Money For Your Old Cell Phone

Posted By Paul

A while back I heard of a web page that lets you trade in old cell phones and iPods for cash.

The page is:

http://www.flipswap.com/

Conveniently I had two old cell phones that were just sitting in my desk drawer collecting dust.

I went online and found out that I could get about $15 for both cell phones. I decided to give it a try.

I registered and traded in both phones. The registration was easy, and the trade in process consisted of a page where you told them the model of your phone and answered some basic questions about its condition. Based on that info they tell you how much they will give you for it.

Then it was an easy thing to print out a mailing label from their page. I taped the label on the envelope and dropped it in the mail.

It took about a month to go from dropping the envelope in the mail to actually getting my payout (I chose an option of getting Amazon store credit since I figured that would save me some time since I wouldn't have to wait for them to print and mail a check).

So I got rid of two cell phones I had no use for, and made about $15 (minus the cost of the envelope).

Overall the process was very cool. I received emails from flipswap when my phones were received and inspected. My only complaint is that once I got the "received and inspected" email I was not sure how to actually get my Amazon credit. I waited a week to see if I would receive an email gift certificate, but nothing. I was about to email their tech support when I discovered that by checking the status of my Flipswap trade I could see an Amazon gift certificate code that gave me my credit.

In addition to cash or Amazon credit you can also choose to donate your money to charity.

Some phones don't have enough resale value to justify a payout and those only give you the 'plant a tree' option where Flipswap recycles the phone and plants a tree.

Overall I would highly recommend Flipswap. Instead of having your old phones sit in a drawer you can trade them in for cash or at the very least recycle them.

Article: Beware of free financial advice.

Posted By Paul

Great article today on some of the things to watch out for when considering financial planners.

First some excerpts that I found interesting:

"Your bank may be very good and you may even play golf with your banker. Make no mistake that a bank is also in business to make money. So if your bank is giving investment advice, you can be pretty sure there is something in it for them. They may not charge you by the hour but they are making money nonetheless." -and- "What I consider to be abuses fall under two categories:

First, there are the expensive mutual funds with front-end or back-end loads. These pay handsome commissions to the banks and, of course, have a great track record of under performing no-load mutual funds.

Second, there are the ever-popular permanent insurance policies that come in flavors such as whole life, variable annuities and universal life. These are even bigger cash cows to the banks that partner to sell them."

Here is the full article:
Beware of free financial advice

To add a little advice of my own:

I have heard people say that their financial planners are great, and best of all, they work for free. This reminds me of an earlier post:

Know Their Agenda: Some great advice I got.

The short version: OF COURSE they aren't working for free, the question is HOW are they getting paid.

I think that the most common way that financial advisers make their money is by recommending funds that have loads and fees associated with them.

What bothers me is that it is SO easy to check mutual funds to see if their fees are excessive or not.

I don't think there's anything wrong with having an adviser, knowing that you are paying them through mutual fund fees, and being okay with that. I just worry that people out there think that somehow the adviser really is working for free.

If you have an adviser that you think is working "for free" then you might want to take a look at the following articles:

A Few Quick Tips On Mutual Funds

What are you really paying for advice?

Paying an adviser doesn't mean you are getting swindled, but paying an adviser AND NOT KNOWING IT seems like a bad idea all around.

No money down, no interest, NO WAY

Posted by Matt

Let me share a brief story about a family member who asked me for input on the purchase of a new laptop computer. She found a no down payment, no interest deal from a major electronics store in our area and wanted to know if I thought it was a good deal. I checked it out and it was a nice machine for a great price, but I had to take issue with the deferred payment plan.

First of all, I couldn't determine the exact rules of the deal, even after reading the fine print. The ad banner said no interest, but sometimes this actually means "no interest if you pay the debt off by a set deadline, otherwise a ridiculously high interest rate is retroactively applied for the interval between the purchase date and the deadline." I'm paraphrasing here.

I asked "If you don't have the money to buy the computer right now, but you think you'll have it by the deadline, why not wait and save up?" The answer was along the lines of "why wait, when I can have it right now?" I could only caution about unexpected financial emergencies.

My wife Leah added a final argument against the deferred payment plan that she heard about when listening to Clark Howard on the radio: they can drag down your credit score! If you're not familiar with credit scores, one of the big criteria used is how much credit a person is using compared to how much they have available, and deferred payment plans show up as accounts with 100% utilization (aka "maxed out"). Clark warns:

You may find you'll get higher interest rates when insurers check credit scores or even lose job offers if employers check scores.

Ideally, I think people should keep cash on hand in savings accounts for purchases like these. I'd even consider taking money out of an emergency savings account for an expense like this (rather than a deferred payment plan), as long as the withdrawal would be a relatively small in comparison to the savings balance and I felt I would be able to replace it quickly.

I also encouraged my family member to consider what other options were available. I suggested that she share her spouse's laptop for a while, start saving, and watch for even better sales after the holidays. I think she is going to give this a shot and who knows, sharing a laptop might end up being the best solution for the long term.

If you find yourself contemplating a deferred payment plan, ask yourself these three questions:

1. Do I have to make this purchase right now?
2. Is it worth the extra financial risk and the negative effect on my credit score?
3. Do I have any better options?

If you ask me, the answer to #3 is always yes.

Topic Revisited: Investing In Gold

Posted By Paul

My next revisiting of an earlier post is an article I wrote on August 24, 2007 entitled:

Investing in gold

So now that it is over a year since that first post, have my feelings on gold changed?

In some ways they have quite a bit. I still feel like gold should be viewed as an investment with its own risks, and that these risks really aren't all that different from investing in individual securities.

It seems like recently there has been a lot of talk of using a gold as a way to avoid the craziness of the stock market.

I would have to agree with this article:

Buying gold as a safe haven

Which essentially says that buying gold as a way to avoid crazy fluctuations in your investment doesn't make much sense.

Also, after buying a few ounces of gold I seem to have noticed that at least for me the gold I have purchased has become less and less of an investment.

For example, when my son was born I decided to go out and buy a gold coin minted in the year of his birth. My hope is to some day give it to him as an heirloom gift.

This essentially means that I never plan on selling the coin, and more importantly I hope that my son values the history of it and doesn't view it as a savings bond that should be cashed in when he needs a few extra bucks.

So by not planning on ever selling this coin, it has ceased to become a financial investment. I suppose that if things ever got so dire that I needed the money I could sell the coin, but I really don't plan to do that.

Here is another example: The first gold coin that I bought (which I purchased after writing the first gold post) has no historical or sentimental value to me. So I could consider that an investment in that I could sell it at a moment's notice without any feeling of loss. However as time goes by the coins interest to me as an investment and its interest to me as a collectible gets blurry.

This to me is one danger of investing in gold coins or other precious metals. They are pretty, and kinda cool looking, so it's not hard to start thinking of them as collectibles, not investments.

After reading the final paragraph of my first post on gold:

"Overall, my advice is that if you are interested in gold and have a little extra cash and want to buy a coin or two, go for it. I'd suggest that you view gold (or any other precious metal) as more of a hobby than an investment. If you want to take all of your savings and put it into gold, think twice, and then if it still seems like a good idea think a third time. "


I think that advice has held up well. I have purchased some coins (mostly silver and a little gold) and consider it more of a hobby than an investment. I would definitely not recommend sinking your life savings into a chest of coins as a way to avoid a crazy market (you'll just end up agonizing over the price of gold instead of agonizing over the stock market).

If you ever do want to put some money into gold purely as an investment I would suggest purchasing shares in a gold fund (see my earlier post for info on that). You don't have to store the gold anywhere, you don't have to worry about your investment turning into collectibles that you end up keeping forever and when you want to sell them you don't have to find a coin store.

