I turn down free money

by Philip Brewer on 15 July 2008 22 comments
Photo: Philip Brewer

There's a certain class of ways to get free money or free stuff simply by paying attention, keeping track, and being careful.  I don't do these things.  It's not because they don't work; it's not even because the risk-adjusted earnings don't pay for the time spent.  It's because time--and especially time spent paying attention--is very precious.

The clearest example of the sort of thing I'm taking about is getting a cash advance from a new credit card with a zero-percent teaser rate.  Slap that money in your high-interest savings account, pay off the loan when it's due, and you can pocket the interest.  Borrow $100,000 and you could pick up close to $2000 of free money in six months.

The thing that makes these schemes tempting is that they seem so easy.  After all, you already pay your other bills on-time.  For paying one more bill on time for six months you get paid $2000?  What's not to like?

Well, one thing not to like is that there's a dozen ways to screw up.  Accidentally use the card for an ordinary purchase, and suddenly the interest rate is no longer zero.  Make a payment late and suddenly the rate jumps up high enough that you owe more for one month than you were earning in six.  In some cases, making the final payment late can allow them to retroactively change the zero percent teaser rate to their regular rate, and suddenly instead of coming out $2000 ahead, you find yourself $10,000 behind.

So, I don't do that sort of thing.  I'm organized enough to be successful at them, but I know from experience that things go awry.  If you're 99% successful at paying your bills on time, but you've got a dozen bills that need to be paid every month, you can expect an average of 1.4 late payments per year.   The list of things that can lead to such a mistake is endless--busy at work, busy at home, illness, injury, family emergency--and that's not counting the possibility that someone else might screw up in a way that costs you money.

Even if you automate your bill paying, things can go wrong.  Maybe your bank merges with another bank and you have to move all your automated bill-paying to the new bank's system.  If you make a mistake with your power bill, it's no big deal--just fix it.  If you make a mistake with the $100,000 zero-rate card it could cost you a lot.  Maybe your bank makes a mistake and bounces one of your checks.  They'll admit that it's a mistake and refund the bounced-check fee, but good luck on convincing them that they need to reimburse you for several month's interest on $100,000.

The strict way to analyze this is to do a probability-weighted payoff analysis.  If 99% of the time you make $2,000 and 1% of the time you lose $10,000, then your expected return would be $1880.  (.99 times $2000 minus .01 times $10,000).  Now calculate that as an hourly wage.  If you spend, let's say, one hour setting the whole thing up and then ten minutes a month making sure everything's on track, then over six months you've spent a total of two hours, giving you an equivalent wage of $940 an hour.  

Woo hoo!  Not many people get paid that much.

Even so, I never do this.  The reason--the real, fundamental reason--is that it would take my attention.  I'd end up spending way more than than ten minutes a month with this on my mind.  I'd be lucky to keep it down to ten minutes a day--at which point my hourly wage drops down to about $60, which although nothing to sneeze at, is a wage I can probably match by doing work that's a lot more rewarding--work that helps other people or that produces something of value or that furthers my career or that teaches me a new skill.

Because of that, I avoid all schemes of this sort.  I don't take "free" magazine subscriptions or "free" credit monitoring services that you have to remember to cancel after a month or else pay for a full year.  If I want a copy of a magazine, I'll pay a few dollars and buy one (or, if I just want to look at it, I'll go to the library and look at their copy).

My time and attention are very precious to me.  If I'm going to spend them, it's going to be on something that earns more than just money.  Whenever I can possibly manage it, it's going to be on something that's really worth doing.

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Guest's picture
Kimberly

I totally agree. On many of the personal finance blogs I read, people talk about The Grocery Game, where they spend hours scouring sales, driving to lots of stores and combining coupons to save 50 cents on toilet paper. No thanks. I try to make substantive changes in my lifestyle that save real amounts of money, but my time is far too valuable to play games.

Guest's picture
Rhonda

I agree, and you say it so much better than I could! Great post.

Guest's picture
jes billings

vaguely guilty because I never do that money-saving stuff -- coupons and credit card roulette and such. Thank you for so clearly stating the reason for not doing it. I feel better now.

Guest's picture
K. P.

Nothing comes that free, and easy. Everything you have, you should work for. If you don't you will turn up into one of those girls on my super sweet sixteen.

Guest's picture

I've taken advantage of the free money from the credit card companies. I only do two or three at a time to make sure I don't screw up. I keep a very close eye on them until it's time to payoff the balance. Rinse and Repeat!

Guest's picture
Sam

I could only agree. I remember purchasing a website template package subscription months ago (with 15 days free access promo), unfortunately I didn't pay much attention to their email saying that if I didn't cancel before the subscription expires, they will automatically deduct $99 from my credit card. Man guess what, they didn't inform me that my subscription is about to expire and the next thing I know, I'm $99 poorer.

That happend 2 more times that I ended up canceling my subscription for fear that it might happen again.

Sam

Guest's picture

Agreed. A lot of this stuff ends up being a "stupid tax" because you forget to cancel the thing in time and get billed or you're sent something you have to mail back (costing time, gas, money).

The one exception for me was when I was getting out of debt a year ago. I transferred balances to a zero percent interest card, but I did pay it off before interest charges started accruing.

Guest's picture

Great thoughts on why not to act, but you seem to be saying to yourself that you are stupid for not doing it. Think of what you could do with an extra $2,000 every 6 months.
I want to implement this strategy but I am a student and cannot do this yet. When I am earning enough I definately will though

Guest's picture
Erma Kelso

I am always getting emails about receiving free giftcards from Walmarts or Walgreens or some other place.
However, I know that if I decide to go for it, I will h ave to wade through a bunch of other sponsors, changing the Yes to a No and will probably wind up with something I don't want.

