Tuesday, September 05, 2006

Pennies from Heaven – Part 3 (Gift Cards)

We continue in setting up a systematic procedure for handling extra income that floats down from the sky. If you are just joining this quest, see Part 1. In this part we take our first look at treating Gift Cards as extra income.

Comes a Gift Card
A common item that is given as a gift these days is the Gift Card. Such a card is either associated with a given store/chain, or can be in the form of a “generic” VISA® or MASTERCARD®. It can be in any amount and usually can be used multiple times until all of the underlying dollars are exhausted. There is also some type of expiration date after which the remaining card value will be eliminated. From a budgeting perspective, this gift card or gift certificate should be treated as Income!

Store/Chain Gift Cards: Gift cards associated with a given store or retail chains are usually the easiest to use. There is no need to register them and most don’t have any fees or short expiration dates to worry about. You can get a current balance whenever you use the card at the given store. Splitting a transaction by combining it with cash or a credit card is usually not a problem. For these types of cards I recommend that you don’t set up any extra ledgers or other bookkeeping procedures. Simply use the card whenever it is convenient. If you don’t use all of the available dollars at one time, just keep the card handy for future usage.

To dedicate the card’s value to a given budget, do the following:

· Use the card to purchase good or services. If the expense was associated with the target budget, then nothing else need be done. Just enter the net expense amount in the target ledger. You may want to add a note per the savings achieved. If the card covered the entire balance, then no expense entry is needed.
· If the card was used for another budget category, then record the expense as a “transfer to” the original target budget and a corresponding “transfer from” as an allocation within the target budget itself. In this case, even if you had no actual expense i.e. the card covered the whole amount, you need to perform the transfer to move the dollars used up in the card from the budget used, to your target budget.

For VISA® or MASTERCARD® types of gift cards more work is needed, see the details below.

Registering Your Gift Card: Whether or not you go all the away and set up a formal ledger account, etc. I strongly recommend that you register your card. In this way you can readily determine the available balance, at the beginning and throughout the usable life of the card. Typically there is both a toll-free phone number and website included with the instructions. If you have day-to-day access to the Internet, I recommend going ahead and registering your card online. It will be much easier in the future in checking your current balance.

Registration is typically a two-tiered process with the first step setting up access to the card which will include some type of password that you choose and you will have to remember it. You may also be requested to enter the answer to some type of question such as your mother’s maiden name, your pet’s name, etc. This question and answer can be helpful if you forget your password in the future. The second-tier involves entering personnel information including your name, address and email address. If you don’t feel comfortable in entering these details, many cards will still let you access your balance. However, you may not be able to get help with a forgotten password, or expedited help with a loss or damaged card. It’s up to you if you want to enter the details needed in the second-tier. In any event, you should still be able to get current balance and recent transaction information from the customer service telephone number.

Step Zero: Receiving the dollars from a gift card, as income and subsequently allocating it into your budget can be a little tricky. Before adventuring into the set up and usage of a Gift Card Ledger, look at the amount of the gift card. If you plan to use the card up on one purchase that you already have in mind, and your purchase date is in the near term, then you may want to bypass the use of any special ledgers altogether. Simply make the purchase and use the card as a type of “instant rebate”. Then just put the net cost down as the expense within the appropriate budget category. You may want to optionally indicate that you encountered some savings with a gift card. For any other case however, I recommend the use of the Gift Card Account Ledger as detailed below.

Even if you choose to use the card for a quick one-time purchase, I recommend that you go ahead and “close out the card” i.e., destroy it along with any associated identifying information.

Note, you cannot use the same card as both an “instant rebate” and a Gift Card Ledger. Hold off on usage, until you make a decision, then stick with it. In general, I recommend treating “store specific” cards in the “instant rebate” mode, and VISA®, MASTERCARD® type gift cards with the Gift Card Ledger.

Gift Card Ledger Account: When you set up a Gift Card Ledger Account for a given card, you plan to incorporate the associated dollars formally into your Budget System. Treat this account like a checking account, not a credit card account. Since you are receiving income in the form of a gift, you will need to allocate these funds into a given budget. This budget is the target indicated on the account itself. Once you’ve completed the allocation process, the actual dollars in the Gift Card Account can be spent on any valid expense just like money in your other accounts!

One caution though, as detailed below, any fees or unused residual dollars associated with this card will need to be expensed back out of the original targeted budget category. This is really no different than having to associate bank account service charges or other banking fees as an expense in some budget category.

As an account, this ledger represents real dollars and should be included in your Budget System balance process.

For one-time type cards such as a gasoline type card with only enough for perhaps one fill-up you may only want to use a “sticky” note instead of a formal ledger. Put all of the identifying and date information on the note and the starting balance. Be sure to check the actual balance via the instructions included with the card. You can then allocate the associated dollars to whatever budget you choose and so document on the note. Use the card at the next opportunity to by gas which should deplete the card. If there is a residual balance, so indicate on the note and finish it off on the next purchase. As with other cards, the budget associated with the actual expense is the one to get debited. Once finished, you can “close” the sticky note, but you may want to hang on to it for a month or so, then dispose of it.

