Money radio and a warning for eTraders

Posted by Matt

I just posted the other day about the Magic Jack that my wife heard about on Clark Howard's radio program, but if that didn't inspire you to check out his website, then this post is intended to be another plug. He has a ton of great tips for making smart financial decisions and I like that he isn't always focused on just getting out of debt and trying to solve problems. That IS an important service provided by Dave Ramsey and lots of personal finance bloggers, but there are a lot of people out there that are beyond the stage where they need motivation and coaching through the hard realizations and choices. We need to find the inside information and hidden deals!

Here's something I learned from Clark's posts today: Did you know that eTrade was on the verge of going under? The relevant article was actually about FDIC insurance, which Frugalizers should already know all about if they read our previous article on the topic. Anyone who had more than $100k with eTrade would have been in trouble if Citadel hadn't bailed them out. It just goes to show you that it is as important to be educated about financial service vendors as about their products. Anyone considering Countrywide right now? No? Good.

Check out the Business section of the paper, read this blog or others like it, turn on the radio....just do your homework; the information is out there! Give Clark's site (http://clarkhoward.com/) a quick skim or find out when you can listen to him on your local radio station.

Blocking the evil temptation of catalogs

Posted by Matt

Okay, maybe "evil" is too strong a word. But I know I can't resist thumbing through the REI catalog when it comes around, even if I don't need anything. And how many furniture upgrades are at least inspired every year by the Pottery Barn catalog?

It always bothers me that so much paper is being wasted to produce catalogs of things that we don't need. Even if you recycle, producing them is so wasteful, and most people just toss them into the trash!

How can we get out from under the barrage? It takes time to opt-out of every catalog as you have to do each one individually, usually by phone and during the hours when you are trying to be productive. My mother-in-law found us some help. Check out Catalog Choice.

This is a great non-profit that takes your address and allows you to select from a long list of catalogs that you don't want to receive. No phone calls. I signed up in less than five minutes. If enough people did this, the retailers might have to reduce the number they produce every year (currently at 19 BILLION!)

A Few Quick Tips On Mutual Funds

Posted By Paul

I found a great web page resource for mutual funds that I thought people would find useful. It's:

http://www.morningstar.com/

It lets you look up some great info on a mutual fund for free.

Here are a few key bits of info they provide that I find useful when evaluating a fund:

Front Load %
Deferred Load %

If you don't know what those are, the basic idea is that the front end load is a percentage that is deducted as a fee when you buy the fund (if you invest $1000 into a fund that has a 5% front end load, then $50 comes off the top and $950 actually gets invested). The deferred load is the same idea only it comes out when you sell the investment.

What do I look for? I look for funds that have no loads. There are lots of funds out there that don't charge loads and I have yet to come up with a compelling reason to pay them.

Expense Ratio %

The expense ratio is the percentage of the funds assets that go to administrative fees. What should you look for? Look for funds that have low expense ratios. What should you consider too high? Well I'd look very carefully at any fund that has an expense ratio that is greater than 1%. If the expense ratio is high it better be performing much better than similar funds otherwise I see no point to paying the added expense.

Morningstar Rating

This is how much Morningstar likes the fund. The best rating is 5 stars. Even though Morningstar is not necessarily the final word on funds, I'd look closely at funds that Morningstar doesn't at least rate at 3 stars (they have a detailed description of how they arrive at their rating on their page).

Performance Graph

I really like the graph because it shows the performance of the fund vs. the category of funds in general. If the fund consistently performance below its category I view that as a sign that it isn't a very good fund.

Morningstar Risk

This is just Morningstar's characterization of how risky the fund is (on their page they have the full description of how they determine their risk rating so I won't repeat it here). Looking at this field gives you a quick way to determine if a fund meets your risk tolerance.

When I'm evaluating a fund one of the first things I do is go to Morningstar and see how it looks. I can quickly get an idea on the loads and expenses for the fund, as well as its performance and risk. I can get all of the info I need to make a first glance judgement on a fund on a single page for free!

Free phone calls (almost)

Posted by Matt

This should be a quick tip, and I have to give my wife credit for discovering it. I think she said she heard about it from Clark Howard's radio show, which apparently has pearls like this all the time.

The tip is to use something called the "Magic Jack" to obtain "free" phone service. This is a device that plugs into a USB port on your computer and also has a port to plug in a plain old telephone line (or POTS line; yes, there is actually an acronym for this!)

You can use almost any kind of phone that you would ordinarily plug into the wall with the little plastic square jack (aka RJ-11), with the difference being that you don't pay for telephone service; not even long distance! The only charges I could find were the initial cost for the tiny device ($39.95) and $19.95 to continue the service for an additional year after the first year is up. The site didn't seem to contain any information about what would happen in year three, but it did have a small tag indicating that this is still a beta product (albeit beta 4.0). In other words, it is still in the last stages of testing.

Even if the company providing the service doesn't last past the first year, I see a great opportunity for savings here if you make a lot of long distance calls on your home phone line, or even if you are paying a significant monthly fee for local service. This only applies if you already have Internet service (which is used to carry the phone signal) and don't figure the cost of that in.

I'm not going to order one just yet, as my wife and I use only our cell phones (like Paul). But I'm starting to have more and more long teleconferences from home, so I'll remember this if I start exceeding the minutes in my cell phone plan.

If anyone else orders one of these, please share your experience!

Fix It Yourself Or Call A Repairman?

Posted By Paul

I've never considered myself to be especially handy around the house. My first instinct when something needs to be fixed is to call a professional.

However, a little while ago I decided that I would make a specific effort to handle more repairs around the house myself. Partially as a way to hopefully save money, but also as a way to learn more about fixing things in general.

The first thing I discovered is that it's really hard to be handy around the house without at least a basic set of tools. I spent some time accumulating tools (I would buy them, or ask for them as gifts when people wanted to know what to get me), and before long I had a basic but versatile set of tools (which I'll list here):

1) A ratchet set.

