A tedious but reliable money-saving tip: Check everyone’s work

For a long time in my life, paperwork was so irrelevant to me. Bills went into a pile and I paid them eventually. Receipts went in the trash. Paystubs were ignored.

I shudder to think how much money I could have saved, during a time when I was really struggling. Now I’m not struggling any longer, but I understand the power of every dollar — and the frequency of human error. So I try and take that extra time to double-check charges I receive.

I’m not perfect about it; sometimes (a lot of times) apathy wins out. But here are a few of the things I’ve caught that have saved me money just the past year or two:

  • Spousal insurance surcharge on my paycheck when he isn’t actually on my insurance. Savings: $50 per month.
  • Jacket that scanned at a higher price than what was listed on the tag. Savings: $10.
  • Well-child checkups that were never submitted to insurance, resulting in a bill instead of being free. Savings: $300+.
  • Food item getting double-scanned at store. Savings: about $3.
  • Dental bill sent out before costs were submitted to insurance, because of dumb new dental office policy. Savings: $250.
  • Old mishandled worker’s comp claim becoming reactivated after an unrelated clinic visit. Savings (once I get a refund, because my husband fell for it and mistakenly paid the bill): $142.

As you can see, most of my woes have been medical-bill-related. Those are the places you can really save some money, because medical coding is rife with human error, and there are two potential openings for mistakes: at the doctor/dentist office and once it gets to your insurance company. But paychecks are also manually entered by humans at some point, even if it all seems automated. And the scanner system at stores isn’t foolproof.

Other ways you can save money by being organized: If you suffer a rare late fee or overdraft charge with your bank or credit card, call them up. Your past spotless record may convince them to waive the charge. Same with auto-charges for things you didn’t realize you’d signed up for. Once I killed two birds with one stone: I missed a charge on what I thought was a dormant credit card because of an auto-charge coming from a subscription I thought I’d canceled, which also triggered a late fee when I didn’t pay the credit card bill. I called the company the subscription was with and got them to refund the charge, and I called my credit card to explain and got them to waive the late fee. Savings: $80 + $25.

And this is without being very vigilant at all. (OK, I take a VERY hard look at all medical and dental bills now, but other than that …) I probably could have prevented even more money lost to frivolous and accidental charges if I tried harder. But every bit I save is a small victory, so I just do what I can.

Do you have any other tips to check others’ work and potentially save some money?

magnifying glass on bills

Image courtesy of ddpavumba /  FreeDigitalPhotos.net

Just a note to say I’m still here (and a link to an article I wrote)

Fellow Savers, I realize it’s been a while since I’ve updated this website. It’s not like I’ve forgotten it; even if I wanted to, spammers attempt to post comments almost daily and remind me that this site is sitting here, waiting for me to fill it with words again.

And several times since mid-February, I’ve nearly posted. But right now my own financial life feels so in flux, it’s hard to write as if I’ve figured anything out. I’m still figuring things out myself. My seemingly routine financial year has turned into one of the most eventful to date. My annual goals have been blown out of the water, in a (mostly) good way. My family’s future plans have narrowed and focused at last, but also new possibilities have opened themselves up, so there are still tons of variables to consider.

I’m pretty sure I’m up to it, but I’ve had trouble feeling confident enough to write authoritatively about any of it.

A few ideas are crystallizing for future posts, so stay tuned. In the meantime, here’s an article I wrote for another website back in February but never got around to posting on my own site: 4 Ways to Stick With Your Debt Payoff Plan. (Ironic to be sure, since I recently decided to wait until next year to complete my family’s debt payoff, which we could have accomplished this year, and focus on a different goal instead. But I still stand by my advice, and will follow it once this other big goal is reached.)

Missed You

Image courtesy of gubgib / FreeDigitalPhotos.net

The importance of ’50’ in the 50/30/20 rule

As I’ve mentioned before, I put a lot of store in the 50/30/20 rule of thumb championed by Elizabeth Warren, among others. The basic premise is that your money should be allocated 50% to your needs, 30% to your wants, and 20% to long-term savings. (For the record, I’m not quite there; our needs stand at 52%, and we put a lot toward extra debt repayment so our savings rate is closer to 14% than 20%.)

The main reason I like it is that it’s a simple way to impose balance on your finances. In an ideal world where you can basically stick to it, you aren’t just working to live, you have a lot of flexibility to satisfy some wants but, at the same time, you’re not neglecting the future.

