Take a look at your wallet right now.
How many credit cards are in there? Debit cards? Receipts, rewards cards, a frayed paper punch card for your local coffee shop?
At Halpern Financial we are big fans of simplicity and efficiency. To adapt a quote attributed to Albert Einstein, your financial life should be “as simple as possible, but not simpler.” Simplifying your wallet is one place to start. We have several tips to help make your cards and reward accounts work for you, not the other way around:
Do you use all of those cards?
If not, then the decision to take them out of your wallet is easy. Carry only the credit cards and debit cards you use on a daily basis, and you will have fewer accounts you need to track for potential fraudulent spending. (A caveat--if you have some very old credit cards, it may be worthwhile to keep the account just so the account remains on your credit history.)
If you do use multiple credit or debit cards, think about how to consolidate.
The more cards you have, the harder your financial life is to keep track of and the more likely it is for mistakes or security breaches to occur. For maximum efficiency, we recommend having a cash-back credit card that you pay off monthly and one debit card.
It is better to pay for most expenses with a credit card because of the higher consumer protections. If your credit card is stolen or hacked, most cards offer fraud protection so you will not be liable for unauthorized purchases. If you don’t notice the fraudulent charge within 60 days, you could lose all of the money in a debit account!
You don’t gain more diversification from more accounts.
Sometimes diversification of risk is confused with having multiple accounts. The truth is that all banks offer at least $250,000 in FDIC protection for your cash (credit unions have an equivalent protection called NCUSIF). There are certain strategies to increase the amount of protection, but keep in mind that FDIC or NCUSIF is meant to insure your money in case the bank fails—an extremely rare occurrence. So having more accounts doesn’t protect you more because all banks are required to have this insurance.
The more important protection to investigate is how much your bank will cover in case of a fraudulent purchase (far more common than bank failures!). The more accounts you have, the more accounts you need to keep track of by reviewing your monthly statements or setting up alerts on your online banking app.
More accounts could mean you have an inefficient cash reserves system.
Another potential risk of having too much in various accounts is the opportunity cost of holding too much in cash. It is important to have cash reserves to cover potential emergencies or times of lower income, but having too much cash means that you are sacrificing some potential for growth. We recommend an efficient cash reserve system of one month of expenses in checking, then additional reserves (2-5 months of expenses, depending on your situation) in savings. Any other large short-term expenses should be added to savings or to conservative fixed-income holdings in the portfolio.
Rewards and loyalty cards—worth it?
According to CodeBroker, 70% of Americans participate in at least one loyalty program, but only 24% actually redeem their rewards. Companies love loyalty programs because they provide valuable marketing data about your spending habits, but if you aren’t taking advantage of the rewards, it’s not a fair tradeoff for you. If you know that you’re unlikely to log in to an app or track your points to get rewards, why not protect your personal information? Simply use a cashback credit card instead so you get a reward for every purchase.
(And if you feel like being sneaky, just say you forgot your loyalty card at the checkout counter, and the cashier might just let you use theirs.)
Cleaning out your wallet isn’t complicated, we know. But this small little housekeeping task can alleviate stress and streamline your financial life. We like that and hope you will too!
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Halpern Financial, Inc.), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Halpern Financial, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Halpern Financial, Inc. is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Halpern Financial, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.