I think too that they sell your email address, don't you? You are not going to get this great gift for nothing.

Guest's picture
Larry

I used to clip grocery coupons, but eventually decided that wasn't worth the time. I do, however, take advantage of cash back or free trial offers if they are substantial enough.

The trick to never forgetting to cancel in time is to immediately create a reminder in Outlook or other to-do list software. It only takes a minute, and avoids my increasing inability to predictably remember anything.

Then I just have to remember to check Outlook on a regular basis...

Guest's picture
Guest

I agree with you that it will take your attention, probably every day. But you are over estimate the value of your attention. If you don't spend 10 minutes a day thinking about your credit card scheme, you will spend it thinking about boobies. Or that you really don't like that tree from the neighbors that takes away the sun from your backyard.

Guest's picture
Guest

I didn't know about the cash advance scheme....sounds interesting, though!

I do take advantage of lots of free or trial period offers, however.
But I write down ALL info, and I put it on my calendar, and make sure to cancel any trial periods a WEEK before the finish date.
I have never gotten messed up, or ended up paying. I'm very careful.
Some things I even forget I'm doing a trial period, until one day, I flip my calendar to the new week, and there, stuck on the page for one day, is all the info, including phone numbers to call, to cancel my trial.

I've gotten free meals and gift certificates, etc...from credit card reward programs. It's fun, if you're careful.
And sometimes, when I call to cancel, they give me another few months to keep trying it. So I change the dates on the sticky note, and slap them onto that future calendar day.

Wow...if I could make $2000, that would pay for our whole week vacation!

Muah a haha ha h ah ah ah ahaaaa!

Guest's picture
Durbo

Sorry, but this blog does not make sense to me. You usually advise on doing things like buying things in bulk, saving money on gas by limiting the amount of driving that you do. All your advise require discipline and commitment. I am not sure why using free money would be any different.

Ten minutes is really not a lot of time to use to earn interest using someone else's money. It surely beats getting a second job (and probably using a car doing so) to make the same amount of money. It's also a great reward for saving.

Philip Brewer's picture

I'm big on applying attention in the moment.  Buying things in bulk requires that you have applied enough attention to know that you're getting a good deal, but it doesn't commit your attention for the future.  (In fact, arguably it frees up your future attention, because managing your shopping gets easier when you've got stockpiles of staples on hand all the time.)

I'm much happier applying my present attention for future gain--creating something of value that I hope to sell, for example--than I am accepting present gain for a promise of my future attention.

For most things--stuff, money--I'm pretty confident in my present estimate of its future value, so I'm willing to make commitments based on that. 

I guess what it comes down to is that I lack confidence in my present estimate of the value of my future attention.  More than a few times, I've committed my future attention and then bitterly resented having to provide it at the moment it was required, because circumstances had changed.  (And, sometimes, I failed to provide my attention at the crucial moment, at considerable cost.)

Guest's picture
Michelle

I think this is one of the differences between people who are trying to be frugal to make their lives "simpler" and those who are trying to save money, not that these two are incompatible, of course. There are things that I am torn about because of these two philosophies, and I don't think either side is "bad" for doing what they're doing. Do I organize things that might be useful later, or declutter them because I'm not using them? Do I decide I don't need a bunch of toiletry items, or do I order free samples online and "not worry" about the packaging? Do I use coupons for Walgreens and JoAnn's, or do I decide it's not worth waiting to shop until I'm in the "city"? You can do credit card arbitrage and so forth, but is it how everyone wants to live?

Philip Brewer's picture

@Michelle:

I think you've hit the nail on the head.  There's a lot of overlap between simplicity and tightwaddery--because the simple choice often saves money.  (The overlap gets bigger when you take the future into account--a long-lasting item may cost more, but save money and time in the long run.)

But the overlap is definitely not total.  This is a perfect example of an instance where the simple choice is not the most lucrative.

Here I definitely come down on the side of simplicity.

Guest's picture
ConnieB

>>My time and attention are very precious to me. If I'm going to spend them, it's going to be on something that earns more than just money.

Hooray to that! There's a bit of wisdom I can take to the bank.

Guest's picture
Lucille

Nothing with a "gotcha" attached is really free. I have had salespeople get really indignant because I turned down there free stuff because it had some clause in it. I just don't need another thing to remember or floating around in our housekeeping system.

Guest's picture
expat

There are some things, like the credit card games, that I won't play, because there is inherent risks that I am not willing to take, as some folks have outlined above.
On the other hand, some things like clipping coupons for example, are simple ways to save a few dollars here and there, and it's relatively harmless, unless you obsess about it. Which I used to. In the end it's not worth the time if it takes up too much of it. Everything in moderation, I guess.

Guest's picture
Tom

I am in the same boat in that I don't sign up for the free magazine subscriptions or the free credit monitoring system because I am certain to forget to cancel them. While I personally do not participate in the 0% balance transfer offers from credit cards to earn a few extra dollars, I can understand why some people do it.

Guest's picture
Suz

way too risky. Not because of the tricks, but because if I were to slack for even one day I might get in really really big trouble...

Guest's picture
krazykop

The last time I bought a new vehicle I financed it through the dealership at 5.9% interest. I then used a Credit card balance transfer with a 2.9% interest rate. I made the same monthly payments that I was making (which were more than I had to make) and paid off the car in about 24 months instead of 60. I did something like this on an earlier vehicle using a Line of credit from a bank and saved a couple of thousand dollars. You don't have to spend 10 minutes a day watching these things, but you do have to be careful.