2) A set of wrenches.

3) A hammer.

4) A rubber mallet.

5) Some vice-grips of varying sizes.

6) An adjustable pipe wrench.

7) A set of screwdrivers.

Without at least a basic set of tools you have very little chance of successfully fixing something around the house.

So whenever something broke around the house I went with the philosophy that if I try to fix it myself then as long as I don't make it worse I can always call a repairman later.

Here are some of my experiences:

At one point our refrigerator wasn't defrosting properly. I contemplated trying to fix it myself but I quickly discovered that a modern refrigerator is a pretty complicated device so I ended up calling a repair man. In this case the problem ended up being a bad circuit board (amazing that refrigerators have circuit boards now) that the repairman took care of in a few minutes. In this case calling the repairman was the right call since it would have been nearly impossible for me to diagnose that the circuit board was the problem.

The next thing to go was our dryer. The tumbler spun but it never heated up. I decided to take a shot at this and this wasn't too bad. Thanks to the internet I found instructions for gaining access to the inner workings of my dryer (be sure to search for your specific dryer, I assumed you accessed everything from the back but many dryers are best accessed from the front or sometimes even from inside the drum). Once the dryer was open it became pretty clear what was wrong. It was simple to spot the heating coil and when I noticed that it wasn't warming up when I ran the dryer I removed it and found that there was a gap in the coil wire. I found an appliance parts and repair store that was able to order a replacement coil, I put it in place, and the dryer was as good as new.

The next thing to go was our clothes washer (you're probably starting to think that all of our appliances are junk but these incidents took place over several years). It seemed like it wouldn't drain properly and the display gave an obscure error code. A quick search of the internet suggested that the drain pump was either clogged or broken. When I opened the washing machine up I was able to spot the drain pump pretty easily. I noticed that the motor shaft looked stripped so I decided to remove the motor/pump and order a new one. Once again the appliance store was able to order me a part. This time it was a bit more of a gamble since I wasn't 100% sure that this was the problem, but when I got the new motor/pump I noticed that the new part was MUCH better designed and more durable than the one that was in there originally (which gave me hope that in fact this WAS the problem part and also annoyed me a little to think that they didn't design the more durable part in the first place). It only took about 10 minutes to install the new part, and the washer was good as new.

I know practically nothing about appliances but I am amazed at how much you can accomplish with a few basic rules:

1) Search on the internet for the problem and see if anyone else has run into it and posted a solution.

2) Take the thing apart and look for a part that is obviously broken and replace it.

3) When you take the thing apart do so CAREFULLY so that if you do need to call a repairman you haven't broken anything and made the problem worse.

The more you start trying to fix things around your house the easier it becomes to dig in their and poke around, and thanks to the internet you have a whole world of expertise at your fingertips.

Welcome me back to the 21st century

Posted by Matt
I hope no one missed me too much while I've been away. We finally went through our big move, the holidays and a week without any Internet access. It feels great to be back online. Just wanted to write a quick post to say hello and let everyone know that I will be posting on a couple of new Frugalize topics related to my recent moving experience very soon (though I need to catch up at work today).

Huge thanks to Paul for taking up the slack while I've been offline!

Millionaire Next Door Review Pt. 3: Economic Outpatient Care

Posted By Paul





This is my third and final posting in my review of The Millionaire Next Door. There is a lot of interesting information in this book, and so far of all the books I've read on finances, this book best captures my philosophy on how to handle money.



One chapter in this book that I thought was really interesting was about "Economic Outpatient Care" or EOC which just means giving money to your adult children (and grand children).



The book views EOC as both natural (isn't one goal of accumulating wealth to provide for your children so that they can have advantages that you didn't have?) and potentially dangerous.


Why dangerous? The authors describe that sometimes the most well intended gifts often hurt your child's ability to get their financial life together. That instead of giving your child an advantage you are essentially enabling them to start a pattern of living beyond their means.

For example, let's say you have enough wealth that you can afford to help your adult child buy a nicer house in a nicer neighborhood than they could normally afford. Good right? According to the book, maybe not.

The problem is that let's say by helping your adult child into a $500,000 house when they could normally afford a $250,000 house you are also prematurely forcing them into a $500,000 house lifestyle. That even beyond the mortgage and insurance and property taxes, that having a $500,000 house will probably have an impact on other aspects of their lifestyle.

For example, they may need to pay for landscaping fees to keep the yard looking nice because they don't want to have the only house in the neighborhood with a few weeds in the yard, or they may spend on a nice car because their old car looks out of place in their neighborhood.

The point is that often these well intended gifts set off cycles of consumption beyond their child's means.

Also, the book takes a strong stand against cash gifts to adult children. To quote the authors:

"We found that the giving of such gifts is the single most significant factor that explains lack of productivity among the adult children of the affluent."

The authors view cash gifts as a form of financial enabling. A way of teaching your children to remain financially dependent on you and to never mature financially. Especially if the gifts are given regularly and frequently.

So do the authors think that you should never share your wealth with your children? Certainly not. They give several examples of how to share wealth with your children constructively. The most basic one being to help pay for your child's education. The authors consider this sort of gift to be money spent "teaching your kids to fish" and that this seldom has negative consequences.

They go into great detail describing other common repercussions of giving your children Economic Outpatient Care. As a person that plans to have wealth and plans to have children I found this section of the book to be great food for thought.

What is a Mortgage Backed Security

Posted By Paul

I was recently asked about Mortgage Backed Securities (which I'd never heard of before), so I've been doing some research into them which I thought might be of interest to the group. Here's what I've found so far:

A Mortgage Backed Security (MBS) is a way to invest in the mortgage market by buying a share in a conglomerate of mortgages. I'm going to talk about something called a pass-through MBS which is the simplest type.

