So here is the plan. In this post I’m going to discuss some strategies for getting the most out of your credit card benefits and rewards programs–particularly related to Christmas shopping. I’ll use American Express as an example, but most everything will relate to other cards as well. Then I’m going to try to buy 5 gifts for family and follow up with a post on what I found in a week. In that post we’ll try to announce the winner of the $250 gift card.

Rewards Programs

American Express has one of the most extensive rewards programs of any credit card company. However, you have to know how to value your points. Usually points amount to about 1% benefit from every dollar spent, however different programs have different amounts of payback. For example, if you redeem your points for a $10 bath and body works gift card right now, it will cost you 800 points (normally 1,000). This works out to $0.0125 per point. However, if you shop Amazon and use the American Express Pay with Points at checkout, your points will be worth $0.007 each.

If you decide you want to buy a Kindle E-Reader through American Express’ online Membership Rewards store, it will cost 25,200 points for a wifi model that sells for $139 from Amazon. So the value of your points there is $0.0055 each ($139/25200). So if you have 50,000 points you are working with, that means the value can range from $275 to $625. That is a pretty big range. If you can spend your points on things that have the best conversion rate and pay directly for the expenses/items that have lower conversion rates, you points will go a lot further.

Generally I try to look for things where 1 point = 1 cent.  Usually your best deals from American Express are going to come in the form of gift cards and travel where the exchange rate from points to value is usually 1 cent or higher.

So when it comes to Christmas shopping, you may find the best value in using Membership Rewards Points to pay for your Christmas travel or even buy a gift card to use to purchase a gift, than to buy a physical item directly with points. (Or you could give gift cards, but I’m not a big fan of those as gifts.) However, this isn’t a hard and fast rule and it depends a lot on what special promotions are being held. Just remember to divide the value of something by the number of points it costs to get an idea of the exchange rate. If it is too far below 1 cent you might want to save your points for something else.

So that is a bit about how to spend points, but it is worth looking at some of the ways you can earn them.

American Express has what used to be called an online Bonus Points Mall. As I mentioned previously, you typically get 1 point for every dollar you spend. In the Bonus Points Mall, AmEx has made agreements with merchants to offer significantly greater bonus points for each purchase. For example, if you buy a new computer from Apple for $1,200, you’ll usually get 1,200 points, but if you go through the bonus points mall right now, you’ll get 6x that amount or 7,200 points. If you are eventually able to redeem these points for $0.0125, that is an additional $90 in savings off the computer.

Not everything we’ve talked about in this section applies to other credit cards, but a lot of it does. The point is that you have to sit down and do the math to understand how to benefit from the rewards you are offered. If you are careful, you can often get twice or more value out of your points/rewards program.

Special Offers / Deals / Card Features

Outside of the points programs, it is worth understanding all the deals, incentives and benefits your card offers.  For example, American Express is running a program this Saturday where they will give you $25 statement credit if you buy something from a small business. You have to register your card ahead of time and I think there may be a limit on how many people they accept, but I tried it a few minutes ago and it let me register. So Saturday I’m going to be looking for some Christmas gifts from a local small business.

Some other features that are worth looking at:

• Amex offers a credit for extra airline fees (including extra bags) on their Platinum Card. (You have to select your airline once per year and there is a $200 yearly limit, so it isn’t completely open ended.) If you are looking into traveling this Christmas season, definitely look into this if you have a Platinum Card.
• We’ve talked about some of the Concierge Services in the past. I’ve actually been pretty impressed with them recently. I think it just takes awhile to learn what they are good at and what can be done better on your own. This can be a great way to try to find gifts that you might not think of or when you are trying to do something for someone who is a long ways away  and don’t have time to call a bunch of stores near them.
• Purchase protection – Many cards like the Platinum offer some type of purchase protection if you buy something and it gets stolen lost or damaged.
• Some cards offer a price increase protection. If you buy something and the price goes down, you get a credit for the difference. As far as I can tell AmEx doesn’t have this anymore, but they have a 90 day return protection that looks like it will do essentially the same thing.

Some tips for shopping with a credit card

Credit card companies watch your spending patterns pretty closely. If someone steals your card, they want to shut it off as quickly as possible so they aren’t out thousands of dollars. This means if your spending goes up rapidly, they may cut off your card until you call in and confirm that you have it. Now I’m sure most companies expect to see a jump around Christmas, but if you are doing something like shopping in a different city, you might want to call your credit card company and just tell them what is going on ahead of time.

Watch the register when you checkout. One downside of using a credit card is that it is easy to not watch things as carefully when you check out. With cash, we tend to be a bit more careful because we don’t want to run out of money at the register. You want to make sure things are ringing up for their expected price–particularly when buying items that are on sale.

Christmas Gift Buying Tips

Now that we’ve spent over 1,000 words discussing the way to get the most benefit from using a credit card, lets look at the fun part–actually buying gifts. Here are some thoughts for your consideration.

• Don’t let Christmas turn into a gift card exchange. If you just want to give each other gift cards, you are better off setting a bowl on the table and have everyone throw in $50 and then take it back out again.
• Go in with other family members. By combining your funds you may be able to get someone something that they really want but would never go out and buy for themselves.
• Invest some thought. When buying gifts for people who are close, you goal should be to show that you know them well enough to buy something they will really like.
• Buy used. It may not work for every family, but there are some great deals out there on used items.
• Swaps. I’ve heard of communities getting together and having a big swap where they exchange gently used children’s toys. You give something that your kids no longer play with and get something fresh and exciting.
• Do something. When you have well established families, you may not really need more stuff. What if you were all to pool your money and go on a family vacation over the holidays?
• Gift exchange. If you have a large family, it can make sense to draw names and have everyone get one gift for one person. If done correctly, this can make shopping a lot easier because you can focus more time and money on making a single gift perfect instead of buying 30 presents for different people.
• Start early. If you have the storage space, you can probably find the best deals by doing your Christmas shopping throughout the year. When you find the perfect gift for Uncle Bob for 50% off, get it and put it somewhere you will remember it.
• Set a budget. Christmas can turn into a free for all. Set some type of budget for the season so your spending doesn’t get out of control. While it is nice to be generous, you should be responsible with your money.
• Be careful what you teach your kids. Growing up, we’d open stockings, eat breakfast and then take cookies to the local nursing home for a few hours before coming home and opening presents. As children this helped us learn to focus on others first.
• Don’t over do it with kids. I’ve seen parents wear their kids out at Christmas. Giving your kid 20 toys that they isn’t going to make 10 times happier than giving them 2 toys. It might even do the opposite because it is impossible for a kid to focus on 20 new toys at the same time.
• Plan for others. I have seen some situations where family members don’t come to Christmas because they can reciprocate with similar gifts. Don’t let a focus on gifts get in the way of spending time with family.