But in these past few days I’ve really begun to appreciate another aspect that Warren touched on in her book that I never really thought as seriously about.

In our household there’s been much excitement, anxiety and dithering lately about our future. Without going into too much detail, one of the possibilities is that our take-home pay could decrease significantly. This would be a voluntary decision if it happened.

We budget to the penny, so at first glance it seems impossible: How can we spare to lose any income? But stepping back and looking at the budget, one thing is clear: We don’t need “wants,” and savings and extra debt repayment can be put on hold for short periods of time if necessary. So, since we manage to keep our needs to just 52% of our after-tax pay, we could actually see our income cut in half and not be in any immediate danger of going under financially. We wouldn’t have as much fun, we wouldn’t be making progress toward our long-term goals of being debt-free and owning a bigger home, and we wouldn’t be contributing to savings. So hopefully it would be a short-term condition. But it’s a much better place to be than if we were still living paycheck to paycheck, spending every penny and then some just to stay afloat.

And all that said, it’s unlikely we’ll lose half our income. Maybe more like 10% or 20%, if any. So it would be more a case of looking at our “wants” and “savings” categories and saying, OK, which of these things can we cut out for the time being? We’d be able to keep some of it; we’d just have to really get our priorities straight.

So I’m actually grateful for the uncertainty we’re experiencing right now about what the future holds. It’s helped me see that we’re not struggling as much as I feel; it’s just that I’m so determined to utilize every penny, it feels like there’s no flexibility in the budget. Now I know there is. And more important, my family knows there is. Since I’m the only one doing the budgeting, all they know is how I feel, so I know at times I’ve made them feel like we’re still on the brink of disaster.

The moral of the story? Take a look at your budget (if you don’t have one, make one). See how much of the money going out flows toward needs vs. wants and savings. The lower you can get that “needs” number, the more financially independent you are. You may still need some income, but it will be a great comfort to know that you don’t need all your income.

cutinhalf

Time for reflection

The year in review

WordPress helpfully sent me a year-end report on my blog, which was fun to read and also made me think about the past year of blogging, and finances in general. Apparently I wrote 38 posts in 2013, so about 3 per month. Not bad!

My DreamHost renewal comes up in January, so I have to decide whether to continue. I think I probably will, but I doubt I’ll be as prolific. I started this blog because I was bubbling over with opinions and advice that I wanted to impart, and I spilled all of my biggest ideas about finances this year. I don’t want to become one of those personal finance sites that posts anything they can think of just to keep going, recycling the same advice over and over, packaged slightly differently each time.

However, my views and practices do change from time to time, as evidenced by my recent shift to annual vs. monthly budgeting. And I learn the occasional new strategy that I want to share, like when I figured out how to cut my dental bill in half. So I think I’ll renew ordinarysavers.com and see where I feel like taking it in 2014.

The League of Ordinary Savers Facebook page may become more active as the blog becomes less so; I can see myself sharing other people’s thoughts when not creating my own, and Facebook is a more convenient way to do that.

What I learned this year

Although I only started this blog when I felt like I’d figured out most of the mysteries of personal finance, I did learn a few new things this year.

The basics remain the same

But the main truths about personal finance that I believed when I started this blog have remained the same. In a nutshell:

  • Spend less than you earn. I mean, this is really the only piece of advice anyone needs to follow in order to keep their head above water, and encapsulates all the other pillars of personal finance that follow.
  • Make a budget and stick to it. Once you see the whole picture of income and outgo, it makes it harder to spend money you shouldn’t, because you know it’s just going to make things harder for yourself.
  • Get (or stay) out of debt. Avoid credit card debt like the plague. If you must borrow for a home, an education or a car, have a plan to pay it off, preferably ahead of schedule. If you do have consumer debt, attack it like it’s a zombie looking to destroy you, because it basically is. Think about it: The thing you purchased is probably long gone, yet its shambling corpse follows you around in the form of credit card bills. Die, zombie, die!
  • Save up for emergencies and big purchases. There are always going to be unexpected expenses that will trip you up if you don’t have money stored away for just such an occasion. Likewise, you’ll always have bigger things you want, whether it’s a new computer or a trip to the Caribbean. Saving up for them prevents you from putting it on a credit card and losing ground financially.
  • Put something away for retirement. I admit I’m still clearing up the mistakes of the past and haven’t fully focused on retirement yet. But I’m putting 10% of our income toward it anyway. I may have to play catch-up later on in life, since I haven’t always put aside 10% like I should have, but I figure anything I do now, even if it’s not enough to have a dream retirement of leisure and travel, will improve the picture from where it was. Which leads me to the one big piece of advice, for anyone who is feeling hopeless about having neglected their finances for too long:
  • Don’t ever think it’s too late. Seriously, anything you do to improve your finances will improve your finances. The longer you ignore them, the harder it will get to fix them, just as the longer you wait to start saving for retirement, the less growth you’ll see in your accounts. But letting that stymie you any further is a fool’s game. Wherever you are right now, things can get better, and any measure of improvement is better than wallowing in self-defeat.

