Credit Card Churning Conclusions

It’s been a little over a year since I really got into my now favorite side-hustle of credit card churning. I thought it was time to sit down and hammer out my thoughts and lessons learned from my experiences.

Cash-back Rates vs. Rewards

Most all cards these days have some cash-back rate. It used to be that 1% cash back was awesome. Now, 1.5% seems standard for all purchases. Chase Freedom and a few others have rotating 5% cash back categories, and many cards have 2% or 3% cash back in permanent categories such as restaurants or gas stations. We usually only churn one card at a time, so I’ve ran into a dilemma often. Do I use my card that gets 5% cash back, or do I use the card I’m churning? The more I think about this, the more I think the cash back doesn’t matter when compared to the rewards rate.

Most cards I’ve been seeing the past few years have been offering $150 in rewards after spending $500. That’s a 30% cash-back rate! On top of that, you still almost always get 1% cash back. Even if you’re a bit inefficient, say you overspend on the card by $50, you will get $150 in intro rewards and 1% of the $550. This results in $155.50 in cash-back and rewards a rate of 28.27%. In fact, you get so much of a better rate with the intro rewards that you would need to spend eight times the intro amount to hit a cash-back rate of 5%, sorry Freedom!

Of course, if you’re not actively churning (or churning multiple cards) you should definitely use the card with the best cash-back rate! But, if you are committed to churning, cash-back rates are simply a red herring.

Churning Efficiency:

ECA and I have opened 15 cards since September 2016, a little more than one every other month. Considering most cards have a requirement of spending $500 in 90 days (with a few that require more), this results in an expenditure rate of about $315 per month, or $3,750 a year. Adding back in the higher limit cards like the Sapphires and the Bank of America (BoA) Travel Rewards and removing the cards that don’t require spending such as the Amazon Prime store card, that expenditure goes up to around $7,000 per year. Between two people, this rate is fairly easy to hit with groceries, gas, travel, and utilities. We top out at about $10k-$12k in expenditures per year that we can actually put on credit cards, so we’re being pretty efficient in our churning.

And Inefficiencies:

We almost always run over the limit by at least $50-$60. The worst run-over was my most recent churn with the BoA Travel Rewards card which I didn’t realize how the rewards worked. I ended up spending $250 more using it than intended. There’s also been a few times where we came up a little short of the limit with our normal spending. We haven’t lost any rewards, but to ensure we made it, we pre-paid our bills in advance, basically spending money earlier than we had to which could have been put in the market, still a better return though. The last bit of inefficiency is that we sometimes wait longer than necessary to open a new card, either because we’re afraid our spending won’t be high enough to meet the reward amount, negligence, or inability to get approval, which is rare, but has happened. Overall, I think we’ve got a mean churning machine, but there’s still a tiny bit of room for improvement!

Side perks:

Most cards don’t offer much, but there are a few notable ones. Rental car insurance, no foreign transaction fees, access to your credit scores, and trip insurance, are pretty commonly offered, sometimes on cards without annual fees. The best was the Chase Sapphire Reserve which provided TSA pre and access to airport lounges in addition to other perks. Getting the Sapphire also improves the rate of return of all Chase cards when you redeem the points for travel as you get 1.5x the normal rate and you can transfer points from all the other Chase cards.

Annual fees:

The only card we’ve paid an annual fee on is the Chase Sapphire Reserve, but we actually broke even thanks to a weird trick. The annual fee for that card is $450, but Chase also offers a $300 annual travel credit when you use the car to pay for travel expenses. The trick is that the credit is on an standard calendar, but the fee is based on your start date. Since I opened my card in late February of 2017, we paid the annual fee and got the credit shortly after. Once 2018 rolled around, we got the travel credit again and I down-graded the card to a no annual fee account before the annual fee hit. So we managed to get $600 in credits for a $450 cost, netting $150! Unfortunately, we didn’t realize this was possible and the timing didn’t work as well for ECA’s card, so we ended up paying the $150. Oh well, we broke even on fees.

It is crucial to downgrade to a no annual fee account.

Down-grading or doing what they call a “product change” is the better way to avoid the fees since closing the accounts can negatively affect your credit score. It’s also a good idea to merge accounts when possible if you have multiple cards with the same bank since you often will not be eligible to open the same card again until you do so and wait quite a long time.

