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A $400 Raise & Six Ways to Go Broke This Christmas

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Wow! Someone at the radio station this weekly program is on just got a $400 raise! THAT is the greatest Christmas present to get, isn’t it? But he didn’t get it from his boss – he got it from and for himself. He just finished his last $272 car payment that had been around for six long years. Adding tax back (since all your payments are made with after-tax money) that’s $400 he’s no longer sending off each month.

He’s spent $29,000 gross income on a stupid car that isn’t worth a tenth of that today. If that car payment hadn’t been around, the same $272 a month for the last six years would now give him $25,000 in his bank account. Hmmm…out a net of $19,600 versus $25,000 that could have been his: That’s a $44,000 difference!

If he can suppress the “stupid” gene in all of us and keep driving the same car payment free, that $273 over six more years would have been $62,000. But the car financing was P.G. pre-George and I hope he’s now re-allocating that same amount to a savings account and paying cash for the next one.

And  from Dave Ramsey…. Six ways to go broke this Christmas season

Keeping up with the Jones…Newsflash: The Joneses are broke, too – it’s just that you don’t know it! The last thing you need is their debt load. Image isn’t everything.

Confuse toys with food: You NEED food, shelter, clothing and utilities. After that, it’s a want. Don’t confuse gifts and gadgets with necessities and remember the priorities in life – and in Christmas.

Presents for everyone: Newsflash: You can’t afford to give every third cousin in the family a present this year – or any year. Forget that sense of obligation and get real.

The store picks the present: The mall will eat you alive and spit you back out. Do not go without a list of people to buy for, the cash in your pocket, and a plan. Wandering around aimlessly for ideas will cost you a ton of extra money. All the specials and cool stuff will empty your wallet and fill your credit card statement in a hurry!

I’m number one: No, you’re not. It’s Christmas – the money you spend on yourself, even before Christmas, shouldn’t exceed what you’re spending on others. Make a rule for yourself: For every dollar you spend on yourself, another dollar goes to charities. It may help re-focus your priorities.

Christmas travel: Few things will speed you along the going broke plan than trying to fly a family of five to grandma for Christmas. It’s fine to travel, but make it reasonable. Besides, your grandparents are retired and THEY can afford to visit you if they want to!

The Fine Print Of Reward Credit Cards

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A few months ago we talked about CIBC’s switch from their Aeroplan card to their own Aventura card. CIBC wants a card that can be used for any travel, instead of just Aeroplan points. It’s likely you’ve seen the cute penguin commercials as their $50 million launch campaign is well on the way.

Since I’m likely the only person to ever read the fine print of credit card disclosure, I wanted to highlight some of it for you. The disclosure on this card is 8.5 size font and over 3,000 words. That’s what makes me pretty sure I’m one of the few people to read it. This is from the Aventura card, but the fine print is pretty standard for all cards and the details and traps of the perks are roughly the same for every reward card.

You’ll earn one point for every dollar you spend on the card. So if you want a travel reward that’ll take 50,000 points, get ready to charge $50,000 on the card!

The card has a $120 annual fee and a 20% interest rate. That’s pretty much the same as others. So make sure you only get this type of card if you’re always paying off the balance in full. If you often carry a balance, a 12% card with no annual fee will put you light with no annual fee will put you miles ahead of trying to chase points and paying interest AND the annual fee! In other words, the saving on interest and no fee is money you can use to buy your own travel at less cost.

Travel cards generally advertise that you can fly anywhere and anytime with no restrictions of any kind. Well – not quite. The fine print states that ‘flights are not available at the lowest point level to all destinations, or at all departure times. So you thought it’d take you 25,000 points to fly to London. When you go to look or book it may turn out that the point level to get there is actually 50,000 and…well, you’re not going anywhere. You also need to remember that the points required can be increased at any time without notice. It’s in section 34…if anyone gets that far in the disclosure.

If you’re close, the card lets you buy up to 20% of the points you’re short. The cost is 3 cents per point. But that’s only if you’re close to getting the travel reward you were working towards. Using your points is at 2 cents per dollar.

If you’re not up to date in your payments one month, it’s not likely you’ll get the points for that month. If you get tired of paying the annual fee and close the account, you have 60-days to redeem your points or they’re wiped out. If the card issuer closes the card out from under you, you lose all the points immediately.

Starting to see why Consumer Report found that 75% of airline reward miles never get used? Before you sign up for any annual fee travel card, stop and do 30 seconds of math:

How many points will you need to go where you want to go?

How much do you charge on the card per month?

