How To Get Rid of That Bulge In Your Pants

Yes… it’s a big one. And I confess that I walk around with it all day.

Honestly, if we could all just get rid of cash and pay with credit cards, like in this Visa ad, my wallet – and that bulge in my pants – could get a lot smaller (Insert snide comment about my manhood here). I have a love affair with credit cards – they’re compact, sexy, help you to rack up rebates, and build your credit score – which could save you tens of thousands of dollars if you ever take out a mortgage. Some people are irrationally scared of them (“them credit cards are the devil!”) only because they don’t understand how to deal with them. That’s stupid. Credit cards can totally work for you if you have a system that integrates them into your life.

So far, I’ve blogged about the essential credit card ingredients:
1. Set up automatic payments
2. Use cashback/rebate cards as much as possible
3. Limit your number of cards to 2 – 4

Today, I’m gonna talk about how to put all of ’em together into a system, so you never ever have to worry about credit card admin ever again.

The sexiest credit card system you’ll ever use

1. Decide on the single most important reward you’d like to get out of your credit card, and pick a card that offers it. We’ll call this your SEXY IMPORTANT CARD (SIC). They could be anything, but you have to pick just one:

  • Cashback – My personal fave, so I don’t have to figure out how to spend my points before they expire, and it’s like getting a discount for everything I buy.
  • Airline Miles – if you travel a lot
  • Random dining/shopping rewards

2. Channel 80-90% of your spending towards your SIC to maximize the rewards that are the most important to you. Literally try to spend everything on this card: wining and dining, shopping, toothpaste, major purchases and gifts, and Oompa-Loompa slaves.

3. Pick 1-3 other cards which will allow you to enjoy any exclusive credit card benefits not covered by your SIC. We’ll call these your AWESOME BENEFIT CARDS (ABCs):

    • 1 Visa and 1 MasterCard should work just fine for most people – I advocate having at least one of each because they’re the most general purpose and widely used, and you can take advantage of Visa-only or Mastercard-only promos if you come across them
    • I hardly ever charge anything to my ABCs. I keep them strictly to enjoy any exclusive card benefits that my SIC isn’t eligible for.
    • Don’t fall into the trap of opening too many new ABCs – read my post on limiting your number of cards.

4. Keep your ABCs active by directing a small, regular, recurring charge to each of them.

    • This could be as tiny as a monthly $5 magazine subscription. I have 2 ABCs –  I direct my $20/month phone bill to my Visa and my $100/month transport charge to my MasterCard.
    • The main idea is to keep your ABCs active – this lets the card companies know that you’re alive, which makes it easier for you to negotiate for fee waivers and credit limit raises when you need them.
    • More importantly, it builds your credit history – a long repayment history on these cards (even if it’s just $5 every month) will help to boost your credit score, as long as you pay them off on time every month.

5. Arrange for automatic payments for your SIC and your ABCs so you never miss a payment.

That’s it! This system will concentrate your spending on your SIC, accumulating rewards where it matters most to you. Your ABCs will give you the flexibility to enjoy whatever benefits that come your way which isn’t covered by your SIC. And automatic payments will ensure that you don’t have to deal with all the damn admin that comes along with paying those bills. (The only bit of admin that you do have to do is to check your monthly statements to ensure that there aren’t any suspicious charges like HOOKERS on it. But that shouldn’t take you more than 5 minutes every month)

Sexy and you know it

Credit cards are getting more general purpose these days. Visa has a wave and go option. If you’re Singaporean, some cards double up as an EZ-Link card (to my overseas friends – what we use to ride our subways/buses). We might eventually not have to use cash in the future, and be like this guy: 

In the meantime, try my system out, and let me know if it helps you out. 🙂

How Credit Cards Can Make You Feel Like a Kid

What’s the most annoying part about being an “adult”? No, it’s not the fact that you can’t pick your nose in public anymore. Or that every time you walk into a Toys ‘R’ Us by yourself, parents eye you suspiciously and assume that you’re gonna kidnap someone. Or that it’s only 10pm on a Friday night, you’ve had one beer, and you’re already exhausted. No, no. To me, the most annoying part about being an adult is that there’s so much damn admin to do.