Leveraging free loans:

Although ECA and I have nearly crippling anxiety regarding loans, we’ve been taking advantage of the 0% APR period many cards offer. This has allowed us to put slightly more into brokerage account, thus reaping rewards in the growth of the market. Although this year had a rocky start, I estimate we’ve made about $100-$150 doing this. Not much in the grand-scheme of things, especially when compared to the rewards.

This did bite me once! Watch out that some cards offer 0% APR on balance transfers and some change their offer sometimes between purchases and transfers. I had one card which I thought was 0% APR on purchases. Ended up costing me 8 bucks before I realized my error!

Credit Score:

If anything, churning has had only positive or no effect at all on my credit score. TransUnion has been hovering consistently in the range between 800-815 and FICO between 795-805 over the past two years.

Risks:

I think the biggest feared risk is the increased exposure to identity theft, but that may not be a legitimate concern as the companies that have approved us for cards seem to have cracked down quite a bit. It’s actually rare now for us to apply for a card and be approved right away. We usually get a phone call, or need to call them, or even go to the bank in-person to get approved.

The second biggest risk is forgetting to pay off those 0% APR cards. The interest rate is high and missing that pay-off time would instantly lose all the gains for leveraging those. That’s not necessary for normal churning though, so I don’t think this is a universal risk with churning for rewards.

We also have a lot of cards we’re not using, I’m not always carrying around 10 cards, so those are at home, so there is some risk that a burglar could get to them. I don’t think this is likely and we’d be able to quite quickly stop the cards, but it’s still within the realm of possibility.

Overall, I think there’s very little risk to churning. As long as you’re a responsible person who will not buy things you can’t afford and will pay off the balance to avoid the APR, you should do it.

The Bottom Line

Over two years we have made nearly $5000 in reward bonuses! That is nothing to sneeze at. This is effectively tax-free income. We’ve also received a lot of side perks, making our trips more fun with lounge access and TSA pre.  Stay tuned for my picks for favorite and least-favorite cards which I’ll do next time.

 

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Aurora Watching Trip

We must be FI blogger at heart before we even know about FI. The proof is that I have been tracking the expenses of majority of our vacations. I was doing it to compare and it is especially helpful when we take similar trips to benchmark. (Maui vs Big Island).

Our Alaska Fairbanks trip is among my all time favorite, we went on my birthday to see Aurora Borealis. In my culture, Aurora is seen as pure magic and blessing. The tale is that when a girl sees it, she is blessed with happiness for the rest of her life. This trip is also the most expensive trip (cost per person per day) we have done but so worth it! #dreamcometrue

Here is the breakdown:

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Air tickets:

The trip was before we know very much about FI and travel hacking. Now we do credit card churning, the air tickets can be easily covered by sign up bonuses.

Lodging:

The total trip was 4 night and 3 days. We tried to optimize for more nights because there is never guarantee that you get to see Aurora. In my opinion, the best chance of the year for the Alaska Fairbanks trip is around equinox. This is when you have same amount of day and night time. Alaska is not too cold and dark yet for day exploration, and there is enough night time for the Aurora to shine.

The first night was the night we flew in and landed around mid-night. We stayed in a hotel near Fairbanks downtown/ airport. We got quite lucky that upon arrival we saw Aurora even with the light pollution from the airport. We had a little issue with the car rental company not having enough cars. Luckily the car rental place told us we can just take cab and send in the bill to get reimbursed. So we took a cab and told the driver just to drive to the dark. We saw the end of the Aurora when it starts to dissipate into the sky and the sky is purple.FullSizeRender.jpg

The second day we picked up the rental car and had to Mt Aurora Lodge. There are 2 options if you want to see Aurora 1) you can stay in a regular hotel/ Airbnb that’s in a more populated area

2) you can stay in a Lodge that designed for this in the middle of the mountain.

