How To Use Your Cash Back Credit Card To Build A Rainy Day Fund

Cashback credit cards? Awesome. I’m personally so thankful that cash back cards are a thing because I utilize them to the full advantage. Or so I thought. Personally I have a Chase Freedom Unlimited card which gives me 1.5% back on everything I buy. Considering the fact that I graduated college recently and moved to a new city for my post grad life I got a lot of cash back during this move.

I try to use my credit card for every single purchase that I make because of the cash back feature. I know a lot of you will say this is irresponsible so let me quickly say I only expense things I can afford and will pay off every month. I don’t carry a balance and therefore I pay no interest on my card. So really, this cash back is just found money for me. When I was moving it was great because as I bought things that I would need in my new apartment my card gave me cash back to buy even more things I wanted but I didn’t consider essential to the apartment such as art or little knickknacks to make the apartment feel more like a home. Sadly, the plant I bought died but that’s neither here nor there. (I was devastated).

So getting back to cash back. If you are a responsible spender with your credit cards and not a frequent traveler I highly suggest going with the cashback option, but again you need to find a credit card that fits your lifestyle and personal spending habits. I know a lot of people around my age in cities like NYC or Boston that if they had excellent credit opted to go for the Uber credit card because of how it directly caters to those people who are very active in their social life. I also suggest checking out the Capital One Savor Card because of it’s great cash back on dining and entertainment.

I’ve talked to a lot of people about what credit card they use and why they chose that particular one. Most people take cash back and apply it to their statement balance so they owe less on their credit cards each month and I highly recommend doing this if you are carrying a balance from month to month. It will allow you to pay down your debt faster and get out of interest payments, if you have those.

Now that I carry a zero balance from month to month I don’t feel the need to apply my points right back into my credit card. Sure, I could go online and get some gift cards or apply them to travel but let’s be honest, I’m 22 and I don’t have time to go on crazy vacations and I try to curb my spending habits so that I can save more.

So I thought about this a lot. I wondered how I can best use my cashback. 1.5% sounds like nothing but it definitely adds up over the course of a year. As I was going through my options for my last point redemption it had an option if I would like to deposit the cash back into my checking account. Now I don’t keep my savings account with chase as you all know if you read my article on savings account, I use Marcus by Goldman. Some more digging allowed me to find that I can link any bank account up to my card and deposit the money there. Aha! A rainy day fund was created.

Sure I have my savings that I deposit a fixed amount in every month because I worked it into my budget, but I’ve never even thought about putting my cash back into a savings account. Even better, it’s an interest bearing savings account so basically I’m being handed money, putting it into an interest bearing account, and earning even more money on top of that. Think of it as a monthly allowance almost.

This is how I personally use my cash back but the more I thought about it the more I saw the wide range of possibilities this really has. Savings accounts offer low interest rates right now with the highest you’ll find hovering around 1.8% while the average market return year over year is 7%. So if you already have a rainy day fund and don’t feel the need to contribute more consider taking this cash back and putting it into an investment account, retirement or otherwise and letting it grow even more than a rainy day account ever would.

Make sure to subscribe to The Modern Piggy Bank using your email address and follow us on twitter @themodernpiggy2. As always you can email us directly at founders@themodernpiggybank.com with any comments or concerns you guys have. Have a topic you want to learn about? Shoot us an email and we’ll do the research.

Would You Rather Have Starbucks Or $700?

Choose right now… Starbucks or $700? Not Coffee or $700. Just Starbucks. Choose. Now.

Starbucks is in the news a lot. They are either opening their first store in Milan (highly suggest clicking on that link, the pictures are crazy), having trouble in Philadelphia, or boosting their stock price due to another great quarter. At one point there weren’t enough Starbucks stores in the United States to serve the demand for their coffee, and that was only last summer!

You’re probably saying that’s crazy because if you live in a major city it seems like there are multiple Starbucks on every block. You’d be right.

Now, we’ve seen a lot of the articles about how millennials could have so much more money or even be a millionaire if they cut out all their “trendy” food items such as avocado toast. A certain Australian millionaire even said the reason millennial aren’t millionaires is because of their avocado toast addiction. We saw some articles where the math was done and we even did it ourselves and found the idea a little far fetched. But it did get us thinking. Is there anything about our consumption habits that really do mess with our personal finances?

Absolutely. Besides the fact we rely so heavily on credit cards and think when something is on sale we “saved” money when in reality we really just spent less but our caffeine habits really do damage our personal finances. I’ll be the first one to admit I got Starbucks and Dunkin or whatever coffee was available to me in college almost every day. That was on top of my Keurig or Mr. Coffee (depending on what year I was in college) that I would make most days. Looking back, I wasted so much money on coffee.

