Anxiously Awaiting

I have a good job. I am not lacking in anything material–as a matter of fact I have spent quite a bit of money on some things that I don’t need. Take a click at the gear section of my site and you can see what I’m talking about. Recently I realized that sometimes I spend in an unbridled way on the mundane. Is this a big problem? Actually, no. I can afford it and still have quite a bit of money left over–the balance on my savings account proves that to me. But what happens if I lose my job? Since it is in the realm of possibility that I go from eating out every week to living off PB&J in an instant, I think I need to soften that potential standard of living shock a bit. I am not in danger of losing my job, but I think I need to cut back a bit and get into the habit of living off a budget for my own future financial good.

Previously, my budget consisted of whatever I spent during the month. I am not a lavish liver. I don’t buy expensive clothes, I don’t spend money on partying, bars, alcohol, or other often worthless money sinks, and I am very careful about going into debt or making large purchases. Recently I considered buying a new car–a Toyota RAV4–but I eventually backed out because the car I have works just fine. Well other than the AC being broken, but hey, it’s winter now. I’m good ;). The point is, I could be content with the car I have or go into debt to live more comfortably. I chose no debt.

My point is to underscore that even though one can be well off and have decent spending habits in some areas there is still a need for universal financial discipline and self imposed limits. My standard of living has indeed been kicked up a notch in some areas; I eat out more and spend money on things that I really want or enjoy like my lovely Macbook Pro, my bike, guitar toys, good concerts, and my friends. Nevertheless, I believe I should pay more attention to the budget I have established and get into the habit of enforcing it. Yodlee has an awesome budgeting tool (among other great features) that tracks how much you have spent during the month versus your goals in an intuitive graphical way. It’s a great tool for visual people like me to use to get a handle on how much money I have left in the monthly budget. I highly recommend it.

Unfortunately, it looks like I am really close to my limit on eating out (which is a problem area according to my transaction history), so please excuse me while I go to the store and buy some PB&J. Hooray for self imposed discipline!

What fun it is to follow up a post about nuking all my credit card debt with another post about a new credit card that I just applied for. Am I schitzophrenic? Maybe.

I have decided to start living off a credit card. This idea came from the same friend who pointed out my bad math skills–which is credited as to why I was comfortable living with 7% APR credit card debt while my savings account grew at a pithy 5.05%. Yay -2% net gain! But I’m not just going to live off any credit card. I’m going with the ones that give me free stuff =D.

There are current “best cash rewards card” on my list is Chase Manhattan’s Freedom Card. Most cash rewards cards have great rewards programs, and very crappy APRs. However, the point of using one of these cards is to get free stuff right? So that means that we cannot afford having any finance charges on the card whatsoever–else we totally destroy the net gain and defeat the whole point of having the card. The APR of this category of cards is so high that one finance charge can destroy an entire month or more of gains, so the balance of a card like this must be paid off before any finance charges are accumulated.

Chase Freedom Card
APR: 14.24%
Membership Fee: none
Rewards: 3% on Gas and food for up to $600 in purchases, 1% otherwise.
Introductory APR: 0% for a year
Rewards Cap: No limit
Rewards Distributed Upon request
Additional Features: Can switch between points or cash back instantly

Overall I like this card because it fits in well with how I spend money. I buy groceries, lots of gas, and the occasional lunch at Moes or Chik-Fil-A. After looking into my montly expenses in each of these categories, it fills out to less than $300 a month. Paying this card off every won’t be a problem at all =).

Finally, there is always the chance that these credit card companies are going to shut down a particular card, change the terms, or do something nasty to try and recover from smart people like you and I taking the free stuff that they are offering. This is another critical reason why a card such as this should never carry a balance. You can close the account if they get snippy with you and never look back.

It feels good not having any Credit Card debt. At the suggestion of one friend and the confirmation of two others I realized it was a Good Thing to pull from my impending disaster savings fund enough to totally pay off my only credit card. The rational? A simple, fun math exercise that I made up.

I have some amount of money, call it x, sitting in my savings account with an interest rate of 5.05%. I have some amount of money, call it y, sitting on my credit card with an interest rate of 6.99%. How much money must be in my savings account in order for me to break even?

This problem is easy once you realize the following:

0.0505x - 0.0699y = 0 :.
x = 1.38y

So that means if you have a credit card debt of say $1000, in order to break even every month interest wise, you would need approximately $1380 in your savings account. Why not just pull a thousand bucks out of the savings account, pay the debt, and make 5.05% off the remaining $380? You would gain $19 instead of only breaking even.

Math is awesome.

I have two savings accounts. One from HSBC Direct and the other from ING Direct. Both are a really good way to keep your money liquid but earn a decent annual percentage yield. Neither requires an initial deposit, and HSBC will issue a debit card if you wish–an option that I skipped so that I’m not tempted to spend the money. I have had the HSBC account since I started working at Danger, and I have built it up to a pretty decent balance. This month, I earned $7.40 interest based on a 5.05% APY, putting my total YTD earnings after two months at $10.40.

That may not seem like alot, but given the spectrum of interest rates on savings accounts I’m getting the returns of a 12 month CD. Without the whole “you can’t touch your money for a year” thing =D. I have only recently started my ING direct account so it hasn’t accrued any amount of interest. It has a slightly lower APY than the HSBC account, but 4.50% is still nothing to sneer at. I’m thinking of making it my road bike fund.