Sunday, September 10, 2006

Pennies from Heaven – Part 4 (Gift Cards continued)

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.

Gift Card Usage
· Think about what Budget Category should receive benefit from the receipt of this card. As a gift, I recommend putting it to use in a budget such as your hobby or some other type of personal budget category. Use only one target budget for simplicity.
· Set up the Gift Card account ledger and enter appropriate information including actual starting available balance. If there is some type of activation fee, be sure to complete this activation so that you know exactly what your starting available balance is.
· Allocate the net starting balance as determined above into your identified personal budget category.
· Put the card into your wallet or where ever you keep your regular use credit card(s). You then want to use it as soon as practical i.e. the next time you would use a credit card. The only concern should be that it is a valid usage per the rules associated with the card, and that the expense is within your normal budget.
· Remember, you do not have to reserve use of the card only for your associated target personal budget. Gift Card account balances, like any other account balances are not associated with any specific budget category.
· For normal card use, any given expense would be deducted from whatever budget is appropriate, not the original target budget for the gift.
· If, along the way of using the card, you encounter any fees that are deducted from the balance, log these events into your Gift Card account and into the originally targeted budget. The net effect of such fees is to reduce the amount of the gift dollars.
· When the card is used up destroy the card as you would a closed out credit card. Residual balance, if any will be lost and should be expensed from the target budget category. The ledger account can then be closed and filed out side of our budget binder. Also, I recommend that you call the customer service number, speak to an operator and indicate that the card is used up.
· Once your balance gets lower than a typical purchase, it is important to keep precise track of the remaining dollars and cents available. To use the card in combination with another type of payment you will probably need to know the exact remaining balance available on the gift card. The point of sale won’t be able to determine the balance at purchase time, only if there is sufficient dollars remaining to handle a given partial amount. For example, you are purchasing items totaling $21.75, and your gift card has $5.75 remaining. Then the clerk would enter a partial payment of $5.75 first followed buy the rest of the balance due of $16.00. If your card only had $5.25 available then the first transaction would simply be reflected. Hence, before heading out to use up those remaining dollars, check the current balance via the customer service number or online.
Gift Card Example
Received gift MASTERCARD® card from ABC Bank with in the amount of $100.00. The last four digits in the card number are ‘1234’. There is no activation fee. Monthly maintenance fee of $2.50 kicks in after six months. The expiration indicated on the card is ‘12/2007’. Purchase date was 12/20/2005. The plan is to use the gift dollars in the Hobby budget category.

First, set up a Gift Card ledger with a name of ABC Bank MASTERCARD® 1234. Indicate the start date of 12/20/05 and the end date of 12/20/07. According to the instructions, a $2.50 maintenance fee will kick in after six-months, which would be 6/06. Call the customer service number to verify the starting balance. Fill in the date and balance on the first transaction line as 12/20/05 with a balance of $100.00.

Ledger: ABC Bank MASTERCARD 1234
Start Date: 12/20/05 End Date:12/20/07Maintenance Fee Date: 6/06
Ledger Type: Gift Card Balance Forward $0.00
Date Remarks X Withdraw Deposit Balance
12/20/05 Card Purchase 100.00 100.00

Next allocate the $100.00 value into the Hobby budget. Note, the previous balance is indicated as $150.25. The date of 12/25/05 reflects the date you actually received the gift card. The 12/20/05 date used in the Gift Card ledger reflects the activation date on the card for purposes of dealing with future fee and expiration issues.

Ledger: HOBBY
Ledger Type: Budget Balance Forward
Date Remarks X Expense Allocate Balance

……….. 150.25
12/25/05 Allocate gift card 1234 100.00 250.25

Now that the gift card dollars have been added into the budget and properly allocated into a target category, the actual gift card can be used for any budgeted purpose. See entries below. Let’s assume that the only item actually related to the Hobby budget is the 1/17/06 purchase of DVD movies. Subsequently, the card was inadvertently left in a desk drawer until 7/14/06! Upon checking the balance over the phone, a maintenance fee of $2.50 was discovered and added to the ledger. Note, the “Close” indicated on 7/16/06 was after I tried to use the card unsuccessfully in a split type of transaction where part would have been paid by the card and the rest with cash. Giving up on the small balance, the “close” is affected by simply destroying the card. The next schedule maintenance fee, 7/20/06 would have used up the remaining balance in any event. One needs to also reduce gift’s value by both the maintenance fee of $2.50 and the unused balance of $1.78 from the target Hobby budget.

Start Date: 12/20/05 End Date:12/20/07Maintenance Fee Date: 6/06
Ledger Type: Gift Card Balance Forward $0.00
Date Remarks X Withdraw Deposit Balance
12/20/05Card Purchase 100.00 100.00
12/28/05Groceries 12.55 87.45
12/30/05Sweater 26.75 60.70
1/08/06Carryout Pizza 12.55 48.15
1/17/06DVD movies 35.78 12.37

7/14/06Balance check after having
put card aside. Discovered
maintenance fee! 2.50 9.87
7/14/06Groceries 8.59 1.28

7/16/06After failed attempt to use
as partial transaction: CLOSE 1.28 ZERO

The Gift card Account Ledger is shown above. The corresponding budget ledgers would have also reflected these items as expenses. The DVD Movies, Maintenance fee and closing unused balance should all show up as expenses in the Hobby Budget.

Flip Side – Giving Gift Cards: If you plan to give out gift cards as presents, you should take into account your own experiences in using them. You should skip giving cards with “hassle” type fees, and/or are difficult to use. Ask for and take time to read the usage rules and regulations. Also, bear in mind the receiver. Avoid giving out general purchase cards to people who don’t use credit cards. In general, I recommend sticking with store specific cards where you are confident that you know the interest and tastes of the receiver. Such cards tend to have less hassles and potential fees.

Be sure to include any instruction booklet that came along with the card as a part of the gift. Also fill in the purchase date to make it easy for the receiver to set up and use. If you know that this person has little or no experience with gift cards, you may want to coach them a little on usage and fee issues. Remember, you want to your gift to be enjoyable, not a pain.

Gift Card Summary: Remember, the card most likely has maintenance fees that will kick in soon, so you need to start using it as soon as possible. Since you’ve established an account and allocated the funds available on the card to the budget you see fit, you can use the actual card dollars on any budget you choose. The only thing to remember is that its use should only be for items within your budget. This is no longer free-for-all money; it has been deposited and allocated into your budget system. I recommend that you physically put the card into your wallet amongst your regular use card(s). In that way you will tend to naturally use it. Just remember to appropriately record the transactions into the right ledger and to keep a watchful eye on the remaining balance. Also when planning to give out gift cards, remember the Golden Rule.

Tune in next week when we will take a look at Rebates.


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