And all of the above adheres to my three basics of personal finance: control your present, then fix your past, then secure your future. No matter how you dissect it, that’s what being an Ordinary Saver is all about.

Here’s to a prosperous new year!

New Year

A sea change: going from monthly budgeting to annual

I’ve been a fan of monthly budgeting virtually since I started trying to budget ever. You figure out your income and outgo and it stays basically stable month-to-month. When I developed my budgeting tools — the Ledger (or “future checkbook”) and the Bills & Budget static spreadsheet — I felt pretty on top of things, and the system served me well for several years.

I realized that there were nonmonthly expenses that were nonetheless predictable and should be budgeted for, so I developed my DIY “escrow” method, in which I calculated the annual amount of a nonregular expense, divided that by 12 and entered that figure into my monthly spreadsheet. It worked well, although every time I entered another month of expenses into my ledger spreadsheet, I’d need to do a bunch of math right up front to add the escrow amounts to the proper lines and delete the lines, then ensure everything added up.

I also got sick of having to re-date everything with the exact dates when I entered them into the ledger, then reorganize them so they were chronological.

Yet, even when I made this article about budgeting annually my link of the week for a blog post, I didn’t seriously consider its advice. I was comfortable with my system, even though it was a lot of work.

The recent re-evaluation of everything about how my family runs our lives, however, made me rethink my budgeting technique. For someone who’s also juggling home-cooked meals, kids and a full-time job, why was I giving myself more work unnecessarily? So I decided to try out an annual budget. We have enough of a budget surplus to fund most nonregular expenses the month they happen, so saving up a little each month isn’t as much of a necessity anymore.

So I made an Excel file (in Google Drive, natch) similar to my Bills & Budget sheet but with 13 sheets instead of one. I have a sheet for each month of 2014 with expected income and expenses tailored to that month (for instance, the homeowner’s insurance bill is listed in full on the February calendar rather than having a line each month with one-twelfth of the amount). I fixed all the dates gradually in my spare time, so instead of estimating the date as the “15th,” for example, each line has the exact date of each paycheck deposit and bill payment.

The 13th sheet is where I add up all the expenses to see what percentage of my annual income goes to Needs, Wants and Savings, so I can make sure I’m roughly adhering to the Elizabeth Warren / All Your Worth philosophy.

I’ll still paste each month into my ledger and keep track of actual balances there, but I won’t have to do nearly as much juggling with all the escrow lines now eliminated and the dates already figured out.

Next year will be even easier to calculate because I can just make a copy of this file and fine-tune the dates.

Changing one of the most fundamental aspects of my budgeting has reminded me that nothing’s set in stone, especially when it comes to the tips and tools that help keep personal finances in balance.

annual accounting

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

How I plan to get a new tooth for half the price

So earlier this year, one of my teeth that has been a pain in the mouth for several years finally failed and had to be taken out. My dentist (and everyone else I talked to) said an implant of a new false tooth was the way to go. There was one wild card: I might need an extra procedure that would cost several thousand more, and they wouldn’t know until their initial work had time to heal.

Yesterday I got the news I was dying to know one way or the other, but it was not what I hoped: I do need the extra procedure. Now, figuring out insurance coverage is its own kind of crazy logic puzzle, but I think I’ve got it right: I’ll probably owe about $5046 when all’s said and done. Yikes!

But instead of moping about it, I’m trying to look on the bright side. First of all, without dental insurance, the cost would be more like $7646. Even insurance would have only brought the cost down to about $6546 if I’d had the procedure this year (December was the month the dentist initially suggested), because with the extraction of the original tooth and the first bone graft, I’ve nearly maxed out the $1500 that MetLife will cover.

