Don’t Pay Through the Nose!

bill reaction

You’re coughing up a lot in taxes and other expenses every week and month but maybe you think you should pay more?

That’s a rhetorical question. I’m sure almost everyone visiting this blog—-a blog devoted to personal finance and individual liberty, especially the protection of your hard-earned property—agrees that it makes sense to get the most for his or her money. Yet many people, every year, let lots of money get away.

Don’t pay through the nose!

Oh, I know some of the things I point out here and in the books I have written, along with my business partner Liam Judge, don’t amount to much on an individual basis.

After all, what is one extra charge here or there? But lock in wasteful practices over months and years and you could be talking about thousands, perhaps tens of thousands, of dollars. By wasteful spending you could end up lacking the funds you need to save and invest, in economics, this is called opportunity costs. One buys something at the expense of buying something else; in this case money paid for things you could have avoided.

And if this lost money had been effectively invested—-good index funds are one option I recommend—over years, then a person could be much better off. Then he or she could also help out relatives and friends.

Let’s talk about banks. Oh, how they love for you to use their debit and credit cards. They’re often the sweet spot of their operations; their biggest profit centers. When you use their cards, they potentially make tremendous profits out of your transactions.

So why shouldn’t you get something out it? You shouldn’t give them extra money.

Don’t pay through the nose!

Let’s begin with their often onerous fees. Are you a good customer? Do you have a good credit rating? (By the way, you should know your credit rating. Some places, such as CreditKarma.com, will give it to you without charge or nonsensical runarounds). Are you someone who follows the advice of this blog and pays off cards each month and avoids interest charges?

Then don’t pay an annual fee. Any card company that wants to charge you an annual fee just for the “privilege” of using their card should be told: “I’m not paying through the nose!”

There are many card companies that would be delighted to offer good customers a fee free card.

Why?

If they didn’t do it, some other company would. Thank God for competition. It is one of the most maligned and misunderstood concepts in our modern society, yet it is the source of high standards of living that benefit a free society.

And speaking of competition, make the card companies work hard for your business. Card companies are often falling all over themselves with new rebate offers. Be ready to take advantage of them; be prepared to drop a card for a better one that will give you the fatter rebates you deserve.

My wife and I—we pay off our card balances every month— use our three cards for various things. That may be one more card than we need so I am always looking at the possibility of dropping a card if I believe another will offer us a better deal.

We have taken on a new card whenever there was a good deal that promised and delivered—-yes be sure a card company isn’t making you the kind of promises Hitler made to Chamberlain at Munich in 1938—-a good deal. For us, that usually means whenever we got more money back. I estimate we are getting back about $425 a year in rebates.

That’s not a lot. However, if you saw about 35 dollars blowing by you on the street each month, would you reach down to pick it up? Of course, you would do it. We make a point of not charging anything just to obtain more rebates.

Be aggressive with these card companies; constantly check for new deals and notice the gimmicks of your existing one. For example, the Chase Freedom card will offer one percent on card purchases. However, for certain periods and certain kinds of purchases—such as restaurants or gas purchases—they will offer five percent back for a short period, usually about three months. However, you have to enable the card for the five percent feature. That means calling them up or going to the web site and signing on for the five percent.

By the way, Chase doesn’t automatically give you a rebate—which the Capitol One card does when you have automatically reached the $25 rebate level, a feature I think is good. By contrast, you have to go to the Chase web site, going to the rewards section, and say you want your money to get it. I start checking that as soon as we pay our credit card bill each month. The rebate belongs to my wife and I. Chase, in some respects, reminds me of the US government or a state government. If you owe them money, you better pay on time or else. When they owe you the approach is usually: “Hey, what’s the hurry?”

American Express is now trying to undercut everyone and become more effective in the card business with its American Express Blue Cash Preferred card. It is offering all sorts of generous rebate gimmicks. OK, let’s see how long they last. Companies will often cutback when they realize that many cardholders have learned to take advantage of these programs. Then it’s time for you to look for a better deal.

Another avoidable charge is the monthly bank fee. Can you maintain a balance of $5,000 or so at your bank? Then, in most cases, you can avoid these monthly fees. They may “only” be $20 or so a month. That’s $240 that you can avoid over a year. And you should.

Don’t pay through the nose!

Be sure you keep a big enough balance so you can chuck fees. This principle of avoiding or minimizing fees whenever possible should guide your financial life. For example, why pay an average expense ratio fee of 1.4 percent for a domestic equity fund when you can get a good index fund for 0.1 percent. That’s a saving of 1.3 percent a year, which over time can be a large amount.

Why pay any 12b1 fee on a fund, no matter how small the company says it is. This fee only helps the fund company and hurts you, the investor. All these fees add up over the year. And remember, it is as ridiculous to pay bank and card fees as it is to pay investment fees. They all add up over the years to the same thing: You’re shelling out when you don’t have to shell out.

Don’t pay through the nose!

About The Author

Gregory Bresiger

Gregory Bresiger is an independent business journalist from Queens, New York. His Personal Finance articles have appeared in publications such as The New York Post & Financial Advisor Magazine. He is the author of the eBooks “Personal Finance For People Who Hate Personal Finance” and “MoneySense”.