Getting to Know GnuCash (Part I)

One of my goals this year is to develop both a personal and business budget, and keep better track of my books. When I went looking for software to do this, I looked first at open source sources. The option I decided on is GnuCash.

GnuCash is an open-source (i.e. free) accounting software package for individuals and small-businesses. I am beginning to use it for both business and personal purposes, to keep track of income and expenses. I wouldn’t call it super-intuitive, but for someone like myself with decent knowledge of computers, it is fairly straightforward. GnuCash is a double-entry accounting system, which means that for every debit you record, you have to have a credit somewhere else (for example, when a check is deposited in the checking account, it has to be debited from another source, i.e. from income). The same is true of all payments. For example, if I pay a credit card off, the amount also has to be entered into the checking account section. This is helpful for keeping good books, tracking income and expenses, and doing taxes later.

The first task I had to do was to set up and reconcile all of my accounts. This was time-consuming, because I have money spread out at various places in order to  get the  best return. This includes a good number of credit cards. Since I started this in January of 2009, I had to do a little calculating to reconcile the various accounts. I actually enjoyed it, because by using GnuCash, I am actually learning how to use double-entry accounting.

Gnucash seems to have a lot of features, many that I will not use at this point, but it meets my needs for the basic things I need to do right now. I hope to learn more as I move along.

I am a big believer in open-source software. It’s free. Period. And the quality of much of it is very good, and getting better by the day. In our current recession, I am surprised that more businesses aren’t using, and supporting the develoment of, open source programs.

Where Did All the Money Go?

We have been hearing lately that trillions of dollars of American wealth have vanished over the last few weeks as the stock markets have plummeted. Perhaps you were wondering where that money went. A good article from the Associated Press explains what happened:

If you’re looking to track down your missing money — figure out who has it now, maybe ask to have it back — you might be disappointed to learn that is was never really money in the first place.

Robert Shiller, an economist at Yale, puts it bluntly: The notion that you lose a pile of money whenever the stock market tanks is a “fallacy.” He says the price of a stock has never been the same thing as money — it’s simply the “best guess” of what the stock is worth.

“It’s in people’s minds,” Shiller explains. “We’re just recording a measure of what people think the stock market is worth. What the people who are willing to trade today — who are very, very few people — are actually trading at. So we’re just extrapolating that and thinking, well, maybe that’s what everyone thinks it’s worth.”

Shiller uses the example of an appraiser who values a house at $350,000, a week after saying it was worth $400,000.

“In a sense, $50,000 just disappeared when he said that,” he said. “But it’s all in the mind.”

Though something, of course, is disappearing as markets and real estate values tumble. Even if a share of stock you own isn’t a wad of bills in your wallet, even if the value of your home isn’t something you can redeem at will, surely you can lose potential money — that is, the money that would be yours to spend if you sold your house or emptied out your mutual funds right now.

And if you’re a few months away from retirement, or hoping to sell your house and buy a smaller one to help pay for your kid’s college tuition, this “potential money” is something you’re counting on to get by. For people who need cash and need it now, this is as real as money gets, whether or not it meets the technical definition of the word.

Still, you run into trouble when you think of that potential money as being the same thing as the cash in your purse or your checking account…

There was a time when nobody had to wonder what happened to the money they used to have. Until paper money was developed in China around the ninth century, money was something solid that had actual value — like a gold coin that was worth whatever that amount of gold was worth, according to Douglas Mudd, curator of the American Numismatic Association’s Money Museum in Denver.

Back then, if the money you once had was suddenly gone, there was a simple reason — you spent it, someone stole it, you dropped it in a field somewhere, or maybe a tornado or some other disaster struck wherever you last put it down.

But these days, a lot of things that have monetary value can’t be held in your hand…

So basically, your stock market portfolio, 401k, or whatever you invest in, is not really money, but potential money based on an assumed value of ownership in a company. However, when you invested in it, you put in your “real” money, so I can understand why folks treat stock values are real money. I haven’t bothered to check my mutual funds recently. If I recall, I started investing back in 2003, so I may still have a few gains left; who knows. Nonetheless, if the bottom to this thing is near, stocks are pretty cheap, so now may be the time to get in. Until then, I have some of my money at Dollar Savings Direct, which is offering a 4.0% APY right now.

Making Money with Credit Cards??

Here is an idea that you won’t hear very often: you can make money from credit cards. In fact, standard wisdom is that you should only have one credit card for emergencies, and you should shred all old cards. This wisdom is probably good advice for many Americans, but nonetheless I make money from credit cards, and you can learn how to make money with credit cards. However, if you are responsible, you can actually make money from credit cards. Since I first got a credit card back in 2002, I have made over $1000 in rewards, and paid $0 in interest. So how is it that when thousands of Americans are paying way too much money to the credit card companies, I am making money from them?

Basically, it is a combination of rewards cards and responsibility. I have cards that get me 1% cash back on all purchases. Another gets me 5% cash back at grocery stories, gas stations, and  pharmacies. Yet another gets me 5% worth of reward points back on restaurants and movies. Still another gets me 2% cash back on utility bills, and 5%+ back at certain special merchants. I also have one that gets me 3% worth of rewards points at Amazon.com. Oh, and there are the business cards too: 3% back at restaurants, home improvement, and office stores, and 5% back on internet services purchases. Yes, I have a lot of credit cards, but contrary to popular belief, having a lot of credit cards doesn’t hurt your credit score. Now, if you carry high balances on your credit cards, that hurts your score.

Here is the way I look at it: if I spend $100 in groceries, paying with cash gives me $0 back, whereas if I pay with my Cash Plus Card (unfortunately, it is no longer offered for new customers), I get $5 back. It may not seem like a lot, but if you spend $100 on groceries a week, then using a credit card with rewards like this is able to earn you $260 a year.

Below is how to use credit cards to make money. Note that to get some of these cards you have to have established credit. Also, it is wise to not apply for all the cards you want at once, since applying for many lines of credit at once temporarily lowers your credit score (for about 6 months).

– Look for reward cards, and apply for the ones that you think you will use

– Only apply for cards that don’t have an annual fee

– Use the right credit card for the proper purchases (i.e. use the gas rewards card when you buy gas)

– Pay off your balance on-time, every month, so that you pay no interest or late fees

– Pay your credit card bills online. If you have 5 cards, paying for envelopes and stamps adds up.

Be responsible. This only works if you do not treat your credit cards as free money. If you don’t spend within your means, this is pointless.

– Look for offers of 0% introductory interest rates. This way you can pay off your balance slowly, keeping the money in a savings account until the end of the introductory period, earning even more money. Make sure you actually save the money and have it to pay off the balance after the introductory period is over.

– If you must carry a balance (emergencies, etc), apply for one low interest credit card (with no annual fee), and only carry balances on that card, but not on reward cards, which often have high interest rates.

Let me reiterate: this method is only for those who are extremely responsible with credit cards. If you pay interest, get levied late fees, or spend more than you otherwise would, you will actually be spending more money than you are going to make on rewards. Since the average American credit card debt is around $10,000 it is clear that this method is not for everyone. In fact, the best way you can save money if you currently have a lot of credit card debt is to pay off the debt you have; don’t even begin to use this method until you have paid off your other cards. Nonetheless, this method is effective if you can make it work.