$250 American Express Gift Card Giveaway

• Add a comment to this post with a Christmas shopping tip to enter.
• Tweet a shopping tip with a link to this post for another entry.
• Winner will be chosen randomly, but we reserve the right to moderate comments.
• You have to be in the US to win.
• The winner will have 24 hours to respond before we select another winner.
• Winner will be chosen in one week.

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To help me focus on my goal, I set aside a savings account specifically for the purchase.  Using my parents’ typewriter, I created a thermometer style graph showing how much money I had saved and taped it to the back of the savings book.  I also taped a picture of the computer I wanted. Every time I made a deposit I updated the graph.  I kept the deposit book on my desk where I could see my progress every time I sat down.

I still remember picking up a blue ballpoint pen, filling in the rest of the thermometer and drawing the top of it exploding. A few weeks later, I had my computer. That savings account has been closed for years, but I still keep the account book to help remind me of the power of making goals visible. Some day, when my kids wants to achieve something that they think are nearly impossible, I’m going to pull out an old First Kansas Federal Savings and Loan savings book and tell her how I bought my first computer.

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American Express Concierge and Restaurants

One of the best experiences I’ve had with American Express Concierge service was early in 2011 when spending a few days in Kansas City for my wife’s birthday.  On a whim, we decided to visit the Country Club Plaza and noticed a restaurant called Fugo de Chao. It is a place where they bring skewers of meat around through the dining area and cut off pieces at your table. My wife had been to one of their restaurants as a teenager in Brazil and had very fond memories. Unfortunately we were told that there was a 2 to 3 hour wait for “walk-ins”.  The staff suggested that we get our name on the list and check back in two hours to get a pager. We weren’t planning on staying that longer at the plaza, so we left our name and left disappointed.

We walked to a nearby store and I decided to give the American Express Concierge a try.  They advertise that they can help get you in to popular restaurants. I got a friendly concierge, explained that we were on a two to three hour wait for Fugo de Chao at the Plaza in Kansas City and wondered if she could do anything to get us in any sooner.  She asked when we would like to eat and I told her “as soon as seats are available.”  She put me on hold for 5 or 10 minutes and came back on the line.

“I’ve just spoken to the manager and they have a table ready for you right now.”

I thanked her and we hurried back to Fugo de Chao.  I went to the hostess who had just told me there would be a two to three hour wait, gave her my name again and started to explain, but said, “Oh we have a table for you” and whisked us away to our seats.

I don’t really know what the concierge did, but we were certainly impressed. The question is whether or not she did anything we couldn’t have done on our own. I suppose I could have called, asked for the manager, and explained that we were in town celebrating my wife’s birthday and we’d really like to eat their if they could squeeze us in. That might have worked.  However, it is probably easier to get a hold of the manager if someone calls and says they are with American Express then if I call and say, “I’m some guy on the waiting list.”

AmEx concierge may have some leverage or other agreements that I’m not aware of. In particular, I know that they make recommendations for restaurants so there may be a certain amount of “you move our customers to the front of the line and we’ll recommend you to others” going on.

Amex Concierge as a Virtual Assistant

In my quest to find a remote executive assistant, I decided to give American Express’ concierge service a try.  If you have a Platinum or higher card, AmEx offers a concierge service.  Basically you call or email them a request and they will get back to you–usually within three days.  If you need to buy something (from a place that takes American Express) they can make the purchase and put the charges on  your card.

AmEx gives some pretty interesting examples of concierge things they have done.  One that stuck out to me was sending someone on a motorcycle to the Dead Sea to collect some water for a card  holder’s child’s science experiment.

The concierge services are actually handled by a company called Circles.  Circles concierge service is something that companies can provide as a value added option for clients or for their employees.

So here is one of my interactions with them:

I am going to be in Tulsa, OK this Friday afternoon and Saturday morning.   Could you find a local Volkswagen dealer and schedule my car for a tune-up and oil change on Saturday morning?  The earlier the better.  I will drop the car off and get a ride with a friend.  I will be staying near XXXX S. Lewis in Tulsa so if there are multiple dealers start with the closest.

My car is a 2003 Passat Wagon.

Thank you.

Mark Shead
xxx-xxx-xxxx – mobile

I thought I had covered all the bases, but evidently not:

Dear Mr. Shead,

Thanks for using American Express Concierge! I understand from your email that you are looking to schedule a tune-up at a Volkswagen dealer in Tulsa. Below you will find the address for Brad Noe Volkswagen dealer and the web address where you can request an appointment. I did not release your personal information, as I did not have your permission.

Name: Brad Noe Volkswagen
Address: 4240 South Memorial Drive Tulsa, OK 74145
Phone: (918) 712-8989
Website: http://www.bradnoevw.com/ServiceApptForm

If you would like for me to schedule the appointment on your behalf, please don’t hesitate to contact Concierge. I’d be more than happy to do so with your permission. Concierge is also available 24 hours a day, 7 days a week, ready to secure dining reservations or Valentine flower orders at your convenience. I hope you have a great afternoon and I look forward to assisting you again soon.

Ok I’ll try again:

Yes I wanted you to schedule the appointment per my instructions in the original message.  I’m sorry I wasn’t more clear. You can give them the necessary information for setting the appointment.