Let's start with how you get one. You contact a bank or broker and put some minimum investment into an MBS (I read that the minimum is usually at least $1000).

So just as an example, let's say that you take $10000 and put it into an MBS. What exactly did you do?

Well you took your 10 grand and put it into a fund that is a conglomeration of a bunch of mortgages. It's almost like you loaned someone a $10,000 mortgage.

In fact, a lot of the interesting facets of an MBS can be understood by imagining that you took your $10,000 and loaned it to someone. So I'm going to illustrate what I've learned about MBS by comparing it to loaning the money to someone (we'll call this fictional person Joe Borrower) as a mortgage.

So first off, to invest in an MBS you need to go to your bank or broker and buy a share of an MBS. You give them your $10,000 and in return you get a bond for that amount with a specific maturity and a specific interest rate.

Using our metaphor, buying the bond is very much like making a fixed rate mortgage loan to Joe B. his mortgage will have a term (let's say 30 years) and a specific interest rate (let's say 5%).

So in the mortgage world Joe B gets a monthly bill for his payment. His payment starts off as being mostly interest with some principal going to the $10,000 he borrowed from you. As the years go by more and more of each payment will go towards the principal.

An MBS works the same way. Every month you'll get a check for a certain amount. At the beginning the amount will mostly be interest, but some amount of it will also be part of the $10,000 that you invested in the first place. As time goes by the interest will decline and the principal will increase.

Now lets say that Joe B always pays his mortgage the standard amount. Then for 30 years he will get a bill for the exact same amount and will pay that exact amount. At the end of the 30 years he will have paid off the $10,000 (along with a lot of interest).

It's the same for an MBS. In an ideal case you will get the same amount every month. At the beginning it will be mostly interest, and will gradually transition. At the end of the 30 years you will have your $10,000 back plus the interest that you received over the years.

It's a lot like YOU are the mortgage lender. Sounds pretty cool right? Well here are a couple of small wrinkles. You'll notice above that I said that your payment in an ideal case remains the same. What do I mean by that?

One problem is what if Joe B can't pay his mortgage? Well you have the house as collateral so that helps, and of course in a real MBS you are just one small part of a large conglomeration of mortgages so the risk of any one person defaulting on their loan is diluted.

Another concern with an MBS is what does it mean to you if a lot of the holders of the mortgages in your MBS start to pay off their mortgage early? Well it means exactly the same thing as if Joe B decided to put extra money towards his mortgage payment every month. The total payment you get would get bigger (because he's putting the extra money towards it) but in the long run you're not making as much interest as you would have if he had stuck to the standard payments. So if Joe B keeps paying his mortgage down early then you will end up getting your $10,000 back sooner, but you won't get as much interest.

Other problems relate to interest rates. Let's say that after a year interest rates have gone from 5% down to 2.5%. What is Joe B likely to do? He'll refinance of course to take advantage of the better rate. What does this mean to you? Well it essentially means that he pays off his entire loan early (the refinance pays off the old loan and creates a new one, but you don't own a piece of the new one). If a lot of people in your MBS conglomeration start refinancing then instead of getting your money back slowly over 30 years with a specific amount of interest you could get a bunch of your money back right at the start and then be done in a much shorter time with less interest paid to you.

Another scenario, let's say that a year after making your loan to Joe B at 5% interest rates have shot up to 15%. What's Joe B going to do? He's going to hold onto that mortgage for dear life because he wants to keep his awesomely low interest rate. What's the problem here? Well if interest rates have shot up to 15% you might be able to get a much better return on your $10,000 with a CD or a plain old savings account, but you don't have the $10,000 because it's been lent out to Joe B. You'll get it all back eventually (with interest) but you may be hating that you're making a mere 5% on your money when you could be making more in some other low risk investment.

So can you get out of the MBS early? Apparently yes by selling your bond, but using our metaphor again let's say you want to sell your mortgage to Joe B to someone else. They pay you some amount and they take over the loan. Well how excited do you think people will be to take over Joe B's 5% mortgage when they could take over a new mortgage paying 15% instead? In this case you may have to sell your mortgage at a discounted rate if you really want to unload it.

So I paint a somewhat gloomy picture of the MBS, but look at it from a different standpoint. If people in your MBS pay off early then the worst thing that will happen is that you'll get your $10,000 back sooner and you won't make as much interest as you'd hoped. If interest rates shoot up and you do nothing then the worst that will happen is that you'll end up with your $10,000 back plus some interest, just maybe not as much as you could have made elsewhere.

Compare this to stocks where if you invest $10,000 then you could easily lose all or part of your initial investment. This is why MBS investments are considered to be quite conservative.

This is a pretty rough description of what an MBS is, and this is just from my own research into it. I read that often the minimums to get into an MBS are high (in the range of $10,000-$25,000), but that it's considered a very safe investment.

Also, you may be thinking that there are administrative costs related to keeping track of all of these mortgages and sending out payments, and wondering how those expenses are paid. You're correct to think that and the answer is that some small percentage of your interest goes to administrative costs to maintain the MBS.

I'm curious enough about mortgage backed securities that I'm going to keep doing some research into them. If nothing else it's interesting to think about how a mortgage is viewed from the lender's side (and a mortgage lender is more or less what you become when you put money into an MBS).

If anyone out there has invested in Mortgage Backed Securities I would be very interested in hearing from them to get a first hand account of the process. Also if anyone sees any mistakes in what I've written here please let me know. Since I'm so new to MBS investment vehicles I might have misinterpreted something I read at some point.

Got My Free Credit Report

Posted By Paul

In an earlier post on simple things you could do to get in control of your finances the following was listed:

Know how lenders see you. Take seven minutes to download a free credit report at annualcreditreport.com. (For year-round monitoring, get a report from one of the three major credit bureaus every four months.) If you spot an error, notify the bureau (online, by phone or by mail) and the creditor (call and also send a letter). You won't find your credit score here, so when you request a report from Equifax, pay $7.95 for your FICO score, the most commonly used score. The range is 300 to 850 - 700 and above is good.