Admin. Really. It’s such a pain in the ass. Remember when you were a kid? Everything was given to you. You just had to get good grades, do your chores, eat your vegetables, and if all else fails, whine. And the entire world would fall into your lap: Happy Meals, GI Joe toys, Disneyland, Spiderman comics… without you ever having to bother where it all came from.

Annoying admin

Now, I have bills to pay and file, and a budget to take care of, an investment portfolio to monitor, and I have to check that my credit card statement doesn’t have a $2,000 charge for DONATION TO NIGERIAN PRINCE on it. There’s so much admin we do on a regular basis, we could at least hope for a hassle-free experience when it comes to claiming our rewards, right?

Wrong. So last year, I tried to redeem my reward points from my credit card. I’d spent like 10 months charging every last dollar to my card, racking up points #likeaboss and feeling really good about myself. So when I logged onto the online rewards portal to claim my well-deserved prize, I was led through a dazzling array of choices: perfume? Briefcase? Shoes? Suit? Dubious vibrating contraption you strap around your waist to help you to lose fat? Too many choices, but they all had one thing in common: they were way too expensive. If I wanted to redeem any of ’em, I’d have to fork out like another couple of hundred dollars, enter my claim, collect a voucher, go to the store, get my item, pay the difference, and complain to the cashier about their terrible customer service. When it comes to rewards, I don’t want to have to go through a whole bunch of annoying admin just to claim it. I sometimes think that the credit card companies make it ridiculously hard to claim anything just so you’d give up.

Cash is King

There’s another way to maximize the returns on your credit card without you ever having to do any annoying admin. It’s called a cashback (or dividend) card. These cards are straightforward, transparent, and best of all, don’t require any effort on your part to enjoy its benefits. And you know I love anything that doesn’t require effort, because I’m lazy as hell.

Cashback cards work like this: Every time you charge something to your credit card, a certain percentage gets credited back to your account as “cashback”, which will help to offset your total bill. Think of it as having a discount on everything that you spend on. I’m a pretty big fan of the StanChart Manhattan card, which gives me a cashback of 0.5%-5%, depending on how much I spend every quarter. I literally charge everything that I possibly can to it to maximize my cashback. I’d charge my daily $0.65 cup of coffee to it if I could, but I think the coffee shop owner would yell at me. And every quarter, I get a huge discount on my credit card bill in the form of cashback. It’s like finding free money.

0.5%-5% of your bill doesn’t sound like a lot of money, but add that up over the year and it’ll possibly be the same, or higher, value as the “rewards” you redeem from the usual reward cards, except that this one doesn’t require any effort on your part. If you drive and dine out a lot, the Citibank Dividend card is a pretty sweet deal too.

Feelin’ like a kid

I’m not saying that other types credit cards are bad. If you’re the type that likes to shop, and visit the hellish, sardine-packed places they call “malls”, then rewards cards have their place. Or if you travel a lot, then a card that racks up miles may be a good option too.  But for people like me who hate admin with a vengeance, a cashback card offers the simplest, easiest way to have money falling from the sky into our laps. It’s like feeling like a kid again.

How Credit Cards Could Nuke Your Finances (But Not in the Way You Think)

I’m back! Sorry for being totally MIA this week – work has been absolutely crazy, which left me almost no time to have lunch, blog, or poo. Yes, I just said “poo” on my blog.

So one of my top reads this week was Ramit Sethi’s Big Wins Manifesto which is a helluva long article but superduper highly recommended (If you’re too lazy to read the whole thing, go knock your head against the wall like 10 times cause you’re an idiot, but the summarized message is that you should be focusing on a few “big wins” that would give a disproportionate effect on your personal finances, rather than many different small “tactics” that could save you a couple of bucks here and there but wont really make a real difference. And wow, that was a long sentence.)

