Middle Path Finance

Max it out: Get more for the money you already have.

 I seriously doubt anyone is going to get a pay raise this year, me included. We all know the economic news is bleak, lay offs, banks not giving loans, taxpayer bailouts, budget deficits, and of course the plummeting value of retirement accounts. It's enough to make your head spin.

Right before Christmas, hubby was moping around the house. He's not prone to the holiday blues, and finally admitted it was because he felt completely powerless over our plummeting retirement accounts and stock portfolio, and his doubt about his ability to keep a steady paycheck and health insurance coming to our household.

I told him that we can't control all of that. We can only control what we do. That's true for everyone. We can't control the stock market, but we can control how we react to the swings. We can't guarantee we'll have a job, but we can prepare for not having one.

This conversation led to a household reprioritizing. Things are uncertain, all we can do is prepare.

Since Christmas, we have made a significant effort to max out every dollar. Usually max out is a phrase associated with debt. I think it's time we revisit the concept of maxing out your money, and turn it into a tool for getting more out of what you already have.

We are still refining this technique, and I'm sure we will have many more tools in the arsenal come next year. In the meantime, I consider our efforts a beginning, a "Step 1" of the MPF way to max out your money. Here are the systems we have put into place so far.

We are chasing yields.

Last year my bank had the nerve to offer a measly .05 percent interest on their savings accounts. And we wonder why Americans don't save money. Insulted, I opened an Emigrant Direct online savings account and an ING Direct savings account. Both have been easy to use and have paid me an average of about 3 percent on my money in the past year.Unfortunately, thanks to the Fed and their rate cutting bonanza, that is down from 5 percent two years ago, and is dropping slowly.Today, Emigrant  and ING are both paying 2.4 percent APY.

Better than .05 percent, but I decided to see if I could get a better deal somewhere else. The first stop for any yield chaser should be Bankrate.com's list of the 100 highest-yielding savings accounts, which gives you a handy rating system for gauging a bank's stability. You can also search the highest yields by state.

FNBO Direct of Omaha, NE is offering 2.8 percent APY and recently was named Kiplinger's Best Online Savings Account in 2008. Everbank of Florida is offering 3.76, but it drops to 2.9 after 3 months.

So far, none of these yields are high enough to make the hassle worth switching, at least for me.

We are chasing rewards.

We have used an Amazon Chase Visa for several years. In that time, we have used the $25 gift certificates we occasionally receive to buy CDs, DVDs, software and computer games. It has been a great card for us, because we would rarely buy these sorts of treats for ourselves. This was our first rewards card, and since we were in the habit of charging almost everything just because it was easier than carrying cash, we figured we may as well get something for what we were already spending. The Amazon card has saved us some money. We upgraded the operating system on my computer for only $16, the rest was covered by rewards. We also bought a mattress for our baby's crib for only $7, with rewards covering the rest. We have used certificates to buy Christmas and birthday gifts, which has saved us some money. This has been great while it lasted, but the time has come to review our strategy.

Do we really need more CDs and DVDs? Or is there a rewards card out there that will give us something we need more?

In our search for a more profitable rewards card, I ran across two new rewards credit cards that could reap dividends, literally, if used wisely.

One is the Charles Schwab card, which actually deposits, in cash, an amount equivalent to 2 percent of your monthly spending into a Schwab One brokerage account. Of all of the cards we looked at, this may make the most sense for us. The market is down, and we would like to buy more stocks in the hopes that we can profit from a future upswing. We already have a Schwab brokerage account and have been struggling to find the extra cash to make deposits. The rewards are a larger percentage than what we are currently receiving, and you don't have to spend a certain amount before the rewards arrive. They are automatically deposited every month.If invested, these rewards could increase in value, due to dividends and stock appreciation. You don't get that with a DVD.

Our second choice was the CitiBank Thank You Rewards card, only because you can redeem points for a student loan payment of up to $100.

