I don’t get credit cards

Hi RIP friends,

I got my first real Credit Card few days ago. I didn’t own one before. Well, as I’ve previously explained, I had some sort of similar tools, like prepaid credit cards and a Hooli issued real credit cards, but that’s another story. With the prepaid cards you don’t get a line of credit and the Hooli card is for work related expenses. I’ve never considered it mine.

I never had a real credit card, I’ve never experiences this sort of monthly threat “pay your bill or we’ll destroy your finances“. It feels strange. And wrong.

Anyway I don’t get it. I don’t understand why it works this way. The system is broken and inefficient, I really don’t understand why.

Let me explain.

RIP, why are you complaining? Why you got this card??

Ok, let’s start with why.

Apparently some sort of Visa/Mastercard is needed in modern world if you want to buy things online. Physical purchases in your home country can still be resolved with debit cards / atm cards / cash. Did I tell you I hate cash? I’d love to experience the disappearance of physical currencies! Physical purchases in another country usually require either cash or some sort of credit card, regular or prepaid. And then there’s US, where for most actions you need a credit card, like car rental, bike rental (!!), hotels… That’s because with credit cards they can reserve an amount for eventual damages or “in case you don’t return the bike”.

Most of the purchases I do in Switzerland can be resolved with PostFinance card, which is a debit card that’s accepted on every Swiss website and physical shop, and it’s bound to your PostFinance bank account.

I hate cash. I avoid using it as much as I can. Did I tell you?

There’s only one money related thing I hate more than cash and it’s debt. I hate debt! Maybe it’s because I experienced so many time (in third person) people going mad due to it.

So, I got the card. It’s a Cumulus Mastercard, issued by Cembra Money Bank and connected with your Cumulus Migros account. Essentially your fidelity card for the Migros world. Migros is the biggest grocery chain. Well, not only a grocery chain: Migros is everything. A bank (Migros Bank), phone company (Migros mobile), IKEA-Like (Micasa), electronics (M-Electronics), gas (Migroil), language courses, flowers, travel, farmacy, you name it.

How does this card work?

  • You do your purchases, they anticipate the money for you. You pay later.
  • If you pay your monthly credit card bill, it will be the face value of the money advanced. No interests, no fees. A 0% loan.
  • You get points for using your card. We’re talking about 1% of your purchases in the Migros circuit and 0.5% of your other purchases back in terms of cumulus points. Actual cash, if you’re a Migros customer (I challenge you not to be one!).
  • You don’t pay any annual fee.
  • You get sign up bonus (3000 points, i.e. 30 CHF).

My first reaction was “where’s the trap? It can’t be that good!

I’m so used to only spend money when I have them, I’d never miss a payment. Why am I rewarded to get a service from an evil company without paying a dime?

Are they just hoping I miss a payment so they can charge 9.99% interests? Is that all?

If that’s all, the system is bugged my friends. It’s an horrible system. Ok, I get the benefits while someone else is paying with interests rates above usury limit, but that’s stupid!

Then I start looking closer at how people use credit cards, reading posts about “avoiding credit cards debts” or the concept of “minimum payments”… holy sheet, do people only see the “credit” word in “credit card”?

Apparently yes, they do. If you get a credit card with 10k limit, you may see it as “cool, I get another 10k to spend“. No no no no it doesn’t work this way! It shouldn’t! Credit cards are not cheap loans.

Credit cards are too good for smart people to be true. You get rewarded for getting a 0% short term loan. This is not a stable system, it’s based on financial illiteracy! Too bad for dumb people.

So I thought: “well, if everyone started using credit card correctly they’d go out of business overnight!

That’s also not true.

They’re not charging you for your purchases, but you’re not the only one involved in the trade. They’re getting a hefty percentage from the merchant! That’s where things go really evil. That’s why some merchant will charge you extra fees for credit cards payments (looking at you, my dear low cost flight company). That’s why some shop won’t accept your card below a certain minimum purchase amount.

And here’s where the system is purely wrong and evil.