So I asked if I could put the procedure off until after the first of the year. That way MetLife will have to pony up another $1500, bringing my estimated out-of-pocket to $5046.

That’s still a lot, but I’m going to see how much I can take off of it.

First of all, I made sure to get all the diagnostic testing done before my flex-spending open enrollment ends at work, so I could set aside the money pretax. I had a momentary setback when I found out there’s now a $2500 limit to how much an individual can set aside in FSA money. But then someone tipped me off to the fact that since I’m married, my husband can set aside $2500 in HIS account and use it to cover the expenses of any qualifying family member, even if they’re not on his plan.

So that’s great, we’ll be able to pay for nearly all of the procedure pretax. But I wondered how much that would really save us; was it worth the hassle? I found a 2012 federal income tax table and looked at the tax on what I thought our taxable income might be without the FSA deduction, then at what it would be with. The difference in tax we’d have to pay? Over $1200! I also checked a Minnesota state tax table and found that we’d owe about $350 less in state taxes too. So just by taking out the max in flex spending, we save at least $1550 in taxes! That benefit will mostly be realized gradually over the year through the offsetting of flex deductions by a lower tax withholding, so I don’t have to wait all year to experience the benefit.

So that means the actual cost of my implant will be $3496. But I’m not going to stop there! I’ll be trolling for credit card bonus offers when my bills start rolling in, so I can pay the bills with credit cards that will reward me for the payments.

I don’t know exactly what bonus offers I’ll find, but I can usually find a minimum 20% bonus. Several cards, for instance, have standard introductory offers to spend $500 and get $100 back. (If I only find this type of offer, I can open several cards from different carriers and pay my dental bill in $500 portions to instantly hit the spending amounts needed to receive the bonuses. I’ve done this in the past with big medical bills.)

So, since my estimated out of pocket (separate from the tax benefit) is about $5000, I can expect to get at least $1000 in bonus cash from credit cards just by paying my bills.

Add that to the tax savings, and subtract from the estimated out of pocket, and I’ll only really be paying $2496 for my tooth! Now that’s still more than I’d  like to spend on one tooth, but it sounds like a bargain when you consider the alternatives:

  • $7646 if I had no insurance
  • $6546 if I had insurance but had the procedure done this year
  • $5046 if I wait until next year but don’t set aside FSA money or use credit card bonuses

I know not all of these options will fit every medical situation (we’re at the insurance company’s mercy for the recent ER visit my husband had), but it’s a textbook example of being as strategic as possible and using multiple methods to defray a big expenditure and soften its sting.

teeth

 

Image courtesy of adamr / FreeDigitalPhotos.net

Fine-tuning my life (and my financial outlook)

The past two months have been quite eventful for me and my family, so I took a short break from blogging. Now I’m back, hopefully on a regular schedule! (Although I’m also attempting to complete a novel for NaNoWriMo, so we shall see about that.)

The most significant event to affect my financial life was one family member’s health crisis. Not only are we still waiting to feel the full impact of the hospital bills, but it changed our outlook on budgeting. Not significantly, but it’s made a substantial difference in our lives already. It’s a great example of how small adjustments can feel huge.

The crisis was at least partly brought on by exhaustion and stress. And even though only one of us was afflicted, we realized that all of us are overstretched at the moment. So the first time we adults had to really sit down together and think things through, we started talking about anything we could take off any of our plates to make our busy lives a bit less all-consuming.

We made some non-financial commitments to moving chores around, being less hard on ourselves and each other, and communicating more clearly about what we wanted others to do and when anyone felt they needed help. But I also admitted that some of my money management added a bit of stress to all our lives. I’m so focused on our larger goals that I can be pretty tightfisted about unplanned spending, even the kind that’s inevitable in anyone’s day-to-day life.

