This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.

Wednesday, June 18, 2008

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.

Monday, June 16, 2008

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.

Wednesday, June 11, 2008

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!

Wednesday, June 4, 2008

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!

Tuesday, June 3, 2008

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.