Option 1 is cheaper lodging wise and the drawback is that you need to drive out by yourself every night to the mountain where there is no light or take a Aurora watching tour. Option 2 is expensive lodging but there is a full service that comes with this. They will wake you up in the middle of the night when it happens and you can watch it right in front of the lodge or hike with them a little for a even better view point. The staff is very nice and will help you set up your camera to capture the moment. There are not so many lodges for option 2 so the cost is higher. We really enjoyed it and would highly recommend. It’s really nice to get up, watch Aurora and go back to bed vs having to drive in pitch black.

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Fun:

  1. Aurora watching!!! Photo or video does not do its justice.

There was a solar storm when we arrive so we saw very strong activities every night even on the plane back. It is very hard to describe what is it like unless you see it in person. Purely magical. I am totally moved by it and would cry. To me it is like a playful little spirit which is very vivid and fluid when it first started and as it morphs into a river that’s slowly flowing. The surroundings becomes so serene and it feels like it is just you and the Aurora. It is surreal. At first I thought it was just me being overly emotional, but then multiple friends have been after I shared my experience and they concur my feelings. There must be something special about nature that makes our sensation more acute our perception more direct that resulted in a deeper level of connection.

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  1. Dog mushing

So much fun! You have to do it. There were 8 doggies. They are all very energetic and they love dragging the slide.DSC01989_meitu_3 copy.jpgDSC01963.JPG

  1. Chena hot spring

If you like hot spring surround by snow, Chena is the way to go. It is not crazy cold (30F ish) outside and it feels amazing jumping into the hot spring. It has a pretty strong sulfur smell.

  1. Ice museum

It’s really fun to sit in front of their ice bar and get a drink of appletini in the ice glass. Cheers to Alaska!IMG_0891.JPGDSC02060.JPG

  1. North pole and Santa Claus house

I sent a postcard here with the post stamp “North Pole”. You can also send a slow letter to arrive at a future date.

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  1. Snowshoeing and cross country skiing

I love love snowshoeing. Especially in really deep snow. The snow is almost as deep as my chest. It feel like you are walking on the cloud. I snowshoed with ER Uncle and when I turn around, ER Uncle disappeared. Where did he go? He is buried in snow. The entire time ER uncle has a hard time staying up without sinking into the snow. I think the snowshoe is not big enough for his weight.DSC02149.JPGDSC02151.JPG

  1. Ice fishing

Totally not recommend. It is cold, expensive and boring. This is the most expensive activity but totally not worth it. We did not even get 1 fish.

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Aurora watching has been my dream since I was a little girl. Thank you ER uncle for making it come true. I want to slowly grow old together with you and explore different possibilities life has to offer. Thank you for being my heroic dream in the mundane life.

Insurance is a Scam

Recently, I heard a story about outraged caused when insurance companies in the UK charging a higher premium for customers who had a hotmail email account.  Which got me thinking about how insurance works, its purpose, and how insurance companies work.  And for all intents and purposes, it’s kind of a scam.

The entire point of insurance is to pay a small amount now to reduce risk of a large payment later.  Of course, insurance companies still make money.  So how then, can they take money from you, and pay out your expenses, but you still somehow save anything?  The answer is, you don’t.  Unless you are one of the few people who end up spending the money paid in, you will spend more money paying insurance premiums than you will ever use.  And worse, you don’t get to reap the benefits you could have had by putting that money to work for you.

My favorite insurance to avoid is collision coverage for your auto.  I do have liability insurance (but perhaps I should consider self-insuring there too).  I drive a cheap car, but even an expensive car should give similar (if not even better) results.  I currently pay about $560 annually for my insurance.  I got a quote to see how much it would cost to get comprehensive coverage with a $1000 deductible.  This would cost $444 more.  So, is that worth it?  Well…  My car is probably worth about $6,000 according to Kelley Blue Book, and after the deductible, I could expect to receive $5000 if I totaled the car.  Alright, so $444 to get $5000 sounds alright, but realistically, how long should I expect before I actually total the car?

Forbes had a pretty good article on this which gave an expected time between accidents of 18 years.  OK, so then, $444 x 18 = $7,992.  So, I should expect to pay (if I’m an average driver and let’s be honest, I’m much better than average!) about $8000 in premium before I get that payout of $5,000.  Ouch.  So I’m paying $3,000 over 18 years for the peace of mind to not lose $6,000 in one year.  But, it’s worse than that!  Ignoring the fact that the car is constantly losing value and therefore the payout would be lower, I would be missing out on any gains that money would have.