Mark

And their reply:

Once again, thanks for using American Express Concierge. I was able contact Brad Noe Volkswagen in Tulsa. Unfortunately, they are unable to schedule a tune-up and oil change on Saturday. They are fully committed and the first available appointment would be Monday or Tuesday. I realize you will be out-of-town by this time, so I did look for other VW dealers in the area. These would be located quite a distance away in Lawton or Oklahoma City. I do apologize for the inconvenience and would be more than happy to research reputable mechanics in Tulsa at your request. Concierge is available by phone or email, if I can provide any additional conveniences. I hope you have a wonderful weekend in Tulsa.

This isn’t necessarily their fault, but it underscores the need to be very clear when explaining exactly what you want.  It is entirely possible that the service was booked up when I sent my first request.  I might have had better luck calling the service instead of emailing. AmEx kind of implies that the Circles concierge will be able to do things that you can’t do on your own (like get you reservations at fully booked restaurants), but I’m guessing that isn’t the case–unless they have some type of prior arrangement with the business.

It also looks like they might be a bit more useful for Valentine’s gifts or similar purchases, since they keep offering to do that in their email messages. 

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Originally published March 18, 2009.

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From a money perspective it looked like a great opportunity. However, the more my wife and I talked about it, the more we realized that we’d be trading a significant part of our life away for more money. While this wasn’t necessarily a bad thing–everyone does this to some extent–we decided it wasn’t how we wanted to spend our lives, so I cancelled the interview.

Thinking about the job had forced us to really discuss what we wanted to do in life and eventually led to:

• We sold our house.
• I quit my job and started our own company.
• We moved to Mexico for awhile and then back to rural Kansas.
• We had two kids.

I now spend my days working in my home office 20 seconds from my family. I’m right there as my kids grow up and we have the flexibility to go visit family pretty much whenever we feel like it. My wife and I were married over nine years ago, I haven’t spent a single night away from my lovely bride.

While other life choices might have put me in a position to have a larger paycheck right now, I’m much happier with the path I chose. Everything has trade-offs, but I see far to many people willing to give up a good happy life in exchange for more money.  Having a large salary can’t make up for missing out on getting to really be present as your kids grow up.

The funny thing about large salaries is that they often come with greater expenses. It is easy to get blinded by the dollar amount that a job will provide and totally overlook the actual costs of a particular job. As a consultant, there is a lot more work available in a big city, but there are a lot more expenses when living in a big city. Our yearly expenses for a large house in the country are easily less than what a similar lifestyle would cost for a month in a big city.  I would much rather work half as much and live below our means in our rural setting, than work twice as much and be living with less financial buffer in a big city.

A big bank account won’t provide the same amount of happiness you’ll get from spending time with the one person you decided you’d rather be with than anyone else. A bigger paycheck is poor compensation for missing out on raising your kids.

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In the past year, I’ve been able to save over $15,000 simply by paying attention to the changes tax laws and taking advantage of different credits, lower tax rates, etc.  That may or may not seem like a lot of money, but considering the average household income where we live is  in the $30k range, we’ve saved in taxes what most people live on for 6 months out of the year. For example:

• We bought our house when the government was giving people a $7,000 refundable tax credit just for buying a house.
• Capital gains taxes were lowered for the past two years, so we were able to sell some stock and have the gains taxed at a much lower rate than normal.
• Our state was offering a program to get an energy audit done where we only had to pay $100 rather than the full $700 to $1,500 it would normally cost.
• There is a federal tax credit for making your house more efficient.  We took advantage of this by replacing some old doors and windows that were letting in a draft.
• Put pre-tax money into a health savings account where we can use it for medical expenses.

Most people just assume that they can’t understand the tax code.  By the time they go to have their taxes done, it is too late to take advantage of some of the bigger tax deductions because the tax year is over.  Tax law is complicated, but it is pretty easy to get an idea of the types of things you can do to save money. There are a number of great books that help walk you through the different ways you can save money on your taxes and the IRS website is easier to use than you’d expect. Investing a few hours each month educating yourself about current tax law can keep thousands of dollars in your bank account.

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Most people think of IRAs as being something you can invest in stocks, bonds, mutual funds and that is about it.  If you really look at the law, it is much more generic than that.  In fact the actual tax law only lists a handful of things that IRA can not be invested in.  Here is the list:

• Artwork
• Gems
• Antiques
• Coins
• Life Insurance Contracts
• Rugs
• Metals
• Alcoholic Beverages
• S Corporation Stock

Obviously that leaves a great number of things that you can invest IRAs in that most people don’t have access to. For example, you can invest your IRA funds in:

• Residential Real Estate
• Land
• Private Loans
• Tax certificates
• IPOs
• Automobile Loans
• Trust Deeds and Mortgages
• Private Stock
• Receivables
• Annuities
• Currency
• Commercial Paper

And other investments. Most brokers however, aren’t interested in the paperwork and hassle of making these types of investments, so they restrict your account to stocks, bonds and mutual funds.  If you are interested in making these types of investments with your retirement accounts, you need to look into something called a Self Directed IRA.  A Self Directed IRA is setup where you can find pretty much any investment and have your broker cut a check to invest in it. The other IRA rules are all the same.  It just opens up a bunch of different types of investments that you normally don’t have access to through your broker.

Obviously this is a lot more work for the broker, so you may need to find one that specializes in self directed IRA investments and you may have to pay much higher fees.  Some brokers handle this through a Checkbook IRA LLC.  The tax law says that you can’t just have the ability to write a check from your brokerage account for your retirement funds.  However, your broker can start a limited liability company and fund it with your IRA funds.  Then they can make you the manager of that company and give you the authority to write checks. Technically the LLC is owned by the brokerage who is holding it for your retirement account which you own.

This type of setup minimizes the hassle for your broker and gives you the ability to make investments without needing to go back to the broker every time you want to cut a check. Of course there are a lot of rules that go along with this type of setup.  In general, you can’t invest money in ways that will benefit you or your relatives now.  So you can’t invest in your spouse’s new business.  However you can potentially invest your friends new restaurant or a small startup.

