14 Car Buying Lessons to Help You Get a Good Deal & Avoid Regret

Buying a car can be an exhausting process and you have many opportunities to slip up and pay for things that you don’t really need.  Each time my wife and I buy a car, we get better at the process and get more for our money. We just spent the last month and a half buying a Honda Odyssey minivan, here are 14 lessons I learned or was reminded of and want to share with you.

1) Research the cars you want before going to the dealership. 

When you walk in the front door, you’ll be approached by several car salesmen, and they’ll all have a long list of questions for you about what kind of car you want, what kind of features you want, and how much you’re looking to pay. 

It’s good to know that information ahead of time before you go into the dealership, so get online and research.  A good place to start is the automakers website.  IN our case we started at Honda.com and researched the minivan and all the different trim levels offered, the different price points, the different features that it offers.  We decided ahead of time which features were important to us and which ones we didn’t need. 

2) Never buy on the first visit. 

Typically the car salesperson will want to try and sell you a car before you leave the store.  You don’t want to rush into a decision. You need time to process all the information you gather, analyze it, and make the best decision based upon your needs.

Leaving without buying is easier said than done because the sales people can be very persistent and persuasive. To help make it easier to slide out it’s a good idea to have a reason to leave the dealership.  For example, one Saturday we had a kid’s birthday party to get to.  One evening we test drove a car without the kids and had to get back to pick them up from the baby-sitter.

Of course you don’t have to give them a reason.  You could just say, “No, I’m not interested right now,” and leave but it’s much easier to tell them ahead of time, “I have to leave by a certain time to go to this event”.  Like I said, the reason you don’t want to buy on the first visit is because chances are you’ll be rushed into something that you’re not comfortable with.

3) Visit multiple dealers. 

One big reason to visit multiple dealers is that then you can also do cost comparison, and if things go well, you can have the dealers bidding against each other for your business.

Another good reason is they may have different inventory.  So you get a chance to see a different mix of trim levels, mileage, and quality.  The more places you visit, the more options you have as far as what kind of car you might buy. 

You’ll also run into different styles of sales people at each store.  If you don’t get a good vibe from one salesperson

4) Research online. 

Once the sales person knows what car you’re interested in and what features you want they’ll typically make you some type of an offer before you leave.  It’s essential that you do additional research based on the information and offer that you take away from the dealer. 

Sites like Truecar.com show you how a make, model, and year of a car is selling for the last six months based on your zip code. They list the dealer cost of the car, the factory invoice price, and what other people have recently paid.  TrueCar also shows you any fees and any kind of incentive pullback the dealer has – basically a lot of information for bargaining.

5) Play hard to get. 

We did this rather unintentionally.  After our first visits to the dealers we were actually out of town for a while and we had a lot going on when we got back.  During this time they had called a few times to follow up and eventually we ended up going back into the dealer.  We didn’t buy on our second visits either; just had any questions answered that had come up in our research and test drove a car.

The sales people knew we were interested and continued to follow up but we were missing their calls and obviously not making any decisions.  So finally one Saturday morning one guy called and said, “What price do you need to buy this car today?” 

Of course that’s kind of a standard line, but it usually happens when you’re in the dealership, on their home court.  At this point we had done an enormous amount of research, seen all our options, knew exactly how much we could afford to pay, what we were willing to offer, and what we could bargain down to.  So, we gave them a number and ended the conversation.  He called us back a few minutes later on with a counteroffer and I agreed with the contingency we could take the car and test drive it for the weekend.

6) Always counter the counter-offer. 

Looking back on that Saturday morning, I probably could have gotten him to drop his price another $200 to $400.  Based on all the numbers I found in research I think if I would have countered his counteroffer he would have come down a little more.  We still got a really good deal but of course every dollar counts.

7) Drive the car for a few days.

According to the receptionist they don’t usually let people test drive the car for a few days but I would insist.  Driving it around as part of your daily, or weekend, routine gives you a good feel for if the car will really meet your needs. 

8 ) Don’t pay the administrative fee. 

According to several people in the industry I talked to in the process of our research the commonly charged administrative fee of $200 – 300 is something you should be able to get waived. We had it removed as part of our deal so definitely include that in your negotiations.

9) Negotiate upgrades. 

Once you agree on the price of the car and have filled out all the paperwork they’ll take you to a little room and try and sell you lots of upgrades to your car.  If you’re interested in any of these try and get them added during your price negotiations. 

For example, we wanted leather seats because we have little kids and they clean up easier than cloth. Unfortunately, the EX-L trim level that had leather was at least $3000 more than the car we trying to buy and the after market heated leather seats ran about $2000. 

We didn’t want to pay that much so during our negotiations we also bargained for an upgrade to leather seats.

10) Take your numbers with you. 

During this whole research process I built a spreadsheet that calculated the various price points, the amount of cash we had, the sales tax, how much we’d have to finance, and what the monthly payments would be.

Unfortunately I didn’t take the spreadsheet with me when we went to buy the car so I couldn’t remember exactly what the numbers were and we ended up borrowing $500 more than we needed to.