If I put $8,000 aside and get at least 4% returns after inflation, I would be sitting on $19,250 in 18 years!  So, by not buying the coverage, I’m $11,250 better off.  Other insurances work the same, but the amounts are greater and may be out of reach.  If you, for some reason, have an expensive car, the amount you would need to bank would be higher.  Medical and house insurance would also cost more.  Of course, not everyone has that amount of money lying around, but if you do, you should definitely do this.

Another weird quirk about all of this is that insurers charge higher premiums to those who they believe are a higher risk.  This makes perfect sense, of course, but in our world of big data, it is getting easier to show a clearer and clearer picture of exactly how much of a risk it is to insure specific individuals.  And with this newfound certainty, insurers have nothing to gain by charging you a lower amount than they *know* they will have to pay out.  So, the cost of insurance as time progresses certainly will approach the cost of whatever loss you are insuring against (plus profit for the insurer to pocket)!

Knowing this, I think it makes the most sense to self-insure when possible.  On the long term, you will come out on top, but it requires diligence, planning, and a wealth of resources that might put this just out of reach.

Year in Review: 2017 – Savings & Growth

So, expenses are fun to track and they do matter for long term retirement plans as we need to have a really good handle on how we spend our money, but here’s the real fun, the fruits of our labor, and our long-term money making machine!  We managed to save nearly $233,000 and our investments grew over $34,000 on top of that!  This figure includes employer contributions to 401ks and HSAs, our pre-tax contributions to these accounts, and our post-tax contributions to appropriate accounts.
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#1  New Jobs, Higher Salaries.

The easiest way to save more money is to make more money.  ECA had her first full year at her new job, and I also received a large bump in income when I switched as well.  We expect that our salaries will go up further thanks to ECA’s bonus structure and me working a full year (and probably receiving a raise as well).

#2  No More Extra Payments on Mortgage

The last few years, we put most of our money towards the house.  It was probably not the best idea at the time, but hey, it was safe and we can finish off that loan anytime we please now.  We’re keeping it around though since it’s such a low cost for a decent chunk of money that will do better elsewhere.  This did improve our net worth of course, so it’s not like that money is just gone!  Not until our house value crashes, at least!  But, by putting more money into our brokerage instead of the house we were able to take advantage of…

#3  Massive Growth in the Markets

Our performance has been phenomenal.  We don’t do anything complicated with investing (just index funds), but this past year was outrageously profitable.  The growth translates to about $35,000 this year, which is considerably more than our expenses for the year.  I doubt that this can continue forever, but I have my fingers crossed it will persist for another couple of years.  Some of this growth is taxable though, which reduces the true gains a bit here.  We don’t plan to touch anything in our investments until after we retire, so capital gains are not an issue, assuming the 0% bracket remains, but any gains on our 401ks or HSAs will be taxed when we finally pull it out, or backdoor convert it to Roth accounts.

#4  A Few Lucky Coincidences

Sometimes, you just get lucky.  When I left my previous employer, they paid out my unused vacation hours (which was expected).  In addition to this nice bonus since I had so many hours banked, I also somehow received a cash bonus from profit share, and a 401k bonus months later.  Totally unexpected there!

Estimations for 2018:

I doubt we will see any drastic improvement for our savings in 2018…  It should increase due to ECA’s bonus becoming vested, and general raises, but it’s not going to jump up like it did this year.  We went from a contribution of $170k to $233k, about a 37% increase in savings.  I don’t think that’s sustainable year-after-year.

 Still, I’m super happy with our results this year.  I think we far exceeded our expectations and our wildest dreams!

Year in Review: 2017 Expenses

Should old expenses be forgot, and never brought to mind?  Should old expenses be forgot, and auld lang syne?  It’s time to say goodbye to 2017, but before that, it’s that time again to review our expenses and gains!  On our path to financial independence, this was our best year yet!  We’re also getting a clearer and clearer picture of where our money goes and where it grows.

