Buy Plane Tickets with Credit Card

If there's any lesson to be learned about Aloha Airlines wrapping up business and shuttering operations, it's that you should buy your tickets with a credit card.  Why?

Let's say you paid cash, check, or debit for your ticket.  Your money is gone - out of your bank account forever... at least until you file your claim with bankruptcy court.  So maybe a year later you might get your money back... or maybe just a portion of it depending on how the repayment proceedings go.

Now a credit card... all you have to do is contact your credit card company and voila.  You get a credit on your statement.  The credit card company now has to file in bankruptcy court to get their money back, but YOU don't have to worry about a thing.

The Pareto Principle: Reevaluate Your Money

I came across this principle today and found it intriguing because I have known it to apply to so many other things, and yet I have never applied it to personal finance.  My personal experiences with the principle stem from quality control and computer science, but ironically, the principle has its origins in economics. 

A LITTLE BACKGROUND.  The Pareto Principle is more commonly known as the 80-20 rule.  Economists call it the Principle of Factor Sparsity which just furthers my claim that economics is “the science of common sense in a language only few can understand”.  Vilfredo Pareto lived in the late 1800s and helped develop the field of microeconomics, notably the concept of Pareto Efficiency (unrelated to the principle).  He once noted that 20% of Italy’s population controls 80% of Italy’s wealth.  This is why the 80-20 rule is named after him.

QUALITY MANAGEMENT PIONEER Dr. Joseph Juran found what he termed the “vital few and trivial many” which determines where and how companies should focus to increase the quality of their products.  Dr. Juran worked with Japanese businesses after World War II to improve what the world saw as cheap and poor products.  Perhaps due to the processes derived from his work, thought to be an application of Pareto’s observations about economics, Japanese companies have built a reputation for quality and developed processes and business models followed by thousands of companies today.

THAT’S GREAT, BUT HOW DOES IT HELP ME?  Have you noticed that you see this principle nearly every day?  Take a step back and look at your life.  Do you find any of the following apply:
* You spend 80% of your time with 20% of your acquaintances
* 20% of your activities in life account for 80% of your memories
* 20% of your customers account for 80% of your sales
* 80% of complains stem from 20% of products or idiosyncrasies
* 80% of your visitors only look at 20% of your website
* 80% of your money is spent on 20% of the things you own
* 20% of the articles you read in journals/magazines are valuable to you
* You wear your favorite 20% of clothes 80% of the time

What you need to be doing is making sure you’re spending the majority of your time and money doing the 20% of any equation.  Here are a few things that suggest you’re in the 80% group:
* You’re frequently working on tasks you have zero interest in
* It seems like you’re always working on “urgent” tasks
* You’re spending a lot of time on things you’re not “good” at doing
* Activities seem to always take longer than you expect.

People have their strengths and weaknesses, and just like the rule would suggest, we’re probably good and practiced at 20% of all the things we could be doing.  You will find that if you focus on that 20% you will:
* Enjoy what you are doing
* Be good at what you are doing
* Find you are fast at what you are doing
* Be efficient at what you are doing
* SMILE MORE!

OKAY, THERE ARE OBVIOUS BENEFITS TO THIS THINKING BUT WHAT ABOUT FINANCE?  We tend to be consumers – massive ones at that – and we tend to collect tons of meaningless junk.  Sure, we can think of tons of reasons for consuming and keeping, but it really shows in our pocket books.  You probably only NEED 20% of all the things you buy.  The other 80% is unnecessary fluff.  (Hey – I sound like an English teacher).  Concentrate on those 20% things and then ask yourself the following questions to figure out whether or not to buy it…
* How much happier will I be with this thing?
* How often will I use this thing?
* How expensive is this thing?
* How fast will this thing be obsolete?
* How much can I get for this thing when I get rid of it?
* What kind of memories will I have of this?
* Did you research this thing?

Be totally honest with yourself and avoid tricking yourself.  Put it up to the 80-20 rule!

CASE STUDY.  This can obviously be a great tool or it could be a worthless piece of junk.  It really depends on what you’re going to do with it.

How much happier will you be with it?  Don’t just ask will you be happy with it at first or happy with it until something else comes out or happy with it because it’s cool.  Will you be happy with it 80% of the time you use it?  Is it in the 20% of your stuff you’re happiest with?  I’m happy now… will I be 20% MORE happy once I have it?  When you ask these questions do you start to see how FEW products out there will meet these requirements?

