Category Archives: Frugality

How Did We Wind Up Here?

After reading the stories of many other personal finance bloggers, I’ve come to a conclusion: it doesn’t matter how much money your family had while you were growing up; we all start our adult lives as financially illiterate idiots.

We all make mistakes when we first start out on our own. If you’re lucky, you learn quickly how damaging those mistakes can be. If not, you may wake up at 50 with no retirement savings and $40k in credit card debt. My moment of clarity came by accident. I had recently moved in with my fiance, which meant my rent was cut in half and I spent most of my time (and meals) at home instead of going out with friends. I previously hadn’t paid any attention to my finances and thought it was exciting when I had an extra couple hundred bucks left over after paying all my bills, so it was quite the shock when I saw that I had $1000 left over from my first paycheck post move-in. I was excited, but I thought it must just be a fluke. Until next month when the same thing happened. That was the moment I realized I had total control over my finances.

But how did I wind up so oblivious in the first place? Mine is the story of an upper-middle class upbringing. My parents built a comfortable life for our family by being very frugal… just not when it came to raising kids. They practically never bought new furniture, appliances, clothing, or cars, and our vacations were usually driving to visit relatives for a few days. But when I wanted to take dance classes, they signed me up. When I wanted to take voice lessons, they signed me up. When I wanted to go to summer camp, they signed me up. I never heard “no.” It helped that most of the things I asked for were things they considered worthwhile, but I was certainly given a sizable amount of “going out” money too. So I learned that if I wanted something, I could have it.

My parents did teach me that it was important to never buy something you can’t afford, and that you must pay your credit card bill in full every month, but they never taught me (or more likely I was rolling my eyes back when they tried to teach me) that it’s important to live well below your means. So when I started earning my own money, I thought that as long as I could pay all my bills every month, I was doing great. And the fact that I was paying my bills while managing to put a whopping 5% of my salary into a 401k was amazing! (Sadly, I think that compared to many Americans, that is amazing.)

Realizing that you’re in complete control of your finances is a life changing event. When I met my fiance, I wasn’t sure if I wanted children. “I’m too selfish to have children” I thought. But when I saw that I could save $1000/month with no real effort, I realized it wasn’t that I was too selfish to have children, I was too irresponsible! Suddenly my future became much clearer. A house and a family were possible. Putting 15% of my salary into my 401k was possible. Being a stay-at-home mom was possible. Early retirement was possible. Over the past 18 months, I’ve slowly increased my savings from that initial $1000/month. I’ve set goals for myself that two years ago would have seemed impossible. I found my way out of the financial mess that so many of my peers are still in.

So how can we raise our children to avoid these mistakes, or at least to learn from them quickly? Does it matter how much money we have, or just how we treat it? Should we give them an explicit education, or teach by example? Should we, like my parents, strive to provide everything we can for our children, or should we withhold somewhat from them so they learn that you can’t always get everything you want?

Considering Relocating

My fiance and I have been living in a dream world for the past week. I don’t remember which of us first brought it up or why, but we got the idea into our heads of moving to a new location. Our two nominees are Portland and the Denver area. We’ve spent all week on www.zillow.com looking at gorgeous houses sitting on quarter acre plots of land that cost half of what a one bedroom condo would cost us here in the Bay Area. We’ve been wondering why anyone would be willing to pay the steep price to live here. Is the Bay Area really so much better than Portland or Denver that the houses should cost three times as much?

With all big decisions in life, it’s important to weigh the pros and cons. There’s more to this decision than just housing costs, but I can’t deny that that’s a huge factor.


Housing

We started aggressively saving for a down payment on a house this year, so even though it will be some time before we can afford to buy one, it’s on our minds quite frequently. At current prices, a small house in a decent, safe neighborhood that’s not too terribly far from our work would be about $500K. That means we’d need to save up $100K. At our current savings rate, that would take about 8 years. And in 8 years, who knows what the houses around here will cost! But in Portland or Denver, we could get a bigger house, on a much bigger plot of land, for around $250K. We’ll be in a position to buy a $250K house in 4 years at our current savings rate. And we’d have a much smaller mortgage to pay off. When it comes to housing, the Bay Area is the clear loser.

