Shop Smart: Use the Internet to Save Money

I have to say that I love the internet. Mostly because it saves me money. By combining online discounts and using a cash back service I save a few hundred dollars a month on normal household purchase. I am going to walk you through a recent $91 purchase of mine and show you how I saved over 40% shopping online instead of going to my local store.

First off I saved money by not driving to the store. The store is 5 miles away, my car gets 20 miles to the gallon, so going there and back I didn’t use 1/2 gallon of gas, add the wear and tear on the car and I have saved over $2.

Then I started my shopping at Ebates. Ebates is a website that pays you cash back for all you shopping. And I am not talking about a small amount. I don’t need to shop at special stores, and I still get all the other discounts I am entitled to. Ebates sends out checks quarterly and I usually get a check every quarter. In this case the store I am shopping at is being featured and offering 12% cash back! This unusual, most cash back amounts are in the 3-5% range. On my $91 purchase I earn $11 cash back! Very nice.

Selecting the store is important This time I am shopping for common household supplies. Cleaning products, toilet paper, feminine products, soap, etc. With the aforementioned 12% cash back it is an easy decision to shop at Drugstore.com. Even without the Ebates cash back they usually have very good prices compared to my local store. They also have their own incentive program. With every purchase I earn “bucks” that I can spend on a future purchase. With this purchase I earn 4 “bucks” but I will use that on a future purchase so I don’t count it here.

I shop the sales and find some really good deals. I save over $20 compared to what I would have spent at my local store. Once again this is a bit unusual, I normally save around 10%. As usual I make sure that my order is over $50 so I qualify for free shipping saving another $5. (First time customers get free shipping with just a $25 order!)

Total savings $2 car expenses, $11 Ebates cash back, $20 saved over local store prices, plus $5 saved on shipping.
My total savings are $38 or 34% of what I would have paid if I had gone to my local store.

That is just one example, but it is not the only one. Using a combination of Ebates and online store discounts I have also save $35 on a pair of $105 shoes. I bought a backpacking tent for $99 that was selling for over $200 at my local store. (That was a clearance purchase with a 20% discount for first time customers combined with a 5% Ebates cash back. )

How much have you saved by shopping online? I would really like to know!

How To Improve Your Credit Score

It is no secret that in general, I think it is best to be totally debt free. Just take a look at my series on Debt Free Forever. However, there are times when credit is necessary, and even if you are on a cash basis, there are times when a good credit score is important.

Here are a few tips from the Federal Reserve System for improving your credit score.

1. Get Your Free Credit Report

Don’t listen to the catchy jingles and the hype. There is only one place you should go to get your free credit report and that is www.annualcreditreport.com. This is the free credit report site authorized by the Federal Reserve and you wont’ need to sign up for anything to get your free report. By law you are entitled to one free credit report from each of the three major credit reporting companies. You don’t need to get them all at once. Spread them out throughout the year and you can keep close tabs on your report.

Once you get your free credit report, then check it carefully to make sure it is correct. If you find anything that is incorrect, or you disagree with, contact the credit reporting agency and they will tell you how you can correct the mistake, or at the very least, add a comment to your credit report stating your side of the story.

2. Don’t Miss A Credit Card Payment

Not only are missed or late payments damaging to your credit report, they are costly! Late payment fees of $29 or more can add up quickly. Through your bank’s automatic bill pay set up an automatic payment for at least the minimum payment on your credit card. Set it to send the payment a week before it is due. That way you know you won’t be late on your payments, and you can always send in extra payments if you want to pay your credit card off more quickly.

3. Don’t Max Out Your Credit Cards

Staying well below your limit not only avoids costly over limit fees, it also improves your credit score. Companies like to see that you have plenty of credit available. It shows that you can control your spending. If you have a credit card that is close to the limit, quit using it and make an effort to make more than the minimum payment and pay down the balance.

Just three simple steps to improve your credit score. It won’t happen overnight, but the results will be worth it.

The Home Buyer’s Tax Credits, Now The IRS Will Help You Buy A Home

Ranch style home in North Salinas, California
Image via Wikipedia

Once again the IRS has extended the First Time Home Buyer credit and now is a great time to buy a house!

