of this. I even got so many questions about it that I wrote a detailed, step-by-step Guide On How To Make Money From 0% APR Balance Transfers. Don’t miss the introduction though – this is definitely not for everybody.
Maestro Activity #3: Using Credit Cards But Paying In Full To Reap Rewards
When the maestros aren’t gaming those 0% offers, they’re hunting for the credit cards with the best rewards. Thanks to this strategy, Mr. Bilker says he hasn’t paid to take his family to the movies for two years. He’s also got $500 in convenience-store gift cards, and he garnered a $1,700 discount by charging $17,000 in kitchen remodeling expenses.
For many cardholders, the prize is frequent-flier miles. Bob Smith, a retiree in rural Michigan, has 30 credit cards. He charges everything, from groceries to utility bills, to whichever card is currently paying the highest reward. He figures he and his wife have collected more than 100,000 frequent-flier miles over the past year.
Yes, yes, I do this too. Here are the three cards that I keep in my wallet. The article even admits this may be worth the effort on a smaller scale:
Forget shuffling back and forth between your checking account, your savings account and the latest, greatest credit-card offer. Instead, go for the easy money. Pile your expenses onto a good rewards card and be sure to pay off the balance every month. Let’s say you charge $1,000 a month to a credit card that earns frequent-flier miles. That should give you enough points every two years to get a domestic round-trip ticket worth perhaps $400 — and maybe two or three tickets if the card pays double miles and gives you a sign-up bonus.
Maestro Activity #4: Keep Your Investment Expenses Minimal
Most important, focus first on your portfolio rather than your monthly cash flow. Suppose you revamp your $300,000 mutual-fund portfolio, cutting your annual fund expenses by half a percentage point. That would save you $1,500 a year — without the ongoing hassles that come with juggling credit cards and bank accounts.
Sure, that would be great, except my mutual fund portfolio expenses are already under 0.30% annually. 😛
Nickel and Diming, Huh, Punk?
Actually, I pretty much agree with the premise of the article. As I’ve said before, the time I spent talking about a subject is not directly proportional to how important I think it is. Mentally, I divide them into the big things that help guarantee I’ll reach my goals, and also the small things that will make those goals arrive earlier. Besides, it’s fun to have a profitable hobby. (My other hobbies aren’t cheap!)
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This is absolutely nothing compared to what my dad is doing also on top of those free credit card offers. His FICO score is something insane like 847 or something like that, and so he can do these outrageous things, like request for a thirty thousand dollar credit line, at o% APR for a year. What does he do with that line? He puts our car on the credit card for a year. Pays it off as he would normally, and pays 0% interest!! After eleven months, he goes ahead and calls up the credit card company requesting them to extend it, otherwise he tells them to close the account, and well he gets these o% 1 year APR all the time so he applies for a new card and transfers it…he has paid o% interest on a twenty five thousand dollar car.
One wonders why CC companies even cater to customers like my dad…knowing full well someone with an 847 fico score is not going to let their game fall, and will be smart enough and anal enough to pay everything on time…all they’re doing is serving like a parent loan…where well if i borrow from my parents i pay 0 interest, only the amount i borrow. How do banks benefit from this, i dont know, but my dad gets these cards…they come to him he has never had to go out in search for one.
My experience is that if I don’t nickel and dime the money begins to fly out of my wallet. The more time I spend thinking about money the more intelligently I spend it and the better I feel about how I spent it. I like checking into your blog at the least once a week to remind me of how important it is to pay attention to this part of your life.
In the Millionaire Mind book he talks about how millionaires definitely nickel and dime! But you have to draw the line somewhere, everyone does draw the line somewhere.
Way to go Maestro!
If I used credit cards, I would attempt your Maestroly (word?) ways.
Astrid – Why wouldn’t your father just pay cash for his vehicle so he does not even have to worry about the 0% game? I would think that that is much more straight-forward.