If you need 50,000 points and charge $1,000 a month or so, it’ll be 50 months before you have enough points. That’s the 5th year. Plus, it’s assuming the point level never increase in those five years, which is pretty small odds. So you’ll pay $120 annual fee times five years, which is $600. Do the math: Are you sure it wouldn’t be cheaper to pay cash?

Cruise Insights Part II

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Two weeks ago, I finally made it for a seven-day cruise out of Miami. Deal, or no deal, between the airfare, cruise cost, on-board charges, and excursion costs, it’s a significant financial decision for most people, and something that first and second-timers should only do with the help of a qualified travel agent.

Here are some of the good, the bad, and the ugly of the Norwegian Epic. But remember that you’re only getting an opinion. In the interest of full disclosure, Norwegian did know I would be doing two radio stories, and my brother and I spent the money to upgrade to a two-story private section of the ship called The Haven. We had a two bedroom balcony suite with access to a butler, concierge, a Haven guests only restaurant, and pre-seating to two of the shows.

The Good:

The Epic is a brand new ship and there’s almost no chance any passenger will ever be bored with a wide variety of Caribbean ports of call, and a total of around a hundred diverse activities on the ship. The staff from more than 70 countries was friendly, totally attentive, incredibly professional, and more than patient; sometimes with passengers who wouldn’t treat their dog the way they treated some of the 1,700 staff.

Norwegian has a ‘cruise reward’ program, selling you a $250 cruise deposit that needs to be used within four years. You’re essentially buying a Norwegian gift card. What makes it a great deal is that it comes with an instant $100 credit on your current cruise. That’s a 40% discount and well worth buying. And you’re not actually locked in to another Norwegian cruise as it’s fully transferable.

On the Epic, as well as their newer Breakaway and the yet to be launched (February 2014) Getaway, Norwegian has added a singles-only Studio section. On the Epic, it’s an inside two-story row of singles cabins. The private area has a common foyer, living room, and lounge and is only accessible to Studio passengers. Two passengers I chatted with loved the ability to afford a cruise without paying double the rate. (Cabins on every cruise line are always sold on a two-person occupancy basis.) The rooms are tiny but well laid out and well lit with the same amenities as other cabins – just smaller.

The Bad:

You’re not alone on your cruise. With more than 4,000 passengers, be prepared for a lot of crowds, crowded areas, and line ups. You’ll be lining up often – and almost everywhere from getting on one of the eight elevators to restaurants and shows. Because of the size of the ship versus the size of the main showroom, you’ll also need to plan way in advance what show you want to see and require a reservation.

The check-in process runs very smoothly and moves a ton of people through the cruise line’s registration and security screening with incredible efficiency. Your first clue that you’re going to have a week of lineups, are two massive holding areas where you and 4,100 others are waiting before boarding the ship.

The Ugly:

Whether it’s only on the Epic, Norwegian wide now, or the entire cruise industry, the food availability, quality, variety of selection, and no-charge restaurant hours have been measurably reduced. Food costs (in addition to fuel and wages) are one of the biggest expenses and it’s not something they can surcharge you for. You’ll never have a problem finding a bar or bar staff since you’ll be paying. However, when a ship can reduce the hours of the buffet, the variety of food, and significantly reduce the fruit and entree selections, it’ big savings for the ship. It’s something that’s very evident if you’ve cruised on another Norwegian ship and have a comparison reference point. It wouldn’t be obvious for first-time passengers.

On one day, the massive Garden Café which serves more than 14,000 meals daily, according to Assistant Manager Desmond, had four stations closed, and five serving hot dogs, burgers, and fries. If you spent the money flying to Miami and the cost of the cruise in order to get really good burgers and fries you’ll be very satisfied.

Would I go on another cruise? Are you kidding? Would next week be too soon? Would it be the Norwegian Epic again? No thanks. Bigger isn’t always better, something even a few staff members admitted to. On day two, my brother commented that it really wasn’t freestyle anymore.  But it’s the trend in the cruise industry and the norm for all new ships. Find yourself a “small” ship of 2,500 or so passengers and you’ll probably be a lot happier. In the words of the old Captain on Hill Street Blues: Be careful out there!

The “Value” Of Cruising

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For almost two years I’ve wanted to take a cruise on the now second newest Norwegian ship, the Epic. This past week, I finally made it for a seven-day cruise out of Miami. Deal, or no deal, between the airfare, cruise cost, on-board charges and excursions, it’s still a large financial decision for most people, and something that first and second-timers should only do with the help of a qualified travel agent.