So Ramit talked about his 7 big wins of personal finance, which I simply loved. It’s kind of like an awesome to-do list. I’ve blogged previously on some of ’em, like 1. Automate your finances and 2. Start investing early, so I figured I’d blog a little bit about what I know about number 3, which is to improve your credit score.

The hidden cost (or benefit) of credit cards

So we all have credit cards, and we all love/hate ’em. We all know that they give us awesome perks like 1-for-1 drinks (woot woot!) and frequent flyer miles. We also know that they’re a pain in the freakin’ ass cause you have to check your statement every month and trudge to pay ’em off. (By the way, if you’re still doing that, first shoot yourself in the head, and then read my post on automation) We’ve also all heard the same tired arguments that you should pay ’em off on time, or we’d get charged a really high interest rate, yadda-yadda.

But did you know that credit cards could potentially cost you tens of thousands of dollars without you ever realizing it?

There’s a hidden cost of not paying your bills on time other than a couple of extra bucks of interest on what you owed last month – every late payment you make affects your credit score, and that has a bigger impact on your finances than you think.

This example from Iwillteachyoutoberich.com says it all: Consider 2 people, one has a great credit score, and one has a poor credit score. Both decide to buy houses which cost $200,000. “Simply by virtue of having different credit scores, the person with poor credit will pay over $68,000 more than the person with excellent credit.” (In Singapore, where houses cost easily 3x that amount, that difference is even larger).

For my Singaporean friends, don’t assume that this applies to Americans only. Credit Bureau Singapore states that paying your bills on time as far as possible is the number 1 way to improve your credit reputation.

Control your nuke

A lot of people don’t realize that credit cards are more than a cool way to pay for stuff – they’re a freakin’ nuclear weapon on your personal finances. Use them well, and you could boost your credit score and save tens of thousands on your house. Use them poorly, and they could erase your entire gains from investing/working your ass off.

So how do you maintain control, and not have them blow up in your face?

The answer: Automate your credit card bills, which will ensure that they’re paid off on-time, every month. How many times have we missed a payment because it was just too much of a hassle to remember to pay it off, not realizing that it could have cost us thousands of dollars in interest? Don’t leave it up to your own “effort” – you’re bound to forget sooner or later. Instead, check your statements when they come, and if there are no mistakes, let the system take care of it for you.

There are other ways to improve your credit rep, which you can read about here, but I won’t go into them for now. First focus on automating your bills, and notice how awesome life is when you don’t have to worry about remembering to pay your bills on-time. You’ll also be able to sleep soundly knowing that you’re quietly building your credit rep in the background and saving tens of thousands of dollars.

PS: anyone had any experience with the effects of credit cards on your housing loan? I’d love to hear from you. Leave a comment or drop me an email at cheerfulegg [at] gmail.com – I read every one 🙂

It’s Not About the Timing, Timing, Timing

So I have this weird friend who is super random and texts me like the most RANDOM texts ever (No hate here, we’re good friends and she’s totally cool that I’m blogging about her hahahaha). After not hearing from her for like 2 months, I get this text message:

“Hey lionie~ What % of your money do you put in STI and what else do you put your money in? Do you think now is a good time to go in?”

First of all, nobody calls me “lionie” (zomg?!). Next, I really love the phrase “do you think now is a good time to go in?” because hell, it’s on everybody’s minds isn’t it? Everyone is obsessed with when the “right time” is, as if there’s some sort of magical moment to invest that’ll make you rich like, forever. I can totally see why: It’s the same reason why buying McDonald’s lunchtime Extra Value Meals for $4.50 feels so damn awesome – because we’re getting it cheap. Everybody could use a midday Big Mac with fries (mmmmm!) and nobody wants to get ripped off.

