Passive Family Income » personal finance

18 Tips on Using a Credit Card Rewards Program

John S. — Fri, 20 Aug 2010 11:56:18 +0000

If you are going to open up a credit card, my suggestion is to find one that offers a cash back or rebate program. While most financial experts tell you to stay clear of these type of accounts, I believe a credit card rewards program can be used to your advantage. Anyone who is disciplined with their money should have no problem leveraging these products and using them to generate a little extra cash.

My wife and I have been taking advantage of more than one credit card rewards program for years. We typically redeem over $300 per year in gift cards and cash. Using credit with high interest rates may not be for everyone, but those who are able to follow the tips below can take advantage and start taking some of that hard earned income back.

Here are 18 tips to help you get started earning back a little cash on your expenses.

Pay Off Your Balance – The most important tip is to pay off your entire balance each month. If you cannot afford to pay off your balance, then there is absolutely no reason to have a credit card.
No Annual Fee – Try and select a credit card that has no annual fee. There is no reason to open an account where you end up paying more in annual fees to maintain your account than you rack up in savings.
Pay Online – Try to pay your bill online if possible. Paying online is quicker and you will save money on annoying postage every month.
Check Your Monthly Statements – Always check your monthly statements, whether it be online or by mail. This only takes a few minutes to do each month and could save you money. Checking your statements is another reminder of what you are spending your money on.
Track Each Expenditure on Paper – It helps to stick with your budget when you keep track of every expenditure you make on paper. At first this may seem time consuming, but will really help you stay on budget every month. Be sure to balance your monthly statement against your notes to ensure you are not being overcharged.
Automate Your Expenses – Find out which of your recurring monthly expenses can be paid by credit card. For example, you may be able to automate your monthly cell phone bill to be paid through your credit card. This helps you avoid any late payments or fees from your cell phone provider while earning more cash back on your credit card.
Maximize Your Monthly Rewards – Check with your credit card rewards program to see if it comes with monthly restrictions. If you have more than one card, try to maximize your potential earnings by splitting up expenses appropriately each month.
Avoid Frivolous Expenses – Never purchase items on your credit card that you do not need or otherwise would not have bought. Purchasing frivolous items on credit is a bad financial habit that can really hurt your finances in the long run.
Setup a Payment Reminder – If you go paperless, it may help to setup a monthly reminder to pay your bill. It is vital to avoid any late fees or extra charges. Pick a method of reminding yourself that works best for you.
Look for Bonus Rewards – Some credit cards will give you additional cash back bonus for using your card during certain dates. For example, my Discover Open Roads card offers additional rewards for choosing certain gift cards compared to receiving a cash payment.
Limit Your Number of Cards – Don’t sign up for every credit card reward program that you find. Many financial experts state that a person should have between 2 to 6 credit cards. Opening up more than 6 credit cards could have a negative impact on your credit score.
Don’t Let Your Rewards Expire – Every credit card rewards program will likely come with an expiration date to redeem your points. Be sure that you know when your points are set to expire and remember to redeem them beforehand.
Shred Convenience Checks – Be sure to shred any convenience checks sent to you in the mail by your credit card company. It is important to avoid cashing any of these checks when you get them, as you will be charged extra interest for them.
Charge as Many Expenses as Possible – Most financial experts will disagree with this tip, however I like to charge every expense that I can. Since I am tracking all of my expenditures on my credit cards, I prefer to charge everything. Just make sure you don’t get charged an extra fee at a store for not having a minimum amount (i.e. $10).
Use More Points for Higher Rewards – Depending on the amount of time you have to redeem your points, holding onto them can pay off. Some credit card programs may stagger their rewards by offering better returns for the more points that are redeemed.
Look for Specialty Cards – Several credit card rewards programs promote certain types of expenses. One of the more popular specialty type of accounts are gas credit cards. These cards typically pay a higher reward for filling up your car with gas or automobile expenses compared to say groceries.
Make Online Purchases – If you do most of your shopping online, you may be able to earn extra cash back through your credit card. Many of these programs offer higher rebates from online shopping. Just make sure that the purchases you are making fall into your budget.
Combine with Online Rewards – If are making online purchases with your rewards credit cards, look at leveraging additional rebates through 3rd party sites. Swagbucks for example has its own program that can earn additional rewards outside of your credit card.

Signing up for a credit card rewards program can be an excellent way to build your credit score while earning a little cash back at the same time. I know that I enjoy redeeming my points every year for a couple hundred extra dollars in gift cards. Just remember to keep your spending aligned with your monthly budget, no matter what form of payment you decided to make.

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How to Save 10% of Your Income

John S. — Wed, 11 Aug 2010 11:45:48 +0000

How much of your income do you save? Do you think you could start saving at least 10% of it immediately? There are plenty of extreme savers these days who are putting away 35%, 50%, and even 60% of their take home pay. These people really know how to save by living below their means. You may think that people who save half of their checks are depriving themselves of living a good life, but that isn’t necessarily the case.

As a way to build more passive income streams, I have a goal to start saving 10% more of my income over the next couple of months. My wife and I currently save about 12% of our monthly check to put into our kids 529 plans. That is currently the extent of our savings with the rest of our income going to pay the monthly bills.