2017 review

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Bills & Utilities:  $6,454

There’s a very unsettling trend in our bills and utilities.  Year-over-year, we’re seeing a marked increase, nearly doubling since 2014, the first full year we were in our home.  It’s hard to say where this one is going because e

ach year has been pretty different.  In 2013 we were in an apartment until November, 2014 was the first year in our house, in 2015, we started doing Airbnb, last year, we had a long winter.

expenditures

The cost is really not bad when broken down further.  This year, we spent about $540/month on all bills and utilities.  Since our house is no longer considered “new”, our home insurance rate went up, but is still hovering around $45/month.  Our HOA bill has gone up to $180/month.  And we pay a fee for the sewage for a new construction of $150 quarterly, or $50/month.  Internet costs us about $40/month after it’s all said and done.  Cell phones cost us about $20/month since I don’t pay for one and ECA has Ting (it’s super cheap).  The remaining $205/month is split between our electric, gas, trash pickup, and water bills.  So, overall, our bills are reasonable and it’s hard to see where we can make any meaningful difference in any of these amounts considering we really only have control over the utilities, and they only represent about 1/3 of the costs.

If I had to guess, I would expect costs in this category to flatten out, but continue growing, probably around 5%-10% per year.

Food:  $4,232

Our costs of food, including groceries and eating out has stayed rather consistent over the past 5 years.  It just ebbs and flows, but is hovering right around our average of $4,000 per year which comes out to just around $340 per month.  This figure may also include some non-food items since I’m too lazy to track and split the costs of non-food grocery items.  It also includes all our fast food and restaurant expenditures which came out to be $224 and $247 this year respectively, or around $19/month and $21/month respectively (our target is around $50).

I expect this cost to raise slightly over time as the costs of food goes up, probably just above inflation or around 2-3% per year.

Transportation:  $2,316

Big drop this past year thanks to the new job!  Sparky has been going strong without any major trouble.  Unfortunately, I did have a fender-bender this year which reduced the car’s value (my fault, and only cosmetic damage, yes, I have liability insurance too), but since I have no intention of selling it anytime soon, that doesn’t really factor into our costs.  Of course, just like last year, I haven’t captured the total cost of the car which we bought with cash back in 2015 for just under $10,000.  I’m hoping that it lasts me at least 10 years total, but we’ll see exactly where and how that goes.

I’m betting that this coming year, we’ll see a drop in this cost since I will be working the whole year at my current employer and last year, 1/3 of the year, I was still driving a ton.  This category has a large chance of volatility though depending on gas prices and the chance of catastrophic loss of the vehicle.

Housing:  $4,506

Our housing costs consist of the interest on the mortgage and our property tax since all of the utilities are covered above.  Since we mostly have payed off the mortgage, our interest is very low, just under $740 for the year.  Our property tax has been steadily increasing, at $3,769 this year, up again from the last two years.  We will pay off the loan in about 10 months our standard payments, so I expect that we will spend about $250 in interest this year.  Our taxes will probably go up again, so I expect to pay around $3,900 in property tax.  I would assume that this will continue to grow at its current rate at about 5%-10% per year considering Seattle’s propensity to vote to tax itself.  Well, I have voted to agree to some of those in the past, so I can’t complain too much!

Shopping & Entertainment:  $3,634

There’s very little rhyme or reason to this category.  Sometimes, we want to buy something, so we do.  Sometimes that thing is expensive.  This year was my turn.  I bought a VR headset and a computer powerful enough to use it, together costing about $1500.  It’s awesome though and I’m glad that I did it.  The rest of the $2000 was mostly another $175 or so on video games, $200 in miscellaneous things we’ve done just for fun, but the rest was pretty much all clothes (mostly ECA’s clothes :P).  So, we probably split this category 50/50 this year!

This category is one of the hardest to predict, but it’s also one that we have the most control over.  If I had to guess, I imagine it will be lower next year.  We could also practically eliminate this category if things ever did get rough.  I imagine it will continue to ebb and flow due to the way we use technology, we probably will continue to spend every 4-5 years to replace our existing equipment and upgrade.  So, I expect to see a sinusoidal pattern with peaks about every 2 years where either I buy something or ECA buys something big in the peaks.  Over the long term, it should average out to about what we have been spending and will track with inflation.

