Tuesday, October 9, 2007

Free mocca-latte-double shot

Ok so here is the plan...

background:

My money blog, just posted about the discover card's 0 percent for 12 months plan. Plus you get 5% cash back on certain purchases like airlines at certain times of the year. If you want more go check out:

http://www.mymoneyblog.com/archives/2007/10/discover-more-card-40-bonus-0-apr-for-12-months-limited-5-cashback.html

Do something practical with that:

say you take a 10000 balance transfer.
option 1: put it in a CD and make 500 in interest, pay taxes on it, pay fee to discover, and at the end you might have 300 bucks. Not bad and not too risky so long as you can make the monthly payment
option 2: pay off some debt, risky because this represents extra money you would not normally spend. You still have to pay the minimum payments! Just calculate how much extra money you have for the debt and then that's how much you take out with the card.

With either option, if you are smart, you will make some money.

Now that you have a reason to get the card, think Latte!

So the card gives you 5% cash back on various things at different times of the year. If you spend 1000 on a flight for work, you will get reimbursed and get a $50 cash back! What's more, you can get a $40 gift card to Starbucks by cashing in only $20 of cash back. So that's like a 10% cash back amount! Phew!

Take that David Bach! (note: do a web search for David Bach's Latte factor and then you will LOL)

So then you can drive up to a Starbucks every morning, stress free knowing that you are not burning away you retirement money with a nasty habit. Bring on the mocca-latte-double shot espresso-pumpkin spice soy chai beverages!!

8 comments:

Daniel said...

I like your plan. In fact, I am kinda already doing your plan. I have over the years built up some good credit and repor with the credit card companies that one day they sent me an offer of 0% for 6 months OR the very interesting: 3.99% fixed for the life of the loan. So, I took a "large lump sum" at 3.99% (+$75 fee) and put it all into mutual funds. I did that back in December. I am now at 17% profit. Working the system baby!

Take note though that the minimum credit card payment I am making I do with my paycheck and I don't dip into the mutual funds to pay it.

Tim said...

Dan, i see what you're doing, and you're not too exposed to risk, since the 3.99% is for the life of the loan.

however, the only difference between putting in a lump sum, then making monthly payments on the loan (let's assume $50) and putting in $50 into your brokerage account is the possibility that you put in the lump sum at the right time. unfortunately, the good timing is already handicapped by automatically subtracting 3.99%, where as the straight-up $50 monthly investing is not handicapped by anything.

one of these bolggers (very possibly My Money Blog) had a post not too long ago about how steady monthly investing almost always (nearly) beats out other methods (lump sum, dollar-cost averaging, etc.), and when it doesn't, it's still a lot less work and worry.

just another point of view at a very interesting subject - getting free money from banks. unless you get into talking about where the banks are getting the money to give to you, of course ;)

Greg said...

Tim, isn't monthly investing the same as dollar cost averaging?

Daniel said...

Dollar cost averaging (especially up) is definitely a stellar way to make money. What I am saying and trying to do though is make money off money I don't have. By dollar cost averaging up $50 a month, you need to have that money. It is difficult to borrow $50 a month at a good rate. Borrowing lump sums is easier to do. Also, I would rather make 10% off $10,000 than 10% of $100. And while it is risky that your timing could be off, you don't put it in stocks, but less volatile things like mutual funds that will provide steady income. Heck, if your feeling really conservative you could borrow at 3.99% and put it in a high yield savings of 6%. 2% profit guaranteed.

Tim said...

yes, monthly investing is the same as DCA, and yes, i have no idea of what i'm talking about. after searching for half an hour, i can't find the article that i was supposedly referencing. the only two i found were: http://www.thesimpledollar.com/2007/06/26/dollar-cost-averaging-does-it-work-in-the-real-world-how-can-i-use-it-easily-for-my-own-investments/ and http://www.mymoneyblog.com/archives/2007/09/401k-lump-sum-contribution-dollar-cost-averaging-looking-good-right-now.html

so, it seems that if the market situation favors lump sum investing, dan's move makes sense. but, if markets are better for DCA (monthly), then using the money you don't have is not really winning, since you're making monthly payments on the borrowed money - the payments that could be used to DCA.

Greg said...

Yea Tim you are right. You are converting your dollar cost averaging to a lump sum investment. Lump sums are fine, so long as you got 7 years to weather a down turn. (Oh yea I've totally got that advice from every money article on the planet, I just repeat what I see and try to sound smart, ok that's enough of a digression)

The point is this:

I just think Dan is insane for putting a credit card withdrawal in a mutual fund that could go down 20%.

Then again, I bet Dan has made like 20% so what can I say?

(also note: Tim, your links got cut off I think)

Tim said...

yeah, they did get cut off. if you guys really want them, i can try to find them again (i don't remember which machine i was on, when i posted that comment).

andrew said...

Dan's plan is risky but that’s why it may pay better. Dollar cost averaging is safer but not as fun. The assumption is you will always be able to invest the 50 per week or pay the 3.99 interest and the market will earn the 10% per year.

The key thing is both these plans require you to never miss work for an extended period of time. If you do credit card interest will build or you may miss out of investing in the lows of the dollar cost average plan.

I've heard to many 1st hand stories of the 70's and the 30's depression to think my job is sercure. And to not think of what happens to stocks in those markets. If these issues happen to late in our life then it will not matter what you have done to get your stock value.

Sleep well.