Financial Samurai

The last five cars I’ve owned have all been purchased by cashier’s checks.  I loathe going into debt on an asset that is guaranteed to depreciate.  In fact, I dislike buying anything that is guaranteed to depreciate!

I stopped by the BMW dealer on the way home from golf one day and checked out their new 650i coupe series.  If someone could figure out a way to bottle that wonderful new car smell, they’d make millions off fanatics like me!

Given this particular 650i coupe was priced at $104,000, I decided to check out the more moderately priced 2012 X3, 2.8 litre engine SUV for $48,000.  Same new car smell for half the price.  Score!

CREDIT CARD LIMITS FOR CARS Read more…

December is generally a higher expenditure month given the holidays and tempting sales galore.  I would ideally like to keep my personal credit card bill in the $1,000-$1,500 range, with $2,000 as the upper limit.  After $2,000, I feel like I’m wasting money because that just seems like an awful lot to spend on things beyond housing costs.

I decided to start tracking my monthly credit card expenses to mainly make sure there aren’t any egregious fees that I know nothing about.  For the past 10 years, all I’ve been doing is eyeballing the total amount, and if it was below a certain threshold, I would pay the bill and move on.

As my desire to save more money grows, it’s good to be a hawk-eye when it comes to my second biggest monthly expenditure.  Furthermore, as a personal finance blogger, why not make some content out of the figures and learn something in the process!  Those who seek early retirement might want to give this exercise a go as well.

DECEMBER 2011 CREDIT CARD STATEMENT Read more…

The average consumer credit card rate is 16.75% as of January 6, 2012 according to IndexCreditCards.com.  With the US Bank Prime Rate at 3.25%, credit card companies are charging 13.5% over Prime.  In other words, credit card companies are making big bucks off you!

The US Bank Prime Rate or “lending rate” has averaged 3% above the Federal Funds rate, which is currently at 0.25% thanks to BenGenie.  The Prime Rate is used to adjust the interest rates for HELOCs, credit cards, and student loans.  The Prime Rate is considered the rate at which banks lend to the most creditworthy borrowers.

With a 13.5% spread over Prime, credit card companies are essentially saying they require a 13.5% return over Prime in order to be in the business of lending credit with a card to the average consumer.  If all consumers paid their credit card debts in full and never welched on a payment, the spread over Prime rate would probably be close to zero.  The other way to lower credit card rates is if consumers reduce demand for credit card usage and the government either regulates more tightly and/or encourages more competition. Read more…

According to First Data, credit card usage was up 8.2% YoY in 1Q2011, 9% YoY in 2Q2011, and 10.6% YoY in 3Q.  If those aren’t healthy signs of consumers spending again, I don’t know what is.  What’s a little more shocking is that the latest November industry-wide car sales figures are up 14% YoY to 994,000 according to Auto Data Corp with Chrysler leading the way up 45% YoY!

CNN recently highlighted that credit card mailings have surged 85% since the beginning of 2010 to 1.3 billion credit card offers in 3Q2011 and that online credit card use will increase by 63% from 2011 to 2016 according to Javelin Strategy & Research.  There seems to be no stopping the use of credit cards is our daily lives.  If you are a cash only man, you’re missing the great big bandwagon!

It’s becoming quite clear to me that the US consumer is alive and kicking with money to burn.  Some may even call it the start of a bull market!  We’ve been frugal for long enough and what better time to start spending money than during the holidays?  I recently reported that I spent around $1,700 gross, and $1,010 net after reimbursement on my personal credit card in November, 2011.  I definitely feel that I’m spending more than 10% over last year, perhaps more like 25% more.

Besides looking at the hard data, I’ve asked all my friends and family whether they are spending more this holiday season and the general answer is yes.  I’m curious to know whether your credit card spending habits have picked up by 10% or more vs. last year as well.

One female friend who makes about $70,000 a year bought herself a $3,500 Louis Vuitton handbag on credit card.  I think that’s nuts, but guys spend tens of thousands of dollars more on cars than they need, so oh well.  I  bought myself a pair of $315 Tod’s handmade loafer shoes for work, which were on sale from $485.  I also think this is kind of nuts.  I’ve wanted a pair for 5 years, but could never bring myself to spend more than $150 on a pair of work shoes.  This year, I said what the hell.

The real issue is whether or not these healthy retail sales numbers will continue through the new year, or fade?  I’m seriously considering returning my shoes because I feel too guilty spending double what I normally pay.  There’s a good chance other people might feel the same, it’s just a little too early to tell since we’ve all got a 30 day return policy on average!

