Financial Experiment

I don’t know if I should call this an experiment or magic because I am going to demonstrate how to make money out of thin air.

Goal: To make as much money as I can using other people’s money (OPM) via a credit card.

 

WARNING: This is an advanced strategy that is considered risky if you don’t have money to cover the losses.  I do not advise people try this, instead feel free to live vicariously through me.

I pulled $5000 off of a Credit Card through using a balance transfer check.  I was charged a 2% fee for the transaction however there is no interest accrued for 12 months as long as the minimum balance is paid each month.

The theory is if I can make more than 2% in interest I keep all of the profit.

I can’t leave the money in a bank account at 2% because I would just break even.

I opened a brokerage account specifically for this experiment.  Had I not already had an account with OptionsXpress I could have earned $100 through their referral program however that isn’t an option in this scenario so we will have to work a little harder to make money.

While I don’t like the stock market as an investment it is the best option to make money for this experiment.   Historically the S&P 500 outperforms most other funds so I have begun the experiment with one trade for 10 shares of SPY for approximately $141 per share.  SPY is a fund that mirrors the performance of the S&P 500.

I may choose to purchase additional shares, sell out of the position for a different investment, or trade utilizing margin.

The experiment begins today.

"I don’t have enough money for it to make a difference."

Even in drastic times of economic hardship people fail to make smarter financial decisions because they resist change.  The biggest concern I hear people say is “I don’t have enough money for it to make a difference.”  If you are saying this you are missing the entire concept of financial efficiency.  If you don’t have money these ideas are even more important to abide by.  Every penny counts.

Only in very rare cases does money just suddenly appear in your account.  You don’t want to wait for that to give you a reason to start good financial practices.  It is time to be proactive.  Implementing the strategies found on this site is how you make money.

Eventually these practices will save you money in addition to making you interest.  It may be a few cents a month at first, then a few dollars, but free money is free money.

I like to think of it like this.  Let’s say you make $4 in interest for the month.  Doesn’t seem like a lot right?  But think about it.  Some people make $8 an hour.  This means $4 in interest is technically 30 minutes that they wouldn’t have to work.  That’s 30 minutes more with your loved ones, one more episode of your favorite TV show, an extra-long lunch break, etc.

“Commit to making the change, literally.”

The key is to start now.  Whenever I speak to someone about this, they nod their head and I ask them, “What is stopping you from doing this right now?”  At that point they have two choices, make a lame excuse and continue on their current path, or they commit to making the change, literally.  The best feeling is when I hear from someone a few months later when they call me excited about the interest they just made just for switching over to smarter banking decisions.

Talk isn’t cheap as some people say.  Talk is expensive, because talking doesn’t make you money.  Taking the proper action will make you money.

So now is the point where you ask yourself, what is stopping me from making smarter financial decisions right now?

 

Choose wisely.

If you are ready to make a change, here is a good place to start http://www.smartermoneymanagement.blogspot.com/2011/04/5-steps-towards-smarter-money.html

Personal Finance Assignment: Where to Park $5000 for the Best Return (Savings/Checking)

The following post was an assignment for a personal finance course I am enrolled in.  The assignment: Find the best checking and savings options to put $5000.  This paper got such a positive response from my teacher and classmates that I wanted to share it on here as well.

Where to Park $5000 for the Best Return (Savings/Checking)

The method described below will bring in approximately $289 on the initial $5000 for an overall rate of return of 5.78%.

In order to maximize the $5000 that we have available we are going to spread the money across multiple accounts.  We first will establish a primary account that will be our main hub for earning interest, and then we will borrow money from this account to earn money from special bank promotions.  While the banks offering these promotions do not offer competitive interest rates, we are only after the short-term gain from the promotion.  If the rate is greater than the 2.05% APY that we will make in our checking account and the fine print seems attainable, then we go through with the deal.

The highest paying checking account currently available in Clark County is at People’s Community Credit Union. This will be our interest hub.  They currently pay 2.05% on their Loyalty Checking account and hey also pay 7.5% on their Loyalty Savings account (On first $750.  After that the rate decreases significantly to 0.05%). The more money you keep in this account, the more money will be paid to you each month in the form of a dividend check. It may seem small at first, but it will gradually build to a significant amount of extra cash.

To maximize your profits on this account: Maintain a balance of $750 in the savings account, no more and no less. When you receive your quarterly dividend check, transfer the dividend amount into your Loyalty Checking where it will make 2.05% instead of the 0.05% (Remember anything over $750 only makes 0.05% so we’d rather have it making 2.05%).  Be sure you meet all of the requirements each month to get your 2.05%.  I have posted the requirements below.