That’s not a huge deal, we’ll just make our first payment for an extra $500 but it’s smart to have your figures written down when you go to buy so you don’t run into any surprises.

11) Shop around for interest rates before closing. 

I was under the impression that we were going to get the new car financing, 1% for 36 months, so I didn’t even shop around for rates before we went in.

The story on the car we bought is that a guy bought it, took it home, but traded it in a week later because his wife didn’t like it.  So even though the van only had 600 miles the day we bought it, our Odyssey was considered a used car (which is part of the reason we got a good deal) so didn’t qualify for new car financing.

Fortunately we both have good credit so they were able to give us a 3% interest rate.  However, I had run all my numbers at 1% and if they’d have quoted me anything over 3% I was going to walk away.  In hindsight, I should have researched outside loans before going in for the sale.

12)  Don’t buy the extended warranty. 

At the end of the car buying process they’ll try to sell you a variety of extended warranty plans.  They only talk in terms of monthly payments, not how much the warranty will cost, and they’ll press really hard to get you to buy.

One reason it’s not a good idea to buy the extended warranty is you probably didn’t plan on spending the money.  When you budgeted out how much you would buy a car for you, if you didn’t add in the cost of an extended warranty than you might not be able to afford it.  The finance manager will talk about it in terms of your monthly payment amount but when you look at the total cost of the warranty it’s a big chunk of money.

One thing the finance manager said to us was how Honda spends millions of dollars a year paying out claims on extended warranties.  What he didn’t say was how many more millions they earn from it in income.  I don’t know what the markup is on extended warranties but I do know from talking to people in the industry that they’re highly profitable for dealerships.

Rather than spend the money on an expensive extended warranty, I’d rather put away a little money every month on my own and have a fund built up for when the warranty expires. That way, if something goes wrong I have the money to cover it. If nothing major goes wrong I can use that money towards my next car someday.

Of course this could depend on the quality of the car you’re buying. One of the things my wife pointed out to the finance manager is that we’re buying a Honda because we trust in their commitment to high quality cars. We could spend less and buy a brand that doesn’t have a history of being as durable and long lasting. But we chose to spend more on a Honda so we’re comfortable not getting an extended warranty.

We also had something else going for us in terms of the warranty. Since it was considered a used car, even though it only had 600 miles, it was a "Honda Certified Used Car". This means it also comes with a 100,000 mile power train warranty on top of the 3 year, 36K mile bumper to bumper warranty. So we said "No thanks" to the extended warranty.

Actually, we said no thank you about 8-9 times because he kept trying to convince us to buy different versions of the warranty. Finally, he offered it to us at half price and after saying no for about the 10th time he realized we weren’t going to buy no matter how hard he pushed.

13)  Make sure you read all the paperwork. 

As we went through the paperwork, they tried to rush me through the forms. I kept asking questions about each form and they kept waving them aside saying "everything’s fine, everything’s good, just sign it". 

They handed me one form that talked about our warranty, and it had two checkboxes that worried me.  The first one said Full Warranty, but it was unchecked. The second one, "Limited Warranty", was checked and had a bunch of fine print following it.

I asked him to explain the Limited Warranty option and he said it was no big deal and to just sign it. We went back and forth about it but wouldn’t explain why the Limited Option was on there and why it was checked. Finally he gave up and changed it to say Full Warranty. 

If I would have rushed through the forms and signed them without reading them like he wanted me to, I might have ended up with a limited warranty as opposed to the full warranty.

14)  Don’t be afraid to walk away. 

As I mentioned earlier, this was a long process for us and as we got close to the end we were ready to finally have it over with. Once you’ve invested a lot of time and emotion into a purchase it can be hard to let it go.

However, if the things that were promised to you change, the best thing to do (if they refuse to give you what was promised) is to simply walk away. Regardless of how long you spent there and how far into the process you are, it will end better for you if you leave. It doesn’t mean you can’t come back and negotiate again another time but don’t make concessions in the heat of the moment.

If you’re not getting what you were promised and what you know you can afford, then it’s best to walk out of the dealer.

So those are my 14 lessons. What have you learned during the car buying process; please share in the comments below. I know I didn’t hit them all, what things am I leaving out?

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High Deductible Health Plans Here to Stay?

Open enrollment is here again and we had to make a decision about using a high deductible health plan (HDHP) before last Friday’s deadline.  Last year was the first time that we used a HDHP with a health savings account but this year we were considering switching back to a traditional insurance plan since we’re anticipating some big health care costs in 2012.

Unfortunately the costs of healthcare keep going up so my employer keeps raising the premiums, the lower the deductible of the plan the bigger the cost hikes.  This table shows the annual rate increase of each plan and also the plan’s deductible.

The plan with the lowest deductible has by far the highest premiums and the highest increases each year.  From 2011 to 2012 the cost of the premiums for the low deductible plan went up 22 times that of the increase of the high deductible plan – ouch.

Here are the monthly costs of each plan to my employer, you can see that they have to pay more for the low deductible plans and pass that cost onto us.  Their costs go up every year so that means our health insurance costs go up as well. 

High Deductibles Here to Stay?