How often will I use this thing?  80% of the time?  Are you always going to be reaching for it, or is it going to spend 80% of it’s time on the shelf or in your pocket?  Is it going to be among the top 20% of your objects that get the most use?

How expensive is this thing?  Is it going to be one of the objects that fits the rule “20% of your things that take 80% of your money”?  Those things are NECESSITIES!  Housing (rent, utilities, insurance), Health (food, medicine, insurance), and Transportation (car, mass transit) usually fit those rules.  Things that luxuries or fluff usually end up in this category but are not necessary for your life.  You can cut out those luxuries you truly do not NEED and do not SUPER SUPER SUPER want or you will DIE.

How fast will this thing be obsolete?  In one year will this still be one of your top 20% objects?  2 years?  3 years?  This question depends on the object.  Cars should last 7 to 15 years.  Appliances 12 to 25 years.  Think of what you feel the object should last.  Is there an 80% chance it will last 20% longer than you think?

How much can you get for this thing when you get rid of it?  Will it retain 80% of its value?  Is it going to be among the top 20% of used things people buy?

What kind of memories will you have from this?  Think of travel for example for this question.  Will it be among your 20% most memorable things to have done in your life?  Will you spend 80% of your time actually traveling or will you be in your hotel room doing nothing?  Conversely are you going to spend 80% of your time RELAXING and having FUN (if that’s more your thing) rather than worrying about life and the nagging (yet honestly important) questions?

How much time did your research this thing?  AVOID IMPULSE BUYING!  IT’S THE SINGLE MOST WASTEFUL PRACTICE WE HAVE.  If you can 80% eliminate this practice from you life, I bet you save 20% from being spent on worthless crap.

WHAT I HAVE TAKEN FROM THE 80-20 RULE.  I am lucky I got a job I mostly enjoy doing.  I probably get paid well below what I could have received from other jobs, but I am mostly happy here.  I spend most of my time actually getting stuff done, and very little of my time running around doing the preparation trying to get things done.  I complain about work, but really nothing major.  Like everyone else I can always find something to complain about even if things were nearly Utopian.  At home I have far, far too much crap and I really need to prune.  I spend too much money on junk that I do not keep using.  I buy things that have little personal or retail value.  I hardly (until recently) used a $500 Dell Axim but I’d really hate being without my $15 Patton Industrial Fan.  There’s so much CRAP in my apartment.  I will be going through those things and applying all the 80-20 questions and relationships to those things and will decide what to do with everything from there.  (If you want some free stuff – I’m getting rid of a ton soon!)

Take the time out in the next 2 or 3 days to really think about the 80% of your life that could be made better.  Keep the 20% that’s great.  Throw out 80% of the junk you don’t need. 

College Dos: Every College Student Should

Many finance options are limited to certain groups of students: athletic scholarships, academic scholarships, financial need grants, etc.  However, there every college student has a few smart moves that they can take advantage of to help them once they make it beyond the gates of academia.  Heck, some of these options even help WHILE your still in college.

TROLL FOR TEXTBOOKS.  My personal favorite way to save is to minimize the textbook hurt.  Sometimes literally.  Depending on your field of study, a majority of textbooks are huge hard cover behemoths that will place the hurt on your back as well as your wallet.  Check out aggregators like www.campusbooks.com to find competitive prices for your books.  They will nearly ALWAYS be cheaper than buying at your campus store.  For example Biology 7th Edition by Neil A. Campbell et al retails MSRP for $158.67.  Half.com by EBay offers used versions for $23.65 after shipping.  New text books can be had from Biblio.com for $59.10 after shipping.

INTERNATIONAL TEXT BOOKS.  International text books sell for much less than the United States.  The Supreme Court has ruled that the reimportation of these books does NOT violate copyright law (New York Times article “Students Find $100 Textbooks Cost $50, Purchased Overseas” by Tamar Lewin dtd 21 OCT 2003).  The same text book above retails new at Amazon.com for $124.34 but Amazon.co.uk sells the International Edition for £44.99 (90.78 USD at 1 GBP=2.01739 USD). 