Information from http://www.peoplescu.org/chk-loyaltychk

There is a way to ALWAYS qualify for the dividend on your bank / credit union account. Typically there is a minimum of 5-12 debit transactions each month in order to qualify for a high interest dividend rate (@ Peoples it is 10 debit transactions per month). When it gets towards the end of the month and you know you don’t have enough transactions to qualify, you can use the following strategies. One way is to donate $1 to a charity online 10 times each month. While this does work, must of us are unwilling to spare that many funds every month, but we can adapt that concept to benefit ourselves.

This will require you create a blog page (I recommend www.Blogger.com), and a PayPal account at www.paypal.com. Both accounts are free and take minimal time to setup. Once you have established these accounts, create a "Donate" button through PayPal and copy and paste the code into your blog

Every month “donate” to your page and meet the transaction requirement for your account. For example, if each month you needed to hit a minimum of 10 transactions for a People’s CU Loyalty Checking account, you would “donate” 10 times @ $0.01 per donation costing $0.10 overall. Note you will need to use a different email address for the donation than the one you provided to open the PayPal account. After the 10 transactions have cleared, you can transfer the money from your PayPal account right back into your checking account.

Chart from http://www.peoplescu.org/save-loyalrate

We will then take advantage of the following promotional offers:

$25 for opening an account with ING Direct.
The minimum balance is $250 to open the account.
$25 is a 10% return on $250

$10 for opening an account with Virtualbank.
The minimum balance is $100 to open the account.
$10 is a 10% return on $100.

$125 for opening an account with Chase
The minimum balance on this account is $1500 to not be charged a $10 service fee each month.  It is more beneficial for us to keep the money from the bonus and not pay out the fee of $60  ($10 per month times the minimum number of months the account must remain open) than to leave the $1500 in our hub where it will only make $30.75 @ 2.05% for the year.
$125 is an 8.33% return on $1500.

Keep in mind on the ING Account and the Virtualbank accounts we only need to keep $5 in the accounts to keep them open.  After the account is open we can transfer the remaining funds back to our hub at People’s CU where we will make more interest.  After the accounts are open we will transfer $245 from ING and $95 from Virtualbank.  These accounts just need to remain open for 6 months to not forfeit the bonus.  The bonus generally takes 30 days to be deposited into the accounts and cannot be withdrawn until the minimum time frame for opening the account has been completed.

Investment Breakdown

5000 – 750 (Loyalty Savings) - 250 (ING) – 100 (Virtualbank) – 1500 (Chase) = $2400

$2400 in Loyalty Checking @ 2.05% with monthly dividends
$750 in Loyalty Savings @ 7.5% with quarterly dividends
$250 in ING Direct for 1 month then reduce to $5 and transfer $245 to Loyalty Checking @ 2.05%
$100 in Virtualbank for 1 month then reduce to $5 and transfer $95 to Loyalty Checking @ 2.05%
$1500 in Chase for 6 months then close account and transfer funds to Loyalty Checking @ 2.05%
$2400 @ 2.05% for 12 months = $49.20
$750 @ 7.5% for 12 months = $56.25
$5 @ 0.8% for 12 months = $0.04 (ING Direct)
$5 @0.83% for 12 months = $0.04 (Virtualbank)
$245 + $95 = $340 @ 2.05% for 11 months = $6.40
$1500 @ 0.01% for 6 months = $0.07
$125 @ 0.01% for 5 months = $0
$1625 @ 2.05% for 6 months = $16.65
$35 @ 2.05% for 6 months = $0.35

$5000 + 160 (bonus $) + $129 (interest) = $5289
Average return of 5.78%

This number is an overall estimate.  The end number will vary as I used the APY rather than the APR in the calculations.  I also used round number estimates instead of computing the average daily balances.

We can increase our return by opening as many promotional accounts as we can find using money from the hub to fund the accounts.  ING, Virtualbank, and other banks also offer referral bonuses when your friend opens an account so you can take advantage of this as well.

Resources

https://chaseonline.chase.com/resources/RateSheetForCons70219202012.pdf

https://home.ingdirect.com/orange-savings-account

https://www.virtualbank.com/Default.html

http://www.peoplescu.org/save-loyalrate

Auto Credit – Build Credit Automatically

There is no reason why building credit has to be difficult.  Remove human error from the equation by following these steps and build credit the easy way, automatically.

The first step is to open a credit card.  You can’t build credit without using credit.  I recommend a Capital One Rewards Card because it has a cash back rewards program where your cash is easy to redeem.

Next pick a recurring low monthly bill that doesn’t change each month.  Netflix is perfect for this.

Change your Netflix (or other bill) so that it charges your credit card instead of your bank account.

Now login to your bank account online and set up an automatic payment or bill pay.  Schedule your bank to pay off the credit card amount in full each month.  To make it easy you can set it up for the 1st of every month.