Our criteria for selecting a new rewards card is that the reward must help us meet one of our other financial or personal goals. We considered a travel-related rewards card because we hope to actually leave the U.S. on vacation soon, but were put off by the dubious value of airline miles and the restrictions placed on hotel bookings.

Maybe it's time you looked in your wallet and did a little credit card renovating. Clean house, look for better rates and better deals. The Schwab card may not be for you, but chances are if you haven't shopped around in a while there is something better out there, something that will reward you with something valuable, like cash back or money in your kid's 529 account. Visit Cardratings.com to look for and compare cards. 

The obvious caveat is that chasing rewards on a credit card makes zero sense if you carry a balance.

We are "stacking" rewards.

I firmly believe that "stacking" rewards is one of the most effective ways to stretch your budget. Stacking is using as many discounts, coupons and rewards offers as you can on a single purchase.

As an example, I recently bought some Gerber organic baby food. I had several 75 cent coupons. I went to Kroger because they double coupons, so my coupons are now worth $1.50 each. Kroger also happened to be having a special where for each $10 worth of Gerber baby food you buy, you get a certificate worth $2 off your next shopping trip. When I checked out, I scanned my Kroger card, which earned me 10 cents off each gallon of gas I pump there. Then, I paid with my Amazon card, earning me points toward the DVDs on my wish list. I earned a $4 off coupon, and I used two 75 cent off coupons that were actually worth $3. The next day, I rounded up more baby food coupons and went back. I used the $4 off coupon, plus several more of the $1.50 doubled coupons, used my store card for gas discounts and paid with my rewards Visa. It saved me quite a bit on something that I need to buy anyway.

There are as many ways to stack rewards and coupons as there are people. Here are some that I find particularly interesting:

• LizaJane over at SavingAdvice.com recently bought a laser printer from Staples. That's not that interesting, but how she used her money certainly was:

  "I signed onto Staples via Ebates, which had a 2% cash back reward instead of the usual 1%. My printer was $199, plus I bought a cord for $25 and an extra black toner cartridge for $57 (and then got $30 off because I combined it with the printer purchase), so the grand total with tax was $263. My 2% back will be $5.26. Ebates also has a $10 bonus, which this should qualify for. So, I should get $15.26 total back there.
  
  The $100 Staples Easy Rebate will come in the form of a Visa gift card. Then, because I have a Staples rewards card, there should be some rewards money due to me at the end of the quarter. And, on top of all that, I used a credit card that pays me cash back. It's a small percent, but the small bits and pieces add up!"

• DisneySteve, another SavingAdvice.com blogger is also using perks wisely:

  "We went out to lunch today at a local restaurant that we like. They were having a special deal on gift cards: buy $100 worth and get $20 free. So we did just that. Not only that, but I charged them to my Discover card which has a 5% cashback bonus at restaurants through December, so I'll get $5 back on the purchase. That means I actually spent $95 and got $120 worth of gift cards. Coincidentally, our meal today came to exactly $25.00 which means the meal was basically free. We spent $95 (after the Discover cashback), got lunch for the 3 of us and walked out with $95 remaining on the gift cards."

Retailers have so far been reluctant to cut back on coupons and loyalty card programs because they know that a lot of people won't shop there if there is no special deal attached. Credit card companies are the most likely to trim rewards because the programs are expensive and retailers are threatening litigation over the merchant exchange fees they are charged every time someone pays with a credit card. In the meantime, get the best deal you can.

