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Personal finance danger

For leap day I thought I’d take a break from the stodgy sort of money saving advice I prefer to dispense and point out some of the dumber ideas that I’ve had to save a buck or two.  “Dangerous” might well be a bit of a misnomer here.  You won’t actually be in physical danger, these are just ideas that, unless you exhibit a great deal of discipline will certainly turn around and bite you in the face.  These are hard ways to save money, and really easy ways to waste money.  That being said, if you really want the most dangerous ways to save or make money all you really need to do is cancel your health insurance and start smuggling drugs.  Be careful with all of these.  I fully expect that only one in five of the folks that read this will save money, the rest will probably lose it.  Oh well, here we go.

1) Prepay dumb expenses by buying discounted gift cards

If you know that you generally go to a certain restaurant over the course of the year you can go ahead and buy discounted giftcards to it.  You can go ahead and get these at gift card granny, or Raise.  You can often get 10-25% off at a variety of restaurants.  On top of that you can go through iConsumer or ebates to get to Raise in order to add another couple percentage points to the discount.  The best part about this is that these are giftcards, so they can be used in combination with regular coupons or discounts (unlike a groupon).  My favorite example of this is when I use a Noodles and Company giftcard at 20% off, purchased through the iConsumer portal (3% off), on the citi double cash card (2% off), combined with a buy-one get one coupon (~50% off).  These discounts mean that a meal I can ordinarily buy for about $10 instead costs me about $3.80.  Supposing that I go to this restaurant once every other week, this will save me roughly $160 annually over retail, the giftcards contribute about $26 to that savings.  What could go wrong?

Trouble…

This bit is pretty simple to figure out.  When buying giftcards, its pretty easy to go crazy and purchase giftcards for places you wouldn’t have gone anyway.  When you only save $26 is pretty easy to blow it by buying an extra giftcard to Applebees (though, why I ask you, why?).  The second problem is that its hard for giftcards to feel like real money.  If you’re trying to save money, maybe you’d eat at home.  If you’ve got a giftcard sitting there and you really don’t feel like making food anyway…  The solution here is straightforward, use a budget.

2) 0% APR credit card promotions/Balance Transfers

Many credit cards as a bonus incentive will allow you to put purchases on it without paying interest for an extended period, typically a year.  The strategy here is to spend the same amount of money but instead of paying off the credit card every month, carry a balance.  Since there are no interest charges you can go ahead and stuff the extra money in a CD or high interest checking account. Supposing you spend about $10,000 per year that can be applied to credit cards you can earn 3% interest this will earn you about $150 in the first year, and roughly $300 annually thereafter.  (The first year is a ramp up period, and then I assume that only $10,000 can be maintained on this balance transferring scheme.)  If you want to add a nosebleed level of risk, put half of this into the stock market.  (Here’s a hell of a tale about how doing this ruined someones life.) (Seriously, go read that, then come back and read the rest of this article.

Trouble…

The issue is that it is real easy to screw yourself over here.  If you accidentally miss one minimum payment because you aren’t used to the new credit cards you can lose all of the interest you were planning on making in some kind of credit card fee.  If for some reason you accidentally try to transfer these balances onto a credit card that has a fee for its balance transfers (but no interest) you could lose the whole year’s worth of interest as these fees are typically 3%.  Similarly it shares an issue with the giftcards.  If you are prone to spending money that seems free it is very seductive to go ahead and spend money that you ordinarily wouldn’t knowing that you won’t have to pay it back for a year. The solution here is the same, use a budget.

Budgeting

My tepid suggestion for budgeting is to use mint.com, it has some interface issues. I’ve also heard that you need a budget is quite good.  Either way you should make sure that you like one or the other before you get it all set up as it’s kind of a pain to change once you’ve started to use it.