I might try buying a few shares in a gold fund at some point, but I would definitely say that my days of purchasing gold coins "as a pure investment" are over.

Topic Revisited: Mortage Backed Securities

Posted By Paul

Considering the recent economic times I thought it would be a good exercise to revisit some of the earlier Frugalize posts regarding various investment vehicles. My goal is to look at the post and see if the information in it is still accurate considering the very different economic landscape from just a short year ago.

I thought I would start with the posting about:

Mortgage Backed Securities

If you've read the earlier post, one specific item I mentioned was:

"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."

This statement seems especially interesting in current times.

When I wrote the first article I found my information by doing some simple research on google. I did a similar thing today and an article on riskglossary.com had a very interesting paragraph that specifically mentioned how MBS were behaving in the last 8 years:

"Starting in the early 2000s, private label MBS were increasingly issued with little or no credit enhancement and on pools of risky sub-prime mortgages. For the first time, MBS posed significant credit risk. Because credit risk made these instruments fundamentally different from earlier mortgage pass-throughs, many market participants avoided calling them MBS, preferring to label them asset-backed securities instead. Volume in these risky instruments grew rapidly until 2007, when defaults accelerated and the market values of the instruments plunged. This caused a liquidity crisis that spilled into other segments of the capital markets. A number of hedge funds with leveraged exposures to sub-prime mortgages folded."

(for the full article that this came from click here)

It seems that the risk level of MBS were in some cases much higher than people suspected. I never invested in MBS but it would seem that people who did would have had a very rough time in the last year. I guess it just goes to show you that one year can make a big difference in the perceived risk of a particular investment.

If anyone out there has experienced the MBS roller-coaster first hand I would be very interested in hearing about it.

Where the rubber meets the road

Posted by Matt

I just had new tires put on my car and thought I would share the details of my shopping experience, which was much more complicated than I initially expected. Before I get into that, however, I wanted to point out that maintaining your tires properly prolongs their lifespan, which is the easiest way to save money on them. I have recurring reminders on my google calendar to check my tire pressure monthly (see the box on "Tire Inflation" here) and get the tires rotated and brakes inspected (annually, which corresponds to every 7500 miles) at my favorite local shop.

The shop mechanic who last rotated my tires was the person who actually recommended new tires, but I didn't take his word for it. I checked the wear bars and also used the coin tests. My tires hadn't worn perfectly evenly, but they were close and one of them definitely needed replacing.

So, I went back to the tire shop and they gave me a list showing tires from their inventory that were compatible with my car.

I ask whether any of the tires on the list were designated as "low rolling resistance" tires, as I had heard that this could save money by improving gas mileage, but the clerk didn't seem to know anything about this. I also asked about the age of their inventory, but was reassured that the shop sold enough tires that they didn't have a problem with tires aging on the shelf.

The list of available tires was short, but unfortunately, I wasn't quite sure how to comparison shop. I found a very helpful article on HowStuffWorks that helped me interpret the sidewall codes used by the tire industry to categorize their tires.

Here's an example from my shopping list: P195/60R15 87T M+S
P - Type of tire (passenger)
195 - width of the tire across the tread in millimeters
60 - Aspect ratio of the sidewall compared to the width
R - Radial construction
15 - Diameter of the rim in inches
87 - Tire's load rating
T - Tire's speed rating
M+S - Mud+Snow, meaning the tire is suitable for all-season driving

All of the codes my shopping list were similar (because they primarily describe sizing) but I noticed one important variable: the speed rating. The "T" in the code for these tires means that they are rated as safe to drive up to 118mph. The other tires on my shopping list were rated "H", meaning they were safe up to 130mph. This didn't really concern me, as I don't plan on driving anywhere near 118mph, much less 130, but the shop told me that the T-rated tires would last for 70k miles, whereas the H-rated tire sets would last between 40k and 50k miles. The explanation from About.com:

The faster a tire can go, the softer the rubber compound they use to make it (softer rubber grips dry pavement better), so the tire will wear out faster than a "slower" rated tire.

The T-rated tires were priced a little higher, but only until I made the comparison fair by computing how many dollars it would cost me per mile of service life:

Warranty (Miles)	Price	Miles per dollar
40,000	247.96	161.32
45,000	307.64	146.27
50,000	337.80	148.02
70,000	356.80	196.19

Based on this, the high mileage tire looks like a great deal. This is just what the shop clerk told me, but I'm always skeptical of the sales pitch, of course. I also worried that I would sell the car before going another 70,000 miles (which equates to about ten years of driving for me) but decided to gamble. Who knows how long I'll have to wait for an affordable electric car?

Next, I decided I should check online prices, but I didn't find any cheaper deals, especially considering that I would have to pay for shipping (around $50) and then pay to have the tires mounted/balanced/installed.

The tire shop also wanted to sell me siping for an additional $50, but I declined based mostly on a Consumer Reports article indicating that siping was most helpful in snow and ice conditions, which I don't encounter often.

The only real bad news in this story is that the quotes that the clerk initially offered me had expired by the time I had finished doing all of this analysis! Luckily, it was very simple to apply the lessons learned to pick from their current inventory list and I'm satisfied that I still found a good deal. Barring any advances in tire technology in the next 10 years (what are the odds?), I should be well prepared for the next set, too.

Is Your Money Where It Should Be?

Posted By Paul

If I can find any silver lining in the current crazy economic times it is the fact that it has provided me with a reminder that I need to be careful about where my money is.

Here are some examples I've been hearing about where people learned lessons by the current fall in the market:

1) I have friends who were hoping to retire soon, but their nest egg was in very aggressive funds. When the stock market dropped, their nest egg shrunk, so now they need to postpone retirement until they can afford it.

2) I have other friends who have a 529 college savings plan for their child. Their child will be off to college soon so they were surprised when their college savings shrunk dramatically right when they were hoping to use it.

3) As I have mentioned in earlier posts, I keep part of my "rainy day fund" in what I view as pretty conservative stocks. Though conservative, these equities are still part of the stock market and they have not been immune to the recent drops.

It's one thing to fill out questionnaires about 'risk tolerance' and quite another to actually watch your investment shrink day after day.

So here are some things that I've been looking at as I do a risk tolerance gut-check for my investments.

1) For retirement funds, I'm where I should be. Sure it's hard to watch the balance of my retirement accounts fall, but I am going to try to keep in mind that it's not like I have plans to access that money any time soon. I need to think long term. One way to make sure that your investments match your retirement timeline is to use a target date retirement fund. Another choice is to periodically view and re-evaluate where your money is relative to your retirement timeline.

2) As a new father I've been looking into 529 savings plans. I noticed that the 529 plan that I'm looking into has a target date fund as well. You give it the expected years until college and it transitions the contents of the funds to less aggressive investments as the years go by. I plan on trying this as a way to make sure that my risk tapers off as we get closer to the time where we'll need the money.

3) There was a great comment on a previous post: Economic Chaos: So Now What? The comment was that it wasn't a very good idea to count securities as part of my rainy day fund. I can't argue with the sense that the whole point of a rainy day fund is to have money available at a moment's notice when you need it, which means that you should have it in a very low risk investment. So I'm going to stop viewing my stocks as part of my rainy day fund, and instead I'm going to work on increasing my rainy day fund by adding to my savings account and CD's. I'm going to keep my stocks because they are still doing fine for me, I'm just not going to count them as part of my rainy day fund.

So hopefully no one out there has been burned too badly by the stock market drop, but if nothing else this drop has been a great object lesson on making sure that your investments REALLY match your risk tolerance.

Insurance Agents and Financial Advisers: Getting Dinner From the Vending Machine

Posted By Paul

I used to have a job where I traveled a lot, and sometimes I wouldn't get to my hotel until 2AM local time. I'd usually show up tired, but also hungry, hoping to find someplace that served dinner.

