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Jonathan Clements: Nickel-and-Diming Your Way to Riches
By JLP | March 21, 2007
Today’s Getting Going column by Jonathan Clements is interesting. It’s about people who Clements considers to be maestros of money management. We’re talking about people who use rewards credit cards and have high-yield savings account management down to a science.
One guy that Clements mentions earns $35 - $85 per month in interest by depositing his entire check into a high-yield savings account and then transferring money into his checking account as he needs it. He says he rarely has more than $100 in his checking account. I wonder how much time he spends managing his money? Is it worth $85 per month? I wonder…
Topics: Budgeting, Getting Going, Jonathan Clements |
March 21st, 2007 at 1:03 pm
I’d love to know what kind of rate he gets on that account, because if it’s not insanely high, then he’s earning a ton of money. If that’s the case, then he’s probably making enough money that his time is worth more than the 85 bucks. Of course, that’s still a better return than he’d make spending that time watching Dancing With The Stars.
March 21st, 2007 at 1:17 pm
Yea, I agree with Micah. Let’s say his take home pay is $10k/month. At 5%, he would earn approximately $41 and change. So, is he making $20k/mo, net?
March 21st, 2007 at 1:26 pm
The column ACTUALLY says:
“He has his paycheck deposited directly into a high-yield savings account, where the money sits until he transfers it to his checking account to pay bills. His reward: $35 to $85 in interest each month.”
It doesn’t say “$85 - $100 per month in interest” as JLP wrote in this post.
I agree with LAMoneyGuy that it’s unlikely he’s earning $85 per month from his paycheck interest alone. I think it was sloppy writing more than anything else. What Clements was probably conveying was that the guy is earning that much interest per month IN TOTAL on that savings account, and his paycheck is just a part of it. I think the message got convoluted in the transition between
1) the guy’s monthly savings account statement
2) the guy’s brain and then his mouth, talking to Clement
3) Clement’s writing
March 21st, 2007 at 1:38 pm
I started doing this about 2 months back. I used to have my paycheck go to the checking account and it would sit there for over a a month till I paid all the bills and then I would transfer the remaining amount to savings. Now I use a credit card’s billpay feature to pay all my bills including mortgage (I don’t get reward points for that :)). At the end of the month I have only I bill to pay, that of the credit card that I used to pay all the bills with. I set up a transfer from savings to checking for the amount that’s due on the credit card once a month and earn the interest on the amount that would have just sat in my checking for over a month.
March 21st, 2007 at 1:42 pm
My wife and I do the same thing — we direct deposit our *entire* paychecks into our Vanguard Prime Money Market account, earning ~5%.
We then transfer money from that account into our checking account to pay bills. I don’t try to keep our checking account balance minimized; there’s very little benefit to that.
Far from being complex, this is *much simpler* than dealing with paychecks direct deposited to our checking account:
* Rather than 4 separate deposits to our checking account, we have one. If we wanted, it would be trivial to schedule multiple “deposits” to align to various bill due dates.
* Rather than variable deposits (due to bonuses, raises, etc..) we have a fixed amount deposited every month. This makes planning much easier.
* Rather than worrying about transferring money *out* of a checking account into savings, emergency account, etc.. the money all starts out in the savings account.
* We can give ourselves a “raise” anytime we want, by simply increasing the amount we transfer.
* It *no longer matters* where our income comes from. It could be from a paycheck, it could be from dividends on investments. As long as our money market fund has cash, we get paid.
In my opinion this is a much more streamlined way to deal with saving than depositing paychecks directly into a checking account. We’ve been doing this for about four years, and it has significantly simplified our finances. The link in my name describes more about our system.
March 21st, 2007 at 2:05 pm
I’m glad this works for Samerwriter, but I don’t see it working for me. Despite what Samerwriter says, it would add a layer of complexity I just don’t need. Besides, unless you have a large amount of money sitting in your savings account, the interest is pretty trivial. Finally, I’m lucky in that I have an interest-bearing checking account with no minimum (I love my bank). Yeah, the interest in the checking account is much lower than I could get in an internet savings account, but again, it’s simpler for me.
March 21st, 2007 at 2:06 pm
Brock,
OOPS!