So for my part, I made a couple of financial commitments to my family:

  • We have a hefty monthly surplus in our budget, and I used to jealously guard it so we could put it all to our big-picture goals. But we’re already ahead of schedule on our goals, and even if it took longer than the arbitrary deadline, so what? So I’m going to be more willing to pull some of the surplus out of my coffers and apply it judiciously to help alleviate some stress.
  • I’m not going to gripe about the grocery budget going over by a few bucks every once in a while. We’ll try to stick to the spending limits, but if we go over, we go over.
  • Healthy things like yoga are important. So when someone wants to do something healthy, I’ll pull money from the surplus.
  • If there are little things someone in the family wants that takes money and we don’t have a specific category for it, I’ll pull from the surplus to pay for it. Examples include the occasional cab ride after attending a night work event with a long bus ride waiting at the end, things around the house that would replace something that doesn’t function as well as it could, clothing that needs replacing when the person doesn’t have enough spending money to replace it themselves, dinner delivery when everyone is feeling extra exhausted, etc.
  • I’ve rejiggered my big-picture goals to be less strict about how much per month I need to come up with, exactly when I need to hit them, etc. I’m still going to track debt repayment and keep all my spreadsheets going; that would stress me out more to stop than to keep going. And I still want to achieve everything that we have planned for the next couple years. I just wanted a more flexible way to express and track them.
  • I’m not going to get upset about whatever hospital bills are coming our way for the health crisis. Whether it’s $1,000 or $10,000, we’ll find a way to pay for it without making ourselves crazy. It was worth it for the peace of mind of knowing my husband is all right.

It’s been almost a month since I made these commitments, and I’m pleased to say that we’ve dipped into our surplus only minimally. Giving ourselves more freedom has not turned us into big spenders overnight. In fact, we find it’s even a little easier to stick to our desired spending limits because we’re used to it from all the years of being strict about it, but now we don’t feel like it’s another chore or obligation. We’re all on board with what we want for our future, so we’re not going to sabotage it with rash spending sprees.

I’m not sure there’s a specific lesson to be learned here, except that once budget control is achieved, it’s possible to lighten up without destroying everything you worked for, even if you had a terrible track record (ahem, like me) in the past.

yoga lady

 

Image courtesy of tiverylucky  / FreeDigitalPhotos.net

The time to start is NOW

“No time like the present, no bird like the pheasant,” my dad is fond of saying. It’s nonsensical but gets stuck in your head after awhile. I always figured it was some old-timey common saying, but in all of the Googles, only one other person has said something similar:

Present Pheasant

Photo courtesy of  Reuben WhitehouseSome rights reserved.

Thanks, quirky internet stranger! Anyway, I’ve hesitated to write this post, because even though I’ve wanted to communicate this idea, it’s not as practical and quantifiable as most of the other advice and experiences I’ve shared. Then, of course, I realized the irony of putting it off, and decided to just jump in and try to say what I want to say.

Several times in my life, I’ve made a lifestyle change quickly. When I was 19, for example, I went into a presentation on animal rights a complete meat-eater (barely an omivore, only in that I used a bun to hold burgers and tended to have fries on the side) and came out a vegan. As in, I went to the cafeteria for lunch straight after the lecture determined never to eat meat again, and I haven’t. (Dairy and eggs I’ve been a bit lenient on as ingredients over the years, but not meat.) I am 39 now, so I’m thinking this change is going to stick.

This is the most drastic example, but there have been other times when I’ve shut down or started up a habit almost on impulse and it’s stuck. My big financial transformation may have taken a few days vs. the hour it took to turn vegan, and I’ve fine-tuned my approach almost constantly over the years, but the psychological shift was sudden, dramatic and (seems to be)  permanent.

There are many other instances where I’ve tried to make a change and it hasn’t stuck. One of my biggest weaknesses (now that I’m no longer an overspender, that is) is physical fitness. I’m a slothlike creature by nature, loving to recline, relax, remain resplendently in repose, etc. Getting up and getting moving is just not my first impulse (or my second, or third, or …). So I’ve started countless physical fitness journeys that have petered out after a week, a month, a year … I’ve never gotten a routine to stick, basically. My only saving grace is I’m too cheap to buy a car, so I get a lot of walking and occasional biking in.

Will I ever find a routine that sticks and gives me my ideal body and fitness level? I’m not sure, really. But I never give up the idea that I will. So whenever I feel inspired to try, I start a new fitness routine.

Same with housekeeping. Having grown up in a cluttered household, barely ever asked (or taught, or ordered) to lift a finger to clean up after myself, I have a well-honed laziness and ability to turn a blind eye to chores that should be done. Every once in a while I get a burst of inspiration to tackle the floor of the whole condo, or keep the surfaces clear of paper clutter ONCE AND FOR ALL, and sometimes these bursts last weeks or even months. But again, I haven’t found a way to make myself consistently useful in the arena of housekeeping (beyond finding room in the budget for a cleaner to come once a month to help out!).

