I have written before about our experiment with credit card arbitrage. This is where you borrow money at a very low rate (preferably 0%) and stash it in a high interest savings account. Since we have come to the end of the 1 year period on our Chase Freedom card, I got set up to make a large payment to pay off the card — $44,061.30 to be exact.
I know that the payment is due on September 17, so I decided to play it safe and get all my ducks in a row in plenty of time. Last Friday, August 29th, I logged into my money market fund account at Vanguard to make the transfer to my checking and billpay account at Everbank. I got the Sell order all set up only to find that “electronic transfer” to my checking account was not one of the options for cashing out our money. The next day, I called Vanguard to find out why. It turns out that since this is a joint account, Vanguard needs to have a signature card on file for ScrapperMom before it can let me transfer money from a joint account. It didn’t matter that the checking account is also a joint account.
The only option available to me was a check. I started doing the math in my head — the market doesn’t reopen until Tuesday, September 2, they can’t sell the money market funds on my behalf until the end of trading, the earliest they could cut a check would be the 3rd. First class mail would likely get the check to me by September 7, then I have to turn that around and mail it to Everbank, which is another 3-5 days until it hits our account. Now we’re up to Sept. 12. A payment sent on that day should arrive at Chase on time.
After explaining the situation to Vanguard, and not wanting to cut it too close, they offered to overnight the check to us. This will incur some fee, of course, and I don’t know what that is yet. I’m assuming that it will be in the $20 to $30 range, but the representative could not tell me when I set up the order.
Fast forward to last night: I logged into Everbank to set up the bill payment. I entered the full amount in the payment box, set the payment date for Sept. 10, and clicked PAY. The bank came back with an error saying that I could only pay $15,000 in a single payment. Okay, I thought, I’ll just set up 3 payments to take care of it — no problem. So I reduced payment number one to $15,000. Then I set up payment 2. The bank thought it was smarter than me, and decided that this was a mistake — a duplicate of a payment that I already set up. So I tried $14,999 instead. Then the bank told me that the daily limit on bill payments in total is $15,000.
This was starting to get frustrating! Eventually I ended up setting up 2nd and 3rd payments for the total amount due on the 11th and 12th. According to the bank, a payment made on the 12th will arrive by the 16th. How’s that for calling it close? Usually the payment gets sent on the 10th, and usually gets credited to my account on the 13th. So this should still work out.
Today I received the check from Vanguard and we immediately turned it around and mailed it off to Everbank. There is the off chance that the check will arrive at Everbank and be credited to our account earlier than the 10th. That will give us a little more breathing room if true. Another option we now have through the billpay service with Everbank is to expedite a payment by sending it electronically or by overnight check. As you might expect, these options are not without cost: $4.95 for the expedited payment, and $14.95 for the overnight check.
What are the consequences of a late payment? I’m not really sure, but my expectation is that since the interest rate for purchases is 14.99%, the interest for one month at that balance would likely be about $500. So it certainly behooves us to do everything possible to make sure the payment gets made on time. It’s not as bad as it seems, since I estimate that we made over $700 on the arbitrage over the last year.
Lessons learned: If you have to move large sums of money from one bank to another, make sure you know in advance what the limitations of the system are. It’s also a good idea to understand what the limits of your bank’s billpay system is also. We’re not sure yet what this means for future credit card arbitrage… but we’ll be sure to let you know soon how the whole thing turns out!
Have you ever experienced a close call with a payment or a problem moving money from bank to bank?
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Nearly 7 months into starting this blog, I have finally gotten around to a post concerning the name of this website. ScrapperMom and I have an alligator on our hands, and here’s the story of how we got into this situation and our options for getting out. I have avoided this topic for some time because, as you will see, it is a particularly painful story for us, but one that has taught us many important lessons.
Three and a half years ago I left my job as a nuclear plant operator in search of more (or less, depending on point of view) exciting opportunities. Our previous house was bought because of its close proximity to the power plant, which is, like most nuclear power plants, in the middle of nowhere. We started a search for a new house, and laid out a set of criteria. When our search revealed that we could not afford to buy what we wanted, where we wanted, we turned to a more creative solution: we would look for a multi-family home so that rent from one unit could help to offset the mortgage on the property as a whole.
