How I earn over 4% back on all credit card spending.

By Brad Beckstrom

You read that correctly, over 4% return on credit card spending. This includes rewards points on business and personal spending. Quick disclaimer: if you carry debt on credit cards, or don’t pay your bill off (in full) each month, any gains you have from points will be likely negated by interest charges. Once you have zero credit card debt and are ready to use cards to earn rewards points/cash back, then you’re ready to put together your rewards points plan. Here’s mine.

To keep this simple, I’m going to use Chase credit cards as examples. They have one of the best rewards programs out there that meet both my business and personal credit card needs. This program can be put together with other cards, but my best experience so far has been using a combination of Chase cards to get the 50% point bonuses and benefits, I’ll describe here.

Like many cool things, I stumbled upon the Chase Ultimate Rewards program while reading about travel hacking on personal finance sites. I was consistently seeing the Chase Sapphire cards and their Ultimate Rewards Program listed at the top of most lists for high reward, high credit rating cards.

My Ultimate Rewards set up

My setup with Chase utilizes one personal card and two business cards. The personal card is the Chase Sapphire Reserve that came with a monster 100K point sign up bonus. Normally I would not pay annual fees over $95 for a reward credit card, however, this high fee card applies $300 of the of the $450 annual fee to the first $300 in travel expenses each year. It also includes 3X bonus points on all travel and dining with another 50% point boost when you book travel through Chase. It includes an additional $100 credit for TSA Pre / Global Entry programs, travel insurance, sky clubs, and other perks. So after doing the math, this is a great value. See points bonus calculation red boxes. 

To get the 50% point bonus, I look up flights on Kayak then punch that information into the Chase rewards travel search to make sure I get the same pricing. I generally get better prices on hotels from other sites, but I’ve had great luck with Chase on airfare, so I primarily stick with that. Points can be used any time on any flight, no blackouts, unlike airlines. You can also use points to reduce trip cost, if you don’t have enough for a full ticket. As an added incentive, my Sapphire Reserve card came with a 100,000 point bonus that is effectively worth 150,000 points when you book through Chase. The points can also be transferred 1:1 to airline and hotel partners. The point transfer feature was useful when I needed to add some British Airways Avios points to get to a reward ticket. Chase card sign-up bonuses range from 50,000 to 100,000 points, so every few years if a better card comes along, I simply apply for a new card to replace the old one. Their top-tier cards all have no international transaction fees, airport club access, and trip/purchase protection.

I have two Chase cards that I use for business. The first is Chase Ink Business Preferred. This card comes with great 3X bonuses on travel, cable, telephone and media purchases that include Ad spending on Google and Facebook.  If you spend money on Google Adwords, the 3X bonus really comes in handy effectively reducing your media costs by 3%. That can really add up. This card gives you a 50,000 to 80,000 point sign-up bonus (bonuses vary throughout the year).  For everything else business-related, I use a no annual fee card, Chase Freedom Unlimited, that gives me 1.5% cash back all purchases. This card is great because I can add bonus points with all types of transactions like health care, vendor payments, PayPal, Amazon etc. These really add up, so it’s nice to be making a 50% point bonus on all purchases. In order to really kick this system into high gear, make sure you use vendors that offer automated online bill payment. Points on my health care payments alone add up to nearly $700 per year.

How does this all add up to 4% return?

The secret to this lies in the ultimate rewards program website.  With the three cards linked to my chase.com account I’m earning anywhere from 1.5 X to 3X on all business purchases.  My average shakes out to about 2.6 points per dollar spent. (not including sign up bonuses) Once those points appear in my Chase ultimate rewards account I can then instantly move them to the card with the highest redemption award bonus (Chase Sapphire Reserve). Once the points are in the account, I can use them like cash to pay for airline tickets, hotels. I look for the best rates on Kayak then book the tickets with Chase to get the additional 50% points bonus.

So the current points balance below is worth $6361 in cash towards awards travel. That goes a long way when the average cost of my international plane tickets is about $550, and hotels and AirBnb rentals in places like Lisbon, Mexico City, and Athens, can be had for $60 a night.