Are you guys spending more on your credit cards this year vs. last year?  If so, by how much do you think?  Do you believe consumer spending is permanently back?

Photo: Lake Tahoe Camp Fire, Sam.

Best,

Sam

I’ve decided to start a new series entitled, “Credit Card Enlightenment” revealing a portion of what I spend on a monthly basis from my personal credit card and any enlightenment that is found through the analysis.  This monthly series will be a good way to track expenses and keep things from getting out of control as peripheral income grows.  In other words, tracking credit card expenses is one way to battle lifestyle inflation.

The use of credit cards is critical in the way I spend.  I buy items with confidence knowing that I have 30 days interest free to pay it off.  I also like how credit cards provide reward programs and buyer protection in case of product dissatisfaction and fraud.  Finally, I do not like carrying much more than $80 in my wallet.  Credit cards are easily replaced if my wallet is lost or stolen, whereas cash is usually gone forever.

Besides my mortgage, my credit card is my largest monthly expense.  I own three cards: a corporate card for work, a corporate card for my online business, and a personal card.  The discretional spending really comes from my personal credit card, hence this card is what I will focus on in this post.  I try and put everything other than business expenses on my personal credit card because the credit card tracks all my expenses, provides free financing, and produces rewards points.

PERSONAL CREDIT CARD EXPENSES FOR NOVEMBER, 2011 Read more…

I’ve had my Citibank home rebate credit card for 7 years.  It’s my one and only personal credit card I use for everything.  Once a year, a rebate of 1% of total spending gets credited toward my mortgage.  I was totally happy with the card and then one day, I get a letter from Citibank saying they are changing it out of the blue.  They didn’t ask me whether it is OK or not, they unilaterally made the decision for me.

I’m not particularly fond of credit cards which give me rewards points so I can go buy things I don’t need.  Unfortunately, as a replacement card, that’s exactly what I’m getting!

It really gets my goat that a credit card issuer can just changes things at a whim.  You’d think that after all that’s happened in the financial world, there would be more protection for consumers.  But, as always, I’m disappointed with how my tax dollars are spent, and nothing really changes, just the people in power.

THEIR LETTER TO ME Read more…

Several years ago, I put around $35,000 on my one and only credit card thanks to a home remodeling project and a new watch purchase.  My “reward” was a 1% rebate towards my home mortgage, which is not bad considering $350 paid to principal is thousands in interest savings over the life of the loan.

$35,000 is the most I’ve ever put on a credit card in one month and it felt kind of odd.  But, I really wanted to create a new bathroom from a closet to add functionality and value to my house.  There’s an amazing amount of stuff you need to buy when building a new bathroom: wall tiles, toilet, limestone, shower heads, copper pipes, sinks, mirrors, lights, deep soaking jacuzzi jet tub, lights, light fixtures, paint, doors, crystal knobs, skylight, ventilator and so forth.  $20,000 in materials adds up quick!

The watch was a Stainless Steel Daytona that cost $9,600, which I promptly sold for a profit three weeks later because a friend begged me to sell it to him!  For those who know watches, the Stainless Steel Daytona is one of the most coveted watches on the market, which can’t be bought in any store.  You need a jeweler, connections, or a history of purchases to gain access to this particular watch.  It’s a big waste of money, but one of my weaknesses that I so conveniently categorize as a hobby to justify.

Add on all the other normal purchases of food, insurance, membership dues and transportation costs, racking up $35,000 in credit card debt in a month is just as easy done as said!

THE SECRET TO PAYING OFF $35,000 In CREDIT CARD DEBT Read more…

We all know the old adage, “you can’t judge a book by its cover.” What you might not know is that banks apparently had this in mind when branding business credit cards. You see, one would think there’d be significant differences between general-consumer and business credit cards. However, according to a recent Card Hub study, the only thing that really distinguishes a business credit card from a general-use card is the fact that a company is liable in addition to an individual cardholder.

Oh, and the fact the new credit card law (CARD Act) only applies to consumer credit cards. In light of this, a clear hierarchy of business credit card issuers actually emerges when you compare the extent to which issuers recognize the bond between consumers and business credit cards and in turn proactively apply CARD Act protections to these spending vehicles despite their branding.

Ultimately, you are left with a list of the good, the bad and the ugly business credit card issuers.

The Good Read more…