We finally came up with a smart monthly spending plan

I hate budgets. Hate. hate. Hate. But at some point, you just have to have one if you are going to really get ahead. We had to do something drastic to get our monthly spending in line and rethink our priorities, so we had a No Spend Month. You may not have to do something that extreme to get things under control. But for us, the result of No Spend Month was money in the bank and a renewed sense of discipline and purpose, two things that are very valuable in uncertain financial times. As a result of No Spend Month:

• We have an allowance. Hubby and I each get a $40 weekly allowance that we are allowed to spend on whatever we please. It is important to have fun money, even when you are on a tight budget, because it keeps you from feeling completely deprived and one day making a huge financial misstep because of that. The allowance has been fun. We use it to take each other on dates, which means more because we are using our "own" money. We also use it for things like cosmetics and video games, little indulgences that make us feel good but don't cost a lot. This way, we do not have to feel guilty.
• We have tamed the grocery budget. It's ghastly to admit this, but at one point we were spending $950 a month on groceries and eating out. For two adults and a baby. Ghastly. Our monthly budget is now $125 a week, for groceries, eating out AND gasoline for our two cars. We have cut our food budget in half, and added fuel to that category. Our grocery savings weren't magic. The biggest difference was that we started shopping for pantry-stockers at Aldi. We love it. We can buy a cartload of food and it never costs more than $40. We now clip coupons, but only for items where we insist on using a brand name. We look at the sale fliers for all of our local grocery chains and plan our weekly meals and match sales without coupons. Also, we cook more vegetarian meals. It hasn't been a sacrifice for us. Now that our budget is under control, we are making subtle changes. For instance, we have decided to eat less meat, but to pay more for the meat we do eat. i.e. grass-fed, hormone free meat from Whole Foods instead of CAFE meat from the store.We are also incorporating more organic foods into our diet, all without busting the budget. We never thought this would be possible.We also save fuel by running all errands on one trip and using our most fuel-efficient car for all trips longer than 5 miles.
• We save first, then live on what's left. This is a very very important. If you want to save but only save what is left over at the end of the month, you aren't going to get very far. Save first. We have set a high target: 25 percent of our take home pay every month goes directly to savings. We have the money wired out of the checking account and into one of our high-yielding savings accounts every two weeks. It's gone before we even wake up on payday. We have to live on the rest. No cheating. It's helping us significantly boost our cash cushion, which is our No.1 priority in this troubled economy.
• We're doing the cheap fix-its around the house. During No Spend Month I realized I had the materials for half a dozen home projects that need to be done, so I didn't need to spend any money to knock some things off of the to-do list. The rule now is that we won't buy supplies for a house project (barring a phenomenal sale) until we have finished the projects we already have supplies for. This may not seem like a big budget item, but every little bit helps.

We DIY as much as possible
The Wall Street Journal ran an article recently about the resurgence of DIY. Apparently I am not the only family that is now "insourcing" household tasks. OK, I admit we have never been the high-powered couple with the nanny and the housekeeper. I think it's a luxury to have a babysitter 4 hours a week.

But, we are expanding our arsenal of DIY projects. For instance, we have planned an ambitious veggie garden this year. To save money, I am starting most of the plants from seeds this year.

Also, a leaky toilet ruined the floor in our half bathroom. I had the original installer give me a quote to fix it. It came back at $500, about $300 more than I wanted to spend. Mind you this is a tiny bathroom. I will be attempting to do the work myself. If I get hung up and have to call the installer, I will at least have saved money by removing the toilet, sink and old tile myself.

Coupons Coupons Coupons.

I never was much of a coupon clipper until recently. I thought of coupons only as something at the grocery store. That was my mistake. Coupon deals have gotten much more generous in the last few months, as everyone from retailers to restaurants scramble to keep cash-strapped consumers coming back for more. Most of the coupons I use these days are for restaurants. Some of our locally-owned favorites have coupons in the Val-Pak and DollarStretcher packs that arrive at my door every week or so. And, since we now have a food budget, we generally only eat at restaurants that have coupons or a good special deal. 

Some of my friends have asked me what the point of all of this is. It's simple. I'd rather spend less on the things that aren't super-important to me so that I have the money to do the things that are super-important. Why spend 25 extra cents on each can of black beans when I could use that money to help pay for a backpack trip through Mexico? It's an extreme example, but drives to the heart of it. Little savings here and there add up to more money to do interesting, exciting things with our lives. And, to help us weather uncertain economic times.

