See, this is actually a post I’m credentialed to make (and a long post to boot). So far, my education has allowed me to do only two things: solve obscure mathematical puzzles vaguely related to open questions in social science, and know how not to waste my money. I used to be under the (strange, I know) assumption that most people have basic financial literacy. I’ve seen the data now: this is not the case. So the first part of this post is “how to be smart with your money”, while the second part is the promised “how to get thousands of dollars for free.” Let’s get right to it.

1) Listen to Wilkins Micawber

From Dickens’ David Copperfield: “My other piece of advice, Copperfield,” said Mr. Micawber, “you know. Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” That is, don’t spend more money that you have. Steve Martin covered the basics here.

The meaning of debt is a bit confusing. You’re in debt if you owe more on an asset than it’s worth. So if your car depreciates 20% in a year, and you pay 20% of the car down over a year, the car loan really isn’t debt. Reasonable, standard loans for cars and houses are fine. There is really no other time you should ever carry debt. You should have saved six months of living expenses in case you become unemployed, and carry (at least) catastrophic health insurance in case on an emergency (a policy with a $5000 annual cap would cost me $50/month here in Virginia, so there’s really no excuse for an employed person not to carry it). So rule #1: don’t go into debt in the first place.

2) Pay down high-interest debt before you do anything
There are, I assure you, huge numbers of people earning 5% on their savings while carrying 18% credit card debt. Every dollar they save here is losing 13% (well, 11.5% for the math nerds, but the idea is the same). Rule 2 is simple: pay down any debt that charges more interest than you get from your savings.

3) Open a Roth IRA, and max it out, including employer matches
In a Roth IRA, you pay income tax today, but then don’t have to pay tax again on your IRA savings and interest, whereas with a standard IRA, you avoid tax today and pay tax later. Without doing the math, I assure you that the magic of compound interest ensures that any 20-something year old is much better saving in a Roth than in a traditional IRA. Plus, the savings can be extracted penalty-free to help pay down a house. If you are saving for retirement, a Roth essentially doubles the interest rate you’re getting.

If your employer matches savings, you would have to be retarded not to save up to the match limit (my work matches up to 6% of salary, for instance). That is an immediate 100% return on savings! There is nothing you will every do in life that will give you 100% immediate return. Set up a Roth and take your boss’ free money.

(I should note that I’m a hypocrite here since I don’t have a Roth IRA, but that’s only because I’m blowing through my savings traveling next year. What can ya do? I’ll set one up as soon as I’m able.)

4) Gamble in Vegas, not on the stock market
Most economists believe in a theory called the EMH, which states that financial markets are efficient. That is, there is not just free money lying around - an asset’s expected value is dependent on its risk, and that’s it. Even if you think this is a bit strong, the point remains the same: don’t buy individual stocks unless you have some secret, insider knowledge (and in that case, call your lawyer). When you look at a stock price, that price already accounts for all market participants’ knowledge of a company or mineral or government bond. You were not the only one who saw Jim Cramer hype a stock on CNBC or read a great article about Google’s growth in the New York Times. There are tons of very smart, very rich people in places like New York and London who spend all day, every day, trying to figure out how to make more than everyone else by buying assets, and by the very nature of the market, half of them will make less than the median return.

There is a way around this: keep your money invested in index funds, which essentially buy hundreds and hundreds of companies for you. Companies like Vanguard or DFA will do this for you, and can help pick funds that make sense for your risk tolerance. You will make “average” returns. Anything else is gambling. In face, anything else is like playing poker at a table with professionals - there is no way you will do better than them. The best stock tip you will ever get is to stop listening to stock tips.

Finally, A dollar saved is WAY better than a dollar earned
You pay taxes on dollars you earn. You do not pay taxes on dollars you save. If you pay 33% in taxes at the margin (which is you do if you make over 32k, including social security), then saving $5000 is the same as getting a $7500 raise. If you want to be richer, you are always better off saving money that trying to increase your income.

Whew. OK. Now on to the fun part: how to get free money.