Family

This is the tough one. My fiance’s entire family lives in the Bay Area, I have two brothers in the area and my parents are about to retire to the Bay Area, so we’d be moving away from our whole family. This is why we’ve been thinking about Portland and Denver – at least they’re relatively short and cheap flights away, so we could visit a lot. But it’s still a big deterrent to moving.
On the other hand, we’d like to start a family of our own, and I want very badly to be a stay-at-home mom. There is simply no way we can do that in the Bay Area. Paying for a $500K house and saving for retirement, children’s college, etc. means that we’ll need two incomes. Slashing that housing cost in half means that I could at the very least cut back to part time when we have kids, and possibly stop working entirely.
As I said, this is a tough call. Moving would mean leaving our family, but it would also mean we could start our own family without worrying as much about money.

Job Opportunities

I have a great job here, and my fiance has a decent one. Neither of us have a great deal of career ambition though – we’re not looking to climb the ladder to the top, we just want to make enough money to support ourselves and save for the future without taking on an inordinate amount of stress. To be cliche, we work to live, we don’t live to work. We’ve both gotten pretty comfortable in our jobs, so looking for new ones – and wondering if we’ll find any – is a little scary.
There is the possibility that I would be able to keep my current job and work remotely, but it’s not an option for my fiance. But if I could swing it, it means I would be able to continue working for a year or so until he gets set in a new job. His new job may pay slightly less than he’s earning now, but the difference in pay is nothing compared to the difference in housing prices.

Culture

We have an incredible amount of cultural diversity in the Bay Area. Whatever we want to do/eat/see, we can. I can’t imagine that Portland and Denver are devoid of culture, but it will definitely require a lengthy visit to each location to determine for sure. It is also a requirement that anywhere we move would have good community theatre, as I love performing.

Religion

As a non-practicing Jew, it’s not crucial that I live in a community with a large Jewish population, but it is crucial that I don’t live in a community with a lot of evangelical Christians. There’s a pretty good mix of religions in the Bay Area, so I don’t feel suffocated by any one religious group, and I’m mostly able to avoid contact with any hyper-religious people. From what I can tell, Portland would be a similar situation, but there are several suburbs near Denver that may be too religious for me.

Politics

I’m a die-hard liberal. My fiance is much more moderate than I am, and tends to dislike all politicians regardless of party affiliation. I can deal with a healthy mix of Democrats and Republicans, but if my neighbors are all pro-lifers who still believe that Obama is Muslim, we’ve got an issue.
So there you have it, those are a lot of variables to weigh. As my down payment fund continues to grow, these considerations will creep to the forefront of my mind and become a frequent topic of conversation between me and my fiance. From a financial standpoint, moving to a cheaper location seems to be a no-brainer. It’s all the other factors that make the decision a lot harder.

Friends and Finances – The Frugalist

Did you have an awesome time? Did you drink awesome shooters, listen to awesome music, and then just sit around and soak up each others’ awesomeness?” Why yes, yes we did. Well, not drink awesome shooters and listen to awesome music necessarily, but we definitely soaked up each others’ awesomeness. That’s a quote from Mean Girls, but applicable here in a way completely unrelated to its context in the movie. It’s how I feel when I hang out with my frugal friends. 

How can you not bask in your awesomeness when you spend a girls’ night in playing board games and gabbing instead of going to an overpriced club? Or when you turn an otherwise pricey activity like going to the movies into a frugal night at the drive-in? When two or more Frugalists get together, it’s hard to ignore the fact that you’re just plain awesome.

I’m preaching to the choir here, I know. But just because we’re all awesome, there’s no reason we should become complacent – it’s always possible to be even more awesome. With your friend the Spender, you feel the urge to help guide her toward frugality, but with your friend the Frugalist, you’re on the same wavelength when it comes to money, so you may not feel the need to talk about it. It’s not a discussion of whether you should go out to a fancy restaurant or stay in and cook dinner – you both know where you’re going to end up eating dinner. So how can we be better?


Though we all strive to be as financially responsible as possible, we all have certain areas where we’re not doing everything we could. We also all have strong points though, and as we learn where our friends’ (and our own) weaknesses and strengths are, we can help learn from our friends’ strengths and use our own strengths to advise our friends.