In terms of checking accounts, I can’t recommend my citibank account enough since it has a line of credit attached to it. Effectively I can keep almost nothing in my checking account since if I ever overdraw, it just draws from the line of credit. Sure there is potential interest to pay, but it’s usually less than day’s worth since my cushion is in the attached high yield money market account. The rate on the money market account is not as competitive as the likes of HSBC (4.5% currently I think), but given the instaneous transfer it’s more flexible. I still keep the bulk of my savings in a higher yield account, but having flexibility with regards to your checking is important. Effectively I keep 0 in the checking and about 5k in the attached money market. Sure i’m giving up .5% on 5k which works out to about $2 a month, but I think sometimes flexibility is worth the price.
I suppose I’m about 3/4 maestro. I’ve had low fee investment choices from the start. I’m planning on making my contributions this year within even less costly fee structures.
I’ve used a rewards card that I paid in full each month for years now. I have favored the Amazon Visa card because I like to make purchases at Amazon.com. Recently though, I’ve switched to a Capital One rewards card for straight cash back.
I generally keep the balance of my checking account low. I’m one of those few people who balance their checkbook carefully. At the beginning of the month I have my paycheck of course, and I subtract all of my standard expenses like my mortgage and life insurance. Generally my end of month balance is less than $500 or I start transferring funds to interest-bearing accounts.
I myself read this same article in the WSJ. Don’t worry about other people, we nickel-and-dimers will have the last laugh at the end 😀
I guess I am also a 75% maestro :D. I do the first three, but not exactly the last one (keep the investment expenses minimal). I have a lot of actively managed funds which have higher expense ratio than passive funds, but so far I am quite happy very the result.
Yes – I also think of this as a “profitable hobby”. And I realize I won’t reach my true financial goals doing this stuff, but a few hundred dollars is always nice. And it makes some interesting dinner conversation. Sometimes things are worth the effort just because they are fun too.
I often wonder if I should spend any time clipping coupons or instead work on my future business plan. If I devote 1/2 hour once or twice a week to one of them, which one will reap a bigger benefit. Saving $20 a week on food is great (and that’s a good week), but maybe I should really be working on my “real” plans.
Hmmm, I’m more like a nervous nellie than a management maestro. I got my first credit card well after I left college (I’m still not sure how I survived) and I still have… that same… one… card. After about 6 months of reading this blog, I just applied for my first rewards card.
Fatwallet had a breakdown of how much money self-declared maestros make in their different endeavors, and I was bummed to find out that collecting sign-up-bonuses (thousands) is much more profitable than rewards (hundreds). Oh well. Give me another 6 months.
Attempting to keep a few hundred at most in your checking account seems risky to me. Maybe I miss out on a few hundred a year in potential interest, but you need some liquidity for a weekend emergency, etc. Of course, you could also argue that keeping a few hundred in cash at home isn’t a bad idea.
I think that if you spend X amount of time juggling money between your savings and checking account, you should probably break it down to $/hr. You might come out ahead delivering pizzas or mowing lawns on the weekend.
The one good aspect of pushing all available money into your savings, is that you would probably only pull out necessary money, and your overall savings percentage would be higher.
Joseph Sangl — “Astrid – Why wouldn?t your father just pay cash for his vehicle so he does not even have to worry about the 0% game? I would think that that is much more straight-forward.”
Because then he loses the money immediately. If he buys a car for $30,000, and delays paying it for 2 years by keeping the loan on 0% credit cards, then he can invest that $30,000 in a savings account earning 5% interest. At the end of the two years, he will have an extra $1500 in free money, money that he would not have if he paid cash for the car. That’s the whole point of this credit card arbitrage game.
Because then he loses the money immediately. If he buys a car for $30,000, and delays paying it for 2 years by keeping the loan on 0% credit cards, then he can invest that $30,000 in a savings account earning 5% interest. At the end of the two years, he will have an extra $1500 in free money, money that he would not have if he paid cash for the car. That?s the whole point of this credit card arbitrage game.