I read recently that the average Starbucks order is $2.75 in the US and in NYC it’s $3.75. Most people I know stop for coffee at least once a day, usually on their way to work, every weekday. So 52 weeks in a year means 260 work days, we’ll be liberal here and say you get 15 vacation days you take full advantage of so 245 working days a year. We’ll go even further beyond that and say at least another 15 of those you’re running late and don’t get to stop to get your caffeine fix, now we’re at 230 days a year. Sounds like a lot but it’s pretty common for coffee drinkers to have at least a cup every day, specifically every morning, if not more than that. So some quick math of 230 days x $2.75 for an average order and you get $632.50 a year that you’re wasting on over priced, over roasted coffee.

Now I get it, if you’re addicted to caffeine like I am when you need coffee, you need coffee. Most likely your work has a coffee machine somewhere that you can get for free so let’s discount the entire working day and only focus on your mornings.

I personally bought a Mr. Coffee very similar to this one and use it every single day. The Mr. Coffee shown above costs $35.96 or just around 13 cups of coffee at Starbucks. Now for anyone who is going to say that they don’t have time to wake up and make coffee, I wake up at 4:50am and program this wonderful machine the night before to start making coffee at 4:45am, so not only do I have a fresh cup of coffee right when I wake up, I also get to wake up to the smell of freshly brewed coffee and honestly there’s nothing better than that.

I don’t even buy filters, my Mr. Coffee like the one I referenced above comes with permanent reusable filter that I just rinse out every night and put right back in. And you can pick something up like this Byron Stainless Steel Travel Mug for less than $10 and now you’re in business. Total outlay so far: $45.96 or less than 17 cups of coffee at Starbucks.

The last thing you’re going to need is coffee and this is where the real savings kicks in. You can do what I do and drink Maxwell House Original Blend Ground Coffee which sells on Amazon for $6.93. There is 240 6 fluid ounce cups in this thing! Conveniently happens to be just around the amount of cups we estimated the average person to need to go to work. That’s so much coffee. That’s less than 3 cents per cup of coffee! If you want to follow the famous Shark Tank Invest Kevin O’Leary you can take your $2.72 in savings and invest them.

Adding all this up that’s around $53 a year for your coffee addiction in the first year and it only goes down from there. Drink more than one cup a day at home? Raise your cost by $10 to $20 depending on what type of coffee you choose to order.

Some of you are going to say that all of this isn’t worth it. The daily expense is minimal on a daily basis and you don’t notice the overall sum you spend. I get it. Like I said before I have been there. But once I realized what was happening and how much I was spending my habits completely changed. The small daily expenses truly add up and turn into major expenditures. Don’t let this happen.

Take that extra $700 or more every year and invest that money or put it into your savings account and let that money grow. You’ll still be having your coffee fix every day, but you’ll be getting it in a way that allows you to minimize your expenses and optimizes your savings.

Make sure to subscribe on our website for all the latest personal finance and investing news and advice and follow us on twitter @themodernpiggy2. Have a question about personal finance you’d like answered or have comments or concerns or just want to chat? Email us at founders@themodernpiggybank.com

Trade Like A Quant

Sometimes dubbed the rocket scientists of Wall Street the meaning of quantitative analysts often takes on a broad meaning.  Quant is a fairly broad term honestly, but roughly means someone who takes an extremely mathematical approach to the markets.  While some quants use Einstein level math there are some practical lessons you can take away to use in your own portfolio.

More than anything quantitative analysts apply a rigid rules based approach to the markets.  They have specific buy and sell signals that they adhere to religiously and consistently.  This is where their great returns come from(if their algorithms are correct).  While some get blamed for things like the flash crash where the DOW dropped 9% in minutes it would be wrong to say that it was the strangest thing to ever happen in market history.  A signal for a quant could be something as simple as the 200 day moving average or as complex as analyzing S&P 500 futures contracts volume and expiration and placing an order nanoseconds before the futures expire and pocketing the spread, which is the high frequency trading world.

So how can you apply this? Well a buy and hold strategy sounds great in theory, but its harder to stick to in practice.  Sure its easy to say when the market has not had a down year since 2008, but it would have been really hard to hold onto your portfolio is 2008 when the US equity market shed about 40%.  If you haven’t experienced a massive drawdown like that imagine draining half of your savings.

So if you are someone who can’t weather massive drawdowns, and we don’t blame you if that is the case, consider taking a rules based approach.  It is great to have an investment plan that you can stick to and might even help you sleep better at night.  Here is a simple rule to get you to start thinking about what you might want to do:

Apply a short, medium, and long term moving average to your portfolio.  When conducting your rebalancing, best done once a year for tax benefits, tilt most towards the assets in upward trend above the moving averages, more towards the one that are not trending as strongly above one or two of the moving averages, and least towards those in a downtrend under the moving averages.

