Replacing the 5% Gas Rebate Card

I finally found a replacement for my Citi Dividends Reward Card. To review, this card used to provide 5% cash rebate on gas, grocery stores, drugstores, and 1% rebate on everything else capped at $300/year. About 1 year ago, Citibank changed the policy to 2% on the gas/groceries/drugstore leaving thousands of card users in the lurch. As gas prices went up, card users were utilizing more of the gas rebate and Citibank likely realized this card was not as profitable as before.

So for about 6 months, I scoured the internet for a replacement card. Finally..! I found the American Express Costco True Earnings Small Business Card. This now also provides 5% rebates on gas (however, no more supermarkets or drugstores), 3% on eating out, 2% on travel-related expenses, and 1% on everything else. It also doubles as a Costco card and if you are reading this blog, you probably already do a lot of shopping at Costco. The added bonus is, you can also use this gas card to fill up your tank at Costco. Costco gas stations tend to be 5% cheaper than neighboring gas stations (this is their stated strategy)... so if you use this card to fill your tank at costco, you will be saving nearly 10% per gallon on gas. So let's say your price/gallon is $3.00 at your local gas station... Costco will tend to be around $2.85/gallon and if you use your Amex credit card, you are effectively paying $2.71/gallon!!!!

I've already racked up quite a bit of rebate ... and it's unlimited. Note, you don't actually have to be a small business owner to apply for one.

Something to consider... now, if only there was a card that would give you the 5% rebate at supermarkets!!

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Discount Real-Estate

We finally took the plunge and bought a house. After 2 years of searching in the over-priced market that is San Diego, we came across a house that my wife and I really liked. I feel that I can talk about a number of things with respect to this process but I will talk about our experience with a discount real-estate broker.

To begin with, we are very hands on whenever we purchase something and like to do our own research. Whether it's buying a toaster to a bed to a house, we like to be as informed as possible (AKA "maximizers" as described in the excellent book, "The Paradox of Choice"). So when we decided to start looking for a house, we utilized a traditional real estate agent. The traditional agent is supposed to provide expertise in providing you with a number of homes to look at that match your taste, knowing the market, providing accurate comparables, and most importantly, negotiating the deal. The traditional agent is supposed to provide personalized service and most importantly, serve as your fiduciary... the cost is typically 2-3% commission paid by the seller but indirectly paid by you, the buyer since this cost is priced into the cost of the property.

We found an agent that molded well with our personality. She didn't seem like a scheister and appeared to be honest. However, we soon realized that we were doing all the leg-work... finding the houses that we liked on different websites, telling our agent that we wanted to see them, looking at the houses with our agent, even making bids on 2 homes with their help but losing out to other buyers.

Of course, when we went with our agent, everything was always so POSITIVE! I say, "this house has road noise," Agent: "Oh, you just need to put a fountain". Me: "I noticed that drainage in the yard is lacking" Agent: "Oh yeah, I noticed the grass was really wet". Translation.."I want you to buy a house as soon as possible so that it is less work for me. I will make every negative a positive. If I notice a flaw in the house, I won't mention it to you unless you mention it to me." Not quite the fiduciary that meets the "ethical" standards of real estate agents. Now, I know there are good real estate agents out there, don't get me wrong, but the whole business model of real estate agents will eventually need to evolve as the internet plays a more prominent role for buyers and sellers.

Which brought us to try a discount broker called Buyside realty. They will provide a 75% rebate to you from the commission they get. How was our experience with them? To be continued.

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Gotta love Costco. Toilet paper, TVs, and Financial Services?

It's been awhile since I last posted but a lot has happened over the last several months. I finally bought a car and will blog on that experience. As part of the car buying ordeal, I came to the realization that Costco offers a whole lot more than cases of soda, digital cameras, and toilet paper by the bulkload. They also offer a bunch of very practical services, including the ability to finance your car.

In buying my car, I knew I would get the best credit offers because my credit score is >780. So I browsed different options including the local brick and mortar banks (i.e. BofA, Wells Fargo, Washington Mutual), local credit unions (San Diego Credit Union, USE credit union), and online banks. I tried meta-searches like Lending Tree. For some reason, the best rate I could get on Lending Tree was 6.49% for a new car, 36 month payment term as provided by Capital One. I then looked at Costco.

Costco offered 5.64% for the same loan terms (i.e. new car, 36 month repayment) ONLY for executive members. The loan is also provided by Capital One. I'm only a regular member with membership dues of $50/year. However, the executive membership costs an additional $50 for a total of $100/year. With executive membership, Costco will give you 2% rebate on all purchases at Costco. This translates to having to purchase $2600 annually to make up that addtional $50 difference.

I was already sold on the executive membership as the $50 difference was more than made up for with the different loan rates (5.64% versus 6.49%). However, Costco makes it a no-brainer. If you do NOT spend enough at costco to make up the additional $50 difference, they will refund you the remainder of that extra $50! It's a no-lose situation.