Booking a cruise is a minefield of traps, on-line discounts that we’ll probably never get, or limited time offers that just aren’t true. According to travel agents, and fellow Epic passengers, Lori and Mark Guerin (www.landandcruise.com), most people also have all kinds of incorrect information and dozens of misconceptions about cruises in general. Lori and Mark should know, having been on more than 100 cruises between them! You’re entrusting your entire holiday to a specific cruise line and cruise ship, each of which has a very different personality and you can’t change your mind once you’re on board.

The Epic is a two-year old ship designed by Norwegian specifically for freestyle cruising. That basically means that you can wear what you want, when you want and eat what you want (sort of) and where you want. Five restaurants are included in the price of the cruise, while nine upgraded specialty restaurants have a surcharge. Whether you choose to pay that is up to you. Two nights, my brother and I did step up for the extra expense, and the service and food were incredible at Cagney’s (steak house) and the French-style Le Bistro. The meals would have been well above $50 in a restaurant, compared with the extra $15 to $30 ship surcharge.

If you’re looking for a good deal on a cruise, your travel agent will find a lot of options with a lot of cruise lines for you. It’s a very competitive industry in a not-so-good economy, and an industry that keeps adding new capacity with newer and bigger ships. But when cruise prices drop, the pressure to increase the on-board revenues accelerates in tandem. From art auctions to bingo, watch sales, raffle tickets, and promoting 90 excursion packages ranging in price from $20 to $230, you will get pitched – hard and often. A general rule of thumb in the industry is that each ship has to generate the same amount of revenue as the cabin sales. That’ll include an average of $8 in liquor sales per passenger per day. Liquor isn’t included in your cruise, and drinks aren’t cheap.

One of my biggest regrets is not being able to see the total room charges for a vast number of passengers. With cruise lines, just like Disneyland, and chips instead of cash in casinos, the last thing cruise ships want is for their passengers to remember that they’re spending real money. No, it’s not that they don’t seize every opportunity to reach into your wallets – it’s just that the room key is your charge card for the entire week. Prices aren’t always easy to see (Free beer! Buy five and get the sixth free!), but when it’s simply a matter of showing your room card, for most people, that card quickly disconnects their brain from their wallet. It totally loses the correlation that showing a room key is actually spending real money. Nothing would have been better than to see the look on the faces of many passengers the morning of departure as they wondered where the %&#@ all those charges came from, which were now on their credit cards.

On next week’s program, we’ll talk about some of the good, the bad and the ugly.

Great News! Our Debt Increased 21% Last Year!

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OK, if that doesn’t sound like great news – you’re right. But this Ipos Reid survey was done for the Royal Bank. Not to pick on the Royal, but banks are in the business of helping you go broke. They’re in the lending business and generate their profits when YOU borrow money and pay interest. So it is great news…if you’re a lender.

For the rest of us: Not so much. A 21% increase in just the last year of our non-mortgage debt is insane. That’s the Canadian average, but Alberta set the record with a 63% increase in debt last year. With pretty good incomes in Alberta and elsewhere comes that part of the brain that says: It’s OK, just borrow the money – you make enough to pay it off…eventually.

The survey also found that the same 38% of us are “very anxious” about out debt level as those who responded they’re “comfortable” owing the money. If you’re in the “comfortable” group, what would move you out of that? A job loss, any emergency, your partner leaving their job, the need for a newer vehicle, or a host of things that can go off the rails. Don’t get too comfortable, because things can change in a hurry – and it’s always when you least expect it.

When interest rates are low we tend to think we’re getting free money. Well, they won’t stay low forever, and when they turn, the interest you’ll pay goes way up for something you spent years ago. There’s a current radio ad with the line: You can eat whatever you want and still lose the weight. In financial terms, it’s just as much nonsense, but I bet most of us believe it – or at least want to believe it: You can borrow and spend whatever you want and still be financially successful. No you can’t. You can’t spend more than you earn, and you can’t eat everything you want and still lose the weight. Oh how we’d love that to be true. And after all these decades of weight loss programs having a more than 90% failure rate it isn’t any different for our finances.

For the majority of us, we earn enough for what we need. But we’ll never earn enough for everything we want. And it’s the “wants” that kill our finances, choke us with monthly payments, and stop us from putting any serious money into retirement plans, or even a simple emergency fund.

Until we get real and stop buying into the ads and marketing we can’t turn our finances around. Sorry, it’s mathematically impossible. May the reality check of that hit most of us before it’s too late and before we’re in our 60s and have 20 minutes left before retirement to put some money way.