When I first started a few years ago we were about to have a baby so I chose the plan with the lowest deductible. I knew we were going to be spending a lot of money and the premiums for the low deductible plan were much more reasonable back then.  I put all the numbers in a spreadsheet and it made the most sense to choose the low deductible plan.

Fast forward to 2012 (when we anticipate another big year of expenses) and after running the numbers, it makes no financial sense at all to use any plan other than the HDHP.  Based on what I saw in my comparison, it seems like the HDHP may always be the best plan in the future.  Here’s how I came to that conclusion:

Comparing Health Insurance Plans

How I determined the best insurance plan for us was by comparing both the lowest potential cost and the highest potential cost.  The lowest potential cost would be if we paid just the premiums and never used the insurance once during the year – the HDHP was the lowest by far.

Then I estimated the highest potential cost by adding the amount of the deductible to the annual premiums. (This isn’t a totally accurate estimate of costs because once we reach the deductible, they pay 90% of the cost and we’re responsible for the remaining 10%.  However, that’s the same for each plan so for comparison’s sake it doesn’t make enough difference in our case).  The annual premiums of the HDHP are low enough that even after adding them to the deductible of $2400 it still turned out to have the smallest of the highest potential cost.

Health Savings Account Balances

Since we opted for the high deductible health plan, it means that we qualify for a health savings account (HSA).  Ours has been great so far but a word of warning to anyone considering a HSA. If you have a big medical expense before you’ve deposited enough in your health savings account, you have to find the money to pay for it from somewhere else.

This is different than how things work with a flexible spending account (FSA).  In an FSA, you have access to the full amount of the funds that you committed to deposit over the course of the year, even on January 1^st.  Since this isn’t that case with an HSA, you want to make sure you have some extra cash lined up the first year you open it to cover costs that might come up before you’ve built up funds in your account.

For example, if your deductible is $2400 that means that ideally you’d have that much money available on January 1^st to cover any expenses that came up. Fortunately for us, this is our second year and last year I actually contributed the maximum amount possible into our HSA this year, $6150.

We did have some expenses to pay out but we still have a large chunk of that money sitting in the account.  So we’re covered pretty well because our deductible is $2400 and we have about double that in our health savings account. 

Preparing for a HSA

Not all employers offer high deductible health plans and health savings account, but with health care costs continually rising, I imagine someday most people will have that as a choice.  At some point it will be probably prohibitively expensive to use health insurance plan with low deductibles because the premiums will be too outrageous. 

One thing you could do in anticipation of having access to an HSA would be to start saving some money on the side so you’ll have it around that first year when you have no balance in your HSA to cover expenses.

One of the benefits of a health savings account is that the money you contribute is pre-tax, so every dollar you put into that account reduces your taxable income.  You wouldn’t see that tax benefit from any money you start saving now outside of an HSA but it woud provide you a cushion during that first year of having high deductibles.

HSA Costs

Something else to consider are are the costs of the HSA.  Every month this year our health savings account charged us a $3 fee, which seems pretty steep to me to pay just to have an account.  Often once you reach a certain minimum balance, in our case $5000, that fee is waived. 

Starting next year, our employer is covering the cost of that fee. So if your company offers an HSA option or is going to, talk to your employer’s human resource department about having it covered.

So, based on what I’ve experienced, high deductible health plans are here to stay.  If you don’t have one already, and are anticipating using a HDHP and an HSA in the future, keep in mind the HSA costs and that you have to cover that cash gap after first opening the HSA.

What’s your experience been with a HDHP and a HSA? Does your company offer them as options? Do you wish they would?

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7 Extra Ways to Earn Money at Work

Most of us earn our money from the paycheck we get every few weeks but there are other ways you can get your employer to pay you.  I recently missed a chance to cash in on one of these extra ways to earn money at work; I’m going over them here so you don’t miss out like I did.

1) Employ Referral Bonuses
As I mentioned above, I missed out on a ton of money by ignoring this bonus opportunity. I have a friend who interviewed with the same company I work for and ended up getting the job.  I had talked with her only a week before about her current job and her career plans going forward, foolishly I didn’t think to refer her to my company (I’ve even written about how to refer a friend for a job).

The reason employee referral programs exist is that the cost of finding good people is pretty high.  It’s worth it to many companies to pay a fee to tap into their employees professional network.

Here’s how the employee referral bonus works at my company.  They pay you a $2500 bonus for any full-time employee you refer that stays with the company longer than six months.  However, you want to make sure you research the appropriate process for referring someone so that you can get credit for the referral. 

In my case, if a candidate applies on their own, even if they mention your name, you don’t get credit.  In order to earn the referral bonus I have to submit their resume through a special page, which then gets forwarded on to Human Resources. 

So if you have people in your network that are skilled and talented and might fit the needs of your company, you should check to see if they offer a referral program. 

2) Performance Bonuses
Performance bonuses can be tricky to earn depending on how your company handles them.  In some cases there are well defined milestones that will earn you a bonus.  In other jobs bonuses can more arbitrary, something you get when your boss decides you’ve been putting in a lot of work or really contributed to a project.