Take my friend Sarah. She has strengths where I have weaknesses and I have strengths where she has weaknesses. One of my weaknesses is that I eat too fast, which means I eat too much, and that’s bad for both my health and my wallet. Sarah is the slowest eater I know. By simply eating so slowly, she recognizes when she’s full before she’s finished her whole plate. I have never seen Sarah not stretch one plate of food into two meals. When we eat together, I try to match her pace, and I always end up eating less and having leftovers. Thanks, Sarah! (But now to figure out how to remind myself to do this even when Sarah’s not around…)

One of my strengths is my housing situation, and it’s one of Sarah’s weaknesses. Granted, my extremely low rent ($500/month in the Bay Area) is due to my fiance’s frugality,* but even before I met my fiance I always made sure my rent was under $1000/month. Whether that meant sharing a house with 4 other people or finding an off-the-beaten-path apartment complex, I have always looked for the best deal possible on rent. Sarah’s rent is somewhere around $1600/month for her one bedroom apartment. It’s the one area where she is decidedly unfrugal (though that is a very typical rent for where we live). Her lease will be up soon, so we’re talking about how she can improve her housing situation. Some suggestions are to move to a neighborhood that is farther away from the ridiculously expensive city where she works, but closer to a freeway so her commute time would remain about the same, or to downsize from a one bedroom to a studio.

When you really start to get to know your friends and become close enough that you can talk about financial matters, use each other’s strengths as examples to shoot for and use your own strengths to advise your friends in areas where they may not be as frugal. And if you’re both just so perfect that there’s no way to increase your awesomeness, challenge each other to improve your health, get better results at work, or help your community. When two awesome people get together, good things can happen.

*My fiance has rented the same 3 bedroom house for about 15 years (he’s a bit older, in case you were wondering), and the house is in total disrepair due to the owner’s refusal to spend any money fixing the driveway, getting new carpets, re-shingling the roof, etc. The owner knows she would have a hard time renting the house out to anyone in its current condition, so my fiance took advantage of the situation and negotiated a lower rent, which we split down the middle.

Friends and Finances – The Poor College Student

When you’re just a few years out of college yourself, it’s to be expected that you’ll have several friends who are still in college, doing a graduate program, or are working entry level jobs and not making very much money. Man do I love hanging out with these people! They’re just as conscious about their spending as I am, so I don’t need to worry about being guilted into spending money. I do however sometimes find myself in the very unusual scenario where I am more willing to spend money than the person I’m hanging out with.

It’s an odd feeling when you realize that you’re not the most frugal person in the room. I’ve gotten so used to dealing with The Spenders of the world, arming myself against their irresponsible influences, that when I’m with someone who spends even less money than I do, I have to completely re-calibrate my mindset.

I may say to The Spender, “sorry, I can’t go to the concert, I can’t afford it.” While this isn’t really true (technically speaking, I can afford it, I just choose not to spend my money there), I had better be careful to not say this in front of The Poor College Student! Remember to choose your words carefully. As a frugalist, it gets tiring to constantly explain to people that your priorities are such that you don’t want to spend $40 on a concert ticket, even though you could technically afford it, so you often fall back on the simple line of “I can’t afford it.” While those words may make The Spender back off a bit, they may have an undesired effect on The Poor College Student. Saying that you “can’t afford” something could make you seem like a cheapskate to someone who may legitimately not be able to afford it. The Poor College Student is responsible with money out of necessity, so she will be much more understanding of your desire to be responsible about money as well. Go ahead and tell The Poor College Student that you’re aggressively saving so you can buy a car/house/start a family/etc. You may not be pinching pennies for the same reasons, but your frugality is something you have in common, so talk about it.

But also remember – if The Poor College Student invites you to go somewhere with a ticket price, it’s probably something really important to her. If her favorite comedian is in town, she might be willing to find an extra $40 in her budget to get a ticket. Though the two of you may talk often about budgeting and saving money, don’t bring it up now. She probably put a good amount of thought into her decision to buy the ticket, and already feels a little guilty about her decision. Everyone is allowed the occasional indulgence, so don’t make her feel bad about splurging on the ticket. (Now, if The Poor College Student starts splurging a bit too often, it might be a good idea to talk to her about it, but leave the occasional indulgence alone.)