Note: This can be considered a trend following approach and is a popular investment style that may or may not suit you.  Over time strategies go in an out of favor so its often wise to pick a strategy that you understand and believe in and stick with it over the long term.

Building wealth takes strong discipline and taking your emotions out of investing by applying rules to a strategy that works can often help mitigate bad decisions.

Don’t Let Trading Fees Eat Your Profits Away

stacked round gold-colored coins on white surface

There’s no point to keeping extra expenses in your life, it just weighs you down in the end. Like we said before, a dollar saved is a dollar earned. Get rid of cable and pay for streaming services of what you watch, get a credit card tailored to your most popular purchase category, cook more, etc. There’s a lot that can be done. Your portfolio is a steak, do you want a fatty piece or a lean piece that will marble when its cooked and not char? In today’s day in age, when you’re managing your investments, the same thing can be done.

Traditionally, there were very high broker and platform fees. You’d even pay commissions if you were placing orders for stocks over the phone or online. Fees have gotten lower for discount online brokerages where now instead of commission, platform fees, or managing fees, you’re paying per trade. Sometimes as little as $5 per trade. And while this seems cheap, for most people starting out these trading fees can really add up and significantly decrease your invested capital.

Younger investors in their 20’s and 30’s have flocked to Robinhood which uses Apex Clearing Corp. as their clearing house because it charges $0 in fees overall. It doesn’t offer all the bells and whistles like other online brokerages such as extended trading hours or research but you can upgrade to premarket and after market hours for a minimal sum. You even have the ability to leverage your capital up to 3x which is a nice feature for more experienced investors and people looking to amplify their returns. Quick disclaimer: Leverage trading is highly risky and we do not recommend it.

So now you have an online brokerage that you hooked your bank account to for free. But businesses need to make money and now you’re probably wondering how they make theirs. To keep it simple, they invest your uninvested capital. Don’t worry, your capital is still yours to invest as you wish whenever you wish. It’s also been rumored that they also sell your order flow and trading information to High Frequency Trading firms (HFTs or firms that trade using algorithms). If these rumors are true, they sell this information for a higher premium than your traditional brokers. This shouldn’t change your investing habits unless you are trading large blocks of shares at once.

For us at The Modern Piggy Bank, we use Robinhood for our discretionary accounts and allocate only a fixed percentage towards it after allocating into our other investment accounts like a Roth IRA and 401k’s using more traditional platforms like Fidelity which recently just announced that that they were offering zero fee ETF’s from Ishares in what will be direct competition to Robinhood.

Just know your cost of investing is less than what your father paid, and less than his father. You don’t have the excuse of having hidden costs or that you’re paying fees for x,y, and z. So don’t make excuses when you can make money. We truly do trust Robinhood implicitly when it comes to our money and our accounts. While we would like to see more features added in the future if you see us on our phones, it will most likely be us with the Robinhood app open checking our portfolios.

What 3.9% Unemployment Really Means

I feel like every day I read about how the economy is teetering on the edge due to trade wars, tariffs, and soaring equity prices.  While it is true these things have the potential to threaten the economy that doesn’t mean you can’t enjoy the good times while they last.  I guess that kind of news just doesn’t sell well.

Now, I am not saying to spend your raise or bonus lavishly.  I am not telling you to go all in on stocks, in fact I would advise against that.  I am simply talking about how now is the time opportunity knocks.  The labor market is stretched really thin right now while people are lining their pockets with cash.  Don’t have a job? Apply.  Want to change industries? Do it.  Want to launch that business or super successful personal finance and investing blog?  There is no better time to do it than right now.   (oh wait thats us)

From my personal experience, during my job search a lot of opportunities were presented to me that probably would not have if firms were not scrambling for talent.  Additionally, during the interview process multiple hiring managers from some of America’s most competitive firms told me its a job seekers market, meaning the supply of jobs is outpacing demand, and to be aggressive when negotiating an offer.  Seniors in college especially apply for that job you don’t think you’re qualified for!

Further evidencing this claim is the Bureau of Labor Statistics Employment Situation report published each month.  You’ll notice over the past year unemployment has steadily declined and seems to have leveled off around 3.9-4.1% range.  Firms are simply running out of talent to recruit.

source: tradingeconomics.com

If you want to learn more about what sectors are benefiting the most and the BLS outlook for unemployment you can access them at BLS.gov in the news release section.  You can find last months (August 2018) here.

I urge you to take the leap now that times are good instead of waiting and regretting what could have been.