As I mentioned, I use two credit cards. One is an American Express Gold Card on which we put all of our personal expenses. It get’s paid off every month, so it offers an easy way for me to manage my spending, something that we’ve been working harder on lately, and it gives me about 1% back in the form of rewards, which I typically cash in to use at Home Depot.   My other credit card is an American Express Blue Card which I use to purchase inventory for an online business. It has a high limit of $35,000 and lately I have carried a balance on it that is very close to the limit.  (It’s also the card that Amex lowered my interest rate from 10.99% to 6.99% on.)  The other four unused cards have credit limits of $13200, $9600, $7400, and $6000.

So what does this mean to my credit score?  Well, to begin with, the fact that I keep such a high balance on my Blue Card means that my balance to limit ratio on that card is very high… 90%+ most months.  That has a negative impact, and I’ve often considered moving part of the balance to other cards just to even things out a bit.  The overhead of managing multiple cards though has always outweighed the perceived benefit.  Plus, I don’t plan to need credit in the near term.  Now though, I wonder if I may be at risk for losing those other cards if i don’t use them. . . I also wonder whether I care.

Bankrate.com recently posted an article about “credit card horror stories” where people with good credit were seeing drops in their credit limits by as much as 90%.  One guy went on the offense when he was informed by his credit card company that his card was being cancelled:

“I called them and told them that I wanted to cancel my card, due to nonactivity. They then transferred me to an accounts adjuster, who offered me a 3.99 percent fixed APR on higher interest cards till the bill was paid off. I transferred balances on two higher interest cards, and they are keeping this account open.”

An articles at smartmoney.com gave some statistics from American Express.  They do routine adjustments of their card holders accounts, but in the past year the percentage of account limits that went down was much higher that in previous years:

“Recently, American Express adjusted the credit lines of 20% of its credit-card holders. (This does not include holders of its green, gold and platinum charge cards.) This is something that the company does on an ongoing basis – but what’s unusual this year is that 50% of those customers saw their credit lines reduced, says American Express spokeswoman Kim Forde. Prior to the subprime meltdown (which started last summer), only 20% of customers typically experienced cuts during these periodic reviews.”

SmartMoney.com

They went on to say the part that affects/concerns me the most though, and that relates to the negative impact that having your credit card limits lowered can have on your credit score.  Banks look at the ratio you carry of revolving debt to available credit and having your credit card limits lowered will negatively impact that ratio:

“Those who carry credit-card balances will also see their credit score drop, says Daniel Ray, editor-in-chief of CreditCards.com. Roughly one-third of your FICO credit score is influenced by how close you are to your credit card’s limit, says Gerri Detweiler, credit advisor for Credit.com. Someone with a $5,000 balance on a card with a $15,000 limit is using 33% of their credit line. But if that limit drops to $7,500, they’re now using 66% of their available credit. Higher utilization rates (the amount of a credit line that you use) result in lower credit scores, which makes qualifying for a car loan, mortgage or home equity line of credit more difficult, says Ray.”

That can be scary to a lot of people, and talk about it’s impact and what to do is picking up steam in the blogsphere as well. PaidTwice talks about it on her blog in the article “Credit Might Be Drying Up - Should I Be Worried?“  I think I like her response the most.

“But then I realized, I didn’t actually care.  If all our credit cards get closed because we don’t use them - I’m okay with that.  I’d rather that than using the cards and feeling dependent on them.”

I’ll stick wtih PaidTwice on this one and let the cards fall where they may. If keeping the cards open requires no work from me and helps my credit score… then great.  But I’m not going to charge something on a card just to keep it open or to keep my balances high. Hopefully my credit score won’t suffer too much as a result.

Then the market crashed, and the economy soured and we decided to take a fresh look at everything. The funny part is that I really haven’t been impacted much by the troubled economy… my paycheck hasn’t gone down, my bills haven’t gone up (in fact my HELOC rate is tied to the feds rate, so it’s been going down), and I haven’t needed a loan.  The only place I’ve really been hit hard is in my investments which is plenty bad, but which doesn’t directly impact my monthly budget.