To be clear, we were not looking for anything extravagant. In early 2005, home prices in our market were just reaching their peak (unbeknownest to us, of course) and even a modest home was beyond our financial reach. We considered renting, as well as purchasing a condominium, but decided that this would be exceptionally difficult with our two Great Danes. Since multi-family homes usually cost less per unit than a single family home, or even a condo, it seemed to be a good compromise for us — one that might eventually even develop into a nice investment down the line.
In the Spring of 2005 we found a nice house in a nice community, one with walking access to a number of different services. The house is close to the local commuter rail, hospital, community swimming pool, conservation area, etc. The previous owner of the home had completed a number of major updates to the 1920 structure, including wiring, roofing, the conversion of the attic into a bedroom, etc. The house was in need of a number of cosmetic updates, mostly relating to the exterior. Compared with the other homes on the market that we had seen, this home was a bargain.
We plunked down 10% of the purchase price from the proceeds of our previous home sale. We financed the rest of the cost through a 3/1 ARM and a home equity line of credit. I was actually still between jobs at the time, but our excellent credit allowed us to obtain a no-documentation loan, which meant that the bank took our word for it that we made enough income to cover all the costs of the home and then some.
Many readers here are probably cringing after having read the last paragraph. After all, this story so far is very similar to that of thousands of people who are presently losing their homes, and has all the danger signs: bought an overpriced home at the height of a market bubble, took out a variable rate mortgage, did not have full income, easy credit was available without documentation. The only saving grace in this scenario was a decent size down payment.
Within a few months of moving in, we had found a great tenant who was willing to look past the cosmetic issues of the house in favor of its inner beauty, as well as the other attributes I mentioned above. Since I had secured a stable job, it was important to us to remedy the blemishes to be sure that we would not have difficulty renting in the future. We got a couple of quotes for vinyl siding, new energy efficient windows on the 1st floor, and two new porches. The most reasonable bill was about 8% of the value of our home. We financed these capital improvements on a combination of 3 different credit cards. (I know you’re cringing now.)
Around this time, the bottom started to fall out of the over-inflated market. Since we bought this house, we have added approximately 8% to the value, while at the same time the market has plummeted. My best estimate at this point is that home’s value has fallen almost 20% from the sale price, meaning that on paper we have lost almost 30% of its value in just 3 years. This leaves us upside-down on our mortgage — meaning that we owe more on our mortgage than our home is worth (see picture above), in credit card debt, and feeding an alligator month after month.
If you haven’t already, consider subscribing so that you are among the first to know how this sad tale ends up. Do you see redemption ahead, or bankruptcy? Have you ever had to deal with a similar situation? Please share your thoughts in the Comments section below or by clicking on Comments.
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Last week ScrapperMom and I had an interview with a financial planner. I have written before about using a financial planner and really didn’t think highly of the idea. So how did we end up in this guy’s office? Let’s back up a bit:
A couple of years back we discovered a brew-your-own beer place about 45 minutes from our house called Deja Brew. You go in, pick a recipe out of a big book, assemble your ingredients, grind your barley, boil your wort, add your hops, cool things off, add your yeast, and put your soon-to-be-delicious-goodness in a storage container. The process takes about 2 hours, makes a half barrel worth (15.5 gallons), and you pay depending on the recipe (different amounts of different kinds of barleys cost more or less). Two weeks later you come back and bottle your beer. The whole process is not exactly cheaper than the local package store, but it’s a whole lot more fun.
Anyway, on the counter near the door was a fishbowl that said, “Drop in your business card, and you could win a free batch of beer.” So drop my card I did, and forgot all about it. About 6 months later, the phone rang saying that I had “won”. All I had to do to claim my beer was to assemble 6 to 10 friends to join me in brewing, and sit through a 10 minute presentation given by this financial planner. Assemble I did, and free beer did we get.
After the brewing session, the guy started calling me. Repeatedly. Caller ID came through for me and I avoided answering — for more than 2 months of approximately weekly calls. Finally, I broke down and answered the phone. At the conclusion of the call, I had agreed to meet him at his office to discuss our finances and what we would like to work on for improving them. Salesmen can be persistent, and on some level I felt like we at least owed this guy a listen after he bought us a keg’s worth of beer.