Here is the math

2.6 (points average) x 1.5 (bonus rewards multiplier) = 3.9%  The IRS does not tax rewards points earnings, giving me a tax free equivalent return of about 4.8%!  That’s before I add in the 50,000 to 100,000 bonus points per year, which pushes the return well over 6%. One additional travel hack: When I buy tickets, I’m also getting airline points, upping the return by another percent or more. I save all my airline programs in one password so I can easily search and add hotel or airline point programsFor info on some of these cards check out this travel credit card rating tool from the Mad Fientist.  Just click on Chase to see all the cards mentioned here. 

This all sounds a bit complicated, but really it’s not. Once you have the credit cards linked to Ultimate Rewards and use an online accounting system like Freshbooks or LessAccounting to automatically import and categorize all transactions. It’s really just a new way to bank. Instead of writing checks and taking out expensive lines of credit, the banks now work for you.

 

The Frug

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Tax-Free Investing. The True Secret Behind Health Savings Accounts.

By Brad Beckstrom

Why would I waste a perfectly good Thursday morning writing about health insurance and health savings accounts? Well, politics has made paying for healthcare a national obsession.

There’s been a lot in the news recently about the spiraling costs of healthcare and Republican promises to cut the costs of health insurance for individuals and families. While no formal plan has been presented, one key component mentioned by both Republicans and Democrats is the Health Savings Account or HSA. The fact is, tax-advantaged HSAs have been around for years. In many ways they are also one of the best ways to save for retirement. I’ll explain why.

What is an HSA?

An HSA used in conjunction with a high deductible health insurance policy allows users to save and spend money tax-free to use for medical expenses. Contributions to an HSA can be made pre-tax directly from your paycheck or you can make contributions on your own that are 100% tax-deductible, up to $3300 for individuals and $6550 for families and, if you’re over 55, you can contribute $7550 per year. For example, a family in the 25% marginal tax bracket could save you over $1600 a year in taxes.

How does it work?

Once you have money in your account, you can then use it to pay for all types of medical expenses, including things like new glasses, prescription drugs, medical and dental visits, and any medical expenses not covered by your high deductible health plan. To be eligible, you need to have a health plan that qualifies as a high deductible plan. (Example a minimum deductible of $1300 for singles or $2600 for families). A high deductible plan means you will pay more out of pocket before meeting your deductible. The advantage is that the premiums on these plans are lower. Due to the high cost of health care, many employers are now offering only high deductible plans, or versions of it, as an option.  For entrepreneurs, these plans are also available through healthcare.gov and labeled as HSA or through most health insurance brokers at comparable rates.

Simplify the process

When I first started researching HSA’s,I felt they were a bit complex. I had to set up a pretax deduction from my paycheck, then set up a HSA account with a participating bank and assure that these pre-tax deductions were transferred into the account. Once the account was set up and funded however, I found it was easy to track medical expenses in Quicken or online using Mint.com or PersonalCapital.com.  Once a month I can pull up my non-reimbursable medical expenses then simply pay myself back from the HSA account. I don’t see a need to save paper copies of the bills as the transactions applied to my deductible are saved by our health insurance provider and they are documented in both the credit card bills and online tracking. The HSA bank account allows you to track reimbursements paper free. You’ll get a year-end statement showing the exact amount of all transactions.

Using an HSA like a turbocharged tax free retirement account.

What happens if I don’t use up my budget? Any leftover dollars stay in the HSA account and can be invested in index funds. This is the true secret behind an HSA account. Unlike an IRA or a 401K, the money in an HSA account is not taxed when you make withdrawals during retirement. After you turn 65, you can also withdraw the money tax-free for any purpose, making it an ideal bookend to a traditional retirement account. Here is a great graphic from The Mad Fientist showing the cash flow.

Setting it up.

Here are some steps you should take if you’re considering an HSA account.