So why am I regaling you with tales of my chronic failures? I just want to make it clear that I’m no guru who’s found the key to modifying every part of my behavior that I find lacking. There are some parts of my life where I keep stumbling and having to start over again.

But where I’ve really succeeded, I’ve found that my big life changes have a couple things in common:

  • I started right away. When I’m struck by the inspiration to make a big change, I tend to do better if I don’t spend time dithering, or making elaborate preparations for the change. On the other hand, I’ve watched myself and many friends of mine delay making changes, either by flat out saying “This isn’t the right time” or “I can’t,” or by spending tons of time in the planning stage — making plans that quite often don’t actually ever get implemented, or fizzle out quickly; sometimes even spending money on the tools for something that never gets off the ground. (I can name my $1000 treadmill bought on a payment plan, a 15-year-old mistake I’ve never forgotten, as one painful example.)
  • quit something first. With both veganism and fiscal responsibility, the first step was to stop. I stopped eating meat and dairy, and found that I could find enough subsistence around me to get by while I learned how to cook and get a well-rounded diet. I and my family stopped spending; for a time we bought only groceries, turned down every invitation that would cost us any money, and made do with the clothes, housewares and other supplies that we had on hand, before we gradually figured out how to budget those things in. If you can’t figure out how to get started, maybe there’s something you can stop doing as a first step.
  • established a routine as quickly as possible. With money, of course, I started setting up little challenges and goalposts, and started a blog about them. Soon, I’d feel weird and itchy if I had a financial bit of news and didn’t  share it with my blogger community, or if I paid a bill and didn’t change my debt totals on my spreadsheet.
  • made myself accountable. With the veganism, I had a clear moral path and so I needed nothing more than personal guilt to keep me on track. But with finances, I’d tried many times before, and it really helped to have an audience (my blogger community) and a high-stakes motivation (keeping my family from going into default on our debts).

With one of my more recent (temporary) fitness successes, I’d been tiptoeing around the fact that I needed to add strength training to my daily life. My wife started doing a certain amount of the same kinds of exercises every morning and night, not making a big deal of it, just taking less than 5 minutes out of her morning and night routines to fit it in. After watching this for about a month, I suddenly one night thought, “Why try to come up with some brilliant hard-hitting weights routine when I could just get started?” So the next morning I began my own little mini-routine of strength training, and that night, and the next morning … very soon it became second nature, and only a couple of health scares/events derailed me. But yesterday morning, I started up again, again on a whim.

I think this one could be a keeper; it just got interrupted too soon in the process to stick the first time I tried. But it’s something I can start right away, and it’s easy to make it part of my mornings and evenings, which are some of the most routine-heavy times in my day.

So, if you’re still reading, here’s what I propose: Pick something you’ve been wanting to do, something that’s been nagging at you for a while that you’ve found seemingly valid reasons to put off. Start doing it right now. The first step for many lifestyle changes can’t be planning; it has to be something with a palpable reward, a feeling of a step taken.

So you want to get fit? Get up from your desk and do 25 ab crunches, then set your alarm for the next day at the same time so you can do them again. You want to start saving? Open a savings account — they’re all about the same, so just pick a free one and start; you can always switch later — and set up a recurring automatic deposit. You want to start making money to pay off debt? Go through your stuff and list something on Craigslist right away.

Whether the change you want to make is big or small, the first step can probably be taken right now.

Credit card rewards: my take

As many of you know, I have big dental expenses coming up next year. Somewhere between $2800 and $5000 of expenses. I’m looking at ways to minimize the bite, and I said offhand to my wife that I wished there was a credit card that gave extra rewards points for medical expenses.

Then I realized I hadn’t actually ever looked for that type of card! But I did some research today and, alas, I don’t think there is a card that gives you extra points for that category of spending. I don’t know why; just one of those weird quirks of the credit industry. Because there are ways to get extra rewards for almost every other type of spending, if you play your cards right (you saw that coming, right?). And, there’s still a chance I can significantly offset my medical bills using credit cards.