So last Tuesday night, ScrapperMom, Daughter #1, and I sat down for a little over an hour with Mr. Financial Planner. We discussed a lot of topics. He quoted a lot of statistics and figures about what people should do versus what they actually do. He introduced a couple of concepts with which I was not previously familiar. I gave him the rundown on our whole financial situation, and discussed near and long term goals. At the end of the discussion the hammer fell: He asked for $500 to be my “Chief Financial Officer” (as he described it) for the next year. He would consider our goals and put together a plan that we could accept or reject. If we rejected he would make additional suggestions. We would talk monthly by phone and quarterly in person to assess progress. At the end of the year we would have a full review to decide if we want to do it again.
I have to admit to being tempted by the pitch and the offer. It would be a relief to have at least some of our financial planning burden lifted off of our shoulders. On the other hand, I’m not really sure if I can justify $500 in either return on investment or opportunity cost. ScrapperMom and I are also engineers, and by nature we analyze EVERYTHING to the nth degree. So I’m not even sure that having a FP would even save us any time, since whatever he recommended we’d want to go out and research ourselves anyway. Ultimately the primary issue is one of trust: Do I trust a total stranger to do a better job of managing OUR money than we can do ourselves? At this point, I don’t think so.
I did learn a few things that bear further exploration. First, I learned that we should be trying to split our savings in a 30/40/30 ratio between money that can be taxed now (CDs, Money Market, other taxable investments), things that can be taxed in the future (401k, IRAs, etc.) and things that can never be taxed (Roth IRA, tax free bonds, etc.). I also learned that, according to this FP, we are doing better than 90% of the people he deals with on a first meeting in terms of having our ducks in a row. I also got another vote for slowing our paydown of low interest debts in favor of building up the 30/40/30 (which currently looks like 16/76/8) savings. This is in line with what we had planned to do anyway, just not necessarily in the ratio suggested.
At this point, I think we have pretty much decided that we will stick to doing our own planning. We’ll still use outside help in the form of books from the library and ideas bounced around on other Personal Finance Blogs and forums, as well as here at this site. I think the toughest part will be trying to get this guy to stop calling. And in case you’re wondering, YES, all of this was worth the free Chocolate Cream Stout!
If you ever end up sitting down with a financial planner, take a look at this site for some great questions to ask:
10 Questions to Ask When Choosing a Financial Planner
Do you have any experience with a financial planner? Was it a good experience or a bad one? Please share your thoughts in the Comments section below, or click here if you’re reading via email.
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ScrapperMom and I are happy to announce that we are expecting our second child in January. We feel thrilled, scared, excited, and many other emotions all at once. I wanted to bring this up in an official post on the subject since I plan to explore how this will affect our finances in some future posts. The topic will likely also slip into a number of other posts, so I wanted to be very clear about this. It’s actually been difficult not mentioning it all over the last few months. S/he will be just about two years behind big sister, and we’re not going to find out whether we’re having a boy or a girl, just like last time.
Now that we got that out of the way, I wanted to say a few words about the State of the Blog.
I started Don’t Feed the Alligators just over 6 months ago. At the end of the first week, I had 17 subscribers and now am up to 74. While I wish I had more, I am exceedingly thrilled that there are that many people out there interested in what I have to say on a semi-weekly basis. I know my mother-in-law enjoys reading because as she puts it, “I learn more about the two of you by reading what (MITBeta) writes than any other way…”
Here are some more numbers:
- ScrapperMom and I have combined to write a total of 71 articles
- We have 10 articles pending in some stage of draft
- We’ve created 34 different sorting categories
- There are nearly 500 keywords
- There have been 1,137 SPAM comments (blocked by Akismet)
In the last 30 days, the top referring domains have been (in order):
Thanks to all of my blogging peers for the traffic. Be sure to check out those sites for some great articles.
The real question in all of this, however, is, “So what?” The “So What” is you, the reader. While there would certainly be some therapeutic value in writing what we do without an audience, there’s no way we would have kept it up for so long. I recognize that I am here to provide you with information, entertainment, a new point of view, or whatever, and it is with this in mind that I once again ask the question:
How are we doing?