Ok, I can’t easily articulate all of my concerns, but I’ll try. Please, understand I’m an old man, getting dangerously close to my 40s, a man who’s born in an age without easy access to credit and always been scared by debts.

The system is based on splitting consumer and merchant worlds. They (credit card issuers) befriend and reward consumers and drain merchants. Divide et impera. They drain way more (2-7%) the merchants than they charm consumers (0.5-1%). Plus signup bonuses. Ok, that’s a little bit of exposure on their side, but the break even for them is probably very close to few thousands spent on your side. Plus yes, they’re close to explicit thievery when it comes to currency conversion fees, but that’s not an issue for most people who (unlike the RIPs) don’t live a three currencies life.

The system is inefficient. Consumers and merchants could find a 1.5% discount or so for “cash payments” and credit cards will be cut out. I don’t understand why merchants don’t offer discount for cash payments. Are they forced to be silent? Ok, I admit handling cash is boring, risky and obscure (money laundering? tax evasion?) and it doesn’t work for online shopping… but what about wire transfers? Ok, I know, debit payments are not immediate and can’t be…

But…

But what about cutting out the middle man here?

Why can’t I just have money and send money to someone without a middle man?

Than I watched this TED Talk. Did I tell you I love TEDs?

Enjoy

In my EGN about future I missed this one!

Are cryptocurrencies the solution for this inefficiency/robbery?

I think so.

Are they production-ready today?

I don’t think so. But sooner or later they must become. I don’t like the mechanics and the whole speculative world behind Bitcoin, but if I have to guess how the world currency is going to be in 100 years I’d bet on a decentralized credit system almost impossible to hack, i.e. Cryptocurrency.

Have a nice day… and use your credit cards judiciously!

February 2017 Financial Update

Hi RIP voyeurs,

February 2017 is gone, it’s been incredibly warmer than average here in Switzerland, it really looks like spring already!

Welcome back to my monthly update. As usual, the reference doc is my NW spreadsheet.

Overview

This was a strange month. First of all, lowest saving rate since started this blog, 50.9%. Ouch. Few unexpected medical expenses, some expected wedding expenses and lowest salary ever since joined Hooli made it. I guess next 3-4 months won’t be better, with wedding date getting closer. Second, very high NW Delta of +19,496 EUR. How is it possible? Last month we saved 23k and NW went up by 6k… this month we saved 5.5k and NW went up by almost 20k, am I cheating? No, it’s simply that cashflow is not the same as net worth. NW growth is affected by savings, investments growth, and (in our complex 3-currencies life) currencies fluctuations.

Anyway, as usual, here are the major wins for February 2017:

  • Market’s doing incredibly great! I’m here, sitting on my chair, waiting for the market crash, the apocalypse and all the things and nothing happens! Why? All my ETFs are up at least 3% during February. I’m so tempted to time the market
  • EUR is weaker compared to both CHF and USD. I’m tracking my NW in EUR and I’m exposed a lot to both CHF and USD. EUR/CHF moved a little while EUR/USD a lot. Both in the right direction. Does it seem odd to aim for a weaker reference currency?
  • Slightly greater than expected 80% salary. February is one of those boring month where I don’t have 13th, yearly bonuses or stocks vesting. So I can finally see what’s my regular salary about. My base net salary is ~86% compared to a base one from last year. Cool. 80% work, 86% pay 🙂
  • Miss RIP got a raise. A small one, still better than nothing. This raise in not visible here, since I’m not tracking (yet) her NW and we keep contributing in ratio 3:1 to shared economy. Wait… now that I work 80% and she got a raise my net salary is no more 3 times hers so we should change internal taxation! Nevermind, starting next month we’re going to join future incomes.

Losses of February 2017:

  • Expenses over 5000 CHF. I set 4k CHF as “we did great” threshold and 5k as “we should be worried” threshold. We went above the second one. The good news is that base expenses were ok. If we exclude wedding expenses (1141), unexpected medical expenses (364), book-in-advance-to-save-money train tickets (~200) and once-per-year expenses (165, Miss RIP’s Half-Price Card) then we are below 4k. It’s a weak excuse though, our life is so complex that it’s normal to have unexpected expenses. It’s kind of… expected!
  • Saving rate slightly above 50%. The minimum since blogging. Why? Because of both a base 80% salary and high expenses. At least it’s still above my acceptability threshold of 50%.