I remember once where I found myself standing in front of the hotel vending machine with a stack of coins, trying to make a dinner out of what was offered.

I'm sure we'd all agree that a pack of peanut butter crackers, a couple of cookies, and an orange soda is a very poor dinner, but it was the best I could get from the machine. I was back in my hotel room munching away and looking out the window when I saw a Denny's practically next door to the hotel that I hadn't noticed when I came in. I ditched my vending machine meal and dashed to the diner where a club sandwich awaited.

This situation made me think of insurance agents and financial advisers. Sometimes people have experiences where they feel like their adviser or agent has been dishonest or is trying to swindle them out of a few bucks. I think that more often than not it's just that expecting to get the best deal for you out of your agent or adviser is like trying to get dinner from a vending machine.

After all, let's say that you can save some money on your car insurance by increasing your deductibles. It's not fair to expect your insurance agent to suggest that. After all, they're just trying to provide you coverage based on the products they have to offer. If the monthly savings versus the potential risk of paying a higher deductible is the better choice for you, then YOU need to make that decision.

Life insurance is also a great example. If it were free, then the more life insurance the better, and , your agent will almost certainly offer you a large amount of coverage. Your agent doesn't know at what point the cost outweighs the benefit to you. That decision has to be made by you.

The best example though are financial advisers. They generally represent a specific brokerage company and if you tell them you are interested in a Large Cap Value fund (or if they recommend that you invest in one) then they certainly have one (and often only one) to offer you. They of course offer you the one that they have, it's up to YOU to consider if that fund is worth it versus other options.

My point is that far too often people expect their insurance agents and financial advisers to do what's best for them, and I think that in general most insurance agents and financial advisers try to do just that. The key point is that you can't expect your agent or adviser to comparison shop for you, or try to weigh costs versus benefits for you. Just like a vending machine, they have a specific set of products that they can offer you. They may not be aware of your overall financial situation or your risk vs. cost preferences, you need to decide that for yourself.

By taking an active role in insurance and financial decisions your agent or adviser can be a great benefit to you. However if you end up following their guidance blindly you may find yourself doing the financial equivalent of getting dinner from a vending machine when there's a Denny's across the street.

Article: The Perfect Mark

Posted By Paul

This article might not be within the subject of this blog, but I found it so interesting that I decided to post it:

The Perfect Mark

An amazing story of a person who fell for a 419 scheme (a.k.a advance fee fraud), and how it resulted in financial losses and criminal prosecution.

It does a great job of describing how this person fell victim to the scam. How the scammers kept asking for "one final fee" and how the more money he gave the less willing he was to just walk away from the scam.

Perhaps a good lesson in these crazy economic times to be cautious of any deal that looks too good to be true.

Economic Chaos: So Now What?

Posted By Paul

I'm sure I don't have to tell all of you about the crazy things going on in the economy right now.

The stock market is going crazy, mutual funds are all over the place (mostly down). I had one of my funds drop nearly 8% in one day! That is a tough thing to see and not do something!

So I keep trying to think of something useful to put in this blog to address this. So here is my best two-bit opinion of what's going on:

1) The economy in general is in a crazy time.
2) No one knows how long it will last (least of all me).

So based on those two facts here is my plan for dealing with the current landscape:

1) I'm not going to make a run on the banks. Currently my money is in financial institutions that seem stable, so I'm not going to rush out and try to take all my money out in cash.

2) I'm not going to dash out of the stock market. I COULD take everything I have invested in mutual funds through my 401k and sell them all immediately. The problem with this is that I'd be selling my funds at a low based on what is hopefully a short term situation (see my earlier post Article: Don't let the crisis spook your 401k).

3) I'm going to try to view this as an opportunity. Warren Buffet is a big believer in the idea that when the market is down its a great time to buy stuff (since everything is cheap). Of course this assumes that the market eventually recovers, but this is the risk inherent in the stock market. I'm going to try to view the stock market with this attitude.

4) I'm going to make sure that my investments are where I want them to be. If there's a bright side to this crisis, it's a great reminder that you should make sure your money in where it should be based on your plans for accessing it. For example...I have most of my rainy day fund in low-risk savings bonds, CD's, and savings accounts. Since this is money that I might need to access at any time, I don't want it in anything high risk. Part of my rainy day fund (about 15%) is also invested in the stock market, in what I consider to be some pretty conservative stocks. This for me is just fine. In all of this turmoil 85% of my rainy day fund continues to collect it's small but no-risk interest. The other 15% still fluctuates, but the fluctuations are small enough that I can live with it. Also with my retirement funds I need to remember that I don't plan on touching this money for decades so I shouldn't worry too much about market fluctuations. Yes, things are going crazy now, but I REALLY hope that in 20 years it's all an unpleasant memory.

5) I'm going to try to beef up my rainy day fund. Even though the value of my rainy day fund is pretty stable, I'm hoping to add a little more to it for a while, just for my own peace of mind.

Not the most dramatic plan. Essentially I plan to bulk up the savings if I can, but I will continue to invest in my 401k in anticipation of a stock market rebound.

How are other people out there dealing with the craziness?

Article: 7 'psycho' money traps and how to beat them

Posted By Paul

I love articles about the psychology of money and spending, so I found this article:

7 'psycho' money traps and how to beat them

very interesting.

I especially liked The lure of free' and the suggestion that you use the word 'free' as a warning to slow down and make your decision carefully.

The Bailout And My Second Podcast Recommendation

Posted By Paul

If anyone read my earlier post:

The Housing Crisis And My First Podcast Recommendation

Well this week there is a new podcast that is also really interesting.

It's called:

Another Frightening Show About the Economy

I have listened to part of it, and it was really interesting. I tried listening to it all, but since the material they talk about is pretty complicated I found that I couldn't work and listen to it at the same time, so the rest of the podcast will have to wait for later.

From even listening to half of it, I discovered that there are whole words of finance that I am unaware of. If nothing else, I recommended listening to the section that is 20 minutes into the podcast which talks about "Credit Default Swaps". I had never heard of this before, but this podcast in 10 minutes explained it in such a way that I felt like I understood it and I was generally freaked out about the fact that this sort of thing is going on throughout the financial world.

I wanted to post about this ASAP since currently you can download the podcast for free.

Article: Retirement Planning For Mom and Dad

Posted By Paul

An interesting article on the often touchy subject of dealing with the retirement status of your parents:

Retirement planning for mom and dad.

Article: Don't let the crisis spook your 401k

Posted By Paul

An article where the author (Walter Updegrave, Money Magazine senior editor) explains why he thinks that you shouldn't let the current economic crisis keep you from investing in your 401k:

Don't let the crisis spook your 401k

The whole article is worth a read, but here are a few specific excerpts:

"In fact, I think it would be a mistake for virtually anyone, regardless of age, to forego saving for retirement in a 401(k) or similar account in reaction to the recent failures, takeovers, freefalls in stock prices, etc."

"I believe that the best way to deal with the inherent uncertainty of investment markets is to settle on an asset allocation that makes sense for you and, aside from rebalancing back to it once a year, pretty much leave it alone (or at least refrain from making big changes)."

Little Things I Do To Save Money

Posted By Paul

If you've read my earlier post:

Financial Choices, Good vs Better

Then you know that I try to focus on the things that save the dollars, not pennies. Of course crazy economic times always make me look for new ways to be frugal. There are a few things I do to save a penny here and there, and I finally decided to share them.

So here goes:

Bring snacks in to work:
I sometimes find myself getting hungry in the mid-morning or afternoon and needing a snack. I used to run to the vending machine to grab something, but now I go to CostCo and stock up on snacks and I keep them in my desk. Not only is it MUCH cheaper, but I've found that it's easier for me to avoid the unhealthy snacks using this system. I have the discipline to eat a healthy granola bar when it's in my desk drawer, but it's a whole different story when I'm faced with the granola bar from the vending machine with the peanut butter cups right next to it.