  1. Don’t wait until open enrollment period start researching health savings accounts. Find out what your options are now. Healthcare costs in the US are skyrocketing, and many employers, entrepreneurs and government agencies are switching to high deductible plans. You don’t want to be stuck in one of these without an HSA account.
  2. Choose which financial institution you’ll use for your HSA account. I was able to quickly set mine up with Bank of America, making it easy to handle transfers between checking and my HSA account. Most HSA accounts offer bill pay and transfer features even if you don’t bank with them.
  3. Find out if pre-tax contributions can be made from your paycheck. This lowers your tax bill and gives you tax-free dollars to spend on health expenses you’re going to have anyway, even if it’s new pair of glasses or a root canal.
  4. Don’t get HSA plans mixed up with other types of savings accounts like HRAs or FSAs  the key difference is that you own the HSA account and the dollars don’t need to be used up by the end of the year. Make sure it’s specifically HSA approved.
  5. Max out your tax-free contribution whenever you can. This money grows tax-free in your HSA account until you use it. The HSA account is especially useful for individuals who have also maxed out their retirement contributions.
  6. Another key difference with HSAs is that they have investment options for your leftover funds. Check a balanced index fund and put your extra cash in there at the end of the year. Over time this will grow tax-free.
  7. Once you start using your HSA account, pay your providers directly then reimburse yourself from the HSA. Some HSA accounts include debit cards but I found it easier to use a credit card with points and then reimburse myself, which is allowed under the plan.
  8. HSAs are great for the self employed you save an additional 7.65% on (employer paid) social security and medicaid taxes.
  9. Check out this article with more info about turning your HSA into a souped up retirement account.
  10. Call your congressmen and let him know that 100% tax deductible, affordable health care, and HSA accounts, are a good thing that should be improved on, not eliminated.

 

I’d love to hear about your experience with HSAs. A quick disclaimer — Any concepts presented on this blog are simply opinions and should not be considered as professional investment advice.  As with most other things in life, you are solely responsible for your own choices, make them thoughtfully.

 

The Frug

 

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The Home Swap. A grand experiment in international travel.

By Brad Beckstrom

The proposition I made to my wife was pretty simple: “If you could spend two weeks in Europe every summer, would you be interested?” Of course I got an enthusiastic “yes”, until I brought up home exchange. Home exchange is just what it sounds like. It’s a website with over 65,000 homes in 150 countries. You list your home on home exchange, include all the countries you’d like to visit, and wait for opportunities to appear in your inbox to swap homes in places like Spain, and Italy, Brazil, and all over the world.

It’s vastly different than Airbnb as you are not paying a stranger to stay in their home. With Home Exchange, you are simply staying in their home while they stay in yours: a true exchange. The network is large enough to match up eager travelers from around the world who want to visit your town. Larger homes tend to attract like-minded families, while tiny apartments attract singles and couples. What they have in common is a sense of adventure and openness to meeting new people and trying new things.

As I started to browse through some homes along the Amalfi coast in Italy, or the Le Marais neighborhood in Paris, I started to realize our home is just not ready to attract the type of visitors we would like to exchange homes with for a two week trip. At this point, I am no more near ready to do this than I would be to start renting a room out on Airbnb. There is so much to do before I would even post some photos or create a profile. Sure, our house is in a great neighborhood less than 4 miles from DC, but it’s a big step to make it ready for some long-term visitors.

That is, unless I look at this as an opportunity. The great thing about the opportunity is at the end of the project, my reward is two weeks abroad. Not just this year, but nearly every year. That’s something worth working towards.  It’s also a grand experiment in the sharing economy.  So far we have truly enjoyed our experiences using Airbnb and saved tons of money using UBER and Lyft all over the world.

I was a bit discouraged when I started looking at some beautiful spotless homes in Italy and France, but then I looked up some US properties, even some in our neighborhood. I could spot the familiar clutter that didn’t seem to deter these folks from listing their homes. If we can just get our home somewhere between good and great that would be a start. I’ve always been adept with frequent flyer miles but found that hotels drain them too quickly, especially after you’ve coughed up enough miles for 4 transatlantic tickets. Doing a once a year home swap would be a perfect solution. Adding 14 nights of free accommodations to free airfare can really put some punch behind your travel plans. The great thing is we don’t have to accept any offers for a home swap if we aren’t interested.

Where to start? I don’t know about you but if I’m going to be spending Saturdays replacing toilet seats and cleaning out junk drawers, then I need some damn motivation. I found it in a few articles about people’s experience using home exchange. Since I started seriously considering this, I’ve also stumbled across a few other sites like Lovehomeswap.com with over 100,000 global listings and rave reviews on social media.

I’m going to give myself plenty of time to get this done. Here’s a few steps we’ll be taking, so when we decide to accept that home swap offer from the Amalfi Coast we will be ready.