You may remember my post on this subject early last year. I’ve learned some new tricks, so it’s time for an update. I’m going to assume that you like to travel, so these tips lean toward “earning free travel”, though “earning free money” is a major part as well. As long as your credit is decent, you can do all of this no problem, as it has (if anything) only extremely minor harms for your credit score; in my case, my credit score is higher than it was last year. By decent credit, I mean no bankruptcies or late payments, and at least a few years of credit history. I have no assets and an income below the US median, and I’ve never been declined for a credit card; in fact, I get asked to upgrade to platinum on most applications. Here we go:

There are two basic ways to get free money from credit card companies. The first is to take advantage of sign-up bonuses. These usually require you to spend $250 or $750 or whatever on the card; after that, just set the card on your nightstand and cancel the old ones every six months or so (even better, roll the old ones into current credit cards you have with the same company, since this is a bit better for your credit score; if you call them up, they’ll let you do this). The second is to take any loan that you can get which has an interest rate lower than (roughly) the Fed Funds rate. More on this in a second.

First, the signup bonus. So, which cards to get? You should definitely sign up for the Citi AAdvantage card, which gives you 25000 miles on American after spending $750. The biggest reason is that Citi is “churnable”; that is, every 60 days or so, you can get another card and bonus. (Below, I’ll show you how to do this every 30 days). On AA, 6 cards and $10,000 in spending on those cards would get you a 25,000 mile, up-to-16-flight ticket in business class, essentially enough for a round the world flight in business every year. For instance, you could do yourself a nice little 4-week trip like San Fran-Ayers Rock-Mauritius-Kilimanjaro-Paris-Iceland-San Francisco, paying only taxes.

I’d also get the Citi PremierPass, which gets 25,000 ThankYou Points. This isn’t churnable, but 25,000 TY points can get you any flight ticket worth less than $400, so basically any domestic flight you want. There are no blackout dates. You could also get a $250 gift certificate to any number of places instead. This card has an annual fee ($75), however; nothing else I mention here has a fee.

The Chase United card gets you 20,000 miles on signup, so I’d definitely pick that one up as well.

Finally, the Starwood Amex gets you 10,000 Starwood points after your first purchase (no dollar limit). Starwood points can be used at Starwood hotels (such as Sheraton) and have no limits, so if a room is available, it can be picked up with Starwood points. They also have a points + pay deal which is very nice (I stayed at the swanky Sheraton Dubai Creek for $60 + 4,000 points/night, including taxes). If you don’t need hotel points, though, the real benefit is that SPG points can be transferred into airline miles, with 20,000 points getting you 25,000 miles on any number of airlines. If you do sign up for this card, please go through this link and use ID: 3073926108 and Source Code: A00000582S. You still get the 10k points, but they kick back 5000 to me if you do this before the end of February.

You can double up any of these offers by getting the business versions of these cards for your “small business”. There’s no registration process for sole proprietorships, so if you say you have a consulting business and are a real person, then you have a consulting business. So get the business versions of these cards as well.

If you watch sites like Bankaholic and View from the Wing, you’ll get a heads up on limited time offers. Both Amex and Chase had offers that essentially gave you $250 on signup last year.

For everyday purchases, the Chase Freedom is a good card. It gives you $50 on signup, then 1% cash back on purchases and 3% on purchases at your named 3 biggest areas. So you could get 3% back on utilities, grocery stores and restaurants. Whatever you use for everyday purchases, you should make sure you average 2% or so in rewards; I value Starwood points at around 2 cents right now, so I use my Starwood Amex for everyday buys.

With your credit card situation handled, the next thing you should do is move to an online bank. Remember that 6 months of living money you should have saved? You should be getting 5% back on that instead of letting it sit in Bank of America or whoever’s drawers. Check out WaMu online, ING Direct, Oregon Community Credit Union and many others for the best deal - optimally, you’ll get $100 or so signup bonus. FatWallet is a good site to research this.

Now that your cards are settled, save another $5 a week or so by “clipping” coupons, or printing out coupons. Seriously, if you just look through the Sunday paper, it’s almost impossible not to save $5 next time you hit the store. On online purchases, you should always google what your buying followed by the word coupon. For instance, Dell regularly has $300 coupons for their laptops, buy.com has an ongoing $10 coupon on anything bought with Google Checkout, etc.

OK, final bit of free money. You’ve already got your hundreds of dollars of signup bonuses and your two free kickass vacations per year, plus 5% interest on your savings, 2% back on your spending, and 5-10% off your purchases. Now it’s time to really make money work for you.

Do you know those “0% APR balance transfer for one year” offers you sometimes get? There are tons of them out there, some of which have no fees, and can give you, say, a $10,000 dollar transfer. In your 5% checking account, that’s $500 that you’ll earn before you pay it back (actually, slightly less because you’ll have to make the minimum monthly payment, but that’s no problem). You don’t need to have a balance to transfer to do this: the normal way is that your “transferred” card will show a negative $10,000 balance, and you simply have that card credit the $10,000 to whatever bank you’ve linked (or simply send you a check). This seems too good to be true, right? It actually works and many people are doing it.