Regardless, it was the straw that broke the camels back, and we realized that in many ways we have been living recklessly as it relates to our finances; taking too much for granted, and not being as responsible as we should be with what we have been given.  We haven’t been very good stewards.  That’s part of the reason I started this site, because we wanted to capture the journey to improve and share what we learn with others.

Last month marks the first month that we took a VERY ACTIVE role in our finances.  We have a pretty simple model, which actually makes it very easy to manage our finances . . . we just weren’t doing it and we were constantly exceeding what we thought seemed like a reasonable budget. So we created a new budget (this time we wrote it down) and we broke down our spending into a reasonable number of categories.

The way we spend money, it made sense to look at it as two pools.  I pay all of our bills (mortage, electricity, phones, etc.) out of our E*Trade checking using their online bill pay. It’s free and it saves me time and a stamp.  We also use this account for cash when it may be needed (such as lunch money for our oldest daughter or for parking downtown) and any other expenses which don’t accept a credit card (church offerings, etc.). Most of these expenses are fairly predictable.  If one of my bills varies according to the season, I ask that the company level my payment so that it remains fairly constant throughout the year. There is very little variance in what is spent out of this account from month to month.

On the other hand, all of our general spending goes on our Amex.  It’s a gold card which we pay off each month. This is where we were getting into trouble.  We use the Amex for things like food, grocery shopping, gas and entertainment.  Our spending from month to month sometimes varied by as much as 100%, so it was time that we got it under control.  We set a limit that we did not want to exceed. . . something that was both realistic but aggressive.  Then we tracked it. . . DAILY!

Each day last month, I would log in to the Amex website and review our purchases and send my wife an update.  We broke our target down into a daily spend so that we could track how much ahead or behind we were on our spending.  We also forecasted upcoming expenses so that we made sure to schedule them in a way that would not cause us to go over.  For example, we included two new tires for my car this month, but pushed out some parts that need replacing on the other car until November.

In the end, we came in under our target by 13%  and really didn’t feel that much of an impact by doing so, which tells me that all of that “other” stuff really wasn’t adding a lot of value to my life. We spent 33% less than last month on the Amex which is fantastic. I’m claiming victory a little early because my credit card cycle actually ended yesterday so anything we spend today or tomorrow goes toward next months bill.

It’s actually been extremely motivating to take such an active role in the finances. Equally important, we did it together so that both of us were very aware of how our finances stood and we could support each other in our common goal to control spending.  That sort of accountability helps to hold off the impulse buys that always seem to add up at the end of the month.

This coming month will be the first test of how this change impacts our entire budget, since it will be in November that we pay the credit card bill for October. I expect that with some cut backs on other expenses and the reduced credit card bill, we will end up in a great position going into the end of the year.

Now… I’m not always the brightest crayon in the box and I’ve had a good bit of our savings (not our emergency fund mind you) in the market only to watch it whither over the past couple months.  I find myself constantly guessing that it can’t go down MUCH further… right? And yes, I said guessing, because quite honestly, I think that’s about the best that anyone can do at this point.  The market is not acting rational, which I guess in reality is just a nice way of saying it’s not doing what I would like it to do, which is turn around, or at least quit falling.

All of that said, I’m not a short term investor… so I do take some comfort in the general concensus that it will come back up… it’s just a matter of how much time you have to wait. And I’ve continued to buy more in some of my positions as they come down in order to “average down” and maximise my investment when the market eventually turns.  But I’m quickly getting to the point where I’m out of money to invest… and being fully invested is not really what I think the best strategy is right now.