We take this psychology to the investing arena, and suddenly, we’re lost. Suddenly, those chicken mcnuggets that were $4.50 an hour ago are now $6.20! Wtf?!! But if I don’t get them now, what if they rise to $12 a piece? Or maybe I should wait and let them fall back to $4 for a six-pack? When is a good time to go in? When? When??? You’re not alone – the professional investing community is obsessed with the idea of timing. Pick up any business newspaper, turn on CNBC, and you’ll see stock calls screaming at you to “Buy” and “Sell” NOW, or be forever banished to the poor house. I hate it – I hate anything that pressures me to do something with my money NOW. This applies to stocks, and those annoying “Call now and receive a new abdominizer absuh-lutely FREE!” informercials”. They are way too stressful, and they cause you to make terrible decisions with your money.

What’s the trouble here? This philosophy assumes that investing is a huge, epic, life-changing moment. My friend was super concerned about when she should invest because she saw it as a significant, one-time decision. But think about it – there are a gazillion moments in life. What are the odds that the one you pick to invest your money in will be that one, magical moment when the market bottoms out?

Instead, let’s forget about being “right” and let’s focus on seeing investment as a lifestyle decision, just like brushing your teeth or cleaning up your dog’s poop. It isn’t sexy, it isn’t the most fun, and you’ve got to do it regularly or you’ll end up with a big mess. But if you don’t get it right a couple of times, no one is going to die. That’s a whole lot less stressful, isn’t it? The truth is, the market goes up and down and is volatile as hell. In all likelihood, we’ll never be able to pick the “best” or the “right” time to invest, so why bother trying? So when the ladies come up to me and adoringly ask “Oh, Lionel, tell us when is the best time to go in?” I put on my most charming smile ever and go “Baby, just dollar-cost average.” (Yeah, you know that totally gets me laid).

What is dollar-cost averaging and why is it awesome? Dollar-cost averaging means that you invest a fixed amount of money into the same stock, or ETF, or fund, at fixed intervals. So, for example, you might invest $500 into a certain stock every month, or $1,500 every quarter. The actual interval doesn’t really matter. What matters is that you invest a fixed amount every time. Unlike the “invest all your money at once” mentality, which forces you to predict when is the best time to invest in, dollar-cost averaging is a system, a system that lets you invest at the overall average price of the market and lets you smooth out the price which you enter in.

Say you invest like $1,000 per month into a stock market index ETF. Some months you may be investing when the market is super cheap at $100, so you manage to buy 10 units of it. The next month the market rises to $200, so you only buy 5 units of it. The next month the market falls to $50, so with that same $1,000 you load up on 20 units of it. So when the market is cheap, the system lets you buy more of it, and when the market is expensive, you buy less of it. Overall, you’re pretty much guaranteed the average price of the market. You’re not getting in at the bottom, but you’re also not running the risk of putting all your money into the market, just before it takes a nosedive southwards. With the reasonable assumption that the market is likely go up in the long run, getting in at the long-run average price means that you’re likely to end up in the black, given a long enough time horizon (we’re talking 20-50 years here).

What about periods like 2008-2009, when the market was trending down? People who dollar-cost averaged got themselves into market at lower and lower prices as the market fell, accumulating all those units at cheap prices and making themselves well-positioned for the recovery from March 2009. Contrast this to the herds of investors who piled into housing stocks at the height of the bubble, only to watch their nest egg crumble in 2008, and then panicked and sold right before the recovery. Dollar-cost averaging works best when the market is at its most volatile, because it helps you to take advantage of the volatility by buying a both high and low prices to average out your buy-in price. I’ll spare you the details, but this video from Mike at Oblivious Investor shows how with dollar-cost averaging, the volatility in the market goes from being your enemy to your friend.

What’s even more awesome? Most academics and economists are already predicting that we’re going into an age of increased volatility with more crashes and more bubbles, occurring at increasing frequency. Even more reason not put all your money in at any one time, because you never know what’s going to happen tomorrow. So why risk it?

Like any system that I love, it can totally be automated. Most fund providers offer the option of a “Regular Savings Plan” or a “Drip-feeding” plan that lets you dollar-cost average a pre-determined amount into whatever security you choose. Even if you choose not to automate it (I don’t because my broker doesn’t let me), it takes a couple of clicks to invest a fixed amount at regular intervals. No stress, and no worries about where the market is going to go tomorrow. Just a plain, simple system. It ain’t sexy, but it works.