I decided to go ahead and do this since I had never seen a credit report before. I used this web page to get one of my credit reports. I didn't bother getting my FICO score as I was more curious about the credit report part for now. The process for getting a credit report is pretty easy. Make sure that you do this from a computer with a printer so that you can print out your report and go over it closely.

I won't go too far into the specifics of what is in a credit report. It's pretty self explanatory once you see one. The short version is that it is an identity thief's dream come true so be very careful with it. Don't go printing it out and leaving it in your car.

I looked mine over for anything unexpected and luckily there wasn't anything there that didn't make sense.

I then promptly put the credit report in the fireplace and burned it. Figured that when it comes to identity theft it's better safe than sorry.

It's good to know that getting an credit report can be done annually, easily, at no cost to me. I think I'll try to start checking my credit report at the beginning of each new year starting in 2009.

annualcreditreport.com

What Is A Target Date Retirement Fund?

Posted By Paul



A fairly new feature on the mutual fund landscape is a create called the 'Target Date Retirement Fund'.



What is it? Well the idea behind it is that if you're investing for retirement you should invest in more aggressive and risky investments when retirement is far off, but as you approach retirement you should start to move your money into more conservative funds so that a sudden drop in the market doesn't hurt your nest egg right when you need to start using it.



Generally what people do is something where in their 20's and 30's they focus on the more aggressive mutual funds, then in their 40's they move into the more moderately aggressive funds, and then as people start to approach retirement age they move into the less risky funds.



If it's such a simple process then why can't it be done for you? Well that's what a Target Date Retirement Fund is. So let's say you plan to retire in 30 years, then the idea is that you could buy a Target Date Retirement fund that is targeted to that timeline (these sorts of funds generally have names like 'Target Retirement in 2035') then sit back and let the fund manager handle allocating your investments and gradually transitioning it to more conservative investments as time goes on.


I am intrigued by this idea since it seems about as close to a 'set it and forget it' fund as possible. In fact one of our Roth IRA's is in a Target Date Retirement Fund. If nothing else it seems like a simple place to put your money until you decide if you want to put it elsewhere.

One thing I have read that you need to be careful about is to not take too much advantage of the 'set it and forget it' mentality. Specifically if you have such a fund, check it periodically to see where the investments are. Perhaps the fund managers opinion of 'acceptable risk' when your 10 years away from retirement is different from yours.

A nice thing with these funds is the fact that you can change your risk levels by changing funds. For example, let's say that you plan to retire in 30 years so you put your money into a 'Target Retirement in 2040' fund. You then decide that this fund has more risk in it than you'd prefer, and you're willing to give up potential returns in favor of less fluctuations in your fund. You can move some or all of that money instead into a 'Target Retirement in 2035' fund. The fund manager doesn't care if you actually plan to retire by the target date or not, and by making this move you've transitioned your investments further along in the transition from aggressive to conservative.

I am quite new to Target Date Retirement Funds but I think I'm going to look into them more closely. My hope is that I can use these Target Date funds to create a gradual transition from risky to conservative investments while also moving between funds to fine-tune the risk tolerance more closely.

Saving Money When Planning Your Wedding

Posted By Paul




I noticed that the bridal shows are revving up, which made me think back to when my wife and I were planning our wedding. We wanted to pay for our wedding ourselves (when we got married we were both "grown ups" with jobs and homes so it seemed silly to expect our families to chip in), and paying for everything ourselves really gave us total control over what our wedding ended up being.

Planning a wedding is a great test of a relationship and I think in some ways the way you plan your wedding can set the financial attitude for your whole marriage. Here are some tips that came from my wife and my experience of planning a wedding:

Focus On Good Enough - You hear the phrase "The Perfect Wedding" all over the place, especially once you dive into the world of planning your wedding. One thing my wife and I did on the first day of planning our wedding was agreeing that we were never going to worry about making things perfect, we were going to focus on making things good enough. Not to say that we wanted things to be ugly, messy or chintzy, but the idea was that we weren't going to drive ourselves crazy chasing some arbitrary ideal of the perfect wedding.

Identify Your Priorities - My wife and I sat down and discussed what was important to us in our wedding. For example, my wife has a large family and they all live nearby, and her family is really important to her. Even though one of the easiest ways to make a wedding cheaper is to make the guest list shorter, my wife's priority was to be able to invite her extended family. We also both wanted to have good photographs of our wedding, so we made paying for a photographer a priority. Once we agreed on our priorities we knew that we needed to save money in other places to accommodate what was important to us. It made it much easier to cut back on things when we could keep our eyes on the prize of what was important to us.

Set Your Budget From The Start - My wife and I took a look at our finances and decided what we could afford for our wedding. We took that amount of money and put it into an account, and ALL money for the wedding came out of that account. Two very important things came out of this decision. First we only spent money that we had (I cringe when I hear about people who start off their lives together with a big credit card debt thanks to wedding spending gone out of control). Second, being able to tell at any moment how much was in the wedding fund made it easy to stick to our budget.

Don't Buy Into The Hype - The wedding industry tries to convince you that your wedding is the most important day of your life and that your wedding day will be ruined if you don't have ice sculptures and a custom tailored tux. Don't believe it.

Remember What's Important - My wife and I went to a quinceanera party that really brought the whole thing home for me. The party was held in a school gym, where tables had been set up. The food was simple, delicious, and plentiful, served on paper plates with family and friends serving as "waiters". For drinks paper cups and two liter bottles were handed out. The venue was not opulent but all friends and family were welcome. The food was not fancy, but it was delicious and served in a way where you felt like you were part of a family dinner. There was no DJ or hired MC, instead there were sincere speeches of welcome and affection from the family. I have never been to a better example of how you can throw a big party on a reasonable budget by focusing on what's important, and not getting distracted by things that don't matter.