Not only does executive membership give you 2% rebate and a lower rate on an auto loan, but there are several other perks that executive members get. I'm starting to sound like a Costco commercial but really.... what other company provides such no-risk terms! Something about those companies in the Northwest that just provide fantastic service and products (see Nordstrom, R.E.I., Costco). Extra bonus. Get a Costco True Earning American Express card and you get 3% rebate on travel, 2% on dining out, 1% on everything else (this is in addition to your 2% rebate on costco purchases if you are executive). Awesome.

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Spending a load, but still saving (I think)

Either my mouth is too small or my coordination is still in the developmental stages. Just the other day, I was sitting on the couch, IBM notebook (circa 1999) on my lap with the TV as background noise. I reached over to take a drink of my strawberry fanta soda and as I was drinking, I over shot my own mouth with the majority of the Fanta soda spilling out of the sides of my mouth and onto my beloved computer. This was an "Oh Shit! I'm so stupid!" moment right? Well, the laptop was still working, there was just some liquid in the vicinity of the keyboard. I grabbed a paper towel and starting wiping some of that fluorescent red soda up but unfortunately, the paper towel I had wasn't close to being like that Brawny shit on TV. Minimal absorption onto the towel. Of course, some seeped into the keyboard and suddenly, the IBM notebook was no more. After 7 years of near flawless performance, the IBM failed because I spilled a drink on it like a 7 year old kid would.

I thought, since breaking the computer was completely my fault, shell out some major clams to replace it; especially since I still had a desktop that was fully functional.... That lasted 2 weeks. My web-surfing behavior was completely altered. I was hardly using a computer at home since the desktop was in the "other" room (i.e. the room without the Tivo).

So I finally caved in and bought a new laptop. After much discussion with different people and some intense research, I decided to make the leap to an apple.

My biggest hold-up with making the switch from PC to apple was the price premium one pays for going Mac (after all, this is a personal finance blog isn't it?) But, now that the macbooks had recently come out near $1000 and macs were using Intel processors, I felt it was a near ideal time to make that switch. To sweeten the deal, Macbook just released the 2nd Generation Macbook Pro meaning that the original Macbook Pros must be cheap.

And this indeed was the case. I looked on the apple store website at the refurbished models and found a 1st generation MacBook Pro for $1499 (original price $2499). While it isn't the newest generation, I forfeited only a little processing speed which is fine for me as I do not consider myself a high-end user.

So while it was painful to spend that much for a computer, I still feel like a got a relatively good deal. I'm pretty happy with the purchase thus far, I just get that nagging sense that I've conned myself into believing I've saved money when in fact, I've just lightened my wallet by 15 Benjamins.

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Investor Return vs. Total Return

I read an interesting article in the NY times recently regarding investment return vs. total return. The article touches upon how most investors do not reap the returns that are usually published by the mutual fund companies. A large part of this is due to investor behavior. In other words, most of us are guilty of chasing performance and buying into funds that do well (see Fidelity Magellan in the 1990s, Janus in the late 1990s, international funds in the first half of this decade... are people doing the same with American Funds now?). However, by the time people buy into a fund, much of the great performance has already occurred.

The article mentions that Morningstar will soon be publishing not only total return but also investor return. This will give us a more realistic view of what performance is for a typical investor. Again, we shouldn't let these #s (investment return) dicate whether we should purchase into a fund. Rather, deciding to purchase or sell a mutual fund should be based on a number of factors, perhaps most importantly, whether or not the fund fits in with your overall assett allocation and investment plan.

Despite what academics tell us about how human behavior leads us to make poor investment decisions, it seems that collectively, we are all prone to continue to make the same mistakes by chasing performance. To behave otherwise (i.e. buy and hold), although better for our financial health, would not be very human. Fight those genes and resist the urge to chase performance and you will be in much better financial shape.

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Effect of Balance Transfer on my FICO score

About 6 months ago, I completed a zero percent balance transfer from my MBNA credit card (now it is owned by Bank of America. I previously posted my experience with this. The credit limit on this particular card is unusually high compared to my other credit card balances. I did a zero percent balance transfer of $32000 with a credit limit of $34000 on my card. So essentially, I maxed out 94% of my credit limit on this card.... undoubtedly dinging my FICO score. Apparently, the debt:credit ratio accounts for 30% of your overall FICO score. How did this affect my score numerically?

My pre-balance transfer FICO score was 780-790.

My post balance transfer FICO score was 687, sending me to just about average for the average amercan consumer. A sub 700 score does not provide you the opportunities for the best rates for mortgages, auto loans, APRs.

I was able to check my Fico score by joining "score watch" from Equifax for a 30-day free trial.

An interesting experiment...however, I am going to be in the market for a new car soon and will need to definitely boost my score to have access to better loan rates. I just don't know what the lag time is between paying off my credit balance and the FICO score changing back to my pre-balance transfer level.

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My Solution to the end of 5% cash rebate (Citibank Dividend Rewards)

In continuation of my last post, the end of a 5% cash back rebate credit card has had major discussion among different forums. The easiest card to use was the Citibank Dividend Rewards card... it was simply 5% on gas, supermarket, drugstore and 1% cashback on everything else. Many have received "the letter" indicating that Citibank will no longer offer this generous 5% rebate. This caused quite a bit of anxiety on my part as I was comfortable in my routines of using the Citibank card as my primary. I've finally come to the final solution which I think will work for me.