But what about when there’s something you want to do that you know your friend can’t afford? You have a couple of choices. If it’s something that you really want to share with her above anyone else, consider whether you can afford to foot the bill for the two of you. Maybe the two of you agree on who the best comedian in the world is (it’s Eddie Izzard, in case you were wondering), and you really want to see his show together. If you decide that you’re able to pay for both of you, explain to her that it’s important to you to have her there, so you’d be happy to pay for her. If it’s something you could do with anyone, or something you know she doesn’t care much about, just invite someone else. She’ll probably feel guilty letting you foot the bill for something she doesn’t care much about anyway, so just avoid that situation.

I think that as a frugalists, we can have a very positive impact on The Poor College Student. We were all The Poor College Student at one point in our lives, and the moment when we got our first decent job represented a dramatic change in our financial situation. Some of us (myself included) started spending wildly as soon as we had a steady paycheck, not truly understanding how all that spending added up each month. We saw other people with jobs spending wildly, so we assumed that’s just what you do once you’re employed. But perhaps if I had an older friend who exemplified a frugal lifestyle I would have realized that I had a choice. Nobody has to have the latest fashions, nobody has to eat out several nights a week, nobody has to have an expensive gym membership. Set a different example for The Poor College Student, and you may be able to help someone start out their adult life with a mature, responsible view of money.

Friends and Finances – The Spender (Part 2)

In my last entry, I talked about Amy, The Spender who can’t afford it. Today I’m going to talk about Joe, The Spender who can afford it. Joe is frustrating in different ways than Amy, but at least with Joe you don’t have to worry that your friend is bankrupting himself.

Like Amy, Joe always buys clothes, furniture and gadgets at full price, eats out frequently, pays way too much for housing, and buys new cars too frequently. Unlike Amy, Joe is swimming in money. Not only has he received a generous sum of money from his parents, he invested it wisely to turn it into more money, and his paycheck is more than mine and my fiance’s combined. And his career will allow him to grow that paycheck very significantly over the next few years. Joe does not have to worry about money.
You can’t be too frustrated with Joe. Yes, he got a lot of money from his parents, but he’s also worked summer internships since his teens and has earned most of his money through hard work. Seriously, this guy triple majored in college. He has earned his money.

The problem comes in when you want to hang out with Joe. He lives in a very different world than I do. A world of fancy dinners, luxury cars, expensive cocktails and a whole lot of suits. The nice thing about Joe is that he knows he lives in a different world than most. If he wants to go do something expensive, he’ll offer to pay your way as well, and if you suggest a cheapo place for dinner, he’ll happily eat there. But you do start to feel kind of down on yourself after a while. You can only accept so many free rides, only bring your suit-wearing friend into a burger joint so many times before you start to feel awkward.

There are a few ways to hang out with a rich friend without feeling too sorry for yourself.

  1. Wear your favorite outfit when you hang out with Joe. You know he’s going to be wearing something expensive-looking, so you won’t feel as down on yourself if you’re wearing something similarly fantastic (but it can be your little secret that you got it for 60% off).
  2. Every now and then splurge for the nicer restaurant or the event you really really want to go to. Even though he can afford it, you’ll feel like a mooch if you let him pay for you every single time.
  3. As with Amy, there are going to be some free or inexpensive activities that Joe enjoys, so suggest those.
  4. Limit how often you hang out with Joe. Let’s be honest, if Joe feels like he can never do the things he really wants to because you can’t afford them, he’ll probably want to limit how often he hangs out with you as well. It’s really a win-win situation in this case to just hang out every now and then. You’ll both appreciate the friendship more.

Friends and Finances – The Spender (Part 1)

If you’re reading personal finance, early retirement, or dividend investing blogs, you’re probably living a frugal lifestyle. And you’re in the minority. Unless you’ve been lucky enough to find a group of people who share your enlightened perspective, you probably deal with a wide variety of financial views and habits in your friends. Today I’m going to start with the most difficult to deal with: The Spender.

The Spender pays full price for clothes and furniture, eats out frequently, replaces cars every few years, and has too much house. There are two types of Spenders – the one who can’t afford it, and the one who can. The one who can’t afford it is living with debt and always one paycheck away from financial ruin. The one who can afford it has a damn good job or inherited a ton of money. One is clearly in a better financial situation than the other, but both can be detrimental to your finances. Let’s look at the former today, and save the latter for another post.