Are the posts too long or too short? Are the articles too in-depth or not in-depth enough? Am I glossing over too many of the basics or is the information here no different than what can be had elsewhere? How’s the frequency of posting? Are there specific topics you’d like to discuss or see addressed?
It’s easy to tell when a post is good, since it usually generates a lot of Comments, but most posts still go uncommented. I like to have the feedback, good or bad, as well as any additions or counterpoints. So let me know what kind of a job we’re doing here at Don’t Feed the Alligators, and if you really enjoy the content, don’t hesitate to share it with your friends, family, and coworkers.
This past weekend I attended a party given by friends of ours who are also subscribers and met a young woman who upon being introduced asked, “You’re the Alligators guy, right?” “Yes,” I replied. “I love reading your stuff,” she said (my emphasis added ;P). I really didn’t know what to say at the time — I’ve never been good at receiving compliments. But I know what to say now:
Thank you!
Without you and readers like you, this blog would long ago have been relegated to the cache archive at Google.
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It’s been a few weeks since I’ve had a chance to compile some of the best things I’ve read lately. The list below is pretty long, so let’s jump right into it:
I participated in the Carnival of Financial Goals earlier this month with my post on declaring a Financial Independence Day.
NCN wrote about a major motivation for keeping his financial house in order. As the parent of a young daughter myself, my perspectives on what really is important have changed a lot in the last 2 years, and I certainly can empathize. It’s great that NCN is in a position that frees him up from having to worry about anything other than family at this time. I hope Baby Girl is doing well.
The Freak-est Links points us to a website run by the Maine State government on how to calculate the value of your public library. I calculated a $260 annual value of our local library. Not bad!
Living Almost Large writes about Dreading the Envelope — you know, the one that gets passed at work when someone has a baby or something like that? This article really changed my perspective on this practice. I work in a relatively small office (~20 people). A few months back a co-worker’s house burned to the ground. He lost everything. This was the only time that the envelope has been passed in the 3 years I’ve worked in this office. I was torn on if and how much to give. On the one hand, I can’t even begin to understand how devastating a loss this must have been. But on the other hand, we’re responsible and have insurance (and so did he), so why should we need to give any money at all? In any event, this situation is a true need compared to a birthday or baby shower, and in that light I will not hesitate to give more should the occasion ever present itself again.
Glbl asks for reader input on whether money earmarked for college should be given in one lump sum or allocated over time. Many argue that young adults are still too immature to handle large sums of money responsibly (ie not blow it all in Vegas instead of using it for tuition…). My argument, however, was that most young adults are “too immature” because they haven’t had the proper training on how to handle money. So use this opportunity as a chance to educate the recipient on how to be financially responsible, budget, etc. Otherwise you’re putting the cart before the horse.
J.D. writes about how to support your favorite bloggers (cough, cough). While I don’t have any ads on Don’t Feed the Alligators at this time, most of the suggestions are still apt:
- Participate in the discussion — really, please do! You can do so anonymously, and I never share or reveal email addresses, even if I know who you are.
- Tell your friends — word of mouth, or email both work great!
- Click on ads that truly interest you — not applicable here, but works well elsewhere
- Link to stories that you like — if you’ve got your own blog or website and see a story you like, how about a linkback?
Madison writes about how to earn free money using the US Mint. While this scheme is not for everyone, it certainly piqued my interest.
A spirited discussion follow David’s post on the large percentage of American corporations that pay no federal income taxes. The biggest point that I would like to make here is that if you’re going to argue with someone and cite a fact, you have to be able to back up the fact with something other than the equivalent of saying, “It’s true, look it up!” I never took debate classes, but it seems to me that it is the arguer’s job to look it up, not the audience he is trying to convince. At the very best case, it doesn’t make for a very compelling argument.
Lastly and just for fun, J.D. links to a video made by two average guys who “compete” in a number of Olympic events and compare their results to those of Olympic caliber athletes. This really underscores how incredible Olympic athletes are. Hats off to all competitors and especially to US Gold Medal winners!
Tune in next time for a very special blognouncement!
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photo figure credit: brendaj
