Jeff Lancaster SAN FRANCISCO • SILICON VALLEY

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Jeff Lancaster SAN FRANCISCO • SILICON VALLEY Jeff Lancaster SAN FRANCISCO • SILICON VALLEY “Frugal Ain’t The Word” Series at all department stores (whatever those are). I’ve got two teenagers and I buy a lot of groceries, so 6% cash First Up: Optimizing Credit back is a slam dunk. Cards With the Amex I pair a new VISA card with a new sponsor. On the VISA I get 1.5% cash back until I’ve spent $15,000, and then it’s 2% cash back after that. So I use the VISA for everything except gas and groceries. A back of the envelope calculation shows that if I spend $12,000/year on groceries, $5,000/year on gas, and $31,000/year on every else (for an average of $4,000/month on the credit card) my cash back will be $1,415, or almost exactly 3%. Even people who travel frequently and might prefer points or airline miles will seldom get this kind of value, Jeff Lancaster, CFP® although with very careful planning and an enduring Principal enthusiasm for Gershwin it’s possible. The sad truth is that blackout dates and other ticky tack rules mean that For the past many years I’ve used a VISA credit card frequent flyer miles are seldom worth as much as they that gave me 2% cash back for everything I purchased. seem, which is why airlines are usually happy to sell This was the best deal going, and so when I got a new them. My sense is that people who prefer miles to cash card in the mail a few months ago announcing that the either don’t know what they’re missing, or they like the card had a new sponsor, I quickly called the associated “mental accounting” that makes that occasional ticket 800 number. The person on the other end of the phone seem “free”. For those who want guaranteed, nothing- addressed my “benefits” question by telling me about to-do, stress-free, in-the-bank savings, go for cash back. accident insurance, travel insurance, rental car insurance, so on and so forth, before I cut her off and The credit card game gets better for those who choose to asked about the 2% cash back. “That, unfortunately, is play above the rim, though added complexity is coming to an end,” she said. “It’s going to be 1% going involved. For instance, about once a year I seem to need forward.” Because I put everything on a credit card, to buy something reasonably expensive at Sears, or some going from 2% cash back to 1% cash back was going to place like that. Every time I do this the person at the be a costly proposition. counter tells me that if I open a new credit card account I’ll get a 10% discount, 7% more than I would get by Fortunately, a quick search under “cash back credit using my Amex. I always open the department store card” and a bit of reading identified a more rewarding if account. When the bill comes a month later I pay it, and somewhat more thought-requiring process. I now carry I include a short letter telling the company to cancel the two credit cards. One is an American Express card, a account. You can do this once each year with pretty card I’ve never had before because I don’t like paying an much any of the card shilling merchants. It’s possible annual fee and it isn’t accepted in as many places as your credit score might be dinged modestly, but if you VISA. What’s terrific about the American Express card, aren’t buying a house or refinancing in the next year or though, is that I get 6% cash back on all grocery two, it’s worth considering. purchases (except at warehouses, like my beloved Costco,) 3% cash back on all gasoline purchases, and 3% Jeff Lancaster SAN FRANCISCO • SILICON VALLEY Another strategy that I’ve read about but haven’t yet tried involves those “grocery store” discounts. It seems possible that I can go to Safeway and buy a VISA gift card (I’m still going to buy most of my groceries at Trader Joe’s) and get 6% cash back. The gift card is essentially cash, and I can therefore transform virtually any purchase with the gift card into the magical “groceries” category. Cha-ching. Finally, it goes without saying that the interest rates and late fees require that the credit card gets fully paid each month. With the “bill pay” feature, however, I’m not going to stumble and pay late: the credit card companies pull money from my checking account automatically each month, the day the payment is due. How to put yourself in the position of the credit card company and lend money to others at mid-teen rates of interest will be the subject of a future “Frugal Ain’t the Word.”♦ Email Jeff at [email protected] Jeff Lancaster SAN FRANCISCO • SILICON VALLEY “Frugal Ain’t The Word” Series tape measures, a salad spinner, rechargeable batteries, a Weber barbecue, dishwashing detergent, furnace filters, Shopping Online at Amazon and a lifetime supply of incandescent bulbs that are apparently bad for the environment but also actually allow me to read. Can you imagine how much time and money, and parking lot and Mariah Carey anguish all of this would have required? And yet with Prime you simply “Buy with 1 Click” and, poof, it’s on your doorstep. Even though I’m a long-time Amazon enthusiast, I’ve held off on buying their $79 e-reader, the Kindle. (As I write this Craigslist shows a new one for $40.) This is because I already have an iPad and it works fine when I Jeff Lancaster, CFP® need to get my hands on a piece of literature instantly. Principal In addition to preferring the physical book to the electronic version, I also find the cost savings of ebooks There’s nothing inherently frugal about shopping online. disappointing. My most recent physical purchase, The Search engines may help ensure that the price you pay Sense of An Ending, was $16, while the download will be competitive, but by the time shipping costs (and would have cost me a not-that-much-less $12. Amazon delays) are factored in, that trip to the mall may seem has always had free downloads but the selection is like a reasonable, if painful alternative. That tradeoff pretty limited. Free or not, I’m not reading Tale of Two doesn’t need to be weighed, however, if your online Cities again, and neither are you. shopping experience begins with a subscription to the sublime Amazon Prime. The key benefit is rather simple The Kindle purchase has become more enticing now that but the bells and whistles are nice too. Amazon has offered up a “lending library” to Prime members who own Kindles. (An iPad won’t cut it here: For an annual fee of $79, a subscription to Amazon Amazon wants you to buy a Kindle.) The library Prime means that most anything you buy from Amazon provides access to thousands of contemporary titles. A ships for free. This is true for the things you want quick survey shows books for which I recently paid full shipped to your house and also for the things you want price, including The Finkler Question and The Big Short. shipped to other domestic addresses. Even more If these were still on my “want to read” list, remarkable is that Amazon Prime merchandise arrives “borrowing” them at no cost would be tempting. in two business days. For an additional $4 you can receive next day delivery. Just looking at your car costs I hesitate, despite the fact that the students in my more than $4. household may find electronic books rather useful. If someone you know was recently asked to write an essay Free shipping for an entire year makes sense in on Turgenev’s attitudes towards the romantic, a quick proportion to the frequency of shopping of course, and download of Fathers and Sons followed by a search for this runs across the grain for those who seek to shop the word “romantic” is tough to beat. cautiously. But if you imagine that Amazon is only about buying books, you’re not spending enough time “But there’s more!” say those cheesy infomercials, and on the site. A review of things I’ve purchased in the past indeed Prime also comes with “instant video” access to several months includes books, yes, but also soft fabric thousands of movies and television programs. Most of Jeff Lancaster SAN FRANCISCO • SILICON VALLEY the content is awful, but there are some gems. In the past few months I’ve streamed Man on Wire, Office Space and Food Inc. People are always bad-mouthing bacon, but I’m going to keep eating it. With essentially unlimited free delivery of merchandise, books and video content, you might think Amazon loses money on the deal. According to their CEO, they do. The state of California is unhappy, too, because Amazon customers don’t have to pay sales tax at time of purchase. (Of course, you already knew that the “use tax” attributable to purchases at Amazon and other out of state sellers is reportable on Line 95 of the California state tax return.) Surely before long, Amazon will stop subsidizing Prime, and California will be able to hit you for the sales taxes up front; but even then it’s still going to be a great deal.
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