There is concern from some, including Jim Cramer I hear, that many people are going to get their 401K statements this month, see how horrible they are, and pull their money making the issue we find ourselves in worse.  The truth is that now is probably the best time to increase your 401K contribution or other retirement contributions.  Pulling your money out of the market now is essentially subscribing to a “buy high, sell low” strategy… which is typically frowned upon by those who wish to increase their wealth.  Unless you have secret knowledge of exactly when the market will turn and exactly when to buy at the bottom (also known as timing the market)… then it’s probably not a very good strategy.  That’s why I’ll leave my investments right where they are. I’ll find ways to add a little here and there and hopefully in a few years our economy and my investment accounts will be back and stronger than ever.

What is this secret to credit card bliss you wonder?

JUST ASK!

I spent a few minutes the other day jamming out a quick email to Amex and asked them (nicely) to lower my interest rate. Here is what I sent:

Hello,

I would like to ask for a review and reduction of my interest rate. I am pleased with the service I receive from American Express and use my cards for almost everything. I have been a loyal customer for many years and carry a large balance on my blue card. That being the case it has reached the point where I have to evaluate whether my blue card is the best place for me to keep the balance. My wife and I have another card with an 8.9% but a zero balance because I use the Amex. If you could meet or beat that rate, I would be sincerely appreciative.

Thanks.

Their response was just over 24-hours later…

Please excuse our delay in responding to your e-mail.

In your recent e-mail to us, you requested a lower interest rate. We have reviewed your account and determined that your current Annual Percentage Rates (APR) are as follows:

Purchase Rate: Prime 10.99% Fixed
Cash Advance Rate: Prime (5.00%) plus 14.99%, which is currently 19.99%
Balance Transfer Rate: 10.99% Fixed

Because you are a valued Cardmember, we have reduced your Annual Percentage Rate(s) to the following:

Purchase Rate: 6.99% Fixed
Cash Advance Rate: Prime (5.00%) plus 14.99%, which is currently 19.99%
Balance Transfer Rate: 6.99% Fixed

This change will be reflected on an upcoming statement. Please keep in mind that interest rates are subject to change, according to the terms and conditions of your Cardmember Agreement.

We appreciate your Membership since 2000 and if you have any further questions or concerns, please contact

Sincerely,

[Rep Name Removed]
Email Servicing Team
American Express Interactive Services

That simple email dropped my interest rate 4 points (36% lower). If I consider the interest I would pay over a year, that one email paid me the equivalent of $42,000/hour for 2 minutes of work. Now that’s a valuable use of time and it’s money that I can put toward paying off debt.

Try it. . . I think you’ll be surprised how easy it may be to save some money each month.

Most of the time, when this topic comes up, it get’s boiled down to interest rates or rates of return, but I think that overlooks a very important component in my life and that is security. My standard of living currently dictates that my wife and I both work. Keep in mind that this is by choice. We could lower our standard of living and certainly live off one of our incomes, but we choose otherwise. When we made this decision, one of the largest considerations was buying a house. We wanted a house that was large enough for our family, plus one more if we are so blessed, and room for guests to stay when they come in town. We feel blessed that we could even consider a house like we have, so we also wanted to make sure that we share that and we make our house available when we can for things like our weekly Bible study which includes sometimes upwards of 20 people with their children.

Now, the point behind that detail is that my house is not a very liquid asset. If I get into a money crunch, then I can’t just up and sell it, especially in the market that we live in today. So it’s important to me that I make decisions which protect our home and provide stability for our family. If for some reason my wife or I lost our jobs, then we need to make sure that the bills continue to get paid and food continues to be put on the table.

As such, when we decide where our “extra” money goes to, I use the following points in order of importance to me (keeping in mind that first and foremost, I must be living on less than I make, and thereby not increasing my debt).