Keep ready lunches in my desk:
Related to the above, I also keep stuff I can eat for lunch in my desk (usually cans of soup). This is especially nice for those days when I'm really busy and don't want to go out to lunch. Instead I can just grab a can of soup and save a few bucks and a few minutes.

Ordering less food at lunch:
Matt and I meet for lunch every week or so, and one of the places we go pretty often is Panda Express. Matt and I used to always get the two item combo, but at one point I decided to try the one item rice bowl. At first I wasn't sure if it would be enough food, but it ended up being plenty. Now every time I go to Panda Express I get the single item rice bowl. I get enough to eat, I don't end up eating a bunch of food that I don't really need, and I save a little money each time. Also if I get hungry in the afternoon I still have those snacks ready to go.

Just a few little things I'm trying to keep an eye on as a way to save a buck here and there.

Article: 14 Useless Insurance Policies

Posted By Paul

As a new dad I find myself revisiting all of my insurance coverage with a new eye. As always the world of insurance is overwhelming and exhausting. I've been trying to go through each type of insurance (medical, life, auto, etc) and figuring out what changes I need to make as a new dad.

An article I came across that was related and which I thought was interesting comes from one of my favorite pages: The Dollar Stretcher.

It talks about 14 different types of insurance, specifically saying why the author feels you probably don't need them. The 14 types covered are:

1. Accidental death insurance
2. Automobile collision
3. Automobile medical
4. Cancer/dreaded disease insurance
5. Credit card fraud insurance
6. Credit card insurance
7. Extended warranties
8. Flight insurance
9. Flood insurance
10. Life insurance for a child
11. Mortgage life insurance
12. Optional group life insurance
13. Rental car damage insurance
14. Scheduled property

If you have been thinking about any of these insurance policies recently, then the concise info is worth a look.
The article is called:

14 Useless Insurance Policies

Article: Ex-bankers on pushing customers to rack up debt.

Posted By Paul

In case you ever thought that credit card companies were worried about your financial well being, here is an article describing the sad but not surprising fact that they will be happy to lend you money that you can't affort:

Ex-bankers on pushing customers to rack up debt

Article: How Safe Is Your Bank

Posted By Paul

A friend sent us this link to an interesting page that tries to provide a rating to represent the strength of a bank.

Might be a good thing to keep an eye on in the next few months:

How Safe Is Your Bank

Article: Paying More When You Try To Save

Posted By Paul

I thought this article was interesting. It's a series of stories where the original intention was to save money on a house project, and then end result was that it ended up costing far more than planned.

It reminded me of when I was a kid and my Dad would have me be his assistant when he did repairs on the car. Many time what was supposed to be an afternoon project would quickly balloon in complexity and price.

My favorite is when what was supposed to be a one day job involved the purchasing of several new tools, and several new parts (because by doing the work he accidentally broke other things) over several days, and the project ended with my Dad paying to get the partially dismantled car towed to a mechanic so that the work could be completed properly.

Of course the annoying part is that with many of these projects you only know if you saved money in hindsight, but I thought it was a good point to keep in mind that sometimes trying too hard to save money can end up costing you.

Enjoy!

Mistakes We've Made, So You Won't Have To

Frugal vs. Cheap

Posted by Matt

My friend sent me a link to an article about the difference between frugal and cheap. It's a great topic, but I totally disagree with the author's stance. For them, the only distinction is the intended recipient of the object being considered for purchase.

The secret is simple. If you try and save money and cut corners when spending on yourself, you are being frugal. If you try and save money and cut corners when spending on others, you are being cheap.

I think the author arrived at this conclusion based on the positive and negative connotations applied respectively to the words frugal and cheap. In this definition, cheap is just a type of selfishness peculiar to spending. I think there is more to it than that and that people can be cheap even when shopping for themselves. For example, assuming you have some discretionary income to spend on replacement shoes for yourself, is it frugal to save money by buying cheap shoes that hurt your feet and/or wear out quickly? Not if you don't wear them often enough to get any value from them and end up replacing them quickly with another pair.

The friend who sent the article to me argued that people can be both frugal AND cheap in different situations. I think that what this really means is that it is not the people who are frugal or cheap at all, but the decisions that they make and the actions they take. I evaluate each situation separately with a simple test:

Trying to avoid wasting money is frugal.
Trying to avoid spending money is cheap.

Another example: say my friend wants a new computer monitor for her birthday. If I go to the store and just look for a monitor at the low end of the price range, I'm being cheap. If, on the other hand, I elect not to buy her one of the higher-priced monitors because I know she doesn't need extra USB ports or the fast pixel response time required by gamers, I can call myself frugal.

Note that this rule becomes less appropriate as less money is available. Truly poor people don't have much opportunity to waste money and must be frugal to survive. Also, my definition for frugality is admittedly up for interpretation based on what a person would define as wasteful. This is why there is so much variety in the marketplace; different people place different values on the various attributes (features, reliability, appearance, practicality, price, etc.) of each product.

Regardless of what you define as valuable, we do need to purchase things (even if only food and shelter) occasionally, and it just makes sense to put in a little more thought than is required by simply making price the top priority.

Consider a humorous example from my experience.

My friend's father went shopping for new tires for his son. He's notoriously thrifty, but I think he was also worried about how guilty he would feel if a cheap tire blew out on the freeway and his son crashed his car. His solution? He walked in to the local tire store and said "Give me the second least expensive set of tires you've got!" Kudos to him for at least going one level up; but given that price was still the primary consideration, I'd call this decision more cheap than frugal.

In his place, I might have asked the tire salesman to recommend a reliable, long-lasting tire that offered good value for the price. Maybe the shop could have saved me even more money by offering a set of retreads. Maybe my favorite local tire chain would have been willing to match a competitor's lower price. Who knows? After all was said and done, I might have ended up with the same set of tires that my friend did. But I would sleep better knowing that I purchased a quality set of tires without wasting money.

Maybe that means that frugal people are just cheapskates who make a little extra effort. :)

From the utility companies: a good tip and some bad news

Posted by Matt

Does anyone ever read their utility bill inserts or email newsletters? I've been surprised at how much helpful information they can contain. Here are the latest items worth sharing:

"Send Your Water Heater on Vacation" - This is a great little article that I found reminding everyone to turn off their water heaters if they are going to be away from home for more than 24-hours. I try to always do this, but learn from my experience and do something to ensure that you turn the heater back on right when you get home. It takes about an hour for the water to warm up. The article recommends leaving yourself a note, but I also set a reminder on my cell phone as a backup. Murphy's Law almost guarantees that if you forget to turn the heater back on, the first time you notice it will be when you need a shower (as my wife experienced...Sorry!) Update your vacation checklist!

Now for the bad news.

You thought gas prices were getting bad? Well, wait until you get your winter heating bill (assuming you use gas for heat). I recently received an email from the gas company (similar to information they posted here) that warned of a potentially huge jump in rates at the beginning of November. The initial projection was an increase of between 35 and 40 percent, although they now are hoping it will be slightly lower. Given that our gas bill is usually a significant portion of our expenses in the winter anyway, even a 20% increase would be significant.

After our high costs last winter, we are already considering a few options to reduce our gas usage. I have the highest hopes for switching to space heating in our bedrooms at night instead of having to heat the whole house just when it gets coldest.

Whatever you do, start planning now. If you're on a tight budget (i.e., you don't have a lot of extra cash available for heating bills), start looking for extra things to trim out so that you can keep your family warm this winter.

Savings Bonds Revisited

Posted by Paul

If any readers recall my earlier post from 2007 on savings bonds they'll recall that I purchased some and that I wasn't too excited about them at the time.