Go Tiny

Soooo it’s mid-Feb. Have you discovered that you’re not keeping to most, or all of your resolutions? I know I have. My resolutions to leave work by 6.30pm and sleep 7 hours a day have fallen flat on their faces. (It’s sad, but despite all my posts on productivity I inevitably get a couple of days/weeks where the work just surges unbearably.) Yet, there are others, like exercising, personal finance and sending compliments, that I’ve managed to keep surprisingly well so far because of systems I’ve stuck to. I’ll tell you more about one in a bit.

If you’re like 90% of the people in the world, you’re probably not keeping to your resolutions like you said you would, or you’ve given up on making resolutions altogether because they’re impossible to keep. The thing is, if we really want our lives to improve, we’ve got to create something that sticks, that becomes so ingrained in the fabric of our lives that we do it without any effort or without thinking. Sort of like brushing your teeth. (I blogged previously on how personal finance can be exactly like that) There’s no point in making a resolution like “I’m gonna get a six-pack this year” if you’re not going to stick to it and look like a beached whale again once Christmas comes around. (Speaking from personal experience here.. pat pat)

So recently, I’ve been following BJ Fogg’s work on creating habits and sticking to them. He’s a Stanford professor and created quite a following with his program 3 Tiny Habits. He tells you to “forget about motivation. Forget about 21 days. Forget ‘one habit at a time.’ None of that matters as much as going tiny. When you succeed in tiny ways, you unlock power to do more. For this and other reasons, tiny is the key to new habits.”

Essentially, to create a new habit, follow these three steps:

1. Make it tiny: When Fogg was trying to create a habit of flossing, he started by flossing one tooth a day. That’s it. Make the habit tiny, even if it’s ridiculous, and suddenly it’s not so hard to start doing it.

2. Find a spot: just like how brushing your teeth always comes right after you get up and before you go to sleep. Create a spot in your existing routine for it.

3. Train the cycle: Every day, just do your tiny behavior in the spot you’ve chosen. If you’re not committing to it, go back to Step 1 and simplify it. Keep trying, revising and adapting, and trying again until you do something that sticks.

The awesome thing? When you train your body to do certain behaviors at a certain time in your routine, the little victories that come with accomplishing a goal start feeding your mind and your confidence. It then becomes way easier to expand that tiny habit into something a little more ambitious. But don’t be in too much of a hurry to achieve too much. The key is to do small, incremental steps, even if it takes you as long as a couple of months to train it. You’re better off moving slowly and progressively than jumping the gun and not sticking to it.

At a TEDx conference a couple of months back, I listened to my colleague Daniel Wong give an awesome talk about delivering happiness through emails (the summary can be found here). Inspired, I tried to fire off as many happy emails as possible whenever I could, but after a couple of weeks, it just wasn’t sticking as a habit. So I decided to try Fogg’s methods instead. First, I made a goal to send at least one complimentary / positive email per week (okay, I know what you’re thinking – now I sound like a douchey depressing office drone – but first, you’ve gotta make it tiny right?). Next, I found a spot by setting a weekly reminder on my phone to send a compliment at the start of the day every Wednesday, before I got lost in my daily barrage of emails. Finally, I trained the cycle by sticking to it religiously. Wednesday wasn’t just another workday, it became “Compliment Wednesday”. (Yes, you can tell I’m a total genius at coming up with creative names) It was weird at first – you’d be surprised at how hard it is to find someone new to compliment each week – but it started getting easier as time passed. As a result, my Wednesdays and my work week started getting more positive, my mood improved, and it became a lot easier to work with colleagues who were previously impossible to approach.

