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July 08, 2010


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Picking up on the credit card purchases point. One of the reasons I use a credit card is that it gives me cashback with every purchase. I then put everything on this card during the month that I can and always pay it off when due. All this means that I have negotiated a small discount from the stated purchase price.

I sometimes wonder if people would have borrowed so much on their credit cards over the years if they were called debt cards rather than credit cards.

I knew all these but it is good reinfocement.

I learned the hard way with refi. Paid on a mortgage for 3 years refi at a significantly lower rate but then realized that the clock was reset for another thirty years. One year later refi'ed to a 15 year and even lower rate and now 8 years later glad I did it and then STOPPED refi. The only people who made out on that was the closing costs, fee's and alike.

The other thing that is way more expensive than people realize is professional investment management. Many advisors will charge 1 -2%, put you in mutual funds that charge 1.4%, and trade actively which adds to the costs. In the mutual funds they'll make you pay taxes on trades that took place before you got in. At the end of 10 years you'll look up and can't figure out why you're assets aren't doing better.

I couldn't agree more with all these suggestions. Active trading makes no sense at all. Even if you invest in mutual funds that are managed you would probably do better (that is just my guess...I haven't done any research to actually back it up). But of course, I think index funds are the way to go as FMF always suggests.

They say that "most credit users end up paying way more." So I wonder what the percentage of card users is that actually pay off their card each month?

Active trading is not for the small investor and I include myself in that category because compared with the "Big Boys" that you are competing against the odds are stacked against you.

Shorting the market is also very dangerous indeed because as we know markets can turn on a dime and often the reason they turn so quickly is that the short sellers are running scared and rushing to the exits to get out of their positions.

Another thing to avoid is the use of margin. I have used it a couple of times but not for the purpose of investing someone else's money, but for making a short term loan to my son when he needed to close escrow on a real estate transaction before his loan came through. A fully secured margin loan against securities you own can be obtained instantly at a very competitive interest rate.

As for credit cards, provided that you never pay a late charge or a dime of interest they offer great convenience and cash back rewards. I use 3 cards and put everything I possibly can on whichever is the most advantageous. The cash rewards are either 1.5%, 2.0%, or 3% depending upon the card and what is purchased. It's a great "freebie" as far as I'm concerned. Travel costs are about my largest expense every year and Costco's AMEX card has a 2% cash reward for payments to travel companies.

In the past I have refinanced a real estate loan and an auto loan. In both cases the fees were minimal and the lowering of the interest rate substantial so both worked out in my favor. You do need to do the Math however before you go ahead with it.

The use of Bill Pay and electronic money transfers also can work in your favor by allowing you to keep your money working for you right up to the day before you have to part with it. It's just too bad that saving accounts don't earn much interest these days but every little helps. I also keep a note on my desk calendar of when each credit card closes so that if a large purchase is necessary I can make it the day after the card closes and give myself another few weeks of free money before the payment comes due.

In the world of finance it's You against Them, and They are bigger and more powerful than you, so you have to be smart, read the fine print, and fully understand what you are signing.

Personal favourite quote "a small leak will sink a great ship!" or I think for many people it's death by a thousand cuts! so many little things draining peoples finances.

For me dishonor fees associated with automatic billing kill our clients. They've maybe got $20 a week spare. One dishonor fee and they're playing catch up for ever and technically insolvent

Off the subject, but they forgot the #5 Thing that is More Expensive Than You Think: Kids! LOLOL Sorry, but I just had a revelation and felt I needed to share.

I just realized why our parents enjoy taking their grandchildren so much ... and why they say it is much more fun to be a grandparent than it ever was being a parent...

MONEY! They have the $ to spend on the grandchildren! They can afford to take them to play mini-golf, then out for pizza, then on to the movies, and then out to dinner.

We (Poor) parents have so many financial responsibilities, that having fun gets pushed to the bottom of the list.

So, yes, those small expenses (#4) most certainly add up!

Refinancing can save you thousands if you can get a significantly smaller APR and continue paying off the home the way you were previously. For us, the savings of dropping 1% was countered by the closing costs, but if we had less paid off, it would have been a huge savings...and I know a bunch of people who don't only have 6 1/2 years left on their mortgage.

Credit cards are great if you have any sort of control over yourself. We only spend on what we would have bought anyway (about $1300-$1500 a month is our normal range) and get 5% cash back on gas (Penfed Visa), 4% on Dining (Citi-Forward Visa...5 points per $1 on Dining, Books, and Movies, which boils down to about 4%), 2% on groceries (Penfed Visa), 5% on roating categories (Discover More), and 1% on everything else (Penfed Visa).

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