Vacations:  $1,872

This category is the strangest right now as this does not necessarily reflect the true costs of the vacations, but instead what we paid out of pocket.  This past year, we got into credit card churning pretty hard, both opening a Chase Sapphire Reserve as well as several other cards.  Through these rewards, the vast majority of our costs were covered since we used those points for airfare and rental cars.  This was by-far the best way to use these rewards since Chase offered a 1.5x bonus when used for these expenses than what we would have received as cash and we planned to take the trips anyway.

Overall, this category acts a lot like our shopping & entertainment.  It’s completely discretionary and the cost varies just based on what we want to do.  I expect this to go back closer to average over the next year, perhaps increasing if we decide to go somewhere expensive.

Summary:  $23,016 spent in 2017!

Bringing our average annual expense to around $26,800.  At this rate, we could maintain our standard of living with one of us working 40 hours per week with an after-tax income of $12.90/hour (without any savings).  Or, using the 5% rule, an account of $536,000 would suffice.  Of course, any more we gather will allow us greater flexibility, and the freedom to increase our lifestyle if we desire.  Either way, I think we’re on fire!  Happy New Year!  Here’s to a wonderful 2018!

A Trajectory of Infinite Wealth

I’ve been thinking a lot lately of how much money we would need to retire. How can we guarantee that our expenses will not suddenly shoot up? How likely is it that our investments will continue to provide enough returns for our expenses? What if advancements in medical technology vastly expand our life expectancy? Can we, or should we rely on government assistance such as social security should our wealth run out?

I started to create something that I call a 70 year plan, assuming that we would live for 70 more years. This plan allowed me to tweak a lot of variables such as annual returns on growth, inflation, etc. And it showed me pretty quickly that tweaking different variables at different times would drastically change our outlook. A lot of scenarios showed me one thing that I think is worthy of pursuing though, infinitely growing wealth.

It seems to be the case that most people plan their retirement for what they think they will need and very little more. To me, this is short-sighted at best and dangerous at worst. I for one would not want to end my days in abject poverty, and I have no qualms about not spending all the money I’ve made throughout my life. This is why, my current plan will be one that has an infinitely growing trajectory.

The way to achieve this is obvious. We simply need to ensure that our expenses never exceed our growth. This needs to take into account inflation, taxes, market fluctuations, etc. to work. The biggest impact would be a long recession in the economy. If this occurred early on in our retirement, it could ruin this plan. Fortunately, we are young enough that if this were to occur, we could go back to work. Other than that, most everything can be addressed through mitigating risk, diversifying assets, and keeping our discretionary budget in check.

I plan to refine this a bit more into something a little more fun and useful, but for a simple test, I have run a few scenarios. I assumed a starting annual expense of $50,000. If I assume a low growth of 5% per year and an increase of expenses of 3.2% per year. It would take a starting net worth of $2.8M to last forever (well at least 4,000 years). A more optimistic outlook of 7% growth and 2.6% increases gives a starting net worth of only $1.15M! And a More moderate one of 6% growth and 3% increase in expenses means we’d need about $1.7M to start.

conservative

optimistic

mixed

The surprising thing for me was how low these numbers are.  It’s well within reach to pursue these levels of wealth and live within these means.  Even if we don’t get to spend all that money, we can leave a lasting legacy that never ends!

It seems to me more likely that society will end in some disaster or the very essence of what money is will change before this runs out. After all, a lot might change in the next 300 years…

Our Money Map

EC Aunt here!  I discovered there is this thing called “Money Map” from The Frugal Gene. I really loved the rainbow-colored map Lily built and decided to build our own. Cuz I really love building excel charts. I once built an excel chart explaining how we organize all the cupboards in our kitchen.

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Income Line: Mainly plain old paycheck for ER Uncle. Paycheck and RSU for me. I am a minimalist so I do sell things I no longer use (clothes, beauty products, etc) but the side hustle income is very small. We rent our our spare bedroom suite on Airbnb for fun and money.

Pre-tax Line: We both max out our 401K ($36K total per yr) and our joint HSA ($6750 per yr). We no longer qualify for any IRA anymore ;(

Tax Line: We are at 33% bracket based on our AGI and sadly we don’t have very much deductions. Fortunately Washington State does not have income tax yet. Our Airbnb income is taxed for income and self-employment. Good news is for self-employment tax, my employer paycheck maxed out on the social security portion, so we are only paying for the medicare portion. We withhold additional tax through our paycheck.