When you retire, the assets in your LLC can be withdrawn just like in a normal IRA.  If it is a traditional IRA, you’ll have to pay taxes on the value of the assets.  If it is a Roth IRA the assets are tax free.  So what some people have done is create a Checkbook IRA LLC to get access to the IRA funds and then buy a home where they plan to retire.  Then they rent out the home to generate some income.  When they reach retirement age, they can move into the property as their own, with no taxable income (because it was a Roth IRA where the tax is paid up front).

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A few months ago, two brothers who I went to college with entered the hospital.  The older brother had a liver problem and the younger brother was going to donate part of his liver. (Your liver is one of the only organs that will grow back.) I don’t know exactly what happened, but something went terribly wrong, and the younger brother that was donating part of his liver died. a few days after the operation.  He was in his mid thirties and left behind his wife and three young children. Unfortunately it doesn’t appear that he had life insurance–or at least he didn’t have enough to adequately provide for his family. Family and friends are gathering donations to help the family.  While the real tragedy is that the children and wife have lost their dad, it is unfortunate that they have financial difficulties on top of their loss.

If you have people who you want to provide for in case of a tragedy that resulted in your death,  take the time to get life insurance. Right now life insurance is at a historically low price point.  If you have ever thought about getting life insurance, now might be a good time to look at it. (If you want to see how low, checkout this comparative quote service for some idea.)

Purpose of life insurance

People buy life insurance for different reasons. What makes sense for one person won’t make any sense for someone else if they have different goals. Usually life insurance is purchased on the primary wage earner in a family with the goal of taking some of the financial strain off of the family of the wage earner dies early.  For example, a family that earns $50,000 per year and lives in a house where they owe $150,000 might want to get an insurance policy that would pay off the house and provide $50,000 per year until the kids get out of college. Insurance for this type of situation is called term life insurance.

Other people want life insurance as a way to save money for the future in addition to the insurance component.  Their goal is to have insurance if they die unexpectedly and value that they can cash in when they reach retirement age. This type of insurance is called whole life insurance.

Term Life Insurance

Term life insurance covers you for a specific period of time–usually 20 or 30 years.  Since the insurance company isn’t trying to insure you when you reach the end of your life expectancy, the rates are usually pretty cheap.  A 30 to 35 year old male should be able to get a $500,000 30 year policy for around $450 per year.  It is significantly cheaper the younger you are.

At the end of the “term” the policy has no value.  You only get money back if you die–well you don’t get the money, but someone you specify does.

Term life insurance is a very inexpensive way to remove the risk of your spouse needing to go back to work, losing the house or having trouble putting your kids through college. Most policies require a minimal amount of health screening–simple enough that someone can come to your home and do it in 15 to 20 minutes.

Whole Life Insurance

Unlike term insurance whole life insurance accumulates value. The idea is that it functions as an insurance policy during the early years and late in life you can withdraw the cash value. This means it acts like a term policy early on–if you die your heirs will get more than you put in.  As you age, you eventually get to the point where you are basically just going to get back the money (with interest) that you originally put into it. Since insurance companies are going to have to pay the value back to you regardless of when you die, the premiums are necessarily higher–part of what you are paying is simply going into an investment that they will return to you.

For many people with some level of financial experience, whole life may make less sense than taking out term life insurance policy and investing money on their own for retirement.

Now there is a potential benefit of whole life insurance and that has to do with the tax treatment.  The money growing in the insurance policy investment grows tax free–just like a 401k or traditional IRA. Further more, you can borrow against that value once it has grown to a certain point. If you see advertisements saying that you can “borrow from yourself” or  “not pay any interest on loans” this is often what they are advertising. Of course you can borrow from many 401k accounts too, so their still may be very little benefit over the term life insurance and managing your own retirement.

Life Insurance Application Process

I have term life insurance so I’m going to talk about the process of obtaining that. I would imagine it is similar for whole life, but I can’t speak from personal experience.  (If you have experience with purchasing whole life insurance please leave your experience in the comments.)

I got a 20 year policy after I got married.  After our second child was born I decided to get another policy for 30 years.  I checked with my financial adviser who manages my retirement accounts, my local insurance agent and an online service that gets bids from several different companies so you can compare them.  In the end I got a much better price from a place I found through the online service and went with them.

When you buy insurance, they want to make sure you aren’t just getting it because you have a high probability of dying.  The lowest rates are based on you being a normal person who doesn’t like to do risky things.  So part of the application asks you questions like:

• Are you in the military?
• Do you plan to go hang gliding, sky diving or pilot a small plane?
• Do you have any plans to go to countries that are currently in the middle of a war?
• Does your job involve hanging from tall towers?

Once they are convinced that you aren’t unusually risky, they will work on getting a medical checkup.  In my case they sent a nurse out to our house.  She took urine and blood samples, bloodpressure, heart rate and got a medical history. Once the results of that came back, they confirmed that I looked like I wasn’t going to kick the bucket anytime soon and said that they would offer the policy at the quoted rate. I’m assuming that if I had of been a sky diver or had bad blood pressure they would have offered me a policy at a higher rate.

With a few pieces of paper faxed back and forth, they took my initial premium via a credit card and then sent me my policy along with an address to send a check for the yearly policies for the next 30 years.  Many places offer monthly, quarterly or bi-yearly payment options, but it is usually cheaper to pay once per year.

Conclusion

Regardless of your goals for life insurance, now is a good time to check into getting a policy.  Rates are low and the older you are when you start the higher your premiums will be.  The insurance agent you get your car and homeowners insurance through may be a good place to start, however make sure you check out a comparative quote services like this or this just to make sure you are getting the best possible deal.

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I’ve been compiling a list of best practices to help buyers get the best deal from Craigslist purchases.  The bulk of this article is going to focus on a process for getting the best price on CraigsList items based on my experience. In the second section, I go through an actual email exchange to show how to offer substantially less than the asking price without insulting anyone. In the remaining sections of this post, I’m going to look at some other aspects of buying off CraigsList including a look at scammers and recognizing value.

If you have a technique or a trick that you use to buy stuff, please share it with everyone in the comments.