Here is our plan of how to save another 10% of our income that can be put to good use earning money for us.

Set Some Goals – The first step in our goal to save an additional 10% of our income is to set some goals. I need to know how many dollars will make up the savings ($400 per month) and when we plan to accomplish this by (end of October). With these simple goals in place, we can move on to the next step of tracking each expense that we incur.
Track Your Spending – I have always had a habit of looking at our monthly credit card bills and bank statements to make sure we were living within our means. However, it wasn’t until just recently that I started to critique each expenditure down to the cent. If you don’t currently track your spending, I suggest you start. I found it an extremely powerful tool to help me cut down on our spending.
Find Simple Ways to Save Money – There are tons of simple ways to save money. From making your own coffee to turning up that thermostat in the summer, there are dollar savings around every expense in your budget. I hope to find a couple simple ways to save money starting out on our goal of holding on to another $400 per month.
Staying Motivated – Once we have started to save money from our monthly budget, it is important to keep the momentum. We need to make sure we continue to follow through on our goals and not revert back a month or two later. As long as we can keep our motivation up, I don’t think we will have much of a problem meeting these goals.

Final Thoughts

Our goal to save another 10% looks tiny compared to other families saving over 50% of their income. Once we have met this goal, then we can set another one to save another 10% or some other figure. Setting manageable goals that can be attained will allow us to stay motivated and not give up. It will also allow us to gradually change our spending habits one small step at a time, which will help us hit our long term goal of becoming financially independent.

How much of your income do you currently save?

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Residual Income – Diversify your Personal Finances

John S. — Mon, 15 Mar 2010 13:03:46 +0000

How much residual income do you bring in every month? Do you even know what it means? Many times terms like passive income, residual income, and even recurring income are used interchangeably. While it can be easy to mistake one term for the other, there are actually some big differences in their meanings.

Let’s take a closer look at the definition.

Residual Income Definition

According to Investopedia, residual income is the “… amount of income that an individual has after all personal debts, including mortgage, have been paid. This calculation is usually made on a monthly basis, after the monthly bills and debts are paid. Also, when a mortgage has been paid off in its entirety, the income that individual had been putting toward the mortgage becomes residual income.”

Residual Opportunities

There are plenty of residual opportunities that can be started if you put your mind to it. One popular example that comes to mind is earning income from a rental property. While not necessarily passive, a rental property has the potential to bring in revenue each month as long as the unit has a paying tenant.

As long as the rent payment that you charge every month to your tenant is greater than the mortgage payment, taxes, and any other charges – this can be consider residual income. The amount that is residual is the portion that is leftover once all debts are paid. This is also sometimes referred to as positive cash flow.

Residual Income Equation

The basic equation for calculating ones residual income (RI) is quite simple. It is the income generated minus the expenses required to keep it running. In the case of the rental property, there are plenty of expenses that are required to keep the income coming in. The owner must pay the monthly mortgage (unless the home is paid off), taxes, insurance, home owners association fees, and maintenance costs. Anything that is leftover is the residual which is hopefully positive.

Here is a basic equation that can be used for any type of residual earning income stream -

RI = Operating Income – Expenses

If we applied this equation to our rental property example, we may find something like this -

Operating Income

Monthly Rent – $1,750

Monthly Expenses

Mortgage – $1,250
Taxes – $333.33
HOA Dues – $55
Insurance – $50

RI = $1,750 – ($1,688.33) or $61.67

This hypothetical example above is actually based on numbers from the current home that my family lives in. Our monthly expenses run around $1,688.33 and include taxes, mortgage, HOA dues, and insurance. If we were to rent out our home for $1,750 per month to a tenant, then we would be earning $61.67 in residual income every month.

Please note the example above does not leave much room for any additional maintenance costs or repairs. If I were to rent out my home, I would need to determine if the monthly rent could support any future expenses on the home and adjust accordingly.

Passive Income Opportunities

Building residual income sounds like a wonderful idea. All you need to do now is go out and start up a bunch of smaller income sources that can begin producing monthly income. Unfortunately, what residual income does not account for is your time. If I were to rent my home, chances are I would need to spend several hours each month working to maintain my residual income.

One opportunity to reduce the amount of time and effort that you spend on these types of situations is to focus on building passive income streams instead. While there may not be any income stream that is 100% passive, there are many things you can do to reduce your time and effort while maintaining that monthly cash flow.

In the rental example we used earlier, we could hire a management company to handle all of the maintenance and other tasks each month. This would save time and effort on our part in return for a reduction in the amount of residual income that is earned. In some cases, hiring a management company or outsourcing tasks may not payoff, but it may be worth looking into if you want to build passive income streams.

Final Thoughts

Earning residual income is an important part of protecting your personal finances. No matter how passive or hands-off a revenue source can be, it is critical to diversify them. Relying solely on your job for money every month and living paycheck to paycheck is very risky. If you find yourself in this type of situation, it may be time to start thinking about ways you can begin building additional income streams that can help push you towards finding financial freedom!

What type of residual opportunities are you currently generating monthly revenue from?