Or, if you can’t retire when you really wanted to, think back to all the credit card charges, all those vehicles you owned and sold for one-tenth of what you paid, and that line of credit that was around so long you started thinking it was a member of the family…

Three Financial Tips If You’re Traveling

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A long weekend in Venice, Italy was a good reminder for me to share a few heads-up when you’re traveling out of the country.

-Make sure you pack at least two different credit cards, or a credit card and debit card. If one doesn’t work, you need a plan B. It happened to me when my MasterCard came up with the error message that some international connection couldn’t be made. In other words – the computers couldn’t talk to each other. If you’re traveling with your partner, a joint card isn’t the answer. If one of the cards is lost or stolen, it’ll cut the other one off, too. Better safe than sorry or your holiday won’t be very relaxing.

-If you’re traveling anywhere but the U.S. your credit card has to have the new chip technology. By now, probably every Canadian card has been replaced, but make sure. I needed to help three times in Venice when Americans couldn’t use their credit cards. It’s strange that the country who invented the credit card (and millions of people really wish it hadn’t been invented) still doesn’t have this chip technology. Without it – your card can’t be used in Europe and many other places.

-Get your money when you arrive. I watched someone at one of the big banks obtain $1,000 Euros. If he had done it in Europe, he’d have saved around $50. I walked up to the first ATM at the airport and got some money fee-free and at a much better exchange rate.

On a personal note, if you’re ever heading to Venice, my suggestion would be to get a hotel outside the city. I stayed at the Best Western Airvenice for $51 a night (www.hotelairportvenice.com). It’s a 4-star, but the ratings in Europe aren’t the same as North America.

The hotel was immaculate and looked like new. There wasn’t a single thing out of place or worn down. Staying in 50 or so hotels a year, it was the nicest one I’ve stayed at in years. The hotel staff all speaks English, and at this hotel, or many others in the area, you’re a 20-minute train ride from Venice. If you want to be five minutes away, there’s another Best Western in Mestre. I’m glad I did stay in the suburbs after watching tons of people arrive in Venice itself and hauling around a ton of luggage through cobble stone streets. Then hauling everything up and down stairs over a ton of bridges with maps that are semi-useless in how the city is laid out. Trust me on this one…

By the way, if five days in Italy sounds exotic or expensive, it was a Lufthansa $700 all included seat-sale in February. When great seat sales come along, get the ticket to…wherever… and then figure out what you’re going to do there and why you’re going! With flight, hotel, and meals, I got there and back for under $1,000!

Another Week – Another Scam

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You are not exempt from the law of gravity. You and I also aren’t exempt from that little part of our brain that gets greedy and wants it all today. That comes to spending as much as investment returns.

On the spending part, we think that it’s not really that much per month or in total, and we get wildly and wrongly optimistic that we’ll pay it off sooner than reality or our income will ever allow. Besides, we think we make maybe $50,000 and we deserve it. Well, we don’t make $50,000 by the time taxes come off and all the bills we already have. But that little part of our brain conveniently forgets about that.

We can get just as stupid about investment returns when that part of our brain forgets about common sense. Savings accounts are around 1% right now, and the stock market has a historical return of 8% to 10%. So when someone tells us we can get a risk-free 18% to 22% return we have two choices: We can laugh and tell the guy to get lost because it’s always a scam, or has a big catch. But often we don’t. That little greedy part of our brain says: Well, that’s a great idea – and never mind the fine print, that we’ve never heard of the firm, and that it’s way too good to be true.

And thus, another scam or Ponzi scheme succeeds. The latest one unraveled in Alberta for over $52 million. Surprise! The police can’t find the people involved and the accounting firm can’t find any of the money. This one even conned a really successful Western Canadian businessman for $6 million.

If it’s 20 times what the bank pays, and double or triple the best market returns, it’s a scam. Stop and listen to the part of your brain that has the common sense gene and know only slow and steady wins the investment race.

All that glitters is not gold anymore. The hype of gold seems to be cooled off – or turned cold. That can’t miss investment and the only safe place from inflation was another fad like so many others. Sure, those still invested and everyone who has a stake in selling you gold tells you it’s just temporary. If you look through our stories, I’ve warned you away from golf three or four times. Now it’s down to the $1,300 area code from a high of $1,900 or so.

That wasn’t much of a hard prediction. Gold is massively volatile and subject to extreme downturns. A 30-second internet search past all the hype would have told anyone that. Tons of people have lost a fortune. That’s sad, but totally unnecessary. Slow and steady investing always wins the investment race. Those people got greedy and I guarantee they’ll get greedy again on the next sure thing in the hope of making it all back in one shot. They should have gone to Vegas, instead.