If the criteria for a performance bonus aren’t well defined, I’d be reluctant to work your fingers to the bone in hopes of getting a bonus.  However, if you can be pretty certain that putting in extra work will translate to a bonus above and beyond your salary then it can be a good way to make extra money.

3) Idea Bonuses
Some companies have employee idea programs that are designed to give you an incentive to share your best ideas.  If you’re in the middle of a project and have a revelation that could help the company (save money, be more efficient, help enter new markets, break organizational boundaries, etc) be sure to document it and send it in.

Companies with these idea bonus programs typically have a process where you can submit your ideas.  If yours are approved and implemented then you’re paid a bonus.

4) Achievement Bonuses
All the businesses I’ve worked for have a way of honoring high levels of achievement (that include a monetary reward).  Usually held once or twice a year, they open up for submissions of projects from around the company.  The top projects are be nominated for the award and the winner of the award gets a cash prize.

If you have a project you feel is worthy, don’t be afraid to submit it yourself.  If this feels too bold you might be able to submit it anonymously or talk a co-worker into submitting it in their name.

5) Training & Conferences
Every year when it’s time to make the budget my boss comes around and asks if there are any conferences or training I’d like to attend. It’s true that these benefits are different than money in your pocket bonuses but these events could someday translate into more cash. 

The skills that you learn in training can help you get a promotion at your current job or get hired for a new job.  The connections you make at conferences could someday lead to partnerships or job referrals.  Plus they give you a day or more of paid time away from the office, which is always nice.

6) Travel Rewards
Whether you’re flying to a training conference or a client meeting, employer funded travel is an opportunity for you to earn travel rewards. 

Ideally you pay for the plane tickets and hotel rooms on your own and get reimbursed after your trip.  This lets you earn miles on your airline credit cards, free nights on your hotel card, or even just a percentage back on your cash back card.

There are some companies that book your trip for you or require use of a corporate card when you pay.  Although you miss out on the points, miles, or cash back from the purchase – you can still earn some rewards simply by taking the flight or staying the night.

7) Tuition Reimbursement
I list tuition reimbursement separately from training and conferences because in some companies the funding (and approval) comes from different sources.

The requirements for having tuition approved and reimbursed can also be different for college courses.  For example, many companies require you to earn a minimum grade in a course before they’ll agree to pay for it.  In contrast, once funding has been approved for a conference or training, sometimes all you have to do is show up since it’s already been paid for.

Be sure you pay attention to the requirements surrounding tuition reimbursement at your company.  A former co-worker of mine didn’t read the details before registering for a course and ended up having to pay the full tuition himself.  Taking one or two courses may not make that much of a difference but if you can have a whole degree paid for by your employer that will certainly boost the value of your resume.

So, what did I miss.  Is there anything else you do in your job that helps you earn money other than your base salary?

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What Do You Think Of Occupy Wall Street?

I was in Minneapolis last weekend and as I walked back to my hotel I ran across a group of people who were carrying on the cause of Occupy Wall Street and had setup Occupy Minneapolis.

It was already pretty cold and windy and it’s just the beginning of November so my first thought was that they had a long winter ahead of them.  Yet, despite the cold they were out there handing out fliers and talking to anyone that would listen.

Of course I’m curious about anything that has to do with money or the economy so I spent some time talking with a variety of people who were hanging around the square.  It was certainly a mix of demographics and backgrounds and everyone had their own unique beef with big business and Wall Street.

Not all of their arguements made sense to me, it seemed like some people were trying to make connections where there didn’t seem to be any.  They would explain their plight and describe how big business had put them there and it didn’t always seems to make sense.  On the other hand, there were people with perfectly legitimate concerns who had specific examples of how they’d been impacted.

One thing everyone had in common was that they were upset with the direction our economy and society are heading and they were very excited to have “a voice” where they could express their concerns.

Something I found interesting was that everyone was very willing to tell me their story and their thoughts, but when I asked if I could video them with my Flip cam they all declined.  Many of them had jobs or other interests that could potentially be harmed if their interview suddenly appeared on YouTube and was seen by the wrong people.

Overall it was a very interesting experience and I’m curious to hear what you think of Occupy Wall Street and all the related movements.

I was also able to catch up on some reading while I was traveling, here are some recent articles I read that you might want to check out:

• Obama’s New Student Loan Relief Plan @ Generation X Finance
• Determining Your Retirement Expenses @ Lazy Man & Money
• Save on Monthly Bills @ Suns Financial Diary
• Using A Personal Cash Flow Statement To Track Finances @ The Digerati Life
• 7 Financial Consequences When You Say “I Do” @ My Dollar Plan
• The Thorny Issue of Combining Finances @ Frugal Dad
• Kids asking you questions about money @ Mighty Bargain Hunter
• Why Your Bank Loves Auto-Pay @ Free Money Finance
• How to Keep a Steady Paycheck while Starting a Business @ Out of Your Rut
• The Cost of Commuting @ Brip Blap
• How Leveraged ETFs Work @ Million Dollar Journey
• Dogs of The Dow Performance Worse Than Index Fund @ My Money Blog

Let me know in the comments below what you think of Occupy Wall Street.

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How is an Online School Better Than a Traditional University?