Well imagine my surprise to discover that currently my savings bonds have an interest rate of over 6%. This is far better than my savings accounts or even my CD's!

I wanted to double check the program that I downloaded that tells me the current rate of my savings bonds, so I went to the page on Series I bonds and confirmed the numbers.

Currently the determined inflation rate is 2.42%, and the bonds that I bought back in 2006 have a fixed rate of 1.4%.

Using the formula we get:

Composite rate = Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)

Composite rate = 0.016 + (2 x 0.0242) + (0.016 x 0.0242)
Composite rate = 0.016 + 0.0484 + 0.0003872
Composite rate = 0.0647
Composite rate = 6.47%

So currently my bonds are earining almost 6.5%. Wow! Pretty good for such a low risk investment!

So what does this all mean? Well I guess it means that if you purchase I-Bonds when the fixed rate is high (the fixed rate doesn't change for the life of the bond), then you can make a great return when the conditions are right.

As an example, let's pretend that I had purchased some I-Bonds back in May of 2000 when the fixed rate was 3.6, their current interest rate would be:

Composite rate = 0.036 + (2 x 0.0242) + (0.036 x 0.0242)
Composite rate = 0.036 + 0.0484 + 0.0008712
Composite rate = 0.0844
Composite rate = 8.4%

That'd be a pretty amazing return for a no risk investment.

I plan on continuing to watch the I-Bond rates and purchase some more bonds once the fixed rate gets up to a decent amount. It's nice to have part of my money in a low risk investment that has a built in guard against inflation.

The search for the frugal bulb, continued

Posted by Matt

Readers who saw my previous post about money-saving light bulbs may remember that I didn't have much luck with the LED bulb I ordered or the CFL bulbs that we received during our energy audit. I was planning on waiting out the next generation of LEDs in the hope that prices would come down and that the light quality would be closer to our incandescents.

Scratch that. New plan.

I just read about an entirely new lighting technology that is soon to be released by a company called Vu1 (read "view one"). They claim that it has all of the advantages of other types of energy efficient bulbs without the drawbacks.

Here is a table from their website that compares their ESL technology against the competition:

The table shows them (like all other new bulb technologies) to be less affordable than regular incandescents, but I think that is misleading given the longer lifespan of the new bulbs and the energy savings they will achieve. One thing that is missing from the table, but that I know some people will be happy about, is that the ESL bulbs will look a lot more like regular light bulbs. No weird squiggly shapes like with the CFLs.

If the bulbs truly live up to all of these claims, I'll eventually upgrade the whole house with them as the incandescents burn out, of course. Unfortunately, the bulbs aren't scheduled to be commercially available until the first quarter of 2009, so I guess my new plan, much like the old one, mostly involves waiting.

Related links:

http://seattle.outstandingcity.com/general/a-new-way-to-get-lit/

http://dvice.com/archives/2008/08/esl_the_newest.php

Cost + Subscription = Adding insult to injury

Posted By Paul

A product model that you see all the time is the system where you get the initial product cheap (or free) but the supplies that you need to purchase to USE the product are either less affordable, or downright expensive. According to an article on Wired (called "Free! Why $0.00 Is the Future of Business" which can be found here) one term for this is "cross subsidy" (where you get one thing free or cheap, but you need to buy another thing to use it).

One thing I've been seeing more and more are cool gadgets that are sold under this model EXCEPT the initial price tag for the item really isn't that cheap.

These types of devices are dangerous and thinking hard about them are a great way to take a frugal approach to life. Here are a few modern toys that come with a hefty initial price tag AND a monthly service fee:

iPhone - Yes, they are cool, but not only does the phone itself cost quite a bit ($200-$300), but they require a high cost data plan that seems to be about twice that of a normal cell phone plan ($70 per month per line for the iPhone, as opposed to most cell plans that cost $30-$40 per month per line). Just imagine what you could do with an extra $30-40 per month. If the whiz-bang technology is your thing and you can afford it then go for it, but give it some thought first.

Bodybugg - A device a I saw recently that is used for monitoring your calories burned. It's a really cool fitness device, but in order to use it you have to pay a $15 a month subscription fee on top of the $300-$400 initial price tag. If you ever decide that you don't want to pay the $15 a month then the device becomes essentially useless.

Satellite Radio - The receivers aren't cheap, and there is a monthly subscription fee involved. Not as bad as many other subscription based services but it's still another bill every month.

Not to say that owning any of these things make you a bad person. If you want some toys, and can afford them without putting your financial well being in jeopardy then go for it. Deciding to splurge on something doesn't necessarily make you financially irresponsbile (see my earlier post Know Your Indulgence), but I think that any non-essential item that requires a decent initial cost AND a monthly fee should be given some serious thought.

One way I like to think of these purchases is by taking the service cost of an item and adding it to the initial cost, and then see if I still think it's a good idea.

For example, let's say you're thinking of getting an iPhone, but you're not sure if you want to spend the money. Another way to look at the purchase is by taking the service cost and imagining it as part of the initial cost. Assume a 2-year service contract and an extra $30 a month for the iPhone plan over a typical cell plan, then that's $720. If the iPhone service still only cost you the same as a regular cell plan per month, but the device itself cost you $920-$1020, would you still buy it?

On a related topic is an earlier post:

Beware Of Subscriptions

Shrinking the mortgage

Posted by Matt

When my wife and I first bought our house, I posted some thoughts about whether we should make any additional payments to the mortgage principal. We deferred, electing instead to focus our savings efforts on retirement and our son's education savings account.

Those efforts have been going along just fine; we've been making regular, automatic contributions to the 529 and I'm maximally funding my 401k, but still we had a little extra and felt like our emergency savings accounts were adequate for now.

So, that brought us back to the question: "Should we use the extra cash to reduce our mortgage?"

The arguments against:

1. The additional capital that we convert to home equity becomes inaccessible (well, OK, less accessible anyway; we could take out a HELOC, but that brings us right back to paying interest again.)


2. The extra money could effectively earn a greater return invested elsewhere.

These are both valid arguments that Paul and I have explored the pros and cons of previously. Now that we have "adequate" (debatable; the term is relative and you could make the case that more is ALWAYS better) cash on hand for emergencies, I wasn't too worried about the first argument, but I had a hard time getting past the second. What finally sold me is that the payoff scenarios I sketched out revealed that we could pay off the mortgage in a much shorter period than I had originally guessed.

I still have some confidence that the stock market will outperform my other investments over the long term, but over the short term, I'm much less optimistic. In the short term, I decided to go for the guaranteed return of reducing our total interest expense on the mortgage. So toward that end, we transferred our first extra principal payment (a very easy online option since our mortgage and checking accounts are held by the same bank) this month. Because we just bought this house last year, we're still in that frustrating stage of mortgage repayment where most of the payment gets applied toward interest (read this if you're not familiar with how amortization works). Now I'll be watching much more intently for our principal balance to drop off more and more steeply.

Another part of the plan that I like is that we've got an easy out. I didn't automate the extra payments (which is unusual for me), but this allows us to be flexible in how much extra we pay. I'll target a set amount each month, but there will certainly be months where we need to adjust it up or down, e.g. during the holidays or months when we have travel expenses.

In case that isn't enough for you, here's another bonus I thought of: we'll be able to reduce our life insurance coverage eventually. When I was evaluating life insurance, I decided to pay for adequate coverage to pay off our mortgage if I die. As our principal drops, I can periodically reduce my insurance payments until I get to the point where the basic coverage that my employer provides will cover the remainder. Okay, this one is less significant than the other benefits, providing maybe 4-digit savings as opposed to 6-digit savings achieved through reduction of interest payments, but every little bit helps!