How to negotiate for the best deal on CraigsList

To get the best deal, you have to be able to walk away from any particular item.  Once you decide you want “that one” all of your negotiating advantages are lost.  The strategy below combines several strategies I’ve used in the past and I think represents pretty much the optimum approach to getting things off CraigsList if you are trying to get the lowest price:

1. Express interest

When you find something you want for sale, write a brief not asking a few questions about it–even if you already know the answer to it.  The goal is just to pass on your email address as an interested party.  If no one else responds to the ad, the seller at least has the email address of one person (you) who might be interested.  Several times, I’ve asked a few questions and decided I wasn’t interested in the item at the price it was offered. Two weeks later as the sellers moving date approached, they wrote me back asking if I’d I’m still interested, but at a greatly discounted price.  Later they told me that I was the only one who had asked them any intelligent questions about the item, so they figured I was the only one who might buy it.

2. Wait 3 to 5 days

The goal here is to identify any sellers who are completely desperate. They are the ones who need to be out of their house tomorrow and are almost willing to give the thing away to have it gone.

3. Make an offer

So first, you respond to all of the items that are for sale, just to get your name in the hands of the seller. Then you wait a few days to see if any of them offer you an incredible deal.  Now, take the items that look the most promising due to their proximity, price, condition, etc. and write them asking if they would be willing to sell it for $X.  Lets say you are looking at a piece of exercise equipment.  After they have responded to your first email with some questions about the item, write them back and say something like:

Thanks for getting back to me.  I’ve been watching for that lawn mower for awhile and I’m seeing it sell in the $800 to $900 range on ebay and in other cities on CraigsList.  I know you are asking $1300.  If you have any interest in selling it for $875 cash, let me know because I’d be interested in coming to see it.

This makes it clear that you have other options.  It also cites other sources identifying prices you’ve seen the item going for in other places. Keep in mind that most people selling something on CraigsList have no idea what it is worth.  Like I said, the prices can be all over the place and are greatly dependent on how motivated the seller is. By finding the lowest price you can get something elsewhere, you are making sure you are making an offer that is not completely unreasonable, but also one that gives you the best deal possible.

4. Wait and Negotiate

Most likely people write you back and say that there is no way they could possibly let it go for that price.  That’s fine.  Be polite.  Remember you only need one and the price you end up paying is inversely proportional to the amount of time you can wait to get it.  A few people will write you back with a lower offer.  Some will say no and then write you back later on with a better offer when their situation changes or when they still haven’t sold it.

You may end up doing some negotiating back and forth.  Delivery might be something worth negotiating.  I bought some exercise equipment and negotiated that they would deliver it and help us set it up. This saved us several hours of time and was much better than trying to get another $100 off the price.

Examples

Here is an actual exchange when I was looking for some Bowflex exercise equipment.  This particular exchange I didn’t end up buying the item because I found something else, but it shows how people are willing to drop their price by 50% when their situation changes. In this case they were selling a Bowflex for an asking price of $2,000.

My initial email:

I’m looking for a Bowflex Revolution (not XP) and am willing to pay $1,000.  Will pay cash and pickup with a truck (as long as there is someone to help me load it).

I realize this is well below your asking price so I understand if you aren’t interested, but I thought I’d ask just in case.

Mark

Notice I’m not insulting the value of their stuff.  I’m also showing that I’d made the transaction go as smooth as possible by paying cash and showing up with a truck.

Their first reply:

Mark,

Thank you for taking a look at my ad. I would like to at least get half of what I bought it for (which was 3000), but will negotiate on the price.

Bob

The question at this point is how badly do I want it.  I had decided that I didn’t want to pay over $1,000 for this piece of exercise equipment, so I just let him know. Having a budget can be your best friend.  You can also have an agreement with your spouse on how much you want to spend. Having something external (spouse, budget, etc.) that is helping put an upper limit on what you can spend is very good negotiating tactic.

The point is you don’t want to get into an argument about how much something is worth.  How much it is worth isn’t relevant. It is worth whatever you are willing to pay and the seller is willing to accept.

Bob,

$1,500 puts it out of my budget.  Let me know if you are interested in taking $1,000 for it.  Otherwise I’ll probably have to lower my sights and go with one of the Ultimate 2 Bowflex units that people are selling for $700 or so.

Have a great Christmas!

Mark

Notice that I still offered my original price and I validated that he has a good unit by saying that I’d “lower my sights” and get something different. Also notice that I’m not saying that the item isn’t worth what he is asking for it.  Someone convinced him to pay $3,000 for this thing. I’m not going to help my negotiating position by acting like he made a foolish investment or saying that it isn’t worth that price.

About a week an a half later I got this:

Mark,

Hello i was wondering if you were still interested in the BowFlex Home gym. Some unfortunate events have happened with my job and i would be willing to sell the BowFlex to you.

Bob

By that point I had gotten an even better deal on a different unit, so I had already found a great deal on a different piece of equipment. But I’ve seen this type of scenario play out several times and if you are willing to follow the process, you can get a pretty good deal on things by making a lower offer and then simply waiting until someone is desperate enough to want to get rid of it.

Watch for scammers

If something seems completely too good to be true, it normally is.  However if you follow this rule entirely, you’ll miss out on any of the great deals.  Keep in mind that the value of used item can be all over the place.  When someone is faced with moving something big and heavy that they don’t use, their value of that item is greatly diminished.

So how do you spot scammers if you can’t follow the “too good to be true” advice? The easiest way is to look for people doing things that are weird. For example, I was looking for a large lawn tractor in the Kansas City area. I found what looked like an incredible deal and emailed the seller. She said that the tractor belonged to her father who had passed away and she had moved it to Canada where she lived and was trying to sell it. She implied that her father lived in Kansas City and so she listed it there, but it hadn’t sold by the time she moved it to Canada. She said she would sell it through an escrow service so I’d be protected until I inspect the tractor after she shipped it back to me.

First of all, no one in their right mind is going to ship a tractor to Canada only to try to turn around and sell it again in Kansas City.  Second, no one is going to ship a tractor back to Kansas for someone to look at without a guaranteed sale. It was obviously some type of scam and I saw dozens of similar listings in the tractor section.