I’v written about online degree programs in the past and gotten feedback from both sides about how an online school compares to a traditional college or university. A while back Rishona shared why she preferred going to school online and just last week I met another guy who had a good experience taking classes online. He went back to school to help his career, here is what he had to say.

There are several different areas you can study in order to become a better job candidate and even get further along in your current position. If you are working at a job and are worried about your future employment, continuing your education can relieve your worries and give you the confidence needed to succeed.

No longer do you have to rely on the old university and community college system in order to launch your career and earning potential to new heights. By taking classes online, you are given security, safety, and convenience that is unrivaled by the traditional college system. Here are the five reasons why taking classes online is trumping the traditional university method of education:

Increased Job Skills
In this turbulent economy, there will always be unemployed people who could rise up and take your current job very easily. Instead of clenching onto the cliff of your position with a tight grip, you can pull yourself back onto the ledge and gain a view of the scenery.

Obtaining an online degree in English will give you the skills necessary to write compelling newsletters and internal memos for your company. If you receive an online accounting degree, you can continue your current position while helping to adjust the books. Even a general business degree will give you the skills to help your business market and budget itself more efficiently.

More Employer Desire
If you want to break into a management position at any company, there is a good chance that your employer will want you to have a degree in order for promotional consideration. Instead of getting left behind, you can further your career by simply getting a degree in the field required by your job. Some companies are even willing to fit the bill for your advanced education.

Advanced Degrees
Attending classes online doesn’t limit your options for getting the degree you want. Many people think they are limited to basic business and humanities classes because of the structure that surrounds online learning. A lot of people are intimidated by professors at universities who impose their will on students and criticize them if they do not agree with their views.

With video conferencing from services like Skype, interactive social media forums, and blazing fast broadband Internet connections, it is possible to receive a doctorate degree, MBA, or even a JD degree all in the comfort of your own home.

Work, School, and Life Balance
One of the most difficult parts about returning to school is the time it takes out of your schedule. Most classes are held during the day at universities and community colleges. In order to receive the credits you need to earn a degree, you will probably have to excuse yourself from work, commute to campus, attend a boring lecture, and then commute back to the office. This takes up valuable work time and can make you look weak in the eyes of your employer.

Easily Transferable Credits
If you are looking to get the full university experience, but cannot afford it due to time or money constraints, then online college is the perfect place to get your start. Some people might find the task of transferring credits between online and physical colleges demanding. The state of California has recently created a program that allows people to find out if their credits are transferable, sorts through the jargon of online learning, and gives online school a new sense of legitimacy with the public.

Deciding to go to school is a serious financial decision, but the benefits almost always outweigh the costs and initial hardships. Make sure to conduct research into which online school you want to attend and do not do it unless you are 100 percent committed to your education.

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The Costs of Procrastinating on Purchases

Thanks to Raechel Conover for today’s guest post on the costs of procrastinating on purchases. This post actually kicks off a series of articles on the costs of procrastination, so if you tend to put things off, stay tuned for more ways its costing you money and how to beat procrastination.

Do you find yourself constantly putting things off until the last minute — work projects, household chores, travel plans, holiday shopping? While everyone procrastinates occasionally, Psychology Today notes that 20 percent of people are true procrastinators stuck in a repetitive cycle.

If you’re one of them, you know the stress, guilt, and anxiety that typically accompany procrastination. But did you know that procrastinating could actually cost you real cash?

It’s hard to quantify exact amounts, but it’s safe to say that waiting to buy something until the last minute usually has its price. You may miss the low-price window (think airline tickets, coupons with a “use-by” date) or make a rushed decision that imposes unanticipated long-term costs. Here are some common scenarios and tips to help keep you from procrastinating.

The Product
Let’s say your refrigerator has been showing signs of distress for several weeks and you figure it’s time to replace it. But you put off looking into a new unit until, one day, you find a lifeless fridge full of rotten food. You run out to the nearest appliance store and pick a model without really knowing what you’re buying.

You may end up with a replacement that lacks the technical specs you desire (e.g., dimensions, capacity, storage features) and has garnered weak expert and consumer reviews. Doing some research before the old refrigerator died would have given you the information you needed to choose the best model for the price you could afford. 

The Price You Pay
It should come as no surprise that the cost of procrastination is higher on big-ticket items. Say your spouse wants a tablet for Christmas. You can either wait until Christmas Eve to run out and buy whatever tablet is left on the shelves — without the benefit of a coupon or deal that’s expired — or you can start researching now to find tablets with all the desired features and then check for tablet deals.

Staples ran a coupon in July for $100 off any tablet in stock; for a tablet that cost $250, that was a 40 percent discount. In August, HP slashed the price of the now-defunct 16GB TouchPad to a mere $99 from $499; the 32GB model dropped to $149 from $599.

With the holidays coming up, new deals are sure to appear. But before you leap, look at other stores’ prices to be sure you’re getting the best possible deal on the tablet you want. If you check prices for big-ticket items in least 3 other stores then you’ll have a pretty good idea of the going price range and how good a deal you’ve actually found.