Bank Line: We love combining our accounts as much as possible to keep things simple.

End Flow Line: We use credit card for 99% of our spend. so much more convenient vs carrying cash. We keep some money in our savings account as emergency fund.

Below please see a summary of all accounts:

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Love that everyone uses their own style to build the map! What does yours look like?

Luxe Strategist

Budget on a Stick

Ms. Adventure Rich

Othala Fehu

MinaFI

Working Optional

Apathy Ends:

The Frugal Gene

Credit (High) Score

Being a personal finance nerd, credit score is something that has always fascinated me.  All of how we behave financially is boiled down to a single number for the sole purpose of determining the risk when lending us money.  Trying to maximize this number is kind of fun.  Like trying to achieve a high score in a video game.  But other than that, I feel that we, as a society, put too much focus on a credit score.  After all, in my entire life, having a high credit score has really only been important once.  And more recently, my view and approach to my credit score has turned from something worth preserving to something not worth even worrying about.

When we bought our home in March of 2013, ECA and I had a good enough credit to get a rate of 3.375% on a 15 year mortgage.  And although the loan cost us basically nothing (considering the growth we’ve seen in the stock markets these past few years), we began to pay down the mortgage as quickly as possible since we absolutely abhor being in debt.  This may not have been the best use of our money, but it felt pretty good to get the mortgage down from about $230K to about $20K in around 3 years.

Since then, my credit score has continued to improve.  I’ve even started to churn credit cards, opening 5 in the past year, and not seen any impact to the score.  Unfortunately, I wasn’t checking my score very often before, so the data isn’t great, but since Chase has started what they call their “Credit Journey” where you can get your TransUnion credit score for free with weekly updates I’ve been following a bit more closely.  I started this back in February, where my score was 808.  After opening a couple of cards somewhat rapidly, my score did actually dip down to 800 at one point, but it very quickly raised back up.

credit score

This service gives a few other interesting data points such as your current outstanding credit balances, your credit utilization (although mine says 0% so, that’s not quite right), your available credit, how many accounts you’ve opened in the past year (7 for me), how many inquiries in the past year (5), and the depth of your credit (only 7 years, well, I am only 30 after all).

There’s also a score simulator where you can simulate what different things might do to your score.  Which there’s basically nothing I can do to really raise my credit score.  Paying off all the cards would increase it by 3 points apparently!  Although I already pay them all off every month anyway…

Due to the value we gain from churning and the fact that we have no intentions to get a big loan anytime soon, thinking about my credit score basically has no effect on my behavior.  I used to want to get it higher, but I would gladly trade points on my score for real money, something much more tangible.  The only reason why my score is so high is because I’m a safe bet to give loans.  Save a catastrophic event, if a bank gives me money, they’ll get it back.  Of course, the only reason is because it’s worth it to pay it back since it costs me less.  It would do me no good to default, or to not pay off my credit cards each month.  I guess it’s just a mutually beneficial situation: banks win and I win, high score achieved.

The Airbnb Challenge – Converting the Living Room into our Bedroom

ECA and I have been hosting on Airbnb for nearly two years now.  We have a townhouse with two bedroom suites upstairs which works very well since we don’t need to share a bathroom.  We have been managing everything, and cleaning the room between guests to maximize our profits.  Last year, we grossed around $20,000 and after considering extra expenses such as utilities, we made around $16k before taxes.

Which really got us thinking, what if we could expand this?  Considering our expenses, if we were able to double this amount, we could theoretically maintain our lifestyle off of the income from Airbnb alone (although we don’t plan to do this), and if nothing else, we could make a considerable amount of money.  So, we set out to convert our living room into a third bedroom and try to open our suite on Airbnb.

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The Wonderful World of Credit Card Churning

We have been using credit cards for all our purchases for a very long time.  We always pay off the balance every month and never buy any more than what we would anyway, so there has been no cost to do so.  And other than the shear convenience, with cash-back on every purchase that all of our credit cards offer, we have made a few hundred bucks every year.

But then there’s credit card churning which is on a whole ‘nother level.

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