Other facts:

  • Invested more money. Sold Hooli stocks and invested the whole 14k from proceedings. Why did I sell them? Am I not being loyal to my awesome employer? No, it has nothing to do with loyalty. It’s about differentiation. I’m already exposed a lot in Hooli and in IT in general because that’s where I work. What happens if Hooli bankrupts tomorrow? I’d lose my job, my immediate ability to earn a lot of money AND my stocks. Differentiate for the win.
  • Another round of rebalancing, according to my IPS. When I wrote my IPS I defined what my ideal asset allocation strategy would be. My actual investments were not aligned with my strategy back then. I’m aiming to my ideal allocation without having to revolutionize all my investments (which would generate huge trade fees).
    my investment sheet

    So, here follows this month’s steps: sold another 20k of Tech US ETF (SWX:XLKS-USD). With 34k available (20k from selling Tech US and 14k from selling Hooli stocks) I purchased 17k of a Pacific ETF (SWX:CSPXJ-USD) and 17k of an Emerging Market ETF (SWX:CBMEM-USD). According to the investment sheet on my NW spreadsheet I’m almost good. The sheet is not in sync with my IPS though. I may tweak a little bit my IPS to include a 15/5/5 split of US exposure (large/tech/small) instead of 20/5 (large/small). Need to think about it.

  • 80% life kicking in. I’ve been able to enjoy 4 amazing 3-days weekends, the last of which have been spent entirely with Miss RIP, like a small 3 days honeymoon at home.
  • Got a credit card. Why? Wasn’t I showing off by claiming I never had a debt?? Well, keep these complains for next post about “my credit card experience” so far 🙂

Numbers & Details

Total Income for the month was 10,797 CHF (cell F40).

Income highlights:

  • ~7,900 – my Hooli salary + a spot bonus and some extras (base 80% salary ~7.5k).
  • ~1,900 – my Pillar 2 contribution.
  • 1,000 – Miss RIP contribution to shared economy.
  • 15 CHF – Migros Blue coupons.

Total Expenses for the month were 5,300 CHF (cell F40). Expenses detail on my expenses sheet. There are 10 CHF untracked from my new credit card that should show up in next few days. I’m going to backfill expenses once the issue is solved. Here on the right a screenshot of 2017 expenses so far. Click on it for details.

Expenses highlights:

  • Wedding (1,141 CHF), not counting several train tickets we purchased which are because of the Milan wedding.
  • Health. I got a tooth repaired in Italy for 170 EUR and I few exams in Switzerland for 183 CHF. Still waiting for another doctor bill expected in the range of 200-300 CHF.
  • Transportation. Purchased a lot of trains tickets (~200 CHF) for March, April and May. Successfully experimented blablacar twice! Here’s the story: it used to be simpler to find cheap train tickets to Italy on Fridays and Sundays. Sadly, it’s no more true unless you purchase them months in advance (that’s why we did some planning and crazy shopping for the months to come) and it’s hard to find discounted tickets on Sundays. We had to go to Milan a couple of weekends ago and there were no discounted tickets. Buying tickets full price (with half price card) for 2 people (round trip) would have costed ~220 CHF. A lot. We used to pay 10 or 20 each ticket (40-80 total). Just before I was going to buy the pricey tickets mumbling and complaining with “the system”, my beloved Miss RIP proposed “why don’t we try carpooling? Like Blablacar?” We tried, we spent 15 EUR per person per ride (75 CHF total considering blablacar fees and currency conversion), we had nice and comfortable experiences and we met great people! Strongly recommended! We’re still missing few tickets in our trips plan for the next 3 months, but we’re completely relaxed since we have a new default option!
  • Restaurants and “food outside house” above 300 CHF. A lot, I know. We indulged a little bit, but that’s a category that gives us a lot of value so it’s ok. Fondue with friends? I’m always in!
  • We went to an overpriced SPA with friends and spent more than 100 CHF for 4 hours. Nice experience but too expensive.
  • Several IB Trade fees (52 CHF) for investments.