I have a friend, let’s call her Amy. Amy just has to live in a $2200/month luxury apartment, needs to buy nice clothing and purses, needed a $13k engagement ring, and goes out to eat several times per week. Oh, and she wants to buy a $40k truck to replace her perfectly good car. I would estimate that she and her husband have a combined salary of roughly $100k. And they’re in debt up to their eyeballs.

The thing about Amy is that she doesn’t realize her entire life is a dire emergency. She thinks that this is just how people live. She sees other people driving expensive cars, living in nice apartments, carrying expensive purses, eating out at nice restaurants, and she assumes that she should be able to do it too. Of course that means she also thinks you should be able to do it too. So Amy is constantly inviting me to go shopping, go out to dinner, go to events with her. And it means I have to say no to her. A lot.

So how do you maintain a friendship with someone when you are constantly declining her invitations to hang out? The answer – it’s really hard. There are a few things you can try, but with a Spender like Amy, there’s no guarantee they’ll work.

  1. Suggest alternate outings that you know might appeal to her. If she’s an exercise junkie, suggest going for a hike. You could suggest making use of the pool at the apartment complex she’s paying way too much money to be a part of.
  2. Look for deals on what she wants to do. If she wants to go out to dinner, look for restaurant coupons to make the outing more affordable. If she wants to go to an event, look for discount tickets.
At the end of the day, you have to remember that you’re probably not going to able to change her ways. Amy often confides in me that she’s worried about her and her husband’s finances, but when I point out certain behaviors that they could change, I’m met with deaf ears. She knows she doesn’t want to be in debt, but she won’t give up her lifestyle. It’s like she’s just waiting for money to magically appear in her bank account.
The best you can do is protect yourself from The Spender’s influence and hope that one day she’ll see the light and follow your good example. My fiance and I are at our wits’ end with Amy and her husband. We’ve offered advice and set a good example. They don’t listen. They claim to have a desire to get out of debt, but they take no action to do so. In all honesty, it’s getting to the point where it’s putting a strain on our friendship. We frequently employ my above suggestions, but usually just wind up hearing about all the expensive things they want to buy while hanging out at their pool. It gets old. After a particularly frustrating conversation with Amy last night, my fiance told me he didn’t know how much longer he could put up with her.
It’s a shame when someone who you care so much about, who is a great person with a huge heart, is so incompatible with you. If you aren’t able to resist the temptation to adopt her lifestyle, you must stop hanging out with her immediately for your own protection. If you are, keep trying the above suggestions until you reach the point where you’re so frustrated with her poor choices that every time you see her you want to wring her neck. Then it’s probably time to take a step away from the friendship.
What do you think? Do you have any friends who are Spenders? How do you deal with them? Do their habits ever tempt you to stray from frugalism? Have you been able to help them change their lifestyle at all? Can you fight the urge to wring some sense into them? Have you been able to make such an imbalanced friendship last for the long run?

Wedding Expenses

In the past 7 months, I’ve gone to two weddings. The first back in October 2011 was quite extravagant, while the second this past weekend was very minimalistic. I’m assuming I’ll be planning a wedding of my own in the next couple years, so friends’ weddings are a great way to figure out which parts of a wedding are important to me and on which parts I would be fine cutting costs.



Invitations
Wedding #1 had gorgeous invitations and matching save the date cards. Wedding #2 had simply a post card with a picture of the bride and groom for the save the date card and a very basic, brightly colored invitation. #1 was clearly more expensive than #2. Did I care? Not really. But did I notice that #2 looked cheaper than your standard wedding invitation? Immediately. The question then becomes, do you care if your friends and relatives receive an invitation that they will immediately recognize as inexpensive?

I’d like to find some middle ground on this one. I’m thinking the way to go may be an inexpensive invitation that’s in a more formal color scheme or has a fancier looking design. Anyone who really cares about appearances will still be able to tell that it’s a cheap invitation, but I just don’t think I care.

Venue
This one is a little harder to analyze because I really have no concept of how much either of my friends paid for their venues. Friend #1 told me that her venue was less expensive because she got married a little off the beaten path… but it was still at a frigging castle, so I can’t imagine it was cheap. Wedding #2 was at a garden, which was a lovely setting. The reception was in the visitor’s center, which was nothing special, but there was plenty of space, big windows with a gorgeous view of the gardens and it wasn’t missing any necessities.