Let me end by acknowledging that this strategy isn't going to apply for everyone. My wife and I are grateful that we are fortunate enough to be in a position to even have to consider where to put our "extra" money each month. But I hope that everyone who reads this, whether they have a little extra money each month or a lot, will at least appreciate the benefits of prioritizing spending. As I mentioned above, this strategy only achieved priority after we'd eliminated car and student loan debt, carefully filled up our emergency funds and ensured that we are saving adequately for retirement and our son's education.

Article: Save Without Sacrifice

Posted By Paul

There was an article on Yahoo Finance today:

Save Without Sacrifice

I liked the fact that it opens with an emphasis on looking carefully at the luxuries in your life, and specifically talks about the distinction between need and want.

But my favortie part was where the article talks about the "Vice-A-Day Deal." It is saying that if the cold turkey approach to cutting out the daily frills from your life is too hard, then try limiting yourself to one frill a day.

It reminded me of the idea that while you may not last long on a super strict diet where you eat nothing but healthy stuff, a more moderate diet where you eat healthy but occasionally splurge will still yield benefits and will hopefully be something you can stick with long term.

I liked the idea of trying to find a moderate approach to saving money. So often I see people who do financial "crash diets" where they decide to cut out every frill from their life (movies, Starbucks, meals out, etc.) and they end up being unable to stick to it long, and then they are back to their old patterns. By creating a system where you can only have one frill per day you have a better chance of saving money AND sticking to it.

Some House Hunting Tips

Posted By Paul

I recently saw a show on the Home and Garden Network called 'My First Place'. Where they follow a person or family through the process of buying their first home.

In the one episode I saw, the young couple found a house they really liked with a price they were comfortable with, so they go to the mortgage company and discover that they don't qualify for as good of a rate as they had hoped, which means the price they were comfortable with is now quite UN-comfortable.

So they spent some time agonizing over whether or not they could swing the bigger payment by cutting costs in other ways. The end result is that they had to pass on the house and keep looking. It had a happy ending in that they found a smaller place that they liked AND could afford, but I think the episode really accentuated some lessens for house shopping:

1) Research the mortgage first. To me this seems like an obvious choice, but many people don't do this. I shopped for a mortgage first, checked rates and saw how a specific interest rate + house price translated into a monthly payment. I was then able to see how coming up with a little more down payment lowered my monthly payment and so on. Once I was comfortable with the numbers, the mortgage company "pre-approved" me for a loan of a specific amount. I had heard that there was a time where being pre-approved for a mortgage was a big plus to the seller when you make an offer, though I didn't really experience that. However, it did give me a chance to house hunt with a sense of what I could comfortably afford.

2) Don't even look at a place you can't afford. If you already know what you can afford, why look at a house that you can't? It will just make the houses you CAN afford seem smaller and shabbier in comparison, so in my opinion you just shouldn't bother.

3) Don't let yourself tip toe into something you can't afford. I experienced this a little when I went house hunting. I had my target price that I was comfortable with, but I also knew that I could go up a little more if I really wanted to. It was sooo easy to look at a house that was a few thousand above my target price, and then look at a house just a little above that, and then a little above that, and the next thing I knew I was looking at places that were well over 20% out of my price range. I had to force myself back into the range I was comfortable with.

So what happens if during your house hunt interest rates change dramatically? Well first of all in my experience interest rates don't change THAT much in a few months and if they do then you can always go back and run the numbers.

This way you won't be caught in the sad situation where you've fallen in love with a house that you can't afford.

Better rates for the vigilant.

Posted By Paul


I have some friends that are going to try a cool experiment.

Their plan is to take some money and open some new accounts at a credit union in order to take advantage of a program for new members. The deal is:

If you open a checking account you get 4.5% interest on up to $25000 for each month where you jump through certain hoops. The hoops include things like making at least 10 debit card transactions in a month, logging into the online banking at least once a month, and so on. If in any month you fail to jump through the hoops successfully you don't get the 4.5% interest for that month.

I generally shy away from these accounts since I just don't think I have the time to make sure that I jump through the hoops successfully month after month, but if you're up to giving it a try, I think it's a cool idea.

Of course not only do you have to make sure that you jump through the hoops each month, you also have to watch the account to make sure that the terms of the account haven't changed. If the terms do end up changing you also need to be willing to take your money out and look for a place to put it all over again.

I'm eager to hear how it works out for my friends. Has anyone out there ever had an account like this? I'd be really interested to hear comments of how it worked for them. How easy was it to get the special rate, how long did the terms last, etc.

What you can learn from the banks.

Posted By Paul

I am always interested when a business article makes the front page of the paper, so I couldn't pass up reading an article about how banks in the northwest were on shaky ground.

What intrigued me most was how several points made in the article were mistakes that the banks made that people could learn from:

Banks' Mistake 1: Jumped into the housing boom like it would never end
I know that the current housing boom is over, but this lesson applies to any investment boom. I learned this lesson from my experiences in the dot-com boom. During that time you were hearing stories every day from people becoming overnight millionaires by pouring all of their money into the dot-com company that was the next big thing. You seldom heard the stories about the people who put all of their money into an IPO, only to have the company go nowhere. There was so much fervor about getting rich and so much certainty that the investments couldn't fail that people got carried away. Whenever there is an explosive boom like this I try to keep in mind that super accelerated growth can't last forever, and when a boom ends it usually ends quickly and dramatically. There is no harm in trying to get your piece of the dot-com boom, or the housing boom, but if you go in too deep you could lose it all when the boom finally ends.

Banks' Mistake 2: Too much debt, not enough cash.
In the banks' case this was from approving crazy no down payment mortgages to people who couldn't afford them, but the people who signed up for these mortgages aren't without blame. When I was shopping for my first house the mortgage company wanted to sign me up for a BIG mortgage with a monthly payment that I could swing as long as I never lost my job and never had a financial emergency. Don't let yourself be one of those people living in a big beautiful house but eating peanut butter and jelly three meals a day because you can't afford anything else.

Banks' Mistake 3: Went too deep into a single investment.
When the housing market cooled the banks that had all of their money invested in crazy mortgages and property development loans were hit the hardest. This is no different from putting all of your financial eggs in one basket. I don't just mean tying up all your money in your house, but in ANY single investment. Just think of the people from Enron who lost most of their nest eggs when the scandal broke.

It just goes to show that financial institutions are susceptible to the same greed and poor judgement that people are when faced with a financial boom.

Government publishes tax returns; millions panic

Posted by Matt

Today's post was inspired by an article I read in USA Today a few weeks ago while on vacation. It starts like this: "Every year, Sweden publishes everyone's income tax returns. So do Finland and Norway. And nobody really cares."

So, what makes the Scandinavians so well adjusted? A deputy economic minister in Italy tried publishing tax returns online earlier this year, but apparently had to take the information down quickly due to the fuss that Italians raised. In the U.S., "Federal law prohibits the release of that private information," but imagine the panic if it leaked somehow?

Americans are relatively uptight about a lot of things, but (as Paul posted about previously) it is hypocritical to be so secretive about our financial lives while simultaneously flaunting our possessions. It probably results from the fact that many people's possessions do not accurately reflect their true financial standing, e.g., they have more shiny metal in their garages than they do in the bank.

The article indicated that Scandinavians have a very different attitude:

Making the data public demonstrates the Scandinavian tradition of jantelag, which translates roughly as nobody is better than anyone else, says Veera Heinonen, spokeswoman for the Finish Embassy in London.

This reminded me of "tall poppy syndrome" that you sometimes hear about in Australian or Canada; essentially "no one likes an overachiever." However, I've read that people (or maybe just corporations) in these countries are realizing that competition drives growth. The United States is a perfect example; here, everything is a competition. Everyone wants to be a "success". The problem? We typically measure that success with dollar signs. Why? Because it is an easy and mostly objective scale.