Now, this *will* affect your credit score, but only in a short-term way. If you need a car loan or a mortgage in the next year, you shouldn’t do this. If you’re not taking a loan this year, it doesn’t matter since the hit on your score will go away a year from now. (Check out one guy’s FICO tracking while doing this trick here).

So how to do this? There are many easy tutorials online, but I liked this guide (specifically for Citi offers), and this more general guide in five parts.

Note that my tips are only for the really easy stuff - I know people who make $10,000/year (tax free, since cash back isn’t normally considered income) through signup bonuses and the like. The tips above should make you a good $3-5k per year in free money and travel, though, and that’s not a bad deal.

One last tip: If you’re in the market for a new cell plan, get the Sprint ERO (employee referral). Go here, use referral savings@sprintemi.com, and you can get 500 anytime, unlimited nights (7pm) and weekends, unlimited text and unlimited data for $30/month. You can pick up, say, a Palm Centro on signup for $99. There’s a two year requirement, but I’m pretty confident that you will nowhere else get a cell plan this cheap.

That’s all I’ve got. Now go feel richer! Let me know if you have any questions.

(A brief note: I’m putting up a post next week that will literally make you thousands of dollars for basically no work by updating my credit card scheme post from last year. It’s incredible. I have a better idea of where I’ll end up, and in the last two years, I’ll have gotten over $4000 in airfare, about $300 in hotels, and over $500 in cash, all after tax, for free. Knowing the tricks I know now, I feel pretty confident that I could have made at least $2000 more. $6800 post-tax is closer to $10000 pre-tax, so this is essentially the same as a $5000/year raise. All told, I’ve maybe spent 20 hours. As long as you have a job and decent credit, you could do the same thing, so you might want to check that post out…)

I never like thinking about elections before we even reach an election year, but now that 2008 has arrived, it’s time to get serious. It’s no secret that, politically, I’m a libertarian-leading moderate. I think that the Constitution and personal responsibility should be the bedrock of politics. Beyond that, I also think there are some ways the government can help the less-fortunate and the unlucky, I think that decisions should be made locally if possible (the principle of subsidiarity), and I think that America’s foreign policy should be guided by “the city on a hill”, where we hold our actions and leadership to a higher standard than other countries. Anything else is just details.

That said, as noted in my last post, I don’t see how anyone with political beliefs similar to mine can consider anything other than the war in Iraq to be the most important issue in this election. The money spent, $1 trillion, dwarfs any other governmental spending that is on the table right now. The damage to American lives, Iraqi lives, and the reputation of this country has been enormous. And the people fighting this war are overwhelmingly men my age. They’re the ones who, like a friend of mine from college, signed up for the military after 9/11 because they wanted to capture bin Laden, and ended up being sent to a country which was maybe the #30 most important place for Islamist terrorism, a country which essentially proved of no danger to the United States. They’re the ones who, like the same friend, left a promising college student and returned with serious depression. They’re the ones who tell me we’re wasting our time.

In 2004, I felt that General Clark was the best choice - he had good advisers, was going to end the war, and had the substantial foreign policy experience to restore America’s public image.

(Quick aside: Note the reason for the experience is to restore America’s image, not to keep America safe. I don’t know how al-Qaeda has somehow become considered a danger on the level of 1940s Fascism or the USSR. Al-Qaeda is a group of a couple thousand radicals, generally poorly equipped, with no major state support, who took advantage of a passive policy toward hijackers to kill a bit under 3000 people. Fascism controlled the state apparatus of a number of major countries, was a legitimate threat to conquer all of Europe, and led to the deaths of millions upon millions. The USSR was minutes away from firing a nuclear missile in October 1962, which would likely have triggered the greatest loss of life in the history of the world. Hell, even in the early 20th century, there were groups of anarchists in the United States that murdered a president, tried to kill another, and exploded a bomb on Wall Street. I’d say that aside from the 1920s and the 1990s, the current decade is the safest decade for America in the last hundred years, and if anything, we should be reducing the size of our military. I’d also say that the media (and many politicians) are incredibly ignorant of history.)