I’m sure I’ll get a better sense of venue costs when it’s time to start planning my wedding, but I thought both weddings were in beautiful locations, and I would also like to have my wedding in a beautiful location. I once went to a very small wedding in the backyard of a huge house, and that was beautiful too. The trick here will be finding a sufficiently beautiful location that’s relatively inexpensive. And I have no idea if that will be hard to find yet.

Food
For wedding #1 I had to choose my dinner selection when I sent my RSVP. Unfortunately, I made the wrong selection. The salmon was over cooked and it came on a bed of unsalted risotto. They did also serve hors d’oeuvres between the ceremony and reception which I really liked. Wedding #2 had a small buffet and no hors d’oeuvres. There was a salad, vegetables, mashed potatoes, salmon, portabella mushrooms, and a carving station with beef.

I like to eat. I went to a wedding a while back that had a buffet that spanned three huge tables. That’s my kind of wedding. And it probably cost less than the food at wedding #1. Unfortunately, my boyfriend is adamantly against having a buffet. He wants everyone to be served their dinner. This one will be a battle. In my mind, buffets are both better and cheaper.

Alcohol
Wedding #1 had wine (and maybe beer?), but no hard alcohol, which I’m sure saved a bundle. But wedding #2 saved even more by having absolutely no alcohol, not even champagne for a toast. It was a religious choice, but I’m sure they appreciated the reduced bill as well.

I’m not much of a drinker, and my boyfriend doesn’t drink at all, but I think I’d still like to have at least some alcohol at our wedding, because I know the guests will be appreciative. Wine, beer and champagne seems like a pretty good plan. When it comes to hard alcohol, having an open bar is out, it’s far too much money to spend on something my boyfriend and I won’t even use. But on the other hand, a cash bar has always seemed a little tacky to me. We may settle on wine/beer/champagne plus a cash bar.

Centerpieces
Here’s the thing: I’m sure wedding #1 had gorgeous centerpieces that cost a bundle, but I can’t remember what they were. Wedding #2 made centerpieces out of bowls of fruit that matched the color scheme of the invitations/cake/groomsmen’s ties. They probably spent $3 per centerpiece, and it generated a lot of conversation. Every single person who sat down at our table after me said “hey, cool centerpiece, I wonder if it’s ok to eat it?” We had this conversation about 4 times throughout the night until we decided to eat it.

I’m definitely a fan of the fruit centerpiece. It was a very unique touch and saved them a lot of money I’m sure. I’d like to do something similar.

Cake
Both weddings had pretty standard wedding cakes. I think it would be fun to do something non-standard like cupcakes, but I don’t think I’ll win that battle. What’s most important is that the cake tastes good. You can ooh and aah over a beautiful cake all you want, but you’ll have already forgotten how it looked when you take a bite of bad cake.

Music
It seems like a live musician for the ceremony and a DJ for the reception is pretty standard nowadays. I’d like to have live music for the reception, but I’d be willing to go with a DJ if it would save a significant sum of money.

Wedding Party
I was a bridesmaid at wedding #1 and damn was that expensive. The wedding party consisted of 5 bridesmaids and 5 groomsmen. The bridesmaids bought matching $300 dresses and the groomsmen rented matching tuxes. Wedding #2 had a 4 person wedding party: one bridesmaid and 3 groomsmen. The groomsmen rented tuxes and were wearing matching ties, but the bridesmaid was not really matching anything; she clearly was able to get whatever dress she wanted that vaguely matched the color scheme.

I am a huge fan of the small wedding party without matching dresses. I don’t even really want a wedding party because I don’t want to deal with the drama of deciding who to ask and possibly offending someone who thought I would ask her. Maybe we’ll just end up with a best man and a maid of honor. And I absolutely will not mandate that she wear a specific dress. If I end up with multiple bridesmaids, I’ll probably just have them all wear black.


The Dress
I have absolutely no idea how much either of the brides spend on their dresses, but I will absolutely be looking to cut costs as much as possible with the dress. I do not need to get married in a poofy princess gown that cost $2000. Hell, I’ve got some white dresses in my closet that I’d be happy getting married in.


Photographer
Wedding #1 had two photographers and a videographer. Wedding #2 had one photographer and no videographer.