That’s it.  You’re done!  Too easy right?

Each month Netflix will automatically bill your card and your bank will automatically pay it off on time.  Then every month your credit card company will report to the credit bureau that you made an on-time payment.

Be sure to only pay a small bill because you want majority of the balance on the card to remain available.  Having a large available credit line will help to improve your credit score.

Related Article: How to Attain a Free Credit Report 3 Times a Year

Not a Good Time to Invest in Real Estate

The Government is looking to rent out its surplus of foreclosed properties, according to an August 11^th, 2011 article in the New York Times.  This is a great way for the Government to generate income on liabilities that are currently sitting vacant, but this could prove extremely dangerous to real estate investors.

The Obama Administration states that the proposed solution will stabilize the market value of homes, however many real estate investors are no longer in the real estate market for capital gains (increases in home value).  Instead investors are after the steady income generated through rental properties.  The problem is the government will be able to undercut the local rental prices in the name of providing “affordable housing.”

When determining whether a property is a good investment you need to calculate if your property will produce positive cash flow according to Robert Kiyosaki, real estate investor and bestselling author of Rich Dad Poor Dad.  The involvement of the Government will alter the average rental price thereby lowering the cash flow and turning investments that were once good into potential money pits.

Let’s use a hypothetical situation to demonstrate the problem.  Let’s say you purchase a $100,000 3 bedroom 2 bath rental house with 30% down ($30,000) at 5% interest, and a 1.25% tax rate.  The mortgage payment would be $641 per month (http://www.mortgagecalculator.org/).  Let’s say you can rent this home out for $900 a month.  That means our positive cash flow would be $259 per month, which adds up to $3108 per year on our initial investment of $30,000.  This is over a 10% annual return and would be considered positive cash flow.

Now let’s throw the Government into the mix.  The Government is currently making no money on their foreclosed houses so any money they can get for rent is better than nothing.  In our example the Government rents out the same 3/2 house for $600 per month.  With many of these houses available it drives the average rental prices down in the area.  Now you can only charge $600 per month for your rental house as well, but the mortgage is still $641 per month.  Your cash flow is now -$41 per month, and your rental house is costing you $492 per year.

In a time when there really are no solid investments out there, real estate was one of the only games left in town.  With the possible scenario being put into effect, I would hold off on buying a rental property.

Sources:
http://www.nytimes.com/2011/08/11/business/us-seeks-to-rent-out-its-foreclosures.html

Avoid This Scam - Cardilly.com Follow up

Cardilly.com is a website offering discount gift cards for purchase online.  It advertised a great deal, but looked like a scam.  It was a relatively new site so there wasn't a lot of information about it yet so I figured I would try it out.  Here are the results.

My order was scheduled to arrive no later than Aug 25 - Aug 27.  I was order number 511.  When I had not received my card by August 27^th, I sent an inquiry as to the location of my card.  I received the following unprofessional reply:

What is the order number?

Regards,
Customer Support

They had my name and email on file... shouldn't they be able to look up my order number?  Apparently they don’t know where my card is either.

I sent them another email including the order number.  This time I received the generic email reply below.

From: support@cardilly.com
Subject: Re: Cardilly.com: I have not received any of the cards I ordered.
Date: Mon, 29 Aug 2011 18:26:48 -0400

Hello,

First let me say that I am sorry that your order seems to

be late or at the very end of the delivery timeframe.

As I’m sure you are aware, we are a new company and

I guess there will always be some growing pains.

Shipping from Canada without tracking was probably not

the best way to go.  But wanting to offer our customers

free shipping and not hiding the shipping in the cost of

the item, we seemed to have dropped the ball on this one.

We will be changing our policies and all future shipments

will have full tracking.

We thank you for your patience.

Your order shipped from Canada and gift cards are often

inspected by customs due to there monetary value.

We will contact Canada Post and U.S.P.S and put a trace

on your order. 

If the trace does not turn up your order within a week, we

will just reship.  We will send express which will get to you

within a few days only. 

Or if you rather, we can arrange for a refund if it does not

show up within a week.  But please do allow for the trace

results.

Again, I’m sorry for the delay and thanks for your patience.

----

Cardilly.com Support
support@cardilly.com

Upon receiving this response I logged into my Cardilly account and copy and pasted the order numbers and transactions into an email asking them to cancel all the transactions I had made.

I then proceeded to contact my credit card company and disputed the transactions which are listed under “SG MARKETING ETOBICOKE ON” for not delivering the goods or services I was charged for.  Thus far Capital One has been very cooperative with me in getting my money back.

I followed up by filing a complaint with the Better Business Bureau to help shut these crooks down.  If you made a purchase at their site I recommend you file a complaint as well.

Part of being smart with your finances is to avoid scams like these.

AVOID THIS SCAM