How else are we to measure success? Does being a good parent count? If so, how can we measure that? I don't know of any type of parenting score that I could plot on a chart. How about being a valuable member of your community? The best I can think of there is public service hours, but that tracks effort more than result. What to do?

This line of thought lead me to one of my favorite quotes from Albert Einstein: “Not everything that can be counted counts, and not everything that counts can be counted." I'd apply it in this situation to mean "don't tie up so much of your self worth in your income level."

So, back to the question at hand...do we want our tax returns published? Consider that home selling prices are already available online (for Washington County, OR) and I've used this information extensively when evaluating new home purchases and pricing houses for sale. We might get similar value from being able to browse salary information. Personally, I feel pretty satisfied with my salary, but I DO occasionally wonder how it compares to the salaries of others with similar jobs. I wonder "Should I be negotiating harder at annual review time or clinging to this job for dear life?" Looking at other people's tax returns might help, though it would probably have the same limitation of sites like Salary.com, namely the difficulty of finding a job description that exactly matches mine. The only real argument that I can make for doing things like publishing tax returns (and this disregards any discussion of whether it is worth the costs, by the way) is that people are more likely to behave as they feel that they should ("do the right thing") when under scrutiny.

And we should just get over ourselves! ;)

The Dark Side of the "Set and Forget" 401k

Posted By Paul

Yesterday I was checking my various investment accounts, and (no surprise) everything had fallen in the last month.

It was annoying, but it also made me realize how important it was to be careful with your major investments. I realized that if I were near retirement age then to have my investments drop like this would drastically change my plans for retirement (and by change I mean postpone).

So this was a good hypothetical lesson into the idea that as you get closer to retirement age you need to move away from the higher risk/higher potential return funds into the less lucrative but safer investments.


This doesn't mean you have to reevulaute your fund choices every month, or even every year, but I think that every 5 years it's worthwhile to look at your funds and make sure that you are comfortable with the level or risk that you are experiencing. The classic wisdom is that as you get closer to retirement you start putting more and more of your money into the less lucrative but less risky funds to protect your nest egg.


How horrible would it be to be a month from retirement when the stock market crashes and suddenly you have 10% less money than you did a week ago? If you are young enough then this is no big deal because you have time to ride out the crash, but if you plan on needing that money really soon, you should take steps to make sure it's there when you need it.


So even though 401k's have the advantage of being able to set them up and leave them alone, it is important to periodically check your account to make sure that your money is going into investments that match your needs. If I'm still invested in the same aggressive funds 25 years from now it means that I've taken the 'hands off' approach to my 401k too far.

Article: 6 Things You Should Never Tell A Car Salesman

Posted By Paul

I've always been interested in the psychology of buying and selling, so articles like the one I found on CNN Money fascinate me. Here is the link to the article:

6 Things You Should Never Tell A Car Salesmen

It reminds me of the first new car I ever bought (which I'm still driving now by the way). I was fresh out of school and was starting work in a week so I had a week to buy a car and find an apartment (and of course driving the car was how I planned to find the apartment).

It was so long ago that I don't quite remember the process, but I do remember that I definitely broke some of the rules the article mentions. Specifically:

Thing not to say #2: I need to get a car by tomorrow - I was pretty close to this, since I made no secret of the fact that I was fresh out of college, and had a week to get a life set up before starting my job. I think that for a time I rented a car, so I'm sure that showing to a car lot in a rental car shouts "I'm in a hurry to find a vehicle."

Thing not to say #5: I don't know anything about leasing - Talking to the salesperson, I'm sure it was pretty obvious that I didn't know anything about ANYTHING.

Though it didn't apply to me, I was especially intrigued by:

Thing not to say #4: My trade-in's outside - The idea of taking your keys as a way to hold you hostage during the sales process strikes me as very clever. I could totally see myself falling for this. (Has anyone out there ever had this happen to them?)

If you are like me and are interested in the more subtle ways to manipulate the sales process, then this article is definitely worth a read.

Netflix: No discount for the "economy size".

Posted by Matt

I just received an email containing what I thought was bad news from Netflix: they are discontinuing the use of profiles within their customer accounts. I'll get to the silver lining in a minute, but first, some background is in order.

As I've mentioned before, my wife and I currently share a Netflix account and have separate profiles. This spares us from arguing over how to order the list of movies we want to see and we also get recommendations from Netflix that are tailored to our individual rental histories. We typically each have movies at home from our queues that we both want to see, but also a disc or two that we can watch if the other person is not at home or too busy for a movie.

We were at first very disappointed to hear that we were going to have to share a queue. We considered setting up two separate accounts, but assumed that there would be additional expense in switching from a single 6-disc account to separate 3-disc accounts. Luckily, my wife called Netflix customer service to register our discontent and was informed that setting up separate 3-disc accounts would actually be cheaper by $2 per month. In every other case, the per-unit pricing goes up (or at least stays even) when splitting an account into two equivalent accounts (i.e., the 4-disc plan is cheaper than two 2-disc plans), so I don't know what kind of crazy strategy resulted in a higher rate for the 6-disc plan.

The only similar pricing that I've encountered is for toilet paper...in most cases, it was cheaper to buy 3 of the 4-packs than a single big 12-pack, but I've been buying the Costco mega-paks (24 rolls) for so long now that I don't know if that is still the case.

Anyway, I guess this is mostly an interesting (to me anyway) finance anecdote with a few suggestions that I'll be remembering for the future: Don't make assumptions about volume pricing and look for ways to be creative when saving money.

UPDATE 6/30/08:

Dear Matthew,

You spoke, and we listened. We are keeping Profiles. Thank you for all the calls and emails telling us how important Profiles are. We are sorry for any inconvenience we may have caused. We hope the next time you hear from us we will delight, and not disappoint, you.
-Your friends at Netflix

Wow, a company that listens to its customers. Of course, we'll continue with the plan to separate our accounts for the reasons mentioned above.

Article: Pitfalls of Frugality

Posted By Paul

I liked this article on the Dollar Stretcher called:

The Pitfalls of Frugality

The author talks about how trying to save money can sometimes end up costing you more than you intended.

I thought the article was great. You rarely see articles talking about BAD ways to save money. I thought I'd call out his five main points and share my experience with them.

1. Don't buy poor-quality merchandise.

This is a great point, but often the difference between a great deal and a big mistake is something you only see in hindsight. For example, once I was trying to find an affordable DVD player. I purchased an off-brand that was on sale for $30, and while my friend Matt bought one that worked great for quite a while (maybe it even still works?), the one I got died after about 4 months. It's tough to find that line between being frugal and buying junk.

2. Don't buy something you're not going to use.

I've never really fallen into this trap. Usually if I end up buying something I definitely use it (though there have been times where I've bought tools that I figured I'd use a lot but that have only been needed once so far). This story reminds me of a friend who LOVED outdoor sports, or at least loved the EQUIPMENT. He had yards of climbing rope that had never been uncoiled, an ice-ax that had never touched ice, and all kinds of equipment that he always WANTED to use. He had bought nearly all of it on sale, but most of it never saw actual use.

3. Don't buy more than you're going to use.

This reminds me of some friends of mine who had a garage sale recently. They were getting rid of a lot of stuff that had never been used. Why? Well it was stuff that was purchased on sale with the assumption that it would be needed SOMEDAY, but that never ended up being needed. It's one thing to stock up on canned soup when it goes on sale, but if this garage sale was any indicator, buying two of something (coats, pairs of running shoes, camping tents, coolers) because they're on sale with the plan of using the second item when the first wears out will often result in a lot of stuff that you store for years and then get rid of.

4. Send in rebates carefully.

I've probably been burned by this one. I love rebates and make sure to carefully read the fine print and follow the instructions for submission very carefully. It's fun when I get the check months late since by then I've long forgotten that I ever submitted the rebate in the first place so it feels like found money. I wonder how often I've sent in the rebate and for whatever reason not received the rebate (I honestly don't know).