I think wedding #2 had it right. Having a wedding video seems really cool, but how many people ever actually watch their wedding video? If it’s not hugely expensive I may be able to be convinced, but I don’t think a video of my wedding is worth a thousand dollars. I was there. I’ll remember it.

How to Use Loyalty Rewards Cards Wisely

Whenever I’m offered a loyalty rewards card, my gut reaction is “no thank you,” but there are many types of store rewards cards that can save you a ton of money if used properly. There are two rules to go by in the world of loyalty rewards cards:

  1. The card must not have any fees
  2. Having the card must not change your shopping behavior
The first rule is easy to understand and live by, but the second rule is more of a grey area. It requires you to attempt to be objective about your own behavior. But it is vastly important. If having the card causes you to buy more of the product than you normally would in order to earn the discount, you’re probably losing money. Stores wouldn’t offer these rewards cards if it didn’t make them more money, so clearly a lot of people must spend more when they have these cards. Perhaps you remember the Seinfeld episode in which Elaine loses her sub card when she’s one sub away from becoming a “Submarine Captain” and earning herself a free sub and a captain’s hat. Exasperated, she says “I’ve eaten 23 bad subs, I just need one more. It’s like a long bad movie, but you want to see the end of it!” The stores are hoping you’ll be like Elaine, buying things you wouldn’t have bought otherwise because it’s a “deal.” Do not be like Elaine.
Here are a few types of bonus cards and how you should use them.
  • Store Discounts – With this type of card, you get discounts on items in the store by presenting the loyalty card to the cashier. By offering store discount cards at no charge, the store is essentially admitting to the customer that their prices are over-inflated, and even at the discounted price, they will be making money off of you. This is pretty evil, but it takes little to no effort to sign up for one, so you should be using this type of card. Just don’t let yourself be fooled into thinking the store is doing you a favor by letting you purchase their items “on sale.” I have one of these cards for Safeway.
  • Future Discounts – These types of cards accumulate points or dollars every time you shop at the store, and you can eventually redeem those points or dollars in the form of a coupon. These cards are good to have for places where you shop regularly, such as a drug store. The coupons you receive from these cards will always (in my experience) have an expiration date, so you will be incentivized to go back to the store before the coupon expires. If there is nothing you need from the store, just let the coupon expire. I have these cards for CVS and Petco. These are both good stores for this type of card because I will always need toiletries and cat food, so I will be able to use the coupons productively.
  • Buy X Get One Free – Similar to the future discount card, this is the type of card Elaine had. These are very common at order-at-the-counter restaurants. If you buy a certain number of items from the store, you’ll get one for free. These are great cards for well-priced places you go regularly. If there’s a sandwich shop that you love, but their sandwiches cost $12, so you try to limit how often you go there, you’ll need to be really honest with yourself about whether having their store card will cause you to go there more often. I have several of these cards, but I rarely go out for lunch, so I don’t use them often. I have them for a few low-cost delis, a burrito place, and a frozen yogurt shop.
  • Partner Rewards – These cards give you rewards at a business that partners with the store. The most common example of this is grocery stores offering gas rewards cards. Since you need groceries and you need gas for your car, these cards can be very useful. On my last fill up, I saved $0.40 per gallon on 17.5 gallons, which amounts to $7. I don’t save that much every time I fill up, but I had recently stocked up on a lot of freezer food. The key with these cards is to understand exactly how the savings work so you can get the most out of them. I have one of these for Lucky that offers rewards at Shell. For every $50 I spend on groceries, I get a $0.05/gal discount on up to 20 gallons of gas. The total rolls over from visit to visit, so if I spend $75 one day and $25 another day, I’ll have accumulated a $0.10 discount. Discounts do expire a month after I earn them, so I can’t just let the discount accumulate indefinitely. The biggest thing to remember here is, unless you drive so infrequently that you use less than a tank of gas per month, you should only fill up when you’re close to empty or when you need about 20 gallons if you have a bigger tank than that. If I go through two tanks per month, filling up twice allows me to accumulate two weeks of rewards before buying a tankful. Filling up every week means cashing in smaller rewards each week on a smaller amount of gas.
Do you agree with my assessments of how to use these loyalty rewards cards? Have you encountered any other type of loyalty rewards cards?