1. Do I have an Emergency Fund? Not digging myself deeper in debt requires that I plan for the bumps that life throws at you along the way. Have you ever noticed that right about the time you feel like you are on your feet, Murphy stops by and throws you a curve ball? Maybe it’s the transmission in the car goes out, or you need a new roof? These are things that most people don’t budget for but should. Before investing any money in retirement or paying extra on debt, I make sure I have money in an emergency fund. The amount may differ depending on your circumstances, but I’m not really comfortable with anything less than $2,000.
2. Maximise Your 401K Match: Most companies these days offer some degree of matching on your 401K plans. My company matches the first 3% that I contribute at 100%. I haven’t yet found another place where I am guaranteed a 100% return on my money. This is the one area that I look at interest rates first, and the 100% return on my 401k far exceeds any interest I may be paying on a credit card, student loan or HELOC. Plus, the value of investing sooner rather than later and the impact it will have on your long term retirment funds is amazing.
3. Pay Down Debt: My next goal is to pay down debt for three main reasons. First, the emotional strain that debt puts on individuals and families is tremendous and I don’t think you can put a dollar figure on it. Relieving that stress from my life is a priority. Secondly, because both my wife and I work, and paying my debts on time and maintaining good credit is important to me, I want to have as few debts as possible. This helps reduced our “cost of living” and minimizes the impact of one of us losing our jobs or seeing a cut in pay. Finally, the interest on consumer debt is often times greater than the return on other investments… especially savings accounts. That 10% I’m paying to the credit card company could be going straight to savings or retirement if I could just get the card paid off. The exception here maybe student loans or low interest fixed rate mortgages.
4. Beef Up Savings: At this point, it’s important to begin increasing your emergency fund to something that can cover 3 - 6 months of your household expenses. You may be asking why you would save instead of investing in your 401K or a Roth IRA. My reason is simple… if I need money, the LAST place I want to get it from is my retirements accounts. First, I will be hit with significant penalties for early withdrawal… and second what if you happen to find yourself in an economy like today? You would be removing money from your investments at the worst possible time. “Buy High” and “Sell Low” is not a good strategy for building wealth and financial independence.
5. Now… Invest!!! And do so knowing that you can take care of your family needs and that your not giving away your earnings to some credit card company or bank. You’ve probably heard of debt snowballing (sometimes called snowflaking)… and now you can take the funds you have available and increase your level of savings and investments. Look at the options available to you in your 401K, Traditional and Roth IRA’s, Invidual Investment Accounts, CDs. Your circumstances will dictate which ones you can and which ones you should be investing in.

What do you think?

I’ve always considered coupon cutting as a lot of work for very little benefit, and indeed it can, however when paired with a powerful system that combines coupons with sales trends, store sales, and expiration dates, it can be powerful.  Some people report saving as much as 80-90%, though we have not yet achieved those savings, at least as an average.  We do typically see 40-60% savings though and we get a number of products for free.

How did I used to cut coupons?

Well to be honest, I didn’t really.  If I saw a coupon that seemed like a great deal on something I wanted to purchase, then I might cut it out. I’d usually forget to bring it with me though and end up buying a product at full price rather than wait to have the coupon or waste gas and time on another trip to the grocery store.  It just wasn’t worth the effort to save a few dollars on a grocery bill to be honest.

What’s changed?

We now subsribe to a service called TheGroceryGame, where they track what coupons are available, and what sales a store is having, and when your coupons will expire.  Based on that information combined with sales trends they are able to tell you when something is a REALLY good buy and thereby help you save a lot on your purchases.  The system encourages you to stock up on items that are dirt cheap, so that you will have enough to cover you until they are on sale again and essentially build a mini-mart in your home.  I’ve learned a lot since we started which I hope will make you more successful in using your own coupons:

• Get organized: There are two places we have been bitten. First would be not having a coupon that we need because we forgot to cut it or just can’t find it.  Second would be forgetting to take advantage of rebates which you must either mail in or complete online.  We now do these as soon as we get home to avoid missing out on the additional savings.
• Take advantage of free items: I can’t tell you how many bottles of shampoo or deoderant or hot sauce we have that didn’t cost us a dime.  We try to never turn something down that’s free, even if it means giving it to someone else because we don’t need it.
• Create a budget and stick to it: Before the Grocery Game, we were spending about $700/month on groceries. Last month we spent $1400.  WOW.  Now some of that was related to us eating at home more often but most of it was because we were saving so much that we just kept spending.  Getting groceries at 60% off can create an addiction and it’s hard to stop once you have the bug.  We now do a better job of using from our surplus and only buying what we need (when it’s on sale of course).
• Plan your trips: Cutting coupons can have you going to more stores than you might have otherwise shopped, so it’s easy to burn your savings in gas if you don’t consolidate trips and plan ahead.