  1. Check out the website and others experience with home exchange. Look at some alternative sites as well.
  2. Declutter and simplify. Several rooms in our house are in great shape but others are disasters. Instead of just putting a whole room on a list, we’re approaching this one drawer or cabinet at a time.
  3. A fresh coat of paint can do wonders. This can be tackled one room at a time. The biggest job will be outdoor paint, but it’s something that’s been needed for a while.
  4. Freshen up the bathrooms all around including some new toilet seats and fixtures.
  5. Start putting together a great series of wide-angle photos, not just of our house, but of the neighborhood and wonderful parks and trails right at our back door.
  6. Make sure our homeowners insurance is up to date and includes enough liability coverage.
  7. Create a secure owners closet for valuables. Basically just a quality lock on a large closet.
  8. Put together a home binder with instructions on all of our crazy appliances. They can’t be more complex than some of the things we’ve come across overseas.
  9. Put together a neighborhood guide and home information about with everything someone would need to know while visiting Washington, DC.
  10. Think about something that will set your property apart. For us we have three bikes people could use on some of the longest best-kept bike trails in the country.
  11. Add the places you’d most like to go to your profile, but be open to as many destinations as possible. If you find a larger place invite some friends and family along for the fun.

That’s a start. Who knows, I could get through most of this and still not get the type of home swap offers we’d be looking for. We won’t know unless we start the process. In the end, most of the items on my list above needed doing anyway. Now that I know a large Italian family may be invading our home, I’ll have some extra motivation.

The Frug

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Stop filling your mind with random stuff. It’s time to go on a high-quality, low information diet.

knowledge Tree

By Brad Beckstrom

I thought I had this all figured out. A few years ago, I decided to get on a high quality low information diet. I would avoid traditional news sites and only follow a small group of highly trusted writers, using a RSS feed reader. I would update and pare back this list regularly and categorize the writers I followed by interest. The feed reader I use is called Feedly and allows me to group my favorite writers into categories like business, family, personal development, photography, comedy, sports etc. The feed reader is very effective at stripping out distractions, especially all of that click bait, and fake news, you see at the bottom of many websites, even on many major news and network websites. My plan worked well. Each evening my feed reader presented me with a personally curated news stream from a group of writers I trust with very little distraction. No clickbait, no banner ads, no fake news.

Then two things happened. Apple launched an app called “News” that I started playing with after a recent iPhone upgrade. Then the election cycle began. This news app is comes set up like a feed reader for the big news sites. I found myself following multiple networks, major newspapers. Any spare moment I had, standing in line, having some lunch, I started filling up with this news app. Then I felt I needed to share things on Facebook or Twitter which led me to click on more stories shared by friends. There was so much garbage out there about both candidates, I’d quickly spiraled into a news consumption addiction. I’d gone from high quality, low information to just information and way too much of it. Not only did my other feed reader start to fill up with unread articles, I also found myself thinking less about what I wanted to create.  I was too busy absorbing all of the news to think about much else. As a dieter might say, I fell off the wagon.

It’s Over

The election is now over, so it should be easy for me to walk away from all those network news sites, walk away from all of the name-calling and breaking stories and move on. Unfortunately it will be hard, and I think many people won’t walk away at all. They will want to be up-to-date on the latest political shit show playing out in Washington DC. Others will want to follow all of this news as they feel some responsibility, sense of urgency, to know what is going on as it may impact their jobs, family, their daily life. What’s the harm anyway?  You’re just filling up some dead time by looking at your phone.

I believe there is harm. You have to look at what you’re missing by spending so much time keeping up with so-called “news”. You’re filling your brain with a lot of fleeting stuff ( I could insert 100 examples here from Twitter alone) that you have absolutely no control over, and has very little impact on what’s important to your daily life.

newsman

Change the way you consume information

For me this doesn’t mean shutting out traditional news entirely. It means immediately changing the way I’ve been consuming news and going back to what works. So, what do I mean by a high quality low information diet?  Everyone’s different so what may be high quality to me may be garbage to someone else. The good news here is that we can use the same technology that’s been bombarding us with click bait, fake news, sensationalism to filter those exact things. Here are six high-tech ways I’m doing that and two very low-tech ways.