Special Balancing issues: I recommend that you periodically check the remaining balance on your card using the toll-free phone number or website that should have been included in the card’s instruction sheet. Transactions should post very quickly and there are no paper statements to be received. Hence, balancing this type of account is like balancing a Cash Account except that the amount you are balancing against is not the cash in your wallet, but the balance indicated by the disembodied voice on the customer service line or the value indicated on the website. As with a Cash Account, use the Check column for all transactions currently listed at that time. If any fees have been incurred you need to determine their validity, itemize them (check-off) and update your ledger balance accordingly.

Dos and Don’ts: Listed below are some basic considerations for your card that you need to check out as soon as possible or just be aware of in general.
· I recommend checking your balance right away, even though the card’s value should be included in the gift packaging i.e. “stuff happens”. Your instructions should include a toll-free telephone customer service number and possibly a website that will allow you to check your balance and recent transactions.
· Although you should sign your card right away, be careful not to write over the security number in the signature line on the back of the card. You will probably need this number to access the balance and transaction information using the phone or website.
· Be sure to read both the large and fine print documents that should have come in the package before attempting to use the card. The card agreement is typically not as difficult to follow as a normal credit card agreement. If you didn’t receive any instructions, ask the person who gave it to you or call the bank printed on the card.
· Plan to use the card within the first week of receipt to make sure it works, and to get into the groove so to speak. Remember, you’ve already allocated the actual amount of the gift card to the budget you desire. Your actual usage of the card can be on any valid (within your budget) purchase.
· The card probably cannot be used in an ATM or at a financial institution to obtain cash – check the instructions.
· The card probably cannot be used in an automated machine of any kind such as pay at the pump for gas; although you could usually take it to the cashier for payment after filling your tank. An exception to this rule could be Gas type cards issued by a specific company; however prior to attempting to use them at the pump, check with an attendant.
· Don’t use the card to pay for recurring fees e.g. monthly fees for Internet usage, etc.
· Any merchant who accepts credit cards should accept the card; however, you may run into problems. You should always be ready to decline the purchase or have a readily accessible alternate way to pay for the purchase e.g. a credit card, check or cash. Note, in the case of purchases that you can’t decline, like a meal that you’ve ordered and eaten, it is vital that you have an alternative payment capability.
· The card may or may not be usable for telephone or Internet purchases, check the instructions first.
· There is typically a warning that you may have a problem using your card to partially cover a purchase i.e. you need to include additional funds via cash, check or a credit card to complete a given purchase. This situation is sometimes called a “split transaction”. When faced with this situation, I recommend that you check with the merchant prior to initiating the purchase or be willing to use an alternate funding source to cover the entire bill.
· More on split transactions: if you are not successful in using your card to split a given transaction don’t give up on the remaining balance. I recommend that you try and try again at other stores. The problem may be in the sophistication of a given merchant’s credit card processing equipment or a lack thereof.
· If the card is reloadable (allows one to add additional dollars to the balance), there is typically a fee for this “privilege”. To avoid this additional expense treat the card as if it is not re-loadable and simply close it out when all of the funds are gone like with a non-reloadable card.
· The card typically has an expiration date one or two years into the future; however, an account maintenance fee usually kicks in after the first six months or so from the issue date. Again, see the instructions.
· After the expiration date, or upon request for termination, the card may have a cash redemption feature. Please note, however, that there is most likely another fee associated with this action – check the instructions.

More on Fees: There are usually some potential fees associated with card usage. Listed below are typical examples. Check your card’s instructions for specific information.

· A monthly maintenance fee will usually kick-in at some point. Six months after the issuance of the card is common. Upon reaching this point, when the card balance dips to the monthly fee amount or less, it is basically used up.
· After the expiration date you may be able to request a refund within a certain specified timeframe, however a redemption fee will most likely be deducted – check the instructions. Of course, if your balance is at or below the redemption fee, no refund will be issued.
· If you request a refund before the expiration date, the redemption fee also applies.
· There is probably an Overdraft fee i.e. you put a charge on the card that exceeds the available balance. Be sure to keep track of your balance to avoid this situation.
· There is probably an “Unauthorized usage fee”. It can kick in if the card is lost/stolen, or you used the card for an unauthorized transaction. Check the instructions for a list.
· International currency conversion fees. If you use the card outside of the USA, your transactions will be subject to currency conversion fees like for any credit card. See topic on travel issues for more info on page Error! Bookmark not defined.. I recommend not using the card for this purpose as it could cause overdraft issues if the transaction amount is close to your available balance.

While expenses paid for by the card should be documented within the specific budget category associated with the purchase, any fees encountered while using the card should be expensed from the originally targeted budget category. It is not clear, how the issuer will collect fees in excess to the value remaining on the card e.g. overdraft and unauthorized usage fees that are more than the value of the card, but you are in fact liable! A statement is typically included with the card agreement that the issuer can bill any other account you may have with them or an affiliate e.g. an actual credit card. Hence I recommend that you take action to report the card lost/stolen quickly like you would for any credit or debit card. Also, take care to destroy the card when it no longer has any funds left.

State Regulations regarding Gift Cards: The National Conference of State Legislatures has web pages devoted to recent state laws and legislation regulating gift cards. Check out the web page:
for information on your state. The best way to use this site is to do a find on your “statename”. This will jump you to the various sections relevant to your particular state. There will first be a table of recent legislation followed by laws enacted year by year for the last several years. For example to a Find on “Michigan” followed by a Find-Next to go to the previous year and so forth. For specific laws, there will be a link to the detailed narrative of the law itself.

In the next part we will continue with more information on using Gift Cards.


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