The Long-Term Effects
Shopping procrastination can have long-term effects on your wallet. Perhaps you wait until the last minute to book travel for an all-inclusive vacation. The final cost is more than you expected because you didn’t find the time to shop around for the best deal, so you decline travel insurance. Right before your departure date, a hurricane hits your destination. Instead of being rerouted to another tropical location or receiving a refund, you’re out of a vacation and a big chunk of change.

To use another example, an Energy Star-qualified appliance uses far less energy than one without an Energy Star label. Making a rushed decision on a large appliance might mean picking a model that hasn’t earned the Energy Star, which in turn could lead to higher utility bills for years to come. With an Energy Star-qualified refrigerator, for instance, the U.S. Environmental Protection Agency estimates you could save anywhere from $165 in energy costs over the lifetime of the fridge to more than $200 a year, depending on the age of the unit being replaced and utility prices in your area.

Beating Procrastination
Even if you’re a true procrastinator, it’s possible to break the habit. The key lies in knowing what causes it. According to the University of Cambridge, people procrastinate for a variety of reasons, including anxiety about the task at hand and feeling overwhelmed by whatever needs doing.

If the number of choices, or the price, or the possibility of making the wrong purchasing decision has you dragging your feet, set a clear goal and break down the task into manageable chunks.

For a big-ticket purchase, that might mean making a list of the features you want and searching online for several models that meet your needs. Read some product reviews and make another list of pros and cons for each model. By the end of this process, the choice should be obvious. Now you can start comparing deals to land the lowest price possible on the model you want.

Raechel Conover writes for Cheapism.com, a review site that serves consumers on a budget who want the best value for their money. Cheapism’s carefully researched buying guides focus exclusively on low-price products.

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Travel Rewards Loyalty vs. Travel Deal Hunting

Travel rewards can help you earn free flights or a free night’s stay but what if you’re missing out on travel deals when you buy your plane ticket through your regular airline? 

Does it make sense to have an undying loyalty to a specific airline, hotel, or travel rewards program? Or is it more beneficial to hunt for the best deal or package on a per trip basis? There are arguments for both sides below. Which one makes the most sense for you?

Travel Rewards Loyalty

For those that are on the road a lot for business or pleasure, travel loyalty programs can really pay off. You can earn free nights and flights just by joining a preferred customer program, staying in the same hotel brands, and flying on the same airlines. For example, the Starwood Preferred and Marriott rewards programs are setup to really reward their most frequent visitors.  If you fly a lot for business both Delta and Southwest offer some of the best frequent flyer programs.

But free nights and flights are just the tip of the iceberg in terms of benefits for using these programs. If your favorite hotel brand or airline teams up with a credit card company to offer a rewards card that gives you points specifically for their brand, you can really rack up a lot of extras.

Many travel rewards credit cards offer a hefty bonus with your first purchase and then a second bonus if you spend a certain amount on the card within a few months of opening the credit card. You will be able to ramp up the number of points you have through your normal, everyday spending on top of the travel points you earn. As your points balance goes up many programs will give you elite or preferred status with their brands. This can give you VIP access, early check-ins, and other perks as you travel.

Travel Deal Hunting

If you rarely travel, then rewards programs are not nearly as beneficial. It can take many years of staying one or two nights at a hotel chain and using your hotel card to earn enough points for a free stay or upgrade. Airline programs are even harder to crack with many free flights starting at 25,000 miles. You might need to charge 8 round-trip flights to your airline card earn a free ticket.

Plus, sometimes programs change or are discontinued and those built up reward points can be wiped out. Instead of trying to remember what your login is for a random travel program, your time is better served just looking for the best travel deal when you need one.

The benefit of not sticking with a certain hotel or airline is that you can just choose the one that’s offering the lowest price when you happen to travel.  A quick search on a site like Kayak, sorted by the lowest price, will show who has the lowest fares.

One good way to save money when hunting for a travel deal is to bundle as many aspects of your trip together as possible. You may not get the absolute best deal than if you spent hours combing for the best deal, but there is easy money to be saved by simply packaging your flight, hotel, and car rental together.

If your travel dates are flexible or you are willing to risk part of your trip, you can use last minute deals to save significant amounts of cash. Hotels in particular do not want to be left holding open rooms when they could get some revenue for an empty room. This strategy does not work as well with flights simply because most last minute flights have very high fares.

Travel Some, Spend a Lot?

The gray area in between the two ends of the spectrum is the person who travels some during the year, but also spends a lot on credit cards. Depending on how much you travel and exactly where you are spending money, a customer rewards program tied with a travel rewards credit card for that program could generate enough points to be worthwhile.

Otherwise you can be better served by utilizing a cash back credit card. That cash can be used for anything you need it to — that might mean for your upcoming travel or simply to put toward another money goal if you don’t have travel plans coming up.

Final Thoughts

Regardless of which direction you decide to take your travel planning, make sure you read the fine print on the preferred customer programs and reward cards. Beware of annual fees that can dig into any meaningful reward you receive. There’s no sense in getting one free night if you pay the equivalent cost in annual fees every year.

What have you found to be the best fit for you, sticking with travel rewards programs or just searching for the best deals when you travel?