So give Fogg’s method a shot and go tiny. You’ll be way ahead of the game in creating habits that stick 🙂

Why Personal Finance Is Like Brushing Your Teeth

This is the situation most people live by: They get their paycheck every month, and feel RIDICULOUSLY RICH for that day. They’ll hit the bars and order like 10 rounds, yelling “IT’S PAYDAY, BITCHES!!!” Then they wake up the next day, nurse their hangovers, and get on with life. They pay off their credit card bill when it comes in the mail, and go “What the hell – I spent THAT MUCH last month? Oh well. Shrug.” And then a friend’s birthday comes along, so they spend some money on dinner. And later on in the month, their phone bill comes, so they pay that off… and before they know it, it’s the end of the month. They catch sight of their balance while making an ATM withdrawal, and go “Crap, I spent THAT MUCH last month?! Oh well. Shrug.”

Most people have no freakin’ idea where their money goes every month. They live in an endless cycle of receiving a paycheck, spending, getting horrified at how much they spent, and shrugging in resignation. And the cycle repeats again the following month. It’s a modified version of the phrase “living paycheck to paycheck” – when you have absolutely no control over what happens to your money, never mind about trying to save and invest. Even if they do decide to save, it just involves checking their balance at the end of the month and going “oh awesome! I still have like $500 left over from my paycheck. I’ll save that.” (Not realizing that the following month, they go for a vacation and spend that $500 they just saved) Sound familiar?

Most people know they should be saving and investing, but very few people go out there and actually do it. Why is that? I think the number one reason is because it involves a huge amount of effort and willpower. It’s a helluva lot of effort to actively try to spend less, to consciously take money and save it, and to plan for investments. Personally, I hate effort. To me, personal finance is like brushing your teeth. It’s necessary, but I don’t really want to spend a lot of effort trying to remember to do it, or how to optimize my toothbrushes and toothpaste. It’s gotta be automatic, it’s gotta be routine, and even better, I’d like a robot to do it for me so that I don’t have to deal with it.

While technology hasn’t caught up in the area of oral hygiene, it’s entirely possible to have a robot take care of your personal finance. How? By creating a financial system that automatically does everything for you with no effort on your part. While I’ve previously blogged about how to automate your finances, I thought I’d give an overview on how everything works together to help you see what I’m trying to say. Check out this spiffy little diagram I created while chilling at McDonald’s this morning (Yeah, some people eat nuggets, some people check out girls, and I create awesome nerdy diagrams).

 

It looks really complicated, but it really isn’t. I’ll talk you through it. Let’s start with the orange box in the middle. My POSB account (for most people, this would be your checking or current account) acts as a central postman. It receives money from my salary and any other income, and then automatically shovels it into 3 categories: savings, investments, and expenses. Money doesn’t stay in my POSB account for very long – it gets quickly allocated into where I want it to go, so that I don’t even have to think about how much I should save, how much I should invest, how much I need to pay my bills, etc. Almost everything you see here is automatic – the only part that isn’t is my daily expenses, because I can’t regularly transfer money to my favorite chicken rice hawker stall. (Would be awesome if I could though)

Otherwise, my POSB “central postman” does all this for me:

  1. Savings: It adds money to my long-term savings account for retirement and my short-term savings account for guilty pleasures. My CPF (sort of like a 401(k) for Americans) gets automatic contributions direct from my salary, as well as my employer’s additional 15% contribution. (Which is sort of like free money – so awesome!)
  2. Investments: It wires funds into my brokerage account (you can use a variety of brokerages, but I use Standard Chartered for its low fees – more on this later) to invest in ETFs.
  3. Expenses: My bills are automatically paid off when they’re due, so I never incur late payment charges.

That’s it! That’s my entire financial infrastructure, and it saves me countless hours of paying bills, allocating money to save, deciding how much to invest, etc. If you haven’t set up something like this, I recommend that you get started today, even if it’s just setting up one automatic bill payment. You’ll be amazed and how much time and effort this saves you. Setting the whole thing up will literally take you no longer than one afternoon, and you will never have to worry about any of this stuff anymore. And then you can start focusing on the awesome things in life. Try it 🙂

(Hat tip to Ramit Sethi for coming up with this idea – I know, lots of what I do here is totally inspired by him)