If done right, coupon cutting can make a signficant dent in your grocery spending. It does require work though and if not managed well, it can end up having the opposite results on your budget.

If you have experiences with coupon cutting that you would like to share, please do.  My wife and I are still learning and I’m always looking for another way to save a buck.

Our conversation really centered around what our vision of “financial security” looks like. I think many of these would fall into most peoples list though you could probably add or subtract for your specific circumstances. This is what we came up with (realizing that it’s a work in progress):

• All debt except the house paid off  - While we would eventually like to get the house paid off, we’ve only been in it for a couple years, so that is more of a long term goal.  We are close on the rest of the debt though, with just a student loan and a business credit card outstanding.
• The ability to pay all bills without being stretched, and while still contributing to savings, retirement, college funds and charity.
• The ability to put away 10% of our gross income (before any matching) into a retirement account - Currently we are putting 7% of her salary (of which her company matches 3%) and 3% of my salary (of which my company matches at 3%) into our respective 401K plans.  Our salaries are about the same so it ends up working out to about 5% of our combined salary before the match.
• The ability to put 10% of our net income into a savings account both for security and to save for larger purchase. - Ideally, we would like to have 6 months of one persons income in savings in the event that one of us loses our jobs or some other major event occurs. We are not currently putting anything significant into savings though we do have about 3-months of one salary put aside.
• The ability to give 10% of our gross income to charity - We are currently meeting this goal with the money being divided between our church and a couple other local charities. Ideally, we would like to be able to increase this amount as we have a surplus of cash available.
• Begin a college savings fund for our 16-month old in order to keep her (or us) from incurring debt to fund college. With our 18-year old we are hoping to take advantage of state scholarships and available grants.
• Do not incur further debt - This goes without saying, but it needs to be said.  We enjoy a comfortable lifestyle and sometimes it’s hard to give up things which are really just luxuries.  Our focus on getting rid of all debt (including the house) has become stronger though, so we have been evaluating areas where we can cut out the fat and apply those funds to one of the areas above.

None of these are extreme or anything more than common-sense. It essentially boils down to spending less than we make, preparing for the future, and blessing others.  We’ve put some actions in place to begin achieving these goals, which I’ll talk about more in a future post.  In the mean time, what are your goals?  If you don’t have any, I would encourage you to think about them, and be as specific as possible.  If you can, add a timeline to achieve the goal.  We will be going through that process as well.  Finally, make your goals achievable but be aggressive. I think we all perform better when we have to stretch a little.

I am your average Joe for the most part. I’m married, with two children and a dog and live in Tennessee. My oldest daughter is 18 and while she is not my biological daughter, I would be proud to claim her as such. My youngest daughter is 16 months. Both are beautiful and true blessings.

They say that some of the most stressful events in your life are getting married, having children, moving, and changing jobs. I did all of these in about a year, and that’s probably the most significant factor that has led me to where I am today. My perspective on many if not most things has changed signficantly and I felt the need to a capture the process if only for my own reflection, but ideally to share with others as well.

I intend to be fairly open on this site and share with you the details of things like my own personal financial decisions, accomplishments and mistakes, or lessons I have learned about betting a father and husband. I’m sure the site will develop over time and it’s probably premature to say that one area will be more prevalent than another. We’ll just have to see how it goes.

I think that’s a reasonable start. There’s plenty of things racing through my mind, and I’m sure that as I tell stories about my own experiences, you will get a better view of who I am and my personality. I hope you will share your own experiences as well.