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Betterment Interview

Betterment is a unique investing company that I had a chance sit down and chat with for an hour when I was in Chicago at FINCON.  I was familiar with the company, we’d already researched their service and written up a Betterment review, but it was nice to be able to sit down and pick their brain about how people are using their product.

The Reason for Betterment

It was interesting to hear Jon Stein’s story (the CEO & co-founder) about how he used to consult for big financial institutions and saw first hand how their accounts and products were designed solely with the interest of the bank or brokerage in mind – not the customer.  His experiences were what led him to help create Betterment; to offer everyday investors a simple & relatively low-cost option for regularly investing their money.

Something else I got out of our talk was a feel for all the behind the scenes work that Betterment does for investors in terms of asset allocation, investing efficiency, and portfolio rebalancing. 

Investing & Trust

One of their challenges so far has been earning the trust of new customers. I didn’t have any great suggestions for them in that area other than to highlight all the information they have on their site about how the investment baskets are setup – who chooses the investments and what method they use to analyze and select the ETFs.

Something that Jon did share was that once people decide to try out Betterment, the percentage of investors that keep using the service is pretty high – a decent indicator that people using Betterment are happy with what it’s providing them.

Prior to our meeting at the conference, Jon had answered the two questions I’ve been asking others about financial bullies.  Here are his answers.

Describe a time that a person or company tried to take advantage of you financially and what you did to stop them.

A topic that has been top of mind for me since founding Betterment is the fact that financial institutions have long been taking advantage of regular consumers. 

Modern Portfolio Theory tells us that everyone should be invested in the same portfolio – the market portfolio. Yet, if you look around, there are so many trading sites and so much emphasis on beating the market and creating the right portfolio for an individual. I realized through my training in psychology and behavioral economics that all these alternatives exist because we humans are predictably irrational – we tend to think we’re better than average, on average. We see patterns where they don’t exist. We remember our winners and forget our losers (even though the losers pain us more). We intuitively think that we can outperform.

The whole brokerage and investment industry has grown to serve these irrational behaviors – and as a result it doesn’t serve our best interests very well. What makes trading fun and addictive is exactly what makes it harmful to our wealth – that it’s driven by irrational impulses.

I founded Betterment to steer people away from being taken advantage of in this regard. I knew a better investment company would start with the assumption that what people really want, when we consider things rationally, is the best return (factoring in costs) for the least risk. It should help people avoid the temptations of alternative strategies and bad ideas.

Describe a time you were bullied into a financial decision (by a person or a company).  How did it end up impacting you and if you could go back in time how would you handle it differently?

When I graduated from Harvard, I went out and started investing on my own. The first thing I did was to invest in Enron, a company whose growth seemed remarkable, but which had just hit a road bump, and its share price had fallen. I thought I was getting a great deal – buying something at half price!

Of course, the stock soon fell to zero, and I lost that first investment.

It taught me an important lesson – I’m no smarter than thousands of others looking at the market, and I don’t have better information. And I had forgotten the cardinal lesson of Modern Portfolio Theory – that there’s no better portfolio to own than the market portfolio.

If I could go back in time, I would make sure to remember those important financial lessons I learned in school. I would realize that individual investors often underperform the funds in which they invest. And I would in no way try to “beat the market.”

Betterment Bonus

Thanks to Jon, Brittany, and Johanna  for sitting down with me in Chicago and answering all my questions.   They are offering a bonus to new customers who want to try out Betterment.  There are no account minimums for the service but if you open an new account and deposit at least $250 to try it out, they’ll give you $25 – Click here for the bonus.

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Interview Series – Budgeting In The Fun Stuff

I met Crystal, the woman behind Budgeting In The Fun Stuff, a few weeks ago in Chicago. She definitely has some fun stuff up her sleeve : )

We spent an hour or two chatting with a few other personal finance bloggers and learned about some of Crystal’s adventures in money making. The most interesting one was her story about how she sold her hair to the highest bidder on eBay! I’ll let her share all the detail on her site some day but it’s definitely an interesting story.

Before the conference I had asked Crystal to share her experiences dealing with financial bullies, here are her answers.

1) Describe a time that a person or company tried to take advantage of you financially and what you did to stop them.

Comcast could never get our bill right.  Every month, they “forgot” about a discount and every month I spent an hour or two making sure we only paid what we agreed to.  As soon as AT&T U-Verse became available in our area, I called and dropped Comcast like a hot potato and made sure to let the customer service department know the exact reasons.  I wrote an email to them as well.

2) Describe a time you were bullied into a financial decision (by a person or a company).  How did it end up impacting you and if you could go back in time how would you handle it differently?

We used to have our taxes done every March by a professional CPA.  For the 3 years we worked with her, she was never upfront about her rates and would just spring the bill on us at the end when we’d be signing off on our return. 

I was young and stupid and just accepted this until the 3rd year, when the bill went from $300 to $475 without any notice.  I was horrified and asked what happened.  She explained that her secretary got a raise and her costs went up. 

We gave her a check and have done our own tax returns since then.  If I could go back, I would have explained to her that she should have let us know beforehand about a huge increase in rates and would have refused to pay her $475.  I would have offered her the $350 we were expecting.  I now have very little trust in outsourcing and am very careful to get all rates up front.