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What is Financial Freedom?

John S. — Sat, 13 Feb 2010 05:06:33 +0000

What does financial freedom mean to you? Does it mean that you have enough money each month to cover your bills? Maybe it means that you have so much money saved up that you are free to spend it on whatever you want. Other people may claim that financial freedom is to become completely free of debt.

Those are all okay answers, but the real definition of financial freedom is much more. It is more a way of life than a definition and varies from person to person. Becoming financially independent is having the freedom to live your life as you wish without any worry about money. No more being tied down in that 9 to 5 job or working those extra overtime hours just to make ends meet. Financial freedom allows you to do what you want, when you want.

Here are a few key elements that are critical to becoming financially independent.

Diversified Income Streams

Do you own stocks? If you invest in the stock market, then you have heard the term diversification. Financial experts love to stress the importance of spreading your money across multiple assets. Since you listen to your financial adviser about keeping your savings and assets diversified, why wouldn’t you diversify your income as well?

An important step of becoming financially independent is to build multiple income streams from several sources. If one source dries up for whatever reason, your risks are then minimized. Without proper diversification of income streams, financial freedom will never be possible.

Automation & Outsourcing

Automating your income streams is another important part of becoming financially independent. Nobody wants to work their whole lives, so building passive income streams is critical. One way to create these sources of income that require very little of your time is through automation and outsourcing.

If you can successfully leverage technology to automate your income streams and let outsourcing handle the remaining tasks, you have created a passive model. Provided there is enough money leftover after paying for automation and outsourcing (also known as positive cash flow), then you are well on your way to finding financial freedom.

Lower Your Expenses

It doesn’t take a financial expert to tell you that to be fiscally sound, you need to have fewer expenses than your income. Financial freedom relies on this basic economic concept. If you are able to keep your expenses lower than your income, you will have a surplus of money leftover instead of debt. One of the most important building blocks to financial independence is by living debt free.

Defining Financial Freedom

When it comes down to it, financial freedom is really very simple. Build a set of diversified income streams that can be automated which bring in more income than your expenses. At the end of the day, if your portfolio of automated income streams can support your lifestyle of choice, then you have become financially independent!

How do you define financial freedom?

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Personal Finance Lessons I Learned Growing Up

John S. — Mon, 11 May 2009 11:24:19 +0000

Every once in a while I try to take a step back from my busy schedule of building passive income streams and reflect on what got me here. Several of life’s lessons I learned growing up as a child are used as a basis to manage my family’s personal finances and work towards becoming financially independent. I learned many things growing up as a child that have shaped who I am and where I want to be.

No – there were no formal lessons given to me by my parents. Instead, they taught these lessons each and every day by their actions. It was those constant reminders that helped shape my approach to personal finances and building wealth.

My parents were not financially rich by any means, nor was the rest of my immediate family. I grew up in a factory town that prided itself on working hard for a living. I had several family members who worked in these factories. I also had several family members who were and are farmers. Both occupations require hard work and dedication to being successful.

Here are a few of those life’s lessons that I picked up along the way. I use these lessons each and every day to help make personal finance decisions as well as shape my methodology for creating passive income.

Hard Work – Hard work is one of the most important lessons I learned growing up. My father worked in a factory his whole life and dedicated himself to working hard for his living. While I don’t have the same obstacles in my way as he did, I still try to work hard at everything I do. Whether it be my job, raising my children, or building passive income – hard work is important. I don’t subscribe to any get rich quick schemes and believe hard work is the path to financial independence.
Creativity – Growing up, my father was the sole income earner for our household, just as I am for my family today. While times may have been tough financially for my parents, I never really knew it. Living off of one income required my parents to be creative with their finances. That lesson has stuck with me for many years and is practiced in our household today. There is always a way to make ends meet and grow your income – you just need to be creative at times in order to succeed.
Innovation – Becoming innovative to change is an important part of building a business or growing your personal finances. You must be ready for new trends and technologies in order to take advantage of new opportunities and succeed. The world we live in is ever changing and requires innovation to be successful. I learned this important lesson from my grandparents who were farmers their whole life. As traditional crops they were use to growing became less and less profitable, they had the innovative skills to recognize this change and adapt. All of the best companies in the world are good at innovation.
Organization – Having an organized life is critical to being efficient with your time. One of the quickest ways for people to lose money is to be disorganized. Forgetting to pay bills on time, losing track of personal spending, and overpaying for items are all examples of what can happen when you are disorganized. Growing up, my mother kept the family’s personal finances in check. She is one of the most organized people I know. Keeping track of the small details can save you money and help guide the way to becoming financially independent.
Living Within Your Means – One of the best tools I ever picked up. Too many people do not live within their means. That fact has helped push us into a deep recession among other factors. I learned early on in life to only buy what you could afford with that hard earned money.

My parents and other family members did not give me any formal training or lessons on personal finances. Instead, they instilled these values upon me by constantly practicing them. Are these values going to make you rich? Not by themselves they won’t. However, using these lessons as well as others in combination can help to shape your personal finances. They can be used as a foundation to building your wealth and being successful.

What personal finance lessons did you learn growing up?

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