If You Have An Aeroplan Credit Card:

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After months of fighting, the TD and CIBC have agreed to split up the hugely profitable Aeroplan credit cards. But let’s back up a minute, first.

The top credit card in Canada is the CIBC Aeroplan card which accumulates miles for travel or other rewards. Aeroplan used to be owned by Air Canada. But when they fell on hard times, they sold Aeroplan to Aimia, a loyalty management company in 2008.

Until now, the CIBC card was the only one with Aeroplan.  Then came the American Express card through Scotia. It lets you use points on Air Canada or other airlines. And THAT flexibility is what customers want – kind of like the Royal Avion card. As a result, the CIBC was considering getting away from Aeroplan entirely to start a new card that lets you accumulate miles but redeem them on travel everywhere and with everybody.

Well, last month they agreed to split their portfolio with the TD. Half will stay with CIBC and the other half will get transferred over to a new TD Aeroplan card. If you have one of the cards and are also a CIBC customer it’s likely they’ll keep you. If you don’t have a CIBC banking relationship, get ready for the TD to buy your account.

TD used to be a nobody in the credit card business. In the last three years they’ve gone from the back of the pack to the leader by dollar volume. It’s a win-win for them as they already have another travel card. Plus, they’ve estimated their half of the Aeroplan accounts will make them $160 million net profits starting in 2015. And you thought they had these cards for your benefit…nice try.

For the CIBC it’s a big risk to give up millions of customers. They’ve already announced they’ll spend $50 million in the next year marketing a new travel card. Get ready for a ton of junk mail and a lot of ads. So they’re giving up half of a hugely profitable pot to hope to get all you cardholders back with a more flexible card.

But do you need either one of these cards? Consider this: A cashback card gets  you 1.5% cash rebate. A travel card is a big annual fee and a hope that you’ll redeem. Aeroplan keeps the so-called breakage for non-redeemed miles at 17-21%. And, according to Consumer Report, around 75% of airline miles are never redeemed in the first place. It may be a lot of charging and chasing for very little getting…

A Credit Card Issuer You’ve Never Heard Of…

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Even if you’ve never heard of GE Money, there’s a good chance the company is in your wallet.

GE Money is huge – bigger than a lot of banks. They handle the back-end credit card operations for a lot of retail chains such as Low’s, Amazon, Toys R Us, Chevron, Texaco, PayPal, and Wal Mart in the U.S. to name just a few.

With the heat, media attention and privacy concerns, GE Money recently added one of those little addendums to your account terms in your statement. They’re not alone, but theirs in one that was given to me. The new disclosure states that they may use external service providers. In other words: They can outsource. This outsourcing will “process information on computers located outside of Canada, including the United States, Mexico, India, and the Philippines, whose data protection laws may differ from those in Canada.” You think?! Then they go on to explain what that means to you and your credit card information, which may be subject to access requests from governments, courts, etc. according to THEIR laws.

In other words, it’s the privacy laws of those countries – if they have any, and not those of Canada. This little insert – all inserts – are valid to change the terms and conditions of your credit card agreement. If you use the card after the notice, you’re agreeing to be bound by the new terms and have given your consent.

If you see one from the big banks, care enough to share and send me an e mail. You have to know that the big banks need the protection of this clause just as much as GE Money.

Radio Quiz: Testing Your Credit Smarts

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Give or take a billion or ten, what was the total dollar volume Visa Worldwide processed last year?

How about the total amount of cash advances from Visa cards?

Yes or no: Assuming you need to finance, is zero percent financing always a good deal?

What’s the biggest danger of any no payment and no interest promotions that lots of retailers like home improvement stores run?

In that no payment no interest promotion, what percentage of people actually pay it off in that zero interest time frame?

What’s the average balance for someone who has a line of credit? According to TransUnion, one of the credit bureaus, it’s $35,247.

You’ve seen the signs, billboards or hear the ads that a firm will buy your unwanted gold. At most, what’s the percentage of the real gold value they’ll pay you?

What’s the definition of the internal banking word “sticky”?

And for anyone listening, yelling the answers at the radio doesn’t help. So here’s a question for you listeners. E mail the answer to Phil or to me directly at yourmoneybook.com and click on contact us:

When it comes to your credit rating, there are two factors that are far and above all others in growing your credit score and rating. What are they? They’re both critical so you’ll need to get both. Two answers, so two e mailers with the correct answer will get a VERY cool gift from me personally.