So watch out.  If someone wants you to do something weird to buy an item, it most likely is a scam.  Put yourself in the sellers shoes and see if what they are asking seems at all reasonable.

Consider mileage and moving costs

If you live in a rural area like me, you need to make sure you consider the cost of travel.  Make sure you don’t lose all of your savings in the distance you have to travel to go and get the thing. For larger items, you may even have to rent a moving van or trailer.

Know what you want

If you can determine exactly what you want, you will put yourself in the best position. Many items come through CraigsList, so do your homework ahead of time and wait for the right item at the right price. One big advantage of this approach is that you know what to watch out for as well.  For example, if you are looking at a particular lawn mower, make sure you research all the potential problems so you will know what to look out for when one comes up on CraigsList.  You’ll save yourself a lot of time by asking questions over the phone.

Doing this research ahead of time means you’ll have a better idea about the value of an item.  For example, a $2,000 lawnmower selling for $1,000 might seem like a great deal.  But if the expected life on the lawnmower is 200 hours and it already has 150 hours, it doesn’t look like quite as good of deal any more.

You don’t always get what you pay for

CraigsList is one of those places where you can really exploit the difference between what something is worth to you and what it is worth to the person selling it.  A 700 pound piece of exercising equipment, might be worth $1,000 to you, but to someone who needs to move out of their apartment in two days, it might only be worth $50 if you will come get it.  If you lose your job and need some cash, you will probably be willing to take much less for that extra television set you never use or a movie collection you never watch than what you paid for it.

You will easily find the same item in the same condition going for $500 to $1500.  The price has more to do with how much the seller uses it, how much they need the cash and how quickly they need it out of their house.

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Here are some common myths about money:

When I receive money, someone else loses it.

From a total economic perspective, money represents productivity and productivity is not a zero sum game. A zero sum game is one where in order for me to win, someone else has to lose. Money and productivity doesn’t work like this.  When you spend $10 at McDonald’s, some of that money goes to help put one of the workers through college and some of those college graduates are going to innovate and create labor savings devices which in turn increase the amount of productivity you can buy with the same amount of money, etc.

The value of stuff is well-defined.

In other words, this is the belief that there is some type of intrinsic price for a particular service.  So a car wash should cost $8 and the value of mowing your lawn is $34.78. This isn’t how the world works.  The value for a particular service or product can vary wildly. People are willing to pay more for something that will make them feel good about themselves–beyond the actual utility. People will buy more expensive coffee even if they can’t tell the difference in taste with a cheaper option because it makes them feel better about themselves.

There are all kinds of things involved in the price of an item or service.  This is very important to understand when you are selling something.  Often what people are really buying isn’t the thing itself, but the experience and emotions that go along with it.  When you are on the purchasing side of the fence it is important to understand what is driving your purchases.  I don’t mean that you shouldn’t ever make a decision to buy something more expensive because of its emotional appeal, but you should recognize what you are really paying for in the transaction. If you are actually purchasing an emotion, there may be much more cost-effective ways of doing it.

Selling something for a higher price in the future is always a profit.

Lets say you buy a house for $100,000 and 10 years later you sell it for $120,000.  You made $20,000 right?  Not necessarily.  If inflation was 6% each year, it wiped out pretty much any gain you made.  The $20k ten years ago could buy much more than it does today so in terms of purchasing power, you may have lost money. This doesn’t mean your house was a bad investment–just that you think of as profit may simply be inflation.

On the other hand, if you borrowed money for your house at a lower interest rate that $20,000 might represent significantly more profit because you didn’t have to actually commit all $100,000 to buy the house.

My point is that not everything that looks like you are making money is actually putting purchasing power into your pocket. You have to do the math to really see if you are gaining or losing.

The amount I can spend is determined by what is in my checking account

While it is good to have some type of limit on the amount you spend any approach that encourages you to simply spend as much as you make is going to set you up for problems down the road. The money you earn today needs to not only provide for today’s needs but tomorrows emergencies and your eventual retirement. Most people are in the habit of spending money as they earn it, but the people who manage their money most effectively are careful to live well below their means in order to prepare for the future.  This doesn’t mean they don’t ever spend a lot of money, but when they do it is deliberate and they can tell you where their money went–it doesn’t simply disappear in random small purchases.

The cost of an item is what is on the sticker

With many purchases there are other additional costs after the purchase.  When you buy a car, you must pay for insurance, gas and maintenance.  When you get a pet, you have to pay for the vet and food.  If you put in a swimming pool, you have to pay for water and cleaner.  Your computer will require software, your house will require paying taxes, etc. Wise people look at the entire lifetime cost of something rather than just the immediate cash requirement.

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Individual Retirement Accounts

An individual retirement account is a retirement account that you set up personally. The government created this to make it easier for people to invest money for retirement when their employers didn’t offer retirement accounts. Basically, when you contribute to an IRA, you don’t have to pay taxes now on the amount you put in. You have to pay taxes when you take it out. (A Roth IRA works in the opposite way–you pay taxes now, but not later.)

There are a number of stipulations and rules associated with it, but the two we are concerned about for this discussion are the rules related to borrowing.  You aren’t allowed to use the IRA for collateral, so you can’t borrow against your IRA. You can’t borrow money directly from the IRA, either. If you take the money out before retirement, you have to pay taxes on the amount you took out, plus a 10% penalty. (There are a couple of exceptions where you can avoid the 10% penalty.)

Getting a loan from your IRA

However, the government does let you roll your IRA over from one account to another. Usually you do this by requesting a check from the old account and depositing it into the new account. The law says you have 60 days to accomplish the transfer. This is the loophole. The 60-day period is basically be a 60-day loan of the value in your IRA.