What I find really exciting is now you don’t have to be a first time home buyer to get a modified version of the credit.

Here is the scoop. If you are a long time homeowner, defined as someone who has lived in their current home for at least 5 consecutive years, you can now qualify for the long time resident credit and get a tax credit of up to $6,500.

Here is how it works. For both the first time home buyer tax credit and the long time resident tax credit you must enter into a binding contract by April 30, 2010 and have closed escrow by June 30, 2010. Miss the deadlines by even a day, and you miss the credit.

You can claim the credit when you file your 2009 or 2010 tax return, or if you don’t want to wait, for homes purchased in 2009 you can amend your 2008 tax return.

The credit is 10% of the purchase price of the home, up to $8,000 for the first time homebuyers credit and $6,500 for the long term resident credit. The new home must be your principal residence for 3 years, or you have to pay back the entire credit.

There are some limits, the purchase price of the home must be less than $800,000 and a taxpayers modified adjusted gross income must be under certain limits. Just how much depends on when you purchase the home. For homes purchased before November 7, the credit starts to phase out at $75,000 MAGI, $150,000 for joint filers, and no credit is allowed for persons with Magi of over $95,000 or $170,000 for joint.
For homes purchased after November 6 the full credit is available for persons with MAGI of up to $125,000 ($225,000 for joint) and no credit is allowed for taxpayers with MAGI of over $145,000 ($245,000).
Find out all the details on the Home Buyers Tax Credits at the IRS site.

Now here is where I think it gets really interesting.

Make Tax Free Income From Your Personal Residence

Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money–That the Poor and the Middle Class Do Not!
Robert Kiyosaki, of the Rich Dad, Poor Dad fame, said in his books that your home is not an asset. However, that was before the IRS made owning a home so attractive. Using a combination of the Home Buyers Tax Credits, Mortgage and Real Estate Tax Deductions, and the Tax Free capital gains from selling your home, it is possible to make large sums of tax free income from your home. Here is an example of how it might work.

You, as a first time homebuyer, buy a home for $80,000 on January 1, of 2010. You put 10% down ($8,000) and take out a 30 year fixed rate mortgage for $72,000 at 5%. Your monthly mortgage payments will be $386.51.

The first year, when you file your tax return, you get the $8,000 tax credit, in other words, the IRS just paid your down payment. You will have paid around $3,300 in interest, and maybe another $1,000 in taxes, giving you a tax savings of about $1,000. ( I am using round numbers here just to make it easy.) That is a total of $9,000 you didn’t need to earn, and $9,000 you don’t need to pay taxes on.

Years two and three are not very exciting, you still get the tax deductions and save around $1,000 per year.

After 3 years you decide to sell your home. Let’s assume the market has made a recovery (which is not an unreasonable assumption for 3 years out) and your home has increased in value 25%, to $105,000. Let’s play with the numbers.

First lets see how much cash it took to live in your home. (I don’t include insurance here, because even if you are renting your should be paying for insurance, and renter’s insurance and homeowner’s insurance cost about the same.)

Cash Out

If we add up the down payment ($8,000), the total monthly mortgage payments ($14,000) and the estimated property taxes ($2,400) we come to a total of $24,400 cash out of pocket to live in our home. But then we get to subtract the tax credit ($8,000) and tax savings ($3,000) to come up with a net out of pocket cost of $13,000. Not bad for three years of housing!

Now let’s see how the cash flows when you sell the home.

We sell the home for $105,000, but we have to pay the costs of selling the home ($8,400) and we have to pay off the mortgage ($68,000). That leaves us with cash in pocket of $28,600. Nice! Subtract from that the $13,000 cash out and you are left with $15,600 your don’t have to pay taxes on. Working a job and paying income taxes and social security taxes you would have to earn almost $20,000 to have the same amount of cash.

So by using the tax laws to your advantage you have lived in your house for free for 3 years and gained over $5,000 per year in cash flow.

In my book, that makes my home an asset!

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