Places that specialize in the importation and sale of International edition sell for considerably less.  TextbooksRUs.com sells the International edition for $70.53.  TextbooksRUs.com guarantees the book has the same pagination as the United States version or your money back.  Furthermore if you can read another language (especially one with compacted print like Chinese or Korean) you can find books in that language for even cheaper.  The pagination probably won’t match, however.

SHARE THOSE BOOKS.  Statistics show one in five students are not buying all the required text books.  I am guilty of this myself actually.  Sometimes you don’t need the book at all, and most of the time, you can get buy sharing books with your friends!

MINIMIZE THOSE FEES.  A whole new campus also probably means a new set of convenient banks.  Those convenient banks, however, are only worth your time if you can get access to your money without fees and minimum balances.  (You should not be paying these to begin with!)  If you cannot find a bank like this in your area check out online only banks like ING Direct (www.ingdirect.com) which has no fees or balance requirements and offers free withdrawals at more than 30,000 ATMs.

PICK PLASTIC IN ADVANCE.  If you’ve been on a college campus lately, you know that the only thing you see more of than iPods is credit card applications.  Students get bombarded with offer after offer for this and that credit card and it’s easy to leave college with not only a degree, but 15 credit cards and $20,000 in credit card debt!  Picking your plastic in advance will help you in so many ways!

First, apply for a credit card under your own name and not your parents.  It used to be that you could start building your credit as an authorized user of someone else’s card.  NO LONGER!  You need your own card under your own name to build your credit score.

Second, shop around for cards that give you things.  As a student you can probably only get cards with $500 or $1000 credit limits, but you can get these cards with other goodies.  Check out Citi’s mtvU credit card (www.citi.com) which rewards timely payments (up to 25 points month) and good grades (up to 2000 points per semester).  You get five points for every dollar charged at fast food, restaurants, bookstores, music stores, video stores, and movies and one point for every dollar spent elsewhere.  These points can be redeemed at the ThankYou Network (www.thankyounetwork.com) for gift cards to 50+ popular stores, cash, student loan rebates, statement credit, travel, etc.  You can also get more points by shopping through the ThankYou Network at places like Target, The Gap or 1-800-Flowers.  You can also get 25 more points a month by having a Checking, Savings and debit card (that you don’t even have to use by the way) with Citi Bank.  Note: Gift Cards and Student Loan Rebates give you the most back ($1 for every 100 points).

Third, remember how I said your credit limit is low?  What happens if you need to spend more than that in a month?  This is when you take advantage of your parent’s credit and carry an authorized user card on their account.  This way you can purchase that airfare home to visit and best of all hopefully do it such that you and your parents get benefits and/or free cash (parents consider getting a mileage card from Citi or Capital One to take advantage of your child’s – and your own – travel expenses.).

GET SOME SORT OF JOB.  I know that there are many things you would rather be doing than working, but getting a job will give you a HUGE head start.  I recommend a 10 to 20 hour job as a student assistant on campus as an easy way to do this.  First, not much is usually expected of you.  Sure it might be boring, but on the other hand you might have someone PAYING you to study when there’s not much to do.

Second, you have additional income to spend and save.  Try striking a deal with your parents to help you save some money.  For example, for every dollar you put into an IRA, they’ll put in a dollar or fifty cents or whatever.  Not only are you getting free money with this deal, you’re planning for your future which could (and probably will) take YEARS off your working life and allow you to RETIRE YOUNG!  The dollar you put into your ROTH IRA in college will probably turn into $15.34 by the time you retire and maybe even more*

Third, when you go into the job force a requirement job requirement might say Bachelor’s plus two years job experience.  Guess what?  YOU HAVE FOUR!  Sure it was at a nothing job.  Sure, you had very little responsibility.  But it’s still experience, and that counts.  Four years of job experience might also be the difference between starting at $35,000 a year and $40,000 a year.  That itself means you can contribute to your IRA with money you essentially would not have had.

READ MY BLOG.  I’m only halfway kidding here.  In all seriousness every college student should read websites or magazines that can tell you tons of ways to save money.  Just be sure to use your head to find out whether or not the technique or offer is illicit or not.

*Assumes you are 19 and put $2000 into a Roth IRA for four years while in college and then put in $4000 a year until you retire at age 62.  You will have put in $168,000.  Assuming 10% annual percent yield on your money your account balance at age 62 will be $2.5 million.