  1. Use a good quality RSS feed reader. Basically, the way a feed reader works allows you to follow trusted blogs, specific topics, and writers that are credible. Instead of typing “CNN” or clicking on FoxNews in your browser, you can take a few minutes to follow feeds from sources that you know are legit and won’t fill up your screen with clickbait and banners next to every article. I use Feedly. My feed updates on my phone in a browser or on iPad. All of them stay in sync and I don’t miss a thing from my favorite writers like Seth Godin or James Altucher.
  2. If you’re more visual, and like a magazine style presentation on your tablet, I recommend flipboard.  You can follow the same feeds as on other apps. It syncs across devices and is especially great on tablets.
  3. Once you setup your feed, don’t follow the major news sites. This will simply just fill up your screen with all of the random latest news stories that you want to cut back on.
  4. Update your feed readers regularly, cleaning out blogs, topics, and writers you used to follow that no longer interest you.  If you’re on your iPhone a lot and still want to use Apple News or Google News just simply delete the major sites that come preloaded and add your favorite writers, bloggers, or reporters. Just like on Feedly.
  5. Turn off any breaking news notifications on your mobile device. These all lead to the “hot stories” and are a big part of the news addiction distraction. Just because Google adds newsfeeds to your smartphone home screen doesn’t mean you can’t turn it off.
  6. Stop listening to network, commercial talk radio and start streaming or downloading podcasts.
  7. Cash in some left over frequent flyer points for a few good magazines. Believe it or not high-quality magazines like Fortune, Wired, and Fast Company still use fact checkers. A well-written article that’s going to press gets more eyes in front of it than something that is rushed out online as a “breaking story”.
  8. Rediscover the Sunday paper and a hot cup of coffee. If I added up all the time I spent checking CNN and other sites during the election cycle, I could probably free up four hours a week. Use a fraction of that time to learn about what’s going on in your local area as well as get a summary of world events that have at least been vetted by an editorial staff. If there’s a writer you really like, you can follow them in your feed instead of following the whole newspaper, as many people are tempted to do with major news sites.

The most important thing here is to change how you consume “news”. End your need to have the latest information. Wait for quality. Try going on a major news diet, just start following a few writers that look interesting in your feed readers search results, then grow from there.  If anything big happens, trust me, the Internet will make sure you hear about it. The rest of it can wait while you get on with your life.

The Frug

 

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Is that purchase worth it? Consider the cost per use, a simple strategy to help you decide.

 

panosmartappcomingjapanjt

Technology can be a pain in the ass. Smartphones, Game Consoles, DVRs, digital thermostats, talking cars, and home appliances. A lot of this technology is designed to improve our lives, give us more free time, maybe even help us save a little money.  Most of it falls short. In fact, when multiple technologies are combined, they can often have a negative impact on our time and quality of life. Multiply this by a family of four or more, and all this stuff can make you its bitch. Constantly beeping, demanding upgrades, presenting you with unrepairable failures, offering multiple support options, mostly paid ones, none of which actually solve your problem, and all of which require your time.

smarttv

Planned obsolescence has become a science, hurling consumers into a constant cycle of upgrades and repairs on items that didn’t even exist 10-15 years ago, taking time and attention away from more important matters. It in an affluent society we often just throw money at the problem, replacing the defective item with the new shiny model, while the old one often ends up in a landfill.

It’s possible to step off this treadmill, embrace simplicity or minimalism. I believe these are viable approaches that can change people’s lives. The problem most people have is that they been on this hedonic treadmill so long they are afraid to step off.  It’s the transition from having your life managed by stuff to a simpler path. That is the challenge for most people. I’ve been working to simplify my life for over three years: writing about it, working on it, giving stuff away, but still have a long way to go. Some progress is forward progress, and that’s what I’m focused on.

Something I found that has worked is evaluating any purchase, item you want to replace, or something you’re having trouble parting with, on a cost per use basis. Here’s how it works. Cost Per Use is the price of something divided by the approximate number of times you use it over the life of that item. So something you use many times per day may be a better investment than something inexpensive you use infrequently. Based on this formula, my iPhone is one of the least expensive things I own, and after I finish with it, I’ll give it to a family member, lowering the cost of use even further. As an added benefit, my iPhone replaced about 20 other items helping me lighten the load getting rid of everything from music CDs to handheld GPS units.

