There are a ton of different ways you can make a little extra cash this year, and to be quite honest it’s not all that difficult. I’m not talking about picking up a second job, filling out online surveys for $0.05 a piece, or coming up with the next “as seen on TV” product. You can make money just by doing what you do right now, only smarter. I’m talking about taking a look at your bank, brokerage, credit card, and other miscellaneous financial accounts you are using right now. People become lethargic and complacent when it comes to their financial accounts, they simply don’t feel like changing anything. The truth is that you can earn some serious cash with upfront bonus points, payments, and even save money from reduced rates etc. Below I will go through all of the various types of accounts you can alter, and even one’s that I suggest you handle yearly.
I’m going to start with your bank accounts because just about everyone on Earth has one! If not then you should. The problem is too many people are drawn to the brick and mortar banks, and I just don’t understand why. Banks like B of A have been ripping us off in fees and crappy rates for as long as I can remember. That is precisely why I used to advocate credit unions. Now I’m even backing off of those. Online banks, just like online retail stores, have the benefit of lower overhead that just make them more competitive. You can get a an APR on a regular ole checking account that beats out a 5 year CD at a brick and mortar bank, and you don’t even have to tie up your money for 5 years to do it! Some banks, like Bank of the Internet, even compound interest daily which provides some additional boost to your interest earnings. Many of the online banks will even offer introductory APR’s that are even higher for a certain period of time to new customers. The other awesome part of online banking is that they often have very little to no fees that we have all become so accustomed to. They usually will cover ATM costs from any location, regardless of the bank or fee. Minimum balances are typically a thing of the past. Lastly, they are a great resource for auto loans and mortgages as well. The origination fees are a fraction of the big banks, and the interest rates are the most competitive in the nation. You simply need to be comfortable with not being able to walk into a brick and mortar branch. I even have an app on my phone that I can scan checks I receive and have them deposited from the comfort of my own home! Last year I finally made the switch from my regional bank to an online only bank, and with the rate difference and upfront bonus offered I estimated I made an additional $500 last year, with about $350 per year in ongoing additional earnings. Not bad for a couple hours of leg work.
People often make huge mistakes when it comes to choosing the right credit card, and complicate a situation that is actually quite easy to understand. If you are carrying a large balance then you simply need a card with the lowest possible APR, and possibly a balance transfer offer of 0% interest for a defined period of time…provided you have discipline to pay it down in that amount of time. Credit card rewards are for those of you that pay your balance off in full each month. Next, the only reason there are 5 million different credit cards available is because marketing schemes confused the consumer into thinking that one card is better than another, when in reality almost all of them are the same. Notice I said “almost”. If you aren’t traveling 24/7 and living out a hotel and suitcase then those gimmicky travel reward cards are usually a rip off. They come with a flashy upfront bonus and then your rewards points are handcuffed to a particular airline or hotel chain, and some even have a use it or lose it policy each year. The only aspect of credit card rewards that you need to be concerned with is the return on each dollar spent…period! The average return for any credit card is $0.01 per $1.00 spent. That is a 1% reward. This makes sense, right? Credit card transactions usually cost a merchant anywhere from 3% – 7%, also known as the revenue earned by the credit card companies, so common sense tells us that only a fraction of that can be returned to the consumer as a reward. Your goal is to find a way to beat that 1% return per dollar spent, in any way possible. I have a very simple Amex card that is partnered with Costco. It offers 3% cash back on gas, 2% cash back on groceries, and 1% cash back on everything else. Because gas and food are my two primary categories of spending I know that I am getting back something more than 1% overall each year. My only other criteria is that there isn’t a limit on the cash back I receive…which there isn’t. I literally put EVERYTHING possible on my credit cards each month…I would pay my gas bill and mortgage with the credit cards if I could (I can’t). My wife and I earned a whopping $650 in cash rewards this year which I deposited directly into my online bank account! I read somewhere that Costco and Amex are parting ways, so that means I will most likely seek out a new card next year. I read about a new Chase card that offers 1% cash back for every dollar spent, and then an additional 1% cash back once you pay the bill. I wasn’t a whiz at math but even I know that is a 2% return on every dollar spent…that literally doubles the national average, and you don’t have to deal with all those complicated gimmicks.
First of all, if you don’t have a brokerage account you need to get one! I don’t care if you are saving in a 401k, you need to have after tax funds that you can touch in case of an emergency, and without drawing a steep 10% penalty. In fact, I advocate using a low cost index fund as a means of storing your emergency fund, not a bank account! A bank account should only be used for the most immediate of cash needs. I used to have one of those expensive Charles Schwab accounts that charges $20 a trade, but always ranked #1 in the brokerage polls because of all of their fancy online platforms and investor tools. I’m no Warren Buffet, I just need a Federally insured brokerage account that I can trade safely at a low cost. My current brokerage account, Firstrade, only charges me $6.95 per trade, and they even have a range of mutual funds and ETFs that I can invest in for no cost at all. I try to invest in lump sums of $1,000 or more so that I only pay an effective transaction fee of 0.7% or less. Can you imagine paying $20 per $1,000 trade, that is a 2% transaction fee! Talk about eating away at your potential gains. Not to mention these brick and mortar brokerages like Edward Jones tack on investment advice fees, statement fees, random annual fees…and you know why? Because they have a TON of overhead to cover. Thousands of employees and brick and mortar locations are expensive to keep up, and you are the one paying for it all. Your goal is to open one of these accounts, and to make sure the cost per trade is as low as you can find…that’s it! Don’t overcomplicate it.
I estimate that I saved/earned over $1,000 last year by going virtual with all of my accounts, and choosing the least complicated and most rewarding of credit cards. For years I had been complacent when it came to which bank account I held, or credit card I used, and it cost me dearly. Had I made some moves 5 years ago and invested those savings into the raging bull market that we have experienced in that period of time, I’d probably have an extra $10,000 laying around…nothing to sneeze at there!