Quick Tips to Save MONEY, the environment, and your credit rating!

1. Need to find a phone number or get listings?  Call 1-800-GOOG-411 for FREE!  It's Google's no cost info line.


2. Buy a powerstrip for items that draw power all the time even when not used (TV/Cable/VCR or Microwave/Coffeemaker) and cut power on the strip when not using them.  You can save 10% of your electricity which could be a savings of $100 a year for some people.


3. Make the switch to CFL lightbulbs.  They use 75% less energy and last up to 10 times longer.  A six pack will run you about $20 but I recently picked up a bunch of 4 packs at Big Lots for $2.


4. Has it been a while since you've asked for an increase on your credit card's limit?  Applying for new credit lowers your score while having more credit open to you raises your score.  Increasing the limit on cards you already have boost your score without hurting it first.


5. Europeans have long known 10 euro or 10 pound flights, but Columbus, OH based SkyBus will be bringnig $10 fares (plus fees and taxes) to the US.  Every flight will have a minimum of 10 $10 seats.  All flights fly between some location and Columbus so from Burbank to Boston will cost you $20.  Hopefully this works out, but budget airline travel lacks a good track record.


6. Speaking of airlines, Yapta (Your Amazing Personal Travel Assistant) looks like just another price tracker for air fare.  But if you already bought your ticket you can enter your confirmation code and Yapta will tell you if that fare drops.  You have to buy your ticket from the airline directly for this to work, but if your fare does drop, you're entitled to a refund or travel credit for the difference.  Most airlines give you the travel credit.  As of now, this works on Alaska, America West, American, Continental, Delta, Northwest, Southwest, and US Airways.

Keep Your Miles From Expiring

By Kate Ashford, Money Magazine Staff Reporter
May Issue (Volume 35 Number 5)

NEW YORK (Money Magazine) — Cashing in miles has gone from hard to harder. In the past six months several carriers have shortened the time you can go between trips (and other mile-earning activities) before your points expire. United and US Airways went from three years to 18 months, and Delta from three years to two. Bad news if you don’t regularly patronize one airline. But you can keep your points in play says Randy Petersen of InsideFlyer.com. You don’t even have to enroll in an airline credit card to do it.

SPEND A FEW BUCKS Buy something you need from one of the airline’s partners. For example, United’s Mileage Plus Mall (mponlinemall.com) is a gateway to the websites of retailers from Apple to FTD. You pay what you would if you went to the store’s site directly, and you earn miles. Find similar deals on other carrier’s sites. You can also earn miles flying with partner airlines – like Continental for Delta.

SPEND A FEW MILES Use a negligible amount of points to buy something other than a plane fare – it will still count as activity. Magazine subscriptions (hint, hint) often cost less than 1,000 miles.

SPEND A FEW MINUTES Respond to a survey at e-miles.com and earn points with Continental, Delta, Northwest or US Airways. The miles aren’t substantial, but they’ll keep your account from going the way of TWA.

ABOUT AIRLINE CREDIT CARDS Unless you find yourself always traveling the same airline (or its partners) a credit card that works on all airlines might be of benefit. Be sure to compare all the different types of cards before settling down on one. They all have different rules and restrictions. Also keep in mind that some airline mileage program cards might give you special benefits that you may not want to give up.

If you choose this route, make sure to check out your credit union for their airline cards. They often give you better deals than the major banks. Also keep in mind that the annual fee (if you get a general mileage card from a bank, try to find one without an annual fee) will eat away at any savings you may generate.

AIRLINE CARDS MIGHT NOT BE THE BEST WAY If you travel occasionally or like to use online travel booking sites to make your reservation on the cheapest airline, you may actually be better off with a regular or flexible rewards card. It really all depends on how often, how far, and the class of tickets you fly. I personally use the search site Kayak.com to do my airline searches.

Kayak.com includes results directly from each airline’s website and also includes the prices from Orbitz.com and Cheaptickets.com. The site has some of the best advanced search features around. Kayak cannot find Southwest fares since they do not let ANYONE search their fares except their own site; however, Kayak is one of the few sites listing JetBlue fares. Kayak is purely a search engine, and you purchase your tickets through the airline itself or Orbitz.com or Cheaptickets.com