Do It Yourself - My wife and I saved a lot of money by making the centerpieces ourselves, doing our own flower arrangements, making our own programs, and all kinds of things that you can do yourself if you just take the time to do it. Not only did we save money by doing all of these things ourselves but my wife and I really enjoyed having a wedding where so many aspects of the wedding were literally made by her and I.

There are hundreds of articles out there with tips for saving money on your wedding, but I hope that my suggestions provide a way to come at the daunting task of planning a wedding with the ideas and attitude to keep you on budget.

Buying a Mattress

Posted By Paul

Not too long ago my wife and I went shopping for a new mattress. Our current bed had been given to us and even though the frame and box spring were great, we decided we preferred a firmer mattress.

So off we went to go mattress shopping, and wow, what a terrible industry that is. I know car salesmen get a bad reputation but they've got nothing on mattress salesmen. I had heard that one of the big reasons why mattress salesmen are such vultures is that no one goes shopping for a mattress unless they plan to buy one (which makes sense). You may just be looking around for fun when you walk around a jewelry store or a sporting goods store, but who thinks it's fun to browse around mattress stores? The sales people know that anyone in a mattress store is probably planning on buying a mattress in the very near future and they take full advantage of that.

After going to a couple of mattress stores and getting the same high pressure sales tactics my wife and I decided to try comparison shopping. We had made note of each mattress that we had found comfortable at the different stores. I think one was called the Royal Rest (or something like that) so I decided to go online and search for other prices. I was amazed that I couldn't find a link to that mattress anywhere that listed a price, and I couldn't even find the mattress listed on the website of the manufacturer. That struck me as odd. I tried calling 1-800-mattress for pricing, and the phone conversation went more or less like this:

Me: I'm interested in hearing a price on the Royal Rest.
Operator: Oh, sure, that's brand X, you must have seen it at Beds-R-Us.
Me: Yes, that's right, how did you know that?
Operator: They change the name of the mattress for each retailer.

So from the call I discovered that 1-800-mattress didn't service my state (I hear they're very popular on the east coast, and would be VERY interested to hear comments from people who have used them). I also discovered that mattress companies actually rename their mattresses for different retailers. So the Royal Rest at one store, will be called the Slumber King at another store. Why is this done? The main reasons are:

1) It keeps me from being able to easily comparison shop.
-and-
2) It makes it almost impossible for anyone to actually take advantage of the "If you find a comparable mattress at another store, then we'll give you the difference plus $100."

If anyone out there has ever taken advantage of such an offer, please post a comment or email us, so far I have yet to find anyone.

The mattress industry is perfectly designed to make it almost impossible for a consumer to make an informed decision. The mattresses are named different things at different stores, and on the surface all mattresses more or less look the same.

I've also heard that mattress stores that "save you money" on a mismatched set are often just giving you the illusion of savings. They'll offer a mismatch set discount which is really just a fictional discount that makes you think you're getting a deal. I've even heard (though I've only just heard) that mattress stores will often specifically mix up sets in their inventory so they can have these mismatch sets sales.

Considering my experiences with mattress stores, I would believe just about anything. The pressure tactics we received were so non-subtle that is was practically insulting. Everything from stories of "one day sales" to scare tactics of horrendous back problems from buying poor quality at another store.

One of my favorite techniques that you see at a mattress store is the "one or the other" tactic. Which is a pretty simple sales technique where they get you to try two mattresses and then ask which you like better. Then they bring in another one to compare to your current favorite and so on. The key is that you always have your favorite mattress in mind so the hope is that eventually that's the one you'll buy.

Oh, one technique if you ever decide to brave a mattress store that worked well for me was to go in and say that you were looking for a mattress and planned to buy one as soon as some windfall arrived. In our case the story was that we were getting a tax refund and planned to use the money for a new mattress. It provided us with a simple "no we won't buy today" story that kept the salesman from bothering us too much, plus in our case the story happened to be true.

So what did we end up doing? Well we ended up going to a CostCo where they not only had mattresses, they also had samples set up that you could lay down on just like at the mattress store (only without the vulture salespeople). Sure we felt a little silly laying down on mattresses in the middle of a crowded CostCo, but the mattress was so much cheaper that we didn't care.

In fact, the mattress was so much cheaper that we figured that even if we decided after a few months that our mattress was terrible and that we should have purchased a more expensive mattress from a mattress store, that it was worth the risk to try it.

The result? We love our mattress. We've had our mattress for almost two years and it's great. With part of the money we saved we bought a couple of fancy foam pillows and a foam pillow top for the bed. Not only is it super comfortable but it was SOOOO much cheaper than the mattresses we were considering at the mattress stores, plus we didn't have to joust all day with a salesperson to haggle down to a fair price.

I should say at this point that neither my wife nor I have any back problems so we're pretty easy to please as far as mattresses go.

I'd like to hear stories from other people out there, as far as what worked for them, or if they had more pleasant experiences at mattress stores.

I found this one web page that seemed to have some good info on buying a mattress:

http://www.slate.com/id/93956/

Also if you go to:

http://www.mattressscam.com/

This web page lists various sales tactics common to mattress stores. If the sales people at mattress stores use even half the tactics described in this web page, I don't know how they can sleep at night.

;-)

Saving money, one dollar at a time

Posted by Matt

Chances are good that you've got a store somewhere near you where every item for sale in the store costs one dollar. There are at least two of these chains in our area; The Dollar Store and Dollar Tree. I never really wanted to shop at either one; they are kind of depressing inside. Obviously they have to keep their costs low, so they don't put a lot of effort into making the place look nice, and the quality of the products can only be so good.