The 60-day rule isn’t there to let you take a loan, it is just there to let you transfer the money elsewhere. For most people looking for a way to borrow money from their IRA, this loophole is a really really bad financial idea. People looking for this type of loan are under financial distress with problems that aren’t going to suddenly clear up in 60 days. If they pull the money out, spend it and don’t pay it back they are going to be in a position of owing the IRS a significant amount of the IRA’s value. Assuming 30% tax rate, pulling out $10,000 would generate a $4,000 tax bill. Further, bankruptcy can wipe out a lot of bills and debts that cause financial distress, but not anything you owe to the IRS. So if you temporarily use the IRA money to pay other debts and then go bankrupt, you now have a debt that stays with you through bankruptcy.

When to borrow against your IRA

So, why would you want to use the 60-day rule to borrow money? The only way I can think of is if you had some type of financial opportunity that you wanted to take advantage of, but it would take you more than 60 days to arrange financing. For example, if you found your dream home as a foreclosure and wanted to quickly make a cash offer to a bank, you could potentially pull the money out of your IRA to buy the house, and then get a mortgage on the home to pay it back. There is still risk involved. Here are some things to ask yourself:

• Do you know you can obtain financing elsewhere?
• Are you sure you can complete the other financing approvals within 60 days?
• Are there any possible roadblocks you haven’t foreseen?
• Is it possible to borrow money elsewhere?

Even if you think you can pull it off, here are some things to watch out for:

• Setting up the IRA may take longer than expected. Make sure you know how long it takes from the time you give the broker a check to the time it shows up in your new account for IRS purposes.
• Understand the paperwork involved and have the account created ahead of time. You don’t want to take 61 days because the broker was sick or because you forgot about a holiday.
• Make sure you understand how long it will take to get your other funding and leave a margin for error.

So, even though this is possible, it is risky. If you need money, there are usually other options that come with much less risk. Here are a number of ideas:

• The original investment in a Roth IRA can be withdrawn without a penalty or taxes, so that might be an option.
• You may be able to borrow on margin against your stock portfolio.
• Don’t forget about family. There may be someone willing to loan you money where they aren’t going to charge you 40% if you take 61 days to pay it back.

So, there you have it–a way to borrow from your IRA. Once again, let me stress that 90% of the time, this is a very, very bad idea. However it is possible, and sometimes knowing what is possible can help you take advantage of rare opportunities that come your way.

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When it comes down to it, you work for yourself, regardless of who is the owner of the company that cuts your check. It is your responsibility to market yourself, develop your skills, identify trends and position yourself to profit. Abdicating these responsibilities doesn’t somehow put you into an “employee” category where you have more job security.

Most successful people see their jobs like this. They are in a business relationship with their employer, but they see the employer as their client. This represents a significant change in mindset for most employees, but if you can get your mind around it, it can be one of the most powerful changes in perspective you will ever have.

Here are some ways that being an employee is very similar to being self employed:

• Your employer/client can get rid of you at any time.
• There is minimal job security from any one employer/client. You need diversification.
• Economic forces often determine if you keep the job/contract.
• Clients and employers aren’t required to be rational – even if you make them money and are valuable, you may lose your job/contract.
• Your ability to command large sums of money is directly related to your ability to “walk away” and find another client/employer.
• Employers/clients want people who bring significant skills to the table.
• Even if you are 10 times more productive, it may be hard to convince people to pay you 10 times more. (Although it is harder as an employee.)

If this is true, why aren’t more people their own boss starting their own business?  It mostly comes down to education. Most people have an employee mindset. They don’t know how to get the things that their employer provides for them and assume they need to work for someone else to get those things.  Here is a short list of some of the things that people tend to rely on their employer for and keep them from starting their own business:

• Retirement plan
• Health insurance
• Tax witholding
• Vacation and sick pay
• Marketing (finding clients)

None of these are particularly hard to get/do for yourself if you start your own business, but you have to put some effort into learning how they work. If you think you may want to be in business for yourself at some point, it is time to start researching the above list and learning how you can provide those things for yourself. You are a lot better off having a solid knowledge foundation ahead of time. Not only does it take away some of the fear of the unknown, but it can help you understand how to structure your business in a way to maximize your profits.

Maybe you shouldn’t start your own business. However, everyone can benefit from acting as if they are in business for themselves–regardless of who actually signs their paychecks.

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Tax folder

Start a folder today for 2010 tax papers. Even if you don’t put anything in it, having it ready helps make sure that you don’t accidentally misplace something when it does come in. Many people spend more time looking for tax papers than they do actually preparing their taxes.

This folder is also a great place to keep anything that will help you with your taxes. If you read about a tax credit that may help you next year, put it in the folder. If you find a good article on what types of health care are deductible, put it in the folder.

Plan retirement contributions

A bit of planning right now on how you want to approach retirement planning for next year can save you a lot of money. For example, if your income will likely be low in 2010, you might consider putting money into a Roth IRA. Your lower earnings mean you will be at a lower tax rate, so the Roth is likely to benefit you more in the long run than a tax break today.

If your earnings this year are likely to be very high, you might consider putting more money into your 401k or a traditional IRA where the tax benefit is available on this year’s earnings.

Plan charitable contributions

Your charitable contributions only help you on your taxes if you itemize your deductions. If the standard deduction were greater than your itemized deduction, you might consider an alternating-year strategy to claim a greater deduction. By making all of your charitable deductions every other year, you’ll batch them together. Depending on your particular situation, this may mean you can take the standard deduction in the off years and a higher itemized deduction in the other years.

Understand the health care bill

The changes may affect your tax strategy. One notable change: Health savings accounts used to be usable for over-the-counter medication. Now you will get hit with a 20% penalty for those purchases. There are numerous other provisions that may impact your taxes. Make sure you understand what goes into effect as the changes are phased in over the next few years.

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Most people don’t take what is common knowledge about investing and apply it to other areas. In particular, they don’t apply it to their income. When you are in a position where all of your income is determined by a single employer, you are just like the guy who had all of his money in street cars.

Many dual-income families have some level of diversification by having two adults working at two separate jobs. This does create a bit of diversification, but chances are both jobs are in a similar geographical area, and booms and busts can be local in nature rather than just by market sector.