1. HSBC Direct Rewards Credit card. 5% back on all gas, supermarket, drugstore purchases, 0.5% cash back on the first $3000 spent on everything else. 1% cash back on purchases greater than the first $3000 on everything else. This essentially is the same deal as the Citibank Dividend Rewards card. OK.... the website looks somewhat suspect... and I was very reluctant to apply as it looked very amateurish and potentially like a "phishing" scam. But after I read about this card in Time magazine, I decided to bite the bullet and apply. I was approved but it has taken about 2 weeks since that application before I finally received a letter from HSBC indicating that my application was approved. So despite the crappy looking website and card, it appears to be for real.

2. American Express True Earning. 3% on restaurants, 2% on travelling, 1% on everything else.

3. I've essentially retired all my other cards including the citibank.

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No more Citi Dividend Rewards

Just received a letter from my primary credit card company, Citi Dividend Rewards. As of October 13, 2006, this card will no longer provide 5% cash rebate on supermarkets, drugstores, and gas stations. The 5% will now become 2% on those purchases but will also include convenience stores and utlities (excluding phone).

AARRRGGH! I started researching any other possible 5% cash rewards credit cards but they are few and far between. In fact, I have yet to find a suitable alternative. Discover cards offer 5% cashback only on certain types of purchases. American express has a cash rebate card that will offer you 5% on everyday purchases, 1.5% on everything else AFTER you spend $6500. The whole point of having a visa/master card rewards card is that this is accepted everywhere.... whereas AMEX is not as readily accepted.

Citi Diamond Rewards still offers the 5% rebate but you get it in the form of Thank You Points which you can only redeem with their Thank you Network. They do have a student loan rebate that equates the points you earn to as if you were getting a 1% return (i.e. 2500 points = $25 rebate in student loan).

What to do now? Would appreciate any suggestions... For now, I will still use my American Express True Earning Costco Reward card as the primary but I still want to add a Visa/mastercard reward card that will give me 5% rebates on gas.

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Cheap vs Frugal

I'm really having a bad year... this past weekend, I was riding my bike, minding my own business when this Neanderthal, weekend-warrior, ape-like, a-hole tried to pass me on his bike. Problem was that he didn't know what he was doing and ran into me causing me to fall... subsequently causing me to break my clavicle. I had to call 911 and was taken to the nearest emergency room.(I had my first car accident... not at fault... earlier this year). Needless to say, I can't wait until 2006 is over.

Kind of a long introduction to get to my point which is... there is a difference between being cheap and being frugal. I consider myself frugal...I try to find deals when they are available, save money, etc... but buy quality items for things that are important to me (for example, I would much rather buy soft toilet paper that is more expensive than the newspaper-like shit they have at walmart).

How does this relate to my recent accident? One of those things that I think the majority of Americans skimp on is healthcare. I have a PPO plan which gives me options in terms of seeing people out of network.. it's a bit more expensive than an HMO plan but there aren't as many limitations (to see specialists, etc.) It's amazing to see people pay extra for that warranty on their car or extend the warranty on an ipod... yet have the shittiest healthcare plan that limits your options in seeing who you need to see (i.e. HMO plans). What I think is that most people, especially young people in their 20s and 30s, feel that they are healthy and don't need medical care.... probably true for most people but you just don't want to be at the mercy of your healthcare plan in times of medical need.

With my recent car accident and biking injury... I suddenly feel more vulnerable than I felt in my 20s when you feel nearly invincible. While I skimped (and probably shouldn't have) on my car insurance plan by not purchasing collision coverage... I'm sure glad that I have pretty good health insurance.

I recommend doing the same thing the next time you purchase an extended warranty for any product. Think about your healthcare plan and ask yourself is this really what want when you're lying in bed in an ER hoping that the injury or sickness you have is not serious.

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Bogleheads and other books

I just checked out a book from my local library called, "Bogleheads Guide to Investing" which is written basically by a few super-DIEHARD John Bogle fans. I've read several different investment books over the years and would rate this as one of the best. A bit on the basic side, it's a great starting-off book for those that are in their 20s/30s just about to embark on the adventures of investing. I just wish I read it about 4 years earlier. Surprisingly, the book is pretty thorough and delves into such issues as saving for college, using a financial adviser, thinking about wills and trusts. So a nice background book that will give you a nice foundation for good assett management. And the book doesn't read like a Vanguard marketing pamphlet either.

I would add this to a list of my favorite finance books. Others include:
1. Four Pillars of Investing by William Bernstein
2. Common Sense on Mutual Funds by John Bogle
3. Millionaire Next Door By Stanley and Danko
4. Irrational Exuberance (2nd edition) by Robert J. Schiller
5. Unconventional Success by David Swensen.
6. Articles in Paul Merriman's website under the tab, "Buy and Hold"

My wife always says that I am so "undiversified" when it comes to reading these books because as you will see, the general premise of these reading materials are similar. Is it possible to be closed-minded in supporting passive investing and indexing? Call me one-track minded.

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