However, my frugal wife has, over time, put together a short list of items that she always buys at the dollar stores. These items are typically either short-lived or do not vary widely in quality no matter where you buy them.

• Party supplies: gift wrap, gift bags, etc. My wife recently went shopping for invitations and found a pack of 8 for $8 at a regular store. She decided that was too much, but was able to find the exact same product at the dollar store. 8 invitation cards for $1!


• Pet toys. When we owned dogs, we bought all their toys there. Much less expensive, so we didn't worry when the dog chewed through them in a week. I don't think they have an actual pet toy section; we just bought stuffed animals or rubber balls.


• Plastic food storage bins (i.e., tupperware).

I should also pass along my wife's warning not to buy food at the dollar stores (did that go without saying?). She reports that most of what they have is near the expiration date, and I'm guessing it probably isn't prime stuff, anyway.

Putting Off Savings, Another True Story

Posted By Paul

I knew a guy who was in his 20's and had the philosophy that he wouldn't save money until he turned 30. He figured that his 20's were for fun and that included fun spending, and that when he turned 30 he'd start saving money.

Unfortunately I learned about this friend's philosophy when were talking about what we were going to do now that we had both just been laid off.

This friend was a hard worker and he made it through the layoff and job hunt process without too much pain, but the whole experience could have been less painful and stressful for him if he'd just saved a little more money earlier.

If you're thinking that you're too young to worry about savings, remember that rainy days come to all people regardless of age. Don't think that financial responsibility and having a fun life are mutually exclusive. I've noticed that as I get more on top of my finances that the peace of mind from not having to worry about money is a big factor in my daily happiness. Plus by being responsible and saving money most of the time, I can splurge on the occasional fun things guilt free.

Wedding Planning, Buying An Engagement Ring

Posted By Paul

As we enter into a popular time for couples to get engaged and start planning their wedding, I wanted to take a moment to write about buying an engagement ring. Why? Because if you do a google search on buying a diamond, you come up with some amazing results.

For example, one diamond buying guide that I found on the internet includes phrases like:

"Buying a diamond means investing in a piece of forever."

and

"You can rest assured that the diamond you buy will be a sound financial investment."


It was these sorts of phrases along with phrases that I heard at jewelry stores while looking that made me want to write this article. Phrases like: "This is one of the most important purchases you'll ever make." and "This ring is a symbol of your love, so you need to make sure to get something of the highest quality." make me cringe, since I suspect the salesperson wouldn't use these phrases if they didn't work.

Just today on the radio the DJ was talking about buying a diamond ring and in her overview she said (quoting from memory here):

A two-carat diamond is now the standard, and when you figure that you may have your wedding ring for your whole life, it's a good investment.

-and-

There have been a lot of yellow diamonds on the market currently, being presented as a cool style, but THESE ARE NOT WHAT WE WANT LADIES.

Why does this bug me so much? The diamond marketing machine in particular and the diamond industry in general is one of the most terrible industries in so many ways (just google 'blood diamond' or 'conflict diamond' to learn some of the darker aspects of the industry). But I wanted to really focus on the marketing machine that exists around diamonds.

First of all, just to make it clear that I'm not trying to preach, when I proposed to my (now) wife I had a diamond ring. Why? Because I knew that's what my wife really wanted. This is a choice that I made (and a choice that she made), and a choice that you should make but I wanted to offer a few tips from my experience:

1) Remember, a diamond is NOT mandatory - I have several friends who chose to get sapphires, emeralds, or some other stone, not to mention friends who prefer a simple wedding band. I applaud these people who decided to forego convention and focus on what THEY wanted and not what society told them they needed.

2) If you do decide that you want to get a diamond, try to focus on how the diamond appears to the naked eye. There are all the guides out there that talk about the "4 C's" of diamonds, and often when you go to a diamond store they will be more than happy to have you examine a diamond using a magnifying glass. Try to remember that the whole point of buying a diamond engagement ring is to have it end up in a setting and on your wife's finger where it will pretty much sit all the time. One of the most common things I saw in stores that sold loose diamonds was their tendency to show you a diamond on a stark white sheet of paper (accentuating any color deviation) and offering you a magnifying glass (so you can pick out any flaw that the stone might have). Think about every time you've admired a friend or relative's wedding ring. How often did you ask the woman to take off the ring so that you could look at it with a magnifying glass?

3) I recommend taking the time to figure out what's important to you (by 'you' I ideally mean the bride and the groom since I consider a ring to be a big purchase so why not start off healthy marriage habits and discuss the purchase together). Just like any other purchase, decide what "features" are ones that you are willing to pay for. For example, maybe you want a really big diamond and are willing to live with it being a little yellow-ish, or maybe you are fine with a smaller stone but really want it to have a clear color. If you want the ring selection to be a surprise (I actually think ring shopping together is fun), then doing a little investigation (ask questions about what's important to the bride while window shopping at a jewelry store at the mall).

4) Don't think of a diamond as an investment. You hear this one a lot from salespeople. Even if you buy the idea that a diamond is a sound financial investment (and I REALLY don't), the idea of buying a wedding ring is that you'll have it for the rest of your life, so why consider something an investment if you're never going to sell it? (If there was a savings account that let you deposit money, but never let you withdraw it, would you consider that a good investment?).

5) I know several people who had a diamond that was in the family that they reused it in some way (for example using the stone in a new setting). The end result was a ring that was cheaper AND had a family history. A very cool option if it's available.

6) If possible find someone you trust when buying your ring. If you can find a trusted friend or a family member who is part of the jewelry industry then that's a huge bonus. It's not about finding someone who will give you a great deal, it's just about finding someone who will give you a fair deal and won't try to rob you blind.