Total savings are 5,497 CHF (cell F42), too little saved this month. Saving rate for the month is 50.9% (cell F43), barely acceptable. Saving rate for 2017 so far: 77% (cell Q43), declining too quickly to normality 🙁

Net worth is 578,093 EUR (cell F17), veeery good! Delta is +19,496 EUR (cell F18), percent 3.49% (cell F19). Good, thanks Mr Market and Mr USD!

The progress bar changed accordingly, from 55.86% to 57.81%, with a nice step of +1.95% toward the big goal. We’re almost back in the 2% monthly jumps world 🙂

Forecast for 100% FIRE: 30 months left (-3 months), i.e. forecast Fire Date is August 1st 2019, (cell V10).

Current Monthly allowance: 1,552 EUR (+54 EUR, cell V13).
Current Withdrawal Rate – Real:  9.52% (-0.23%, cell V15).
Current Withdrawal Rate – Ideal: 5.77% (-0.20%, cell V16).
Years of Ideal expenses accumulated: 17.3 (cell V19).

Next Steps & Other Updates

Money & Investing

  • Everything is ready to close UBS account, probably doing it in March.
  • Still thinking about a better Pillar 3a with PostFinance, like PostFinance Pension 25/45/75. TERs are high, considering that they are funds of funds, and market diversification is very low. They invest in Switzerland stocks, essentially 3 stocks (Novartis, Nestlè, Roche). I know there are better options out there but I’d rather stay within PF, my financial life is complicated enough and I don’t want to make it more complex. Plus, Pillar 3 constitutes less than 5% of my total wealth and I may want to withdraw it within next 5 years. Keeping my money into a saving account at 0.2% interest may still be ok.
  • What about a Pillar 3a for Miss RIP? We’re getting married and next year we’re going to join our tax returns which means we might want to save taxes on those 6.7k she could set aside. In that case there will be too much money sitting at 0.2%, funds become more tempting.
  • Extra rebalance to adhere to my IPS. I’ve done a good job moving money around and investing more in Jan-Feb with limited friction (115 CHF total fees). As mentioned before need to think about 15/5/5 split between Large US, Tech US, Small US vs 20/5 Large/Small as mentioned by my IPS. Technically it’s the same stuff. Tech US are large companies. Problem with current split is that I’m triple exposed with Tech US: I work for them, I invest in Large US (most of them are tech anyway) and I invest in Tech US. Home bias is hard to die!

Wedding

Wedding is coming! We’d get officially married in Switzerland in March, and then we’ll celebrate it with a big party in Italy in June. March will be an interesting month! From a financial point of view, the default in Switzerland is that we, individuals, keep whatever was ours before the marriage while whatever we make as a couple after the marriage is then shared. If you want something different (sharing everything or keep finances separate) you need to sign a contract in front of a notar. Anyway, since we’re planning to reach FI together I’d add Miss… pardon, Mrs RIP NW to mine. Expect a nice jump forward in March 🙂

About the wedding budget… last time I took a look at the spreadsheet it was dangerously coming close to 25k…

I need to find a way to account for monetary wedding gifts too. Both my parents and future in laws are going to give us money, several thousands. I expect some of the invitees will too. I don’t want to consider it as income nor I want to don’t consider monetary gifts at all. Need to think about it.

Blog

February has been my least active month on my blog and on the communities (forums, other blogs,…) since I started blogging. I’m not losing passion, it’s simply a too intense period of my Stardew Valley farm life.

Anyway, good news:

  • book featuring me has been published!
  • Financial Independence Week Europe (FIWE) 2017 has been announced! I’ll be there for sure during the 3 main days and probably few days more to hang out with bloggers and participants! Follow the link if you want to join us! We’re going to Timișoara (Romania) in September 2017!

How was your February?