Not only that, but those 0% APRs have fun rewards like airline mileage, groceries, etc etc…so it pays for our vacations, WHILE paying for the car, investing the money elsewhere, AND paying zilch to the bank.
It seems we should also save money on interests.
It’s funny how my credit limit kept going up and up (from $250 to $9,000) when I was a broke student/new grad who could barely afford the minimum payments. But since I started paying off balances every month, my limit suddenly stopped increasing, despite not missing a payment in more than five years. I wonder why that might be?
Astrid – When I pay cash for a vehicle, I receive a SUBSTANTIAL discount that soundly beats the 5% interest rate ($3,000) for two years and the reward points/miles. It allows me to avoid the credit card companies’ games entirely.
Savings of $3,000 to $6,000 off of a $30,000 vehicle are not unheard of when paying cash money for a vehicle.
Dong – HSBC has the same deal. I have a free checking account with them that I keep almost nothing in, but has a “Select line of credit” attached to it that absorbs any overdrafts. Like you say, it has along the lines of 17% interest but I usually notice any overdrafts instantly and so can transfer in money from my online savings account immediately (transfers to/from one HSBC savings/checking/credit line to another within the same account are all instant).
joseph….
What car dealer are u shopping at? If its a new car, i dont believe u.
If its a used car, well thats a diff story. They usually hate cash payers. They prefer to get people to buy a car based on what they can afford a month and not what the car costs. They make money when u take a loan thru their preferred lender as well.
I think an easier option to #1 is to just get a high-yield interest account from presidential.com … sure it only pays 4.5%, but you don’t have to do any fancy transferring to maximize interest.
Yah, I’ve never gotten a four thousand dollar deduction because I’m willing to pay cash on the car. They actually earn more when we pay with a loan, so why they wouldn’t want us to use a lender, doesn’t make sense.
“I think that if you spend X amount of time juggling money between your savings and checking account, you should probably break it down to $/hr. You might come out ahead delivering pizzas or mowing lawns on the weekend.”
It should be noted that delivering pizzas is not such an outlandish proposal- I do it part-time and average between $17-22/hr of tax-free goodness, it’s a hell of a part-time job….
“You might come out ahead delivering pizzas or mowing lawns on the weekend.”
It should be noted that delivering pizzas is not such an outlandish proposal- I do it part-time and average between $17-22/hr of tax-free goodness, it’s a hell of a part-time job….
I guess I’m above Maestro since I keep my money in a high interest checking/money market account with free billpay. No need to juggle money to keep checking as close to zero as possible. Heck, one bouced check would loose you more than the interest you would gain for the entire year.
The reason you get a huge discount when paying with cash is they know you have the walk-away power to go somewhere else and buy the car AND they know for sure that you ARE going to buy a car.
They can either give you the discount OR lose a guaranteed sale . It is granted that the sale WILL be at a lower profit margin than selling a financed/leased vehicle, BUT it is a guaranteed sale.
If they are not willing to give me the deal, I will just leave and find someone else who will.
I love competition and free markets!
Joseph – you can do the credit card game, and still pay a new vehicale with cash – many credit cards will send you a check for the “balance transfer”. If you deposit that into one of your bank accounts, you can then write a check directly to the dealer (Or walk in with a stack of 100’s :)) You don’t normally get the Credit Card rewards that way, but you will still get the benefit of a 0% loan for your new car, and the dealer gets cash and may be more likely to haggle with you.
I am debt free, but I do not have a FICO score, so my bank of 13 years willcharge me $122 to loan me my own money, so they can report it to the credit reporting agencies. Cash means nothing today, but I do need a FICO score to open other bank accounts. I also have a secured credit card now, which I will use and pay in full before the bill comes. What happen to cash is king. You must have at least “pretend” debt to up your FICO score. My bank charging me was a new low, but no one else knows me, for I use debit cards.