7) I really would suggest that you not finance the ring. The ring is the first purchase in your journey towards married life, why make that first step purchasing something beyond your means that puts you in debt? If funds are low, that's nothing to be ashamed off, you can buy a smaller ring with a plan to upgrade it at your five year anniversary, or buy a CZ ring and replace the stone when you can afford it.

Most of all try to keep in mind that in many ways buying a diamond is a really an absurd purchase that our society tells you you need to make. In my opinion the sole purpose of a diamond on a ring is to look pretty to the naked eye. Contrast that with a cubic zirconia which looks just as pretty as a diamond (I don't know of anyone who can tell the difference with their naked eye). So why are you buying the diamond? It's essentially this strange sense of needing a real diamond as opposed to a fake one, but why? What difference does it really make? If you wanted to buy a new car for $50,000 but there was a different model that was the same in EVERY way except some of the parts could be shown to be different (not better, just different) when seen under a microscope, and the other car cost $500 which one would you buy?

Again, I'm not saying that you shouldn't buy a diamond ring, but just keep the absurdity of the whole industry in mind when you go shopping and make sure you don't get too sucked in by all of the hype out there.

I did find one reasonable diamond buying guide here at wedfrugal.com that had a lot of common sense advice:


http://www.wedfrugal.com/files/buyingdiamonds.html


P.S.


In the last few years my wife has totally gotten into CZ jewelry. One year as a gift we went to the store and she got to pick out a CZ tennis bracelet (diamond versions cost well into the $2000+ range). She has discovered it's just as pretty, it was SOOO much cheaper, and another added bonus is that she doesn't have to be all paranoid about losing it when she wears it out.

Where in the world does your grocery spending rate?

Posted by Matt

Check out Time magazine's amazing photo essay about what the world eats. I'm sure my mother would have loved to show me these photos when I was a bratty kid refusing to eat my rice.


The weekly spending ranges from $1.23 to over $500. It was interesting to go through this and see what kinds of things might be considered staples in various countries (the US families had comparatively few vegetables) and what might be driving up the bill (in Germany, maybe the beverages and/or meat.)

Inexpensive ink

Posted by Matt

I read this in our company newsletter today:

Next time you buy an ink cartridge, go with a refilled one. Recycled cartridges cost up to 75% less than new ones.

Sounds good to me; what do I have to do? I looked around and it turns out that, as usual, the more effort you are willing to put in yourself, the more cash you can save. When reading through this, don't forget to factor in the value of your time.

For this article, I chose to use our HP OfficeJet V40printer as an example. (Yes, it is painfully old and I will replace it as soon as it stops working.)

I first went directly to the HP website. The price for a replacement HP15 cartridge there is $29.99. This is where the printer companies make all their money these days and it's why printers are so inexpensive.

Next, I looked on Amazon and found remanufactured cartridges from Printworks for $19.99. That's only 33% off so far, but if you don't want to get your hands dirty, this is not a bad deal. I decided to keep looking.

Next I found http://www.cheap-printer-refills.com/. They had some really good prices:

• Remanufactured cartridge: $12.95 (about 57% off of the new cartridge price from HP)
• Refill kit with refill tools and enough ink for one refill : $10.95 (63% off)
• Ink only for one refill: $5.99

The ink-only price is great, but I'll probably need at least one of the kits to be able to use it. Quite a discount there, but I worried about whether I would be able to do the refill myself. Luckily, I found this video. (The site actually has refill videos for many different kinds of printers; not just mine.)

That led me to discover that the company that makes the video is (no surprise) an ink manufacturer. Their OfficeJet page lists the best deals yet.

• Remanufactured cartridge: $12.95
• Refill kit with TWO refills: $9.95
• Ink only: $2.95

The $2.95 price is for a single refill bottle, but if you really want to eke out the cheapest possible ink, you can buy the ink in a liter bottle for about 90 cents per refill. That should definitely push you past the 75% discount level!

If you don't want to get your hands messy, at least consider the remanufactured cartridges. These are almost exactly like what you are getting from HP, Epson and Canon, but much cheaper!

Going Cell Phone Only

Posted By Paul


This seems to be a trend you hear more and more about. People dropping their land lines in favor of going cell phone only.

My wife and I decided to give this a try since we noticed that:

1) A lot of the phone calls we got on the conventional line were solicitors or surveys.

2) Most of our friends would call us on our cell phones anyway since it was the most dependable way to reach us.

With cellular plans getting pretty affordable, with hundreds of minutes including long distance, voice mail, and caller id it seemed silly to have three phone files for two people.

So we decided to drop our land line and figured that if we found it annoying that we could always reactivate the line later.

We decided to go cell only for at least six months.

After about 3 months both my wife and I decided to leave the land line down permanently. We are saving money by not having to pay for the rarely used land line, and we don't miss it at all.

If you can completely remove a monthly bill from your expenses, it's a great addition to your monthly bottom line (see the article Beware Of Subscriptions).

Of course I know people who can't do this because cell phone reception at their home is really poor, but since the reception at our house is great, we've really found it to be a great decision.

I'd be eager to hear if other folks out there tried going cell phone only and if it has worked for them.

Follow up: Return to minimalism

Posted by Matt

To recap, about a month ago I posted about trying to maintain a minimal number of possessions, and I thought I'd give you a progress update. I hate to admit it, but I didn't get rid of nearly as many shoes as I had hoped. The good news is that it is because I'm wearing some of them again! When I was going through the piles, I found one pair that made me stop and think, "These are really a nice pair of shoes." I decided to give them another week at the office and have decided that I really like them. They're brown, unfortunately, but that just means I won't replace them when they wear out.

I've got a black pair of oxfords that I haven't been able to bring myself to wear again, though, so I'll probably take those down to my donation pile right after this post. The only other thing I bought was a pair of new khakis for work (one in) to replace a pair that don't fit me anymore (one out). The pants are comfortable, versatile, won't go out of style before they wear out and I bought them on a gift card!