Your job is not secure

If you haven’t realized it yet, your job isn’t secure. It can go away, and it doesn’t matter how indispensable you are. Businesses fail for a variety of reasons, and it may not matter how important you are to the person you work for, directly. Having some sort of income from your own business is a great step toward insulating yourself from other people’s business mistakes.

The sooner you understand that your employer owes you nothing, the sooner you can take charge of your own financial future.

I’m not trying to encourage you to just quit your job and go out on your own. I’m trying to encourage you to see the opportunities around you and take advantage of monetizing hobbies or activities that you may enjoy. This isn’t about getting rich. It is about having a more stable base of income sources.

Evaluating opportunities

A safe approach to income diversification is to develop a number of other income sources that don’t rely on your job. Here are some features of an ideal diversified income opportunity:

1. Minimal or flexible time commitment. You want to create income from either a hobby you do already or from something that doesn’t require a significant time commitment each week. It is also good if most of the time required is flexible in nature.
2. Scales up and down. An ideal diversified income opportunity is something that can be scaled up or back down. You want to be able to put a flexible amount of time into it, and it needs to be able to expand and contract without hurting your ability to have long-term success.
3. Residual income. Ideally, you want something where the time you invest gives you payments for a long time.
4. Autopilot capability. An opportunity that you can eventually let run itself offers you a great deal of flexibility.

It may be difficult to find an income opportunity that meets all of those requirements. That is okay. The list is more of a way to compare different opportunities than a check list to follow precisely. It gives you a way to evaluate the strengths and weaknesses of different ideas you may want to try.

Small amounts matter

Even a small amount of income from a source other than your job matters. When I started Productivity501, I remember being excited when it was enough to cover my $30 per month phone bill. Then it paid my electric bill. Now it pays my mortgage.

Don’t overlook something because the amount seems too insignificant. Make sure you evaluate how much time it takes to get to a certain level of income.  Even if it is just $200 per month, if it takes a minimal amount of time, that $200 represents money that isn’t tied to your employer.

Income diversification ideas

Here is a short list of ideas I’ve seen people doing to make a side income:

• Blogging and websites – Productivity501.com is a good example. If you can get consistent attention online, there are ways to monetize that attention. It isn’t easy. You are competing with everyone anywhere in the world, but if you can find an unserved niche, it is possible to create a site that will generate traffic. Many people use their website to help promote a book or other product they are trying to sell.
• Writing books- I know of a guy who makes a decent living selling books from his home on how to coach youth football and a variety of other topics.
• Log book – One of my uncles has a side business where he sells log books for crane operators through the mail. At the end of each year, he sends out order forms and then gets the books printed and shipped. It doesn’t make him rich, but it also doesn’t require much effort.
• Window washing – I used to live next to a guy who had a small trailer of window washing supplies. He’d spend a few hours on Saturday morning washing windows of local houses and make several hundred dollars per hour.
• Photography – I know several people with photography skills that occasionally do weddings or portraits to make some extra cash.
• Mums and flowers – Near our house is a family that sells mums once each year. They have a large portion of their yard set up with drip irrigation, and over the summer, you can see them getting everything ready little by little. When fall comes, they have beautiful plants for sale. I don’t know how much they make from it, but it is evidently enough to keep them doing it year after year.
• Cell tower cleaning - I have a friend who is a teacher. During the summer he goes around and cleans the base area around cell towers. It is evidently a pretty profitable job, and he has invested in the equipment he needs to make it go very quickly.
• Reselling items – A college friend of mine buys used pianos and resells them on the internet. Pianos have a fairly large margin since people who don’t want a piano see it as being not very valuable and people who do want a piano see them as being worth quite a lot. Exercise equipment is another product that has this huge gap between the value that buyers and sellers place on the same item. Many items that require special knowledge and equipment to move fall into this category as well.
• Calligraphy – I have a friend who has beautiful handwriting. She does calligraphy for wedding invitations and fancy addressed envelopes.

That is just a short list. There are income opportunities all around you, and usually the most profitable are the ones that aren’t on this list, but that make use of your specific skill or passion.

Conclusion

There are a number of different sources of income. Make sure you aren’t just depending on your employer. Even a few hundred dollars per month from another source can give you additional financial freedom that gives you some level of protection against layoffs and job instability. A few hundred dollars a month gives you some income that isn’t dependent on your boss. It also can serve as the foundation for the confidence you need to start your own full-time business if you ever decided to do that.

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Homebuyers credit

The home buyers credit expires after April 30.  First time home buyers can get a $8,000 refundable credit and there is a $6,500 credit available for current home owners to buy a different home.  April 30th is the deadline to sign a binding contract, but you have until June 30th to completely close the deal.

Claiming the home buyers credit will force you to file on paper and your return will be subject to much closer inspection.  The IRS plans to audit some 200,000 returns of people who took the home buyers credit so be sure to do your best to provide all the necessary paperwork with your tax return.

IRA contributions

You have until April 15th to make your IRA contributions for 2009 so there are a few days left to fund a traditional IRA or Roth IRA. It can be worth calculating your taxes with and without the IRA contribution to help decide what type of contribution to make. If you mail in a contribution, make sure it is postmarked before April 16th.

Healthcare

The health care bill promises to make a lot of changes for workers. Some small businesses may decide there is an advantage of getting a bit smaller to avoid some of the expenses they will incur at their current size. If you work for a company right around the 50 employee mark, be aware of how the new laws impact your company because the changes might prompt some layoffs–particularly of people who make less than $80k per year.

If you don’t currently have health insurance, it is well worth your time to read through the provisions of the healthcare bill to understand how it will affect you. The government wants you to get insurance coverage and will give you some tax breaks to do it if you are at the lower end of the income scale.

Stocks & Funds

Stocks have risen over the past year, but many are still at a point where they are considered a bargain.  A well balance mutual fund may be a good long term investment.  Index funds are mutual funds that track a specific stock index.  For example, you can get an index fund that invests in all the companies in the S&P 500.  This gives you an easy way to invest in a diverse set of companies.  Since the index fund is a mechanical allocation (they aren’t paying someone to pick stocks) the cost is usually very low.

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