Work it, work the system, work the numbers and work your ass off so that you own your time, your finances and your life.
On that note. Wealth is made by putting dollars to work, but even better is putting someone ease’s dollars to work. Enter the 0% APR credit card and the Credit Union Money Market account. It works like this:
STEP 1: Open a 12 month 0% APR cash rewards credit card. You do need decent credit for this to work *
STEP 2: Open a Credit Union account.
STEP 3: Use the credit card to fund a Money Market account at the Credit Union for 2500$….. then do it again 2500$ + 2500$ = 5000$. (they have more than one type of Money Market account, so pick two different ones)
STEP 4: Transfer the 5000$ from the Credit Union into an investment account, for this example I’ll use Lending Club. Invest in quality high yield notes (using a filter, more on that here). A Vanguard or Mango Money account would be a better choice if you need access to the funds, like to pay down the credit card.
STEP 5: Pay off the credit card at the end of the 12 month 0% APR and pay no interest, or you’ll be the sucker making the banks rich. STEP 6: Set up a Mint.com account and stay organized!
What does this all add up to you ask? Well here is the math:
- 100$ = 2% cash back on the 5000$ you “spent” with your new cash rewards credit card at the credit union.
- 325$ What you will make at 6.5% interest on 5000$ at Lending Club in 12 months (below average, I’m shooting for 9% return)
Plus all possible referral bonuses
- 25$ Lending Club referral (must put 5000$ for this)
- 25$ Capital One checking/savings interest account referral
- 50-25$ referral (by me or someone else with a suitable credit card). Discover card is generous with offering higher limits (greater than 5000$) and is an easier card to get approved for if you are new to the credit game. City Double cash card would also work well, but is harder to get. (update they may no longer be offering 0% apr.)
All that =500$ !!!! 10% ROI (return on investment) but remember, it was not your money in the first place, so that term does not even apply!
The one caveat is that Lending Clubs loans are 36 months, so you can’t cash it out to pay off the credit card, but your making 500$ to put toward it.
That means you need to save 4,500$ in 12 months. To do this Set up a 375$ a month auto transfer into a savings/checking account 375 x 12= 4500$ + your 500$ ROI. Open a savings/checking account that earns interest and put your dollars to work.
Part two: See How to save 375$ a month If you can do this then in a year you will have a 5000$ start on your financial Independence! Of course, you could just save the money on your own, and skip all this complicated stuff with opening accounts, this is just a way to accelerate the process. For me there is also extra motivation to keep saving every month, because I need to pay off the credit card, which helps me keep on track. Another cool thing is that you get to see first hand the income generating power of having a large sum of money invested, without spending a year working to build that sum.
Keep reinvesting the 5000$ and at a compounding interest rate of 6.5% in about ten years your 5000$ will have doubled to 10,000 !!!! Without you doing anything.
Keep saving 375$ a month and reinvesting the 5000$ and in ten years you will have about 75,000$. Play a little with the numbers on this Compound interest calculator
Or you could also use the money and go bike tour around New Zealand next winter…
* One potential issue is not getting approved for a suitable credit card or that the line of credit you are approved for is inadequate for the large sum needed for these transactions. In this case, do what you can with what you get approved for and wait for your credit to improve. In say 3 to 6 months try again. Note that carrying a large balance on your card may not be the best for your credit, but as long as you make the minimin payments and don’t default, it should be pretty minor.
Disclaimer: Your on you own, these are just suggestions, don’t F it up.