There are two main strategies for taking advantage of credit card rewards: finding the card(s) whose everyday rewards structure works best for your spending, and the credit card churn.

CAVEAT: Before I go into this, I want to say I don’t recommend ANYone try to play the credit card rewards game if you carry a balance. Why? Because if you already carry balances, it could be difficult to make sure you pay off any new purchases, and the interest you pay on the increased balance could negate the rewards you earn. I started learning about these strategies a year or so before I paid off our credit card debt, but I held off doing anything about it until all my existing balances were paid off. Even then, I hesitated about starting to use cards again, but I dipped my toe in and discovered I had no problem keeping them paid off, so now I use credit cards regularly.

So first, go and pay off all your credit cards. Easy, right? I know, it’s not, but if you do carry credit card debt, I recommend you make eliminating it your number one goal (besides spending less than you earn).

Anyway, on to the credit card reward strategies:

1. Everyday rewards. Many credit cards have rewards programs attached. Typically they reward you points worth 1% of your purchases and let you withdraw them once you’ve hit $20 or $25 worth of points. So if you have a card that offers that, once you spend $2000 you’ll have enough rewards points to redeem for a $20 check or statement credit (or gift card, or airline travel discount; but cash back is my favorite so I’ll focus on that). It doesn’t sound that great, huh? But many cards also offer extra points in some categories. As a random example, BankAmericard Cash Rewards™ Credit Card offers 3% rewards on gas and 2% on groceries. So for spending $1000 on gas, you’d get $30, and $1000 in groceries would get you $20 back. Some cards give even better rewards. The Target Visa gives an automatic 5% back at the register when you use it for Target purchases, so you don’t even have to wait to accumulate rewards; you just get the discount right there. And some cards offer rotating bonus categories that change every quarter.

My favorite card, besides the Target RedCard Visa, is the Blue Cash Preferred® Card from American Express. It offers 6% rewards for groceries and 3% for department store purchases. There’s a $75 annual fee, but even with that we clear about $350 a year. If I ever find a card that has a fixed 5% reward for groceries, that would top the 6% minus $75, but for now, it’s the best grocery card for me.

An intriguing card I just found out about is the USBank Cash+ Visa card. You can choose two categories to get 5% rewards for. Unfortunately, groceries is only eligible for 2%, but if you tend to spend a fair amount at department stores, restaurants or hotels (to name just a few available categories), you could earn 5% rewards on them. Right now we hardly spend any money at stores outside of groceries, so I doubt we’ll get much use out of this one, but I think it could work for someone else. The Chase Freedom Visa offers three 5% categories, but it chooses them for you. Right now the categories are Kohl’s, gas stations and amusement parks, and past categories haven’t been very relevant for me either. I’ve been using a Chase Freedom for years, but I mostly only earn the 1% because I spend in non-bonus categories. At this rate, I’m starting to think I’d be better off with the Quicksilver Cash Rewards Credit Card from Capital One, which gives you a straight 1.5% on all purchases. At least I’d be getting $30 per $2000 instead of $20.

One place we do spend a fair amount of money is Amazon.com, and we have an Amazon Rewards Visa Card linked directly to our account that earns us 3% on Amazon purchases. And it’s easy to redeem the rewards as a discount during checkout.

If you’re organized enough to track spending on multiple cards, I’d recommend using several, maximizing the amount you spend on your most common categories. That’s where we’re heading, although we haven’t completely settled on the best cards for our everyday spending (besides groceries, Target and Amazon). Many sites have regular roundups of the best cards, including one of my favorites, Kiplinger’s.

One reason I haven’t completely focused on the best permanent cards to carry is that I’ve spent the past couple years engaged in the other type of credit card rewards tactic:

2. Sign-up bonuses, aka the credit card churn. Right around when we finished paying off our credit card debt, several card companies — mainly Chase and Citi — were offering pretty outlandish bonus offers if you opened a new card and spend X in X months. In 2011 and 2012, I made over $4000 per year without spending a cent more than I’d intended to spend anyway, just by opening cards, spending up to the point where I could get the bonus, paying the card off, redeeming the bonus, and closing the card. The cards aren’t offering those bonuses right now — one of the bonuses I got was $1000 for spending $3000! — so my rewards this year have been much smaller, and I haven’t opened and closed as many cards.

