Jon Bon’s Money

 I have been toying with the idea of giving up using my credit card completely. Now I am sure you are asking yourself ‘Why would anyone give up those fantastic rewards and 0% interest rates?’    

    Well let’s start from the beginning. I have two main cards that I use a 5/3 MasterCard debit card and a Citi MasterCard credit card. The Citi credit card used to give me around 3% in points on everything I purchased, so a few Circuit City gift cards later I thought I was getting a pretty good deal in rewards. Unfortunately, like most credit cards, the ‘honeymoon’ of low rates and or great rewards never lasts. I started getting 1% on most of my purchases and 2% on gas and groceries. So at this point to me the benefits of using the credit card were marginal.      

    I have been using my credit card less and less these days, and mainly because I travel on business and like to use it so I can be reimbursed by my company and pay it off with that money. The problem is that they keep raising my limit, albeit without me asking for it. It is too the point now that my limit is higher then what I make in a month. That way if I went hog wild it would be near impossible for me to pay it off. I liked my credit card a lot more when it had an $800 limit.Conclusion: declining reward value, increasing chance credit card abuse.

    I have had my 5/3 debit card since college and have almost always used it more then I used my credit card. There were a few months over summer and into the fall where most of my paycheck went to paying off the balance of my CC. I like my debit card for two main reasons: First it updates the balance instantaneously. I can go to the store, come back and it will have adjusted my balance. Secondly and more importantly I spend less money with my debit then I do with my credit. I have no month to month chart to back this up, but when my checking account gets below $300 or so I reign in my spending until the next pay day. With my credit card this was not the case, I often would let my balance climb well over $1000. Conclusion: Using my debit card allows me to more closely monitor and manage the amount of cash I have.

    I know there are people out there that charge everything to get points out the ying-yang, and transfer balances all over the place so that they can take advantage of free interest and allow their money to gain a whole $3 interest while it is sitting in their savings accounts. I am not that guy. I don’t have the time or the attention to detail to do that sort of thing.     

    Mostly I am just too afraid of paying a penny in interest or fees. (Which in 2 years I have not paid a cent in either.) I shall hang onto my cc in my wallet; I might still use it when I am low on cash or for an actual emergency. But to me the value or the rewards is much less then the value of the extra money I spend with my cc. 

NOTE: I still will totally take advantage of store cc’s that give you a new expensive toy at 0% interest, but I have two of those credit cards sitting in my desk not being used, I don’t even think I ever turned them on. I just paid off the balance and kept using my debit.

Gasoline is something that most of us use everyday, and monitor the average price of with ease. To idiot proof this posting I am going to list a few FACTS that show why gas is cheap for all the trouble that goes into putting it into your gas tank

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Ø       The dollar is weak
Ø       Supply and Demand
Ø       Law of Diminishing Returns
Ø       Refining and Distribution

The Weak Dollar: The price of a barrel of crude oil is around $100, which is near a record high. This is still cheap to purchase because the value of a dollar is near a record low. Governments love to buy things: social security, Medicare, Medicade, wars etc. As a result, our government operates in a deficit every single year. They can do 3 things to relive this
1. Raise Taxes
2. Lower Benefits
3. Print Money.
Because the government controls the money supply and is afraid to do the 1st two options, it just prints money to settle its obligations. All the efforts to hold off the recession, the tax ‘rebate’ and the lowering of interest rates, only have the effect to make the dollar less valuable. The ‘cost’ of crude has only increased marginally; it is the value of the dollar that has fallen rapidly. The main reason for such ‘expensive’ gas is that our government is devaluing the dollar in an attempt to pay off its huge entitlement obligations and cut taxes at the same time.

Supply and Demand: A pretty simple concept, the cost of something is directly tied to the amount in existence, and the amount that is required. The supply of available fuel in the world will never be completely expended. Although the supply will probably remain constant for many more years, it’s the demand that has steadily increased. There are one billion Chinese and one billion Indians that are changing from the infamous third world countries to developing nations. When a nation is growing, its economy consumes more resources and produces more products.
       The increasing demand is putting upward price pressure on the cost of fuel. This does increase the price, but only slowly. This is not an “oil shock” like OPEC getting feisty, or serious problems with the pumping and distribution network like hurricane Katrina in 2005. However, prices will continue to increase due to a steady although limited supply, and increasing demand.

Law of Diminishing Returns: A man goes to pick fruit from his apple tree, he picks the fruit right at eye level, then he stoops down to get the lower fruit. After that he goes to his shed to get a ladder to get the higher fruit. When all the fruit from the tree is gone he has to move to other trees, or plant more of them. This is exactly what is happening with the world’s supply of crude oil. All the oil in Ohio and Pennsylvania was used up during the Industrial Revolution. In Alaska and Texas the yield is slowly decreasing. To find crude one must go to less hospitable locations and pull it from increasingly deeper wells. To find the good quality crude costs more money, effort, and resources, these of course will be reflected in the price of the oil that is sold to the consumer.

Refining and Distribution: It would be funny to watch someone haul oil out of the ground and move it to their driveway, and then put it in their car. The car of course would not start. Oil companies have one of the most expensive and complicated supply chains in existence. Exxon builds expensive rigs in god forsaken places to pull it out of the ground, pumps it into the biggest and most expensive ships ever made. Takes it halfway around the world to be refined in a crazy difficult and complicated process, the proceeds to ship it to your local gas station. This is all done to a product that is dangerous, poisonous, and corrosive.
       Lastly it is not the oil companies’ fault that they make a profit. We worship capitalism and profit. If you have a problem with how much money they are making, buy their stock and make money right along with them. Odds are you already own some oil company through your job’s IRA. They don’t participate in price fixing, and are not a monopoly. If either of these were true the SEC would have come after them. The oil companies do a very hard job that most countries can’t even do, a job that they are fairly rewarded for.

Denver International Airport(Where I always fly too..)

I don’t think that this is news to anyone, airports are a royal pain in the ass. At least I don’t have to pay for any of it, and getting frequent flier miles is nice. In the end I think I would rather stay and home and let them keep their miles.

How is this related to money you ask? Well it is a known fact airlines suck at making money. It is a huge investment to buy or lease an airplane, which uses very expensive very refined JP-5 otherwise known as jet fuel. They need lots of human capital to operate the airline efficiently, and most don’t even do that.

There are lots of reasons that airlines suck at making money, but if I had to pick one. I would say its the unions. Unions in the post industrial revolution have not been kind to business. A unions goal is to drive the price of labor up as much as possible, the consequences be damned! Unions insure artificially high wages, so airlines are forced to pay their workers more then the market would dictate under normal circumstances.

 The only airlines that can make money are the young ones that are not yet controlled by their unions. The airline industry is following a path to destruction with its pension promises to its employees. Its only a matter of time until it posts billion dollar loss like another union controlled industry: The American Auto Industry

What is the freaking value of this Holiday Anyways?

Today is of course February 14th,  florist, jewelers, and candy-makers rejoice everywhere! I love H and she knows this, what are the limits of what I want to do and spend today?

The Damage:

1. Flowers: $ 60
2. Book: $10
3. Dinner: $50
4. Movie: $20
5. Dance Lessons:$80

So right now I am looking at over $200. I am in a good place financially with my job and espically the per deim that I earn while I am in Denver, so I can afford to do it.  Even if I could not I am sure that I would do something, make something for her, and she might appreciate that more. I guess I am ok with one day a year to spoil your other as long as you do it within reason and not charging it to a credit card.