March 21st, 2007 at 4:29 pm
Why not use a high interest checking account like ING Electric (currently yielding 4% for balance
March 21st, 2007 at 4:51 pm
In my case, I prefer having a local checking account. Over the last 10 years I’ve had several occasions when I needed personal attention to my checking account.
With an internet bank, you may go back and forth over email for weeks before getting the problem solved (I just dealt with this problem with Ameritrade).
With a local bank, I can go sit in front of a customer service agent, and not leave until the problem is resolved.
Besides, I prefer having my savings separated from my checking. Less incentive to spend the savings that way
March 21st, 2007 at 6:47 pm
There is a fine line between simplicity and making $ sense. The specific example Jonathan mentioned seemed a little too high on the complexity/maintenance side for me. I have been with the same bank down the street for over 20 years now and would not do an online checking account. Having said that, all excess short term cash goes to an ING savings and Citibank esavings account.
I know a friend who has the 0% credit card rate down to a science and makes a lot of money each year doing it. I just could never do that; you need to have an accounting/engineer type mind to stick with all the details and one screw up could set you back where you started or worse!
But I must admit that I do the frequent flyer & hotel guest points thing. I ‘ve been doing it for a while now and have earned an excess of 3 million miles/points and counting which have afforded us to have several great travel experiences. I also just sent my client who has cancer to Hawaii on First Class with his wife, they loved it! I learned lots of what I know in http://www.flyertalk.com and http://www.freefrequentflyermiles.com/index.htm
Almost everything goes on a rewards credit card (and of course you NEVER carry a balance!), paying cash is a no-no!
Some people collect stamps or coins, I like collecting miles and points:-)
I also consult with clients on such matters too, talk about going above and beyond in service:-)
March 21st, 2007 at 7:13 pm
[...] Nickel-and-Diming Your Way To Riches, if That's Your Thing - The Wall Street Journal (via AllFinancialMatters) Consider Dan Goldzband, a cost accountant in San Diego. He has his paycheck deposited directly into a high-yield savings account, where the money sits until he transfers it to his checking account to pay bills. His reward: $35 to $85 in interest each month. [...]
March 21st, 2007 at 9:36 pm
To me, the benefit of earning interest really only happens with (1) compounding over long periods of time and (2) having large amounts of money earning interest. For me, it’s not worth the time and hassle to try to get the “float” between my paycheck and when the credit cards (paid in full every month) are due. I transfer money to my savings account on a semi-regular basis, and that’s good enough for me. Even at $85/month I don’t think it’d be worth the hassle.
March 22nd, 2007 at 6:04 am
I’m definitely too lazy and undisciplined for this to work for me, I’d just forget to transfer the money in time and pay a ton of interest on my overdraft. I’m just trying to make my money work harder by picking the highest interest current (checking) account and savings account.
March 22nd, 2007 at 7:34 am
In this day of identity theft, one should check his accounts regularly. It probably adds only 2 minutes to make the transfer. It just takes more self discipline than most of us have (myself included). He is spending a few minutes every day looking at his accounts instead of some TV program. And he has financial gain from his effort.
March 22nd, 2007 at 10:48 am
Ok, this may be good CASH management, but not necessarily good PORTFOLIO management. Everyone’s circumstances are different, but a good rule of thumb is that, beyond emergency funds, having more than 10% of your portfolio in cash is inefficient.
My accounts are set up such that I could easily make these transfers worth my time (1 minute). But don’t forget that taxes take a bite out of interest earned.
March 23rd, 2007 at 9:35 am
I do something like this as well…it helps me budget my money. I deposit all but $200 of every paycheck into ING. The $200 in my checking account forces me to budget my money wisely (if I need more money, I always have the credit card). At the end of the month, I pull out however much I need to pay all the bills. It’s great cause I get the forced budgeting and interest that I would not normally get.
March 23rd, 2007 at 10:11 pm
I set up numerous ING subaccounts. Now I have bi-monthly payments automatically transferred from my checking account into these subaccounts.
For example, I have an $500 yearly HOA (which I hate). Rather than try to pay all $500 from a single paycheck, I have $20 transferred into the HOA subaccount every payday. Over the year, I get great interest, and I’m basically spreading the yearly payment out over the entire year. I do the same with about 10 other yearly bills, from income tax to auto and homeowner’s insurance.
It’s automated and works great.