That said, if you know you’re going to be spending a ton of money, it might be worth taking advantage of these types of bonus offers to offset the cost. For instance, we were going to England and knew we’d most likely use Delta, so we opened three Amex Delta cards — one in each of our names — and spent up to the point where we each got $300 worth of Delta miles. So when we booked our trip, we got a $900 discount on our airfare by using the bonus miles. And for my upcoming dental costs, I might take advantage of one of the few remaining big-bonus offers (unless there are new big offers next year): the Chase Sapphire Preferred® Card, which gives you 40,000 points for spending $3000 in three months. That’s $500 of travel rewards or just $400 straight cash. So it would be like spending $2600 on dental expenses vs. $3000.

So keep an eye out: The big rewards may come around again. And even if they don’t, there are tons of “spend $500, get $100 back” offers out there that you could use for a small but easy cash infusion. I check in regularly at several great websites: My Money BlogCreditCards.com, nerdwallet,

You may be wondering, how’s my credit score doing with all this opening and closing of accounts? I have to say: Great! Occasionally if I open or close several in quick succession, I’ll see a small temporary dip in my score. But it’s stayed in the high 700s, low 800s this whole time, so I honestly don’t think it has much effect as long as you don’t miss any payments and don’t carry a balance.

CalculatingCreditCardRewards

Image courtesy of moggara12 / FreeDigitalPhotos.net

Link of the week: Why active fund management is a loser’s game

The last Savers meeting got me on a bit of an investing tear! And it’s been great, because everything I’ve been reading tells me that my current philosophy is ideal, based though it was on meager evidence initially.

I was absently reading the August issue of Kiplinger’s this morning while brushing my teeth, when I stumbled across an article that perfectly illustrated why index funds are better than actively managed portfolios. Every once in a while Kiplinger’s pauses in its stock-picking advice to look directly at the camera and say “But seriously, folks, don’t actually do that.” This article was one of those. And it’s why I still subscribe to Kiplinger’s even though I don’t believe I’ll ever be an active stock trader.

The article, “Fewer Trades, More Gains” by James K. Glassman, is so full of gems, I can’t say it any better myself, so I’ll just share a few of my favorites.

“Investors earn their money not in good times but in bad — when they muster the courage to hang on. The alternative, broadly called “trading,” is bad for your investment health.”

“Trading generates taxes, and taxes, combined with trading costs, erode long-term returns.”

According to researchers Brad Barber and Terrance Odean, “people who traded the most averaged returns that were 30% lower than those of the average customer — and 36% lower than the stock market itself.”

“The cost of trading is one facet of investing that you can control. Those costs apply not just to individual stocks but to mutual funds.”

“Over time, these fees mount up. Consider the Fidelity fund mentioned above. Its expense ratio, at 0.90%, is below average. But if you invest $10,000 and the fund returns an annualized 10% over the next decade, you will pay $1,444 in expenses, or 10.6% of your profits.”

HERE’s a horrifying tidbit, because I thought the expense ratio was the cumulative costs taken from your funds:

“Edelen and his colleagues also found that the costs of trading the securities in the average stock mutual fund (what they call “aggregate costs”) came to another 1.44%. These costs aren’t transparent. You don’t write a check for them each year, and they don’t appear on a line in a fund’s prospectus, as the expense ratio does; they show up only in a fund’s diminished return.”

“Can funds generate returns that overcome those high costs? An expensive BMW performs better than a low-priced Honda, so shouldn’t a high-cost fund deliver better returns than a low-cost one, even after taking all expenses into account? With regard to total costs, the Edelen study confirms what other research has shown on the matter of expense ratios: The luxury brands turn out to be clunkers. “We found a strong negative relation,” says the study, “between aggregate trading cost and fund return performance.””

“It’s a rare stock picker who consistently beats the market. So if nearly every fund manager generates gross returns that are close to the market averages, then the fund’s costs become the single most powerful determinant of its net returns — that is, of what you get to keep in your pocket.”

And here’s his closing volley — notice how he plugs index funds even though this entire article was about active trading and actively managed funds:

“Buy and hold is the best advice I can give to someone who buys individual stocks. The same advice applies to fund investors as well. Find a buy-and-hold manager — or buy an index fund — and hang on for the long term. You won’t regret it.”

He recommends some actively managed funds in the article, but after reading, I find it hard to believe anyone wouldn’t go for the cheapest, least active fund they could find. I know I have!