Finally, some relief for credit card customers

Yesterday, the Office of Thrift Supervision finalized new rules that address what many consumers and consumer advocates call unfair practices by credit card companies.

The rules address issues such as double-cycle billing, a card company's ability to arbitrarily raise interest rates, and the ever-shortening grace period.

Here is what credit-card holders can look forward to:

1. Interest rates. Under the new rules, the interest rate a card carries must be disclosed when the account is open and remain set for a specified period of time. Card issuers will only be able to raise that rate after the end of that set time period, and the new rate would only apply to new purchases. The old rate would apply to past purchases.

This rule is a boon to those trying to get out of debt. If you have debt and are trying to pay it off, this will help you. It will prevent you from suddenly having to pay 29 percent on your debt instead of the 11 percent you were used to.

Recently, card issuers have been raising rates across the board, even for those who never pay late, simply because they need to make up for profits lost to bad mortgage loans. Why should you pay a higher interest rate on your credit card just because your bank made a mistake? You shouldn't. And under these rules, you won't.

The only exception to this rule: If you make a late payment, that's more than 30 days late, your rate can go up. On past purchases as well.

2. The disappearing grace periods. Grace periods, or the time you have to pay the bill before it is considered late and you start accruing interest and fees have grown ever shorter in recent years. Banks have been trying to trick consumers into making late payments. The new rules now say the shortest a grace period can be is 21 days. In the 1980s, grace periods were a luxurious 30 days, but in recent years that has been cut to about 20 days or no days at all.

3. Payments are now applied to your lowest-rate balance first. This is one trick the credit card companies loved. Say you had a card with a 0 percent rate on balance transfers and a 10 percent rate on new purchases. say you made a few purchases. Of course, when you send your payment, you want it to apply to the part of your balance carrying a 10 percent interest rate. Forget it. The bank would always apply that to your 0 percent balance, and until you paid off your entire 0 percent transfer, you'd still be paying 10 percent interest on part of what you owe. It was a huge profit center for banks and a serious drain on you. Not so anymore.

The new rules say that card companies must apply your payments to the balance with the highest interest rate first OR equally across all balances. My guess if the banks will opt for the second, but it's still an improvement.

4. Double-cycle billing. This is the most egregious of bank practices. Say you have a credit card balance of $100 in March. You pay $50, so in April your balance is $50. Guess what. If your card uses double-cycle billing, which many do (particularly Discover Card), you still paid interest in April as if you owed $100. How? They use your average balance over two months to calculate your interest payment instead of calculating it based on how much you actually owe. How is that fair? It's not. Thankfully, this will soon be illegal.

5. High-fee cards for borrowers with bad credit. This rule applies to secured credit cards. Many have high upfront fees and low credit limits, making the fees almost equal to the credit limit. It's a high price to pay to rebuild your credit rating. The new rules limit these fees to 25 percent of the credit limit and no longer allow banks to charge them as a one-time upfront fee. They must now be spread over the first 6 months the card is open.

How do these new rules help you? If you are trying to pay off your cards, you should have a little more help. When you make a payment it's more likely to go to your highest interest-rate balance, which will help you pay down your cards faster. If you are paying more interest than you should, thanks to double-cycle billing, this will save you a bundle in interest charges and help you pay off your balance faster.

And, this will prevent any sudden interest rate shocks if you carry  balance and pay your bills on time. Right now, a bank can raise your interest rate on your total balance with only 15 days notice, and even that is given on a small-type notice in your bill that no one reads. 

If you want to read more,
Here are the rules issued by the Office of Thrift Supervision.
Here is Bankrate.com's round up of the new rules.
Here is a story from MarketWatch

Just remember, there is a catch. The new rules don't go into effect until January 2010, so you will still have to fight the good fight with your credit card issuers in 2009.