Comcast Follow Up
After reading Crystal’s story I told her that we had a similar experience with Comcast. We went through the same hassle but eventually they got it right so we’re still with them. However, I was tempted to switch to AT&T U-verse though because at the time they were offering like $300 for new customers.

So in a follow up question I asked her if she’d had any customer service or billing problems with U-verse, here’s her response.

The only hassle I have ever had with U-verse was when our credit card info was stolen.  Even though I went in and changed all of my auto-pay info, they still screwed stuff up for a month, but they waived the late fee that had occurred without any problems and apologized. 

I have been very happy with their service and their customer support is way better than Comcasts’ if you ever have a technical problem.  Someone accidentally cut our dsl line once and U-verse sent someone out to fix it within 3 hours instead of the following day as I was told.

Thanks to Crystal for sharing her story! Another interesting tidbit about Crystal is that she quit her job a few months back to work online full time. Good luck to her in her new venture!

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8 Ways to Waste Your Cash Back

Debit and credit card reward programs sometimes come with cash back that offer cold hard cash (or a statement credit) based on how much you spend on your card. As we’ve seen with Ben’s Blue Cash card, the right cash back program can earn you hundreds of dollars per year for your everyday spending.

Although it sounds great, there are several things that can stand in the way of you maximizing the cashback you earn. If you have a cash rewards card, here are 8 ways to waste your cashback that you definitely want to avoid.

Cash Back Mistakes to Avoid

1. Pay an annual fee
Earning cashback on your credit card is great, but you wipe out a big chunk of your rewards by paying an annual fee. Essentially, having an annual fee means your cashback account starts out in the hole every year.

You have to spend a lot of money just to break even with an annual fee but having a fee doesn’t necessarily rule out a card. Just be sure that you research the card’s cash back program well enough that you feel confident your spending habits will make the fee more than pay for itself. You can find some good credit cards without annual fees in this look at the best cash back credit cards.

These days it’s becoming more common for banks to charge a fee for you to use their debit cards as well.  There are companies that offer cash back debit cards that don’t charge a fee – for example check out Perkstreet Financial.

2. Pay interest
Similar to paying an annual fee, any interest you pay reduces your cashback reward significantly. Interest can be even worse than an annual fee because while the annual fee is a fixed cost, the interest can get higher and higher depending on your balance.  Earning 5% cash back but then paying 20% in interest fees defeats the purpose of earning cash rewards.

3. Pay late fees
Likewise, paying late fees because you sent in a late payment will wipe out a large chunk if not all of your cashback rewards. Set up automatic payments on the card so you don’t pay late fees.   If you’re a long time customer and it’s the first time you’ve been charged a late fee, a phone call to customer service may be able to get that fee waived.

4. Forget big purchases
If you’re buying a bick ticket item and pay cash then you could be missing out on a big chunk of cash back.  Obviously, you have to make sure you pay off the big balance at the end of the month or you’ll end up owing interest.

For example, last summer when Ben remodeled his kitchen in his new house he put the countertop and the appliances on his card.  He had the cash to pay it off right away but going through his Blue Cash Everyday card earned a lot of cashback.

5. Convert dollars to other reward programs
Many credit card companies allow you to swap out your cash back dollars for reward points in other programs. You could turn your cash rewards into hotel card points or airline card miles. While this can be convenient if you’re about to take a trip many times those points are worth less than the cash you earned.

Many points programs give you points at what comes out to less than 1% returns on your spending. If your cash back is earned at a higher rate like 2% or 5%, you are losing out. Additionally, you can spend cash on anything. You can’t control the value of the travel points.

6. Forget to cash out your rewards
This isn’t relevant for cards that automatically send you a check or credit your cash back to your statement.  But for cards that require you to request your cash back, make sure you do it!  If you’re not sure how yours works, be sure to look into it and find out how you can redeem your rewards. 

7. Miss out on top reward categories
Some cashback credit cards, like the Chase Freedom card, offer bonus cashback on certain rotating categories of spending on a monthly or quarterly basis. Extra cash back is great, but some of those same programs ask you to “opt-in” for the bonus rewards every time the category changes. Failure to do so will mean fewer rewards for you.

8. Miss a payment
Not only does missing a payment result in late fees and interest charges, many cards won’t give you credit for cashback you earned during a month that your payment is late.  This could have a particularly big impact on your earnings if it’s a month where you made a lot of big purchases.

Maximizing Cash Back

As you can see from that last point, these are all mistakes that can compound if you make multiple of them at once.  Here are some best practices to follow to help you maximize your cash back:

• Use a card without an annual fee
• Make your payments on time to avoid fees & interest
• Remember your rewards card for really big purchases (if you have the cash)
• Don’t convert your cashback to other rewards points
• Cash out your rewards as soon as possible
• Remember to opt-in for cards with rotating rewards categories

For more detailed information on frequently asked questions and misconceptions about cash back cards you can enter your email address below and I’ll send you the report, “10 Secrets to Maximizing Your CashBack Rewards”:

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