This year, the field is quite a bit better than in 2004. On the Republican side, since every candidate but Ron Paul (more on him in a second) is in favor of the Iraq status quo, I can’t really endorse any of them, but let’s go through them one by one. I do like McCain, and did even in 2000. He tends to get things done, believes in personal responsibility and the free market, and has taken pretty bold stands in favor of a humane response to illegal immigrant, and against the torture which an incredible number of Congressmen inexplicably support. But his plan for Iraq is to keep us there for another 50 to 100 years. So he’s out. Rudy Guiliani is getting my anti-endorsement. He has a long of record of disregard for rules on executive power, has a foreign policy team that is an order of magnitude more extreme than the Bush administration, and can only claim “being mayor on 9/11″ and “hiring William Bratton“, the sheriff who cleaned up New York and went on to clean up LA, as accomplishments. I also think he’s immoral considering how he’s treated his many wives, and I think “immorality” is a bad characteristic for a president. His election would be an absolute disaster for this country. I actually like Mike Huckabee, but I don’t think I can vote for a guy who doesn’t believe evolution is real. He’s definitely the least bad of the Republican field (big up when he mentioned that he’s a “10th Amendment kind of guy” during the New Hampshire debate tonight). Ron Paul has the right policy on the war and civil liberties, but otherwise he’s just a bit crazy. His ideas on monetary policy, which he mentions nonstop, are considered a bit ridiculous by basically every mainstream economist. His heart on the role of the government is in the right place, though, so I can’t hate too much. Fred Thompson is a joke. “What policy of Obama do you disagree with, Sen. Thompson?” “Well, he’s liberal.” “And?” “Well, he supports liberal policies.” A vote for Fred is a vote for more of the same, plus it’s clear from his lack of campaigning that he’s both too old to be President and doesn’t really want to be President anyway. Finally, Mitt Romney is a total hack. Give him credit for doing something about health care, though the Governator’s plan is a bit better, and also give him credit for actually seeming to have read policy papers unlike some of the others in this list. But he’s clearly willing to do whatever any special interest wants him to do, and his government would also be more of the same.

Ok, let’s turn to the Democrats. This is tough. All the Democrats are far too willing to increase the size of government and ignore individual liberty, but problematically, the Republicans are too (Bush has damaged civil liberties and increased the size of government more than nearly any President in modern history). That said, of the four major candidates, the only one I would exclude right away is Edwards. I understand he’s passionate about his Dad and the mills, but his economic prescription is far too populist and ill-informed for my tastes, and I also don’t think he has anywhere near enough experience (one term in the Senate and many years as a trial lawyer?). So let’s move on to the other three.

First, Hillary. I think it’s safe to say that a Hillary presidency will be similar to Bill’s time at the White House. And to be honest, that’s a pretty good thing. I just fear that Hillary is too tight with a lot of special interests, and perhaps too divisive to get Congress to pass any major reform. She also has the worst record on Iraq. I also do think it is important to have a female president at some stage - not because I think females “deserve their turn”, but because I think females and minorities are just as capable as elderly white men and it’s a waste for voters to not consider capable people for the most important job in the land. That said, I think Hillary in probably third in the mind right now.

Next, Bill Richardson. I really, really like Bill Richardson. He’s unquestionably the most qualified (UN ambassador, governor, Secretary of Energy, major overseas negotiation experience, etc.). If you didn’t see the New Hampshire debate, watch the bits (when they make it to Youtube, as I’m sure they will tonight) where he talks about Iraq and where he gives his “What’s wrong with experience?” speech. He’s balanced budgets, respected the individual, and worked with many of the most important people in the world.  I don’t know that his economic policy would be great, and his plans for “national service” are quite worrying, but really the only problem I have with him is that he’s dead in the water, polling in the single digits.  I think it’s safe to say that he would be given the Sec. of State position if he wanted it, though.  Put him second, and if a miracle happens, I’d be glad to vote for him.

So I guess that leaves Obama.  You know, I didn’t particularly like Obama at first - he really is quite inexperienced.  But then he hired a top-notch economics team.  And pledged to leave Iraq (and opposed the war from the start).   And came across as more honest, sober and thoughtful than any of the other candidates.  I was particularly impressed that, when Richardson claimed that a cap-and-trade for carbon is paid by businesses while a carbon tax is paid by consumers, Obama interjected and noted that both would have the same effect on consumers.  Nothing like an understanding of tax incidence to make me happy, huh?   I do think that it is not trivial that Obama is a minority, has a Muslim father, and is the only presidential candidate to young to be a Boomer.   His policies are grounded while his rhetoric is not, and given this year’s field, I think Obama would make a fine president indeed.

What am I missing, guys?