About My Credit Card Debt
Newer readers may be alarmed by my high levels of credit card debt. In short, I’m borrowing money for free and keeping it in safe investments while earning me interest. Along with other things, this helps me earn extra side income of thousands of dollars a year. Recently I put up a detailed series of posts on this 0% game. Please check it out first if you are curious!
I like to think of it as similar to what banks do. For example, Capital One 360 is paying people 0.75% interest to hold their cash, and then going out and lending that cash as mortgages to other people at 6-8%. My rate spread is even a bit better than Capital One 360, although they do have a slight edge in volume… a mere $50 Billion or so 😉
Thoughts
Our net worth chart looks a bit confusing due to our recent Traditional to Roth IRA conversion. Due to my lack of good accounting skills, I am still unsure what our total income picture will be this year. I just converted the whole amount now because I can still undo all or part of it before I file my taxes.
For now, this leaves us with $30,000 more in taxable income for this year. Although I don’t have to pay taxes on it yet, I’ve gone ahead and removed $7,500 (25% of $30,000) out of our cash balances. This has caused our net worth total to drop for the second time ever since starting this blog, but it’s really just superficial. The tax liability has always been there.
This move also leaves us with less cash for a house down payment, but I think it’s the right move for the long run. We still have over 6 months left to save this year, and we won’t be making any Roth IRA contributions until our 2007 income picture becomes clearer. (In other words, we need to find jobs!)
Which reminds me… These net worth snapshots are just an easy way for us to keep an eye on our finances. They are not proper income and expense balance sheets, and shouldn’t be used for comparison with others. All I do is log into Yodlee’s account aggregation, grab some numbers, and enter them into a simple spreadsheet.
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Hey Jon–
why the $1 in the brokerage account? to keep account open? late interest from brokerage?
Since all of your net worth numbers are shown on a cash basis (not accrual), I’d put the $7500 back into your cash balance. After all, who knows what will happen at the end of the year? If you want to make the tax hit more palatable, crank up the withholding on your W-2 income.
Brad – Late interest from Scottrade 🙂
Dorkydad – You’re right, I should just let it be. But I’m actually doing lot of things to estimate my tax liability, not just this, so I just don’t know how well I’ve been estimating. I’m under-withholding my taxes on purpose and paying it back as late as possible.
Only the second time in the negative must be nice. I am working on getting my money type blog up and running (I have one link on there and it is to this website). Hopefully if I make any income from it, I will start seeing those nice green numbers we are used to from here.
While I fully admire your method of generating money from credit card offers, I can’t help but wonder how much it is impacting your credit score. Since you are laying out every other detail of your personal finances, would you mind sharing?
Martin – I’m sure there will be more negatives to come, this happy stock market is bound to have some dips.
Julie – FICO keeps the formula for scores very vague, but last time I checked, my credit scores were still around 700 for the 3 bureaus. Before, they were around 750. More info is in the Q&A section of the How-To post above.
Mentioning that it has only gone down twice since starting this blog is an important point. And while I’m sure you make money from this blog (and very much deserve to), I believe the reason your net worth is going up at such a rate is because you are writing about your finances, thinking about them, acting on things learned, etc.
One could just as easily make money from a blog and blow said money.
The exercise of reviewing one’s net worth regularly (perhaps not monthly, but at least quarterly) will add to one’s net worth. That’s my take.
First, you can’t crank up your W-2 withholdings at this point to cover your liabilities. Your W-2 as of January does not pay upon 2006 conversion (by which his article seems to suggest he filed the papers for year end conversion so it was done in 2006.).
Second, that’s great about this only being the second time overall. Mine goes up and down with the stockmarket since I currently have about 85% of my net paycheck budgeted for fixed expenses (gas, tolls, school tuition, college books, and budgeted meals amount.)
Lastly, I agree with Jesse, writing about your finances and constantly reviewing them will help you manage them better. Doesn’t always mean you will do better. (if you lose your job, you could look at your finances everyday, it won’t mysteriously make the money come in though) I believe that money management is certainly one of the best skills you can have to increase your profitability and net worth to the highest degree you can. This is why I enjoy this blog, so many idea’s I can try, and wait till he tries them and see the results first – then jump in (since they aren’t cyclical).
I don’t get the kbb trade-in on the car. is this b/c you can afford to sell the car to have only one car in the family?
great helpful blog. I am not really sure if any factors such as being a citizen play a role but personally being a resident alien I think it does since you start from a clean slate.. and/or like me with a negative slate and then build on it.I am thinking about doing my networth but I think I would be just about on the green side after my mortgages. I am definately looking to pay them off earlier but unfortunately I will take a big hit shortly with the upcoming wedding. Hopefully this will motivate me to keep chugging along to my long term goal of retiring before I am 50 (btw I am 30 in November 2006).
A couple of people have mentioned cranking-up your W2 witholdings. I have to disagree with this advice, especially for someone that takes an active roll in their finances. I had a discussion with a coworker about this last year at tax time. It went like this (from my post on my own blog):
“I always hear people talking about how they?re doing so ?good? on their taxes because they?re getting such a big refund. It?s called a refund for a reason! But if you?re so happy about it, then I?ve got a great deal for you:
You get paid twice a month, right? OK, every time you get paid in 2006, you give me $100 of your paycheck, then sometime next April you can write to me and apply to get your money back from me. If everything goes according to plan, I?ll send you $2,400. (of course you?ll probably go to an H&R Block office and pay them to send me the request on your behalf). You?ll undoubtably be so excited when I send you your check for $2,400, right? You?ll feel like you?re rollin? in it. [/sarcasm]
So, my advice around this time of year is this: If you are getting a big refund every year, take the time to adjust the witholding amounts on your W4 forms with your employer. Save the money yourself and YOU can get the interest on it. It doesn?t make sense to give it away, then have to apply to get it back, and even sometimes pay someone else to apply to get it back for you.”