Some other cost per use examples

frug classic car

It’s best to start with the big stuff, so let’s start with automobiles. If you buy or lease a new SUV every three years you’re absorbing all of the depreciation and increasing your cost per use of that vehicle substantially. That vehicle loses most of its value in the first three years. If you buy a larger vehicle your cost per use is also higher based on gas and operating expenses.  To lower the cost per use, it would make sense to buy your next car like it’s your last. Purchase one high quality, fuel-efficient vehicle and keep it for at least 10 years. You can lower your cost per use even further if you know exactly the vehicle you’re looking for and can purchase a low mileage version just coming off lease, and keep that vehicle. Once those car payments end, you’ll find the maintenance costs required to keep the car in excellent running condition are a lot easier to swallow. I’ve also found that keeping a car in excellent condition, including the occasional carwash or detailing, makes me less apt to even think about replacing it.

Clothing can be phenomenally expensive when evaluated with cost per use.  It’s best to look at clothing as a wardrobe rather than trying to think about cost per use of individual items. Simple and classic items that go with everything and are very well made can really bring your CPU down. Steve Jobs was famously known for wearing the same thing every day, a black shirt and blue jeans. You can bet his cost per use on those turtlenecks was pretty low. The real savings here is time. If you limit your wardrobe extensively to a few types of high quality items think of all the time you save each day deciding what to wear. One of the things I’ve tried to focus on in redoing my wardrobe is not replacing things I get rid of, and working on wearing stuff out. At least as long as my wife Kelly will allow me to be seen in it!  The best way to do this is when you do purchase a new item, think about something of such high quality that it would last at least 10 years, stay in style, and replace at least five other items. When you compare it to running out to a big box store to buy crap, you’ll find that your overall cost per use goes way down, especially on items like shoes and jackets.

IMG_Oldbelt

When it comes to clothes, you often hear people say, “Well, I need a wardrobe for work.” With casual work environments and more people working from home  it’s easier to assemble a minimalist wardrobe than ever before. Courtney Carver assembled an entire wardrobe out of 33 items.  I think men have it even easier, less pieces, parts and accessories. Unfortunately, we tend to have expanding waistlines so there’s some additional benefits to staying in good enough shape to keep the same pair of Levi’s for a decade.

If you apply the cost per use formula to lots of things you’ll find you don’t have to give up much. I have a desk loaded with technology but both of my computers are now over 7 years old.  Using cloud-based software, faster Wi-Fi connections, and a few memory, and hard drive upgrades have kept them running like new.  I use them every day.

Next time you’re evaluating a new purchase, whether it’s a hoodie, a power tool, or even a new car, here are a few tips to maximize your cost per use.

  1. Avoid bells and whistles. This really applies to everything from small appliances to automobiles. Think of it this way, you can buy a product loaded with add-ons and high-tech features, sometimes for less than a simpler high-quality item. The more technology that’s loaded into any automobile or talking appliance with digital touchscreens, the more potential it has for failure. Evaluate the product on its ability to do what it was designed to do like wash clothing, vacuum the carpet, efficiently get you to your destination.
  2. Buy quality. It helps to look at online reviews on sites like Amazon. I always look at the average then remove one star, as people (including me) often overrate products they purchase to make themselves look smart!  Consider five-star reviews to be four-star reviews etc. Make sure there are enough reviews for a representative sample and average. On Amazon that’s like 100+ reviews.
  3. Do your research and wait at least one additional day before you make any big purchase. I can’t tell you how many times I’ve thought about purchasing something, going through the motions but then just skipped it, as I realized I didn’t really need it. Researching something helps me delay purchases.  For instance, I might research the new hot camera but realize my current camera is just fine.
  4. Are you replacing something that’s needed or just buying something because it’s on sale. I always ask my wife Kelly to go shopping in our closet first. There’s a very good chance there’s going to be a very nice pair of black shoes in there.  
  5. Wear stuff out. Make sure whenever you’re buying something you’re replacing something that you’ve worn out. 20 years from now when you look back on all the great steaks you cooked on that grill you’ll know it’s done its job. It can be pretty tempting to go out and buy a shiny new one but if you get it right the first time you won’t even have to think about it.

The Frug

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