So far, the plan is going well. The real challenges will come over the next few weeks as we move into our new house. Past experience has taught me that moving seems to always inspire shopping...I'll have to be careful.

Property tax discounts and refunds

Posted by Matt

I read an article in the Oregonian over the weekend suggesting that I take another look at my property tax statement(s). The author suggested that the county assessor's office does occasionally make a mistake, and it might be worth a little quick math. In our area, the assessed value of a home is not allowed to increase by more than 3% per year unless something has happened to obviously increase the value (like a remodel).

So, I hauled out the page full of numbers and got the calculator going. Here's how the numbers crunched:

Land value: +5%
Structure value: +29.7%
Total Real Market Value: 17.5%
Taxable Assessed Value: +9.2%

I almost let myself start getting excited about the possibility of an overpayment and refund, as was mentioned in the article. I called up the tax office for an explanation only to hear that the numbers were correct. The assessments actually take place in January, so our 2006 numbers were determined when our house was only 90% finished. (We moved in at the beginning of February.) Their other reminder was that property taxes increase for more than just assessed value (as was mentioned in the article). Most of the increase we saw this year came from extras like bond measures.

The article offered us one other bit of consolation:

The only sure-deal way to shave your property taxes is an easy one that's been around for years: Pay the whole bill by Nov. 15 and you'll get a 3 percent discount, guaranteed. If you pay in installments, you lose out.

Our property tax payment is made out of the escrow account for our mortgage, and the title company made the payment in plenty of time to save us the $132.22.

One other side note on property taxes: there are situations where it makes sense to pay your property taxes yourself instead of through escrow. If you hang onto the tax money until it becomes due and put it into a safe investment, you can earn a return on it all year long. However, most lenders require tax escrow until you reach a threshold level of equity or payment history. This is fine for most people anyway, as it helps to level out their budget and makes the tax payment (and discount) automatic.

Another new entertainment option from Amazon

Update 11/07/07: Please IGNORE the post below. I just went to purchase several Office episodes from Amazon Unbox, but changed my mind because the DRM will prevent me from viewing the episodes on my iPod. FOR SHAME, Amazon! I won't be downloading anything until further notice!

Posted by Matt

You may remember a post from me recently about downloading mp3s from Amazon. I was excited to find it at the time, but not as excited as I was today to find out that I can buy episodes of The Officeon Amazon now, too.

But, being the frugalizer that I am, I sat down to think, "Is this the most cost-effective way for me to watch this show?"

How much does it cost to watch each episode on broadcast television each week? To figure that out, I'd have to determine how much TV I watch each month, figure out what fraction of that is comprised of Office episodes and multiply by my monthly cable expense. But I'm going to skip the math because I've already watched the first three seasons on my iPod about a half dozen times and the amortized cost of each episode has got to be getting fairly competitive. Also, I'll probably be watching the episodes on TV regardless of whether I buy the episodes, so I think the more important decision is DVD vs. download.

It is only slightly more expensive to buy the entire season via subscription than to buy the DVD, with the benefit that you don't have to wait for the DVD release and you don't have to spend a lot of time ripping from the DVD to put the files onto your media player if that is where you want to store and watch them. And what dollar benefit can I assign to not having the DVDs taking up shelf space? Not sure, but it's a definite benefit for me.

To further rationalize it, my employer hands out recognition for good work in the form of Amazon gift certificates and I've got a few of those burning a hole in my digital "pocket". So, if you see me with my headphones on in the near future, chances are that my mind is on an inexpensive trip to Scranton, PA.

Article: 10 Things You Shouldn't Buy Used

The complementary article to '10 Things You Shouldn't Buy New':


http://articles.moneycentral.msn.com/SavingandDebt/FindDealsOnline/10ThingsYouShouldNeverBuyUsed.aspx

The diminishing returns of comprehensive auto insurance coverage

Posted by Matt

My car is paid for, but I still carry comprehensive coverage for it because it is relatively new. As the car ages and its value drops, however, paying to maintain the coverage is going to make less and less sense.

Luckily, I found this quick rule of thumb:

Drop your collision and comprehensive coverage when the car is worth less than 10 times what you pay for the insurance.

I'm assuming they mean "10 times what you pay for the insurance annually." I've had many cars in the past that fell into this category, and I always just maintained liability insurance (as required in our state).

Thanks to Money Magazine for the helpful tip, although it looks like I won't be saving any money on auto insurance for awhile. They did also recommend deductible increases (save up to 30%) and searching insweb.com, an easy-to-navigate comparison site for finding low rates.

Millionaire Next Door Review Pt. 2: UAW or PAW

Posted By Paul



Part 2 of my ongoing review of this great book. The book mentions this interesting little calculation to determine your wealth accumulation status. The authors believe that financial independence is not just about income, it's about increasing your wealth, and that wealth accumulation goals need to relate to your income.



Essentially they're saying: "Try to save and invest as much as you can, and the more money you make, the more you should be able to save and invest."



So they use this simple calculation:



1) Take your total income

2) Multiply that by your age

3) Divide that total by 10.



Your answer is what they suggest should be your net worth. If you are significantly below that number then you are an Under Accumulator Of Wealth (UAW). If you are significantly above that number then you are a Prodigious Accumulator Of Wealth (PAW).


Of course I think back to what this calculation would have been at various times in my life, and it falls apart a little. For example, when I was 22 and had my first job, I was making a salary but my networth was negative (since I had a car loan, student loans and hadn't started saving at all), so I would be considered a dangerous UAW, but these are probably edge cases that get lost in any 'rule of thumb' calculation.


Anyway, take a second and calculate out what the authors consider to be your target net worth (so far the book doesn't say way what to do if you're married, I would suggest using total household income in step 1, and average age in step 2), and see if you're on track by their standards or if you're a UAW or a PAW.