5. Watch your coupons.

For the first few months when after I graduated I lived in a city where I didn't know anyone, and money was tight so I would spend Sunday reading the paper and clipping coupons. The author of the article makes a good point about how using a coupon might not always save money. I think I stopped clipping coupons when I used a coupon to buy a box of 'Toaster Scrambles' (they were like Pop-Tarts except they were filled with egg/cheese/bacon, etc.). I thought they would be a great quick snack to take into work in the morning when I was running late, and then I tasted them. They spent months in the freezer before I finally found them encased in a block of ice during a freezer clean out.

Article: Net Worth Drop in 2008

Posted By Paul

I read an article on CNN Money that was talking about how the net worth of households in the US fell by 3% in the first quarter of 2008.

The full article is here

but I wanted to call out some of the highlights of the article here is the first excerpt:

"The recent declines, however, may not affect consumer spending, said Michael Englund, senior economist with Action Economics. Americans have actually spent more in recent months, particularly at the gas pump as fuel prices soared."

I can certainly relate to spending more at the gas pump, but my wife and I certainly aren't spending more in general (I talk about it in my earlier post So the economy is bad, now what)

Here is another quote:
"The fact that consumers continue to borrow against their homes, even as they decline in value, shows how troubled Americans are."

This was one of the most alarming sentences to me, it really worries me that a lot of American families are having trouble paying the bills. For years I've been hearing about the phenomenon of using your house as an ATM (doing cash-out refinancing or home equity lines of credit), I think that practice was always dangerous, but in today's market it has become a quick route to financial destruction.

The article sites drops in home values and stock values as a big cause for the drop in net worth. I can relate to both of those, and since I track my net worth faithfully I decided to check and see how this family's net worth has done since the beginning of the year.

The answer? Our net worth has actually remained flat since the start of the year. Our house value (which I estimate using zillow) has definitely fallen, and our stock market investments have also fallen, but on the plus side our safer investments (CD Ladders, our savings account, and savings bonds) have helped to offset that. Plus I've been working to beef up our rainy day fund, so that extra savings has helped to offset the drop in the stock market. Not to say that we haven't taken a beating on our investments in the last few months, but thanks to the fact that we're diversified, we haven't fallen as far as many homes in the U.S.

Perhaps in addition the basic rules of frugality, the message here is that it helps to diversify. By not having ALL of our money tied up in stocks or real estate we're weathering the fall in these markets pretty well. Our safer investments are becoming a nice consolation prize as the more volatile markets fall. Of course the stock market and housing markets will almost certainly recover, but in the meantime it's nice to have SOME investments going up, even if the return isn't spectacular.

Best of all, the money that IS in the volatile markets is money we don't plan on needing anytime soon. We are comfortable in our house, and almost all of our money in the stock market is in retirement account mutual funds, so we won't be touching that money for decades.

The money we might actually need sooner (and by that I mean our rainy day fund) is in safe investments that are immune to the crazy ups and downs of the market.

So now we just have to sit tight and wait for things to improve!

The costs of e-cycling

Posted by Matt
*** First, let me start off with apologies to frugalizers looking for a money-saving tip in this post. That's how I started out, but it turned out to be another case of me changing my mind after I did my homework. If you want to find out why you SHOULDN'T save money on e-cycling, read on. ***

I was recently reading my Costco Connection magazine and discovered that Costco is now offering free recycling services for several types of electronic devices. Most household items that can be recycled at all can be recycled for free here in Oregon, but electronics are a special case. They require extra handling to recapture precious metals and prevent dangerous materials (e.g., lead) from getting into the landfills. I've paid a $10 fee (suggested donation) on more than one occasion to retire a defunct computer CRT at FreeGeek, so I was excited to find a free option.

And then I read a little more about e-cycling here and remembered some photos I saw in National Geographic not too long ago showing kids in Africa burning piles of wires to get the plastic off so that they could sell the metal. That's not healthy for anyone!

So, I did a little digging and found this on the FAQ page for Greensight (the vendor that provides Costco's e-cycling service):

All equipment received by GreenSight will either be reconditioned or recycled. Some equipment may be sold into the secondary, or used, marketplace, in its whole machine form and some equipment may be disassembled and sold off as usable service parts. Recycled equipment will be broken down into its raw material format and used to produce new materials. GreenSight employs a zero tolerance landfill policy.

Hmmm, I like the "zero tolerance landfill policy", but if they are selling equipment into the secondary marketplace, there's no telling where it will end up. I went back to the e-cycling article and read about the Basel Action Network, a group seeking to end the practice of dumping electronic waste on third-world countries. They provide a page listing companies that offer "sustainable and socially just electronics recycling". Total Reclaim is one of the Oregon companies, which just happens to be who FreeGeek uses. Back to square one, but armed with the knowledge that I'm recycling the right way with the help of the good citizens of FreeGeek.

It just goes to show that things usually cost money for a reason and there are more costs than just the ones that come from my wallet. If anyone from Costco is reading this, consider it a request to step up the game!

So the economy is bad, now what?

Posted By Paul

So I've been thinking a lot about the recent downturn in the economy. Specifically I've been thinking about how I want to react to it and what I should do.

Then I remembered something from a book I've read (and recommended in earlier posts). The book is called:
The Millionaire Next Door

One thing it talks about in the book is playing "offense" and "defense" with your finances.

The idea is that offense is about bringing money in. Getting raises, making sure your investments pay off, anything that is designed to bring in money is considered offense.

Then there's defense. Clipping coupons, finding ways to lower your utility bills, and good old not buying stuff all count as defense. They don't bring money in, they keep it from going out.

The book suggests that the best thing to do is to always keep an eye on both aspects of your financial life, because playing great defense without a good offense (or vice-versa) doesn't really help you much.

So I've been thinking that with the economy slowing down, my wife and I are really focusing a lot on defense, since the potential for good financial offense seem smaller and smaller (stock market isn't doing so great, interest rates are down, and I'm not assuming that I'll get a great raise this year).

So what sort of things can you do to focus on defense? Well the first thing we've been doing is watching our expenses closely. We still have a social life, but now dinners at fancy restaurants have been replaced with more casual dinners like pizza at someone's house, or picnics in the park (which it turns out is just as much fun and much cheaper). We've also been scaling back on movies, instead we've been watching DVD's that we rent. Not to say that we won't check out some of the big summer blockbusters, but it definitely won't be a movie every weekend (which you know isn't too hard for me, if you've read my earlier post No More Movies).

The second thing we've been doing is watching the monthly expenses, trying to see where we can save a few bucks. We've cut out fancy cable packages, we don't have gym memberships, we are a cell phone only family, and our big extravagance is a one disk membership to Blockbuster Online.

The third thing we've been doing is that just for now we're taking a very frugal look at one time expenses, trying to determine if we want to spend the money now, or wait until later. One example is that my passenger window on my car is having trouble (the glass is intact but it won't roll down), and normally I'd probably pay to have it repaired immediately, but for now I'm going to just live with it in the hope of either getting some time to try fixing it myself or maybe find a way to get it repaired on the cheap.

It probably sounds like my wife and I are pinching every penny, but I really don't view it like that. We still get to go out and have fun with friends and family, but by making a few conscious decisions to tighten the belt, we can have that fun and still keep saving. It lets you feel like you're in control of your finances in uncertain times, and once the economic climate improves then we can splurge a little more, but with the current outlook (and a baby on the way) every dollar we save lets us sleep a little better.

I guess our philosophy when it comes to playing financial defense is: "Spend as if you were poorer than you are, so you'll never have to be that poor for real."

Not very catchy, but a good way to live when economic forecasts are gloomy.