Blog – Page 185

October 24, 2011

The most tanned people in Seattle

No, we’re not celebrating Halloween a week early. We’re just testifying to the resilience of this curious little carnival that we’ve chosen to foist upon the universe every Monday. If you run a personal finance blog, you can join in the carnage by submitting a recent post here. Submit more than once per carnival, and you’ll join the ranks of the undead. Same goes for submitting during the dark period (which starts at midnight Eastern Time Saturday, and stops when we go live Monday.) You ready? Here goes:

First out of the gate, the ubiquitous Neal Frankle at Wealth Pilgrim. If you’re about to call it a career, the last thing you want sent your way are retirement problems. You spent years socking away your hard-earned cash, so you’d better be sure it’s there for you when you need it. Besides employer fraud, there are several retirement program pitfalls you need to avoid. Neal gives his top 5.

If you have no clue what a mutual fund is, no worries. It’s not like we’re born with that knowledge; you have to have picked it up at some point. Consumer Boomer explains what they are in reasonable detail.

Infomercial masquerading as a blog post? Oh yes, we do. Jeri Ford at the ungrammatically titled Help Me Travel Cheap asks which credit card has the best 50,000-mile signup bonus.

You see, we’re so dumb that we’d never notice that Jeri Ford and Craig Ford submit minutes apart every week. And that they happen to write on similar topics. And that Jeri’s above submission has Craig’s byline on it. From the masculine half of Papua New Guinea’s favorite missionary couple comes Money Help For Christians, in which Craig demonstrates how much free and seriously discounted travel he enjoyed in the last year, just by taking advantage of credit card promotions.

He’s right. When credit card companies offer gigantic rewards – loss leaders, if you will – the issuers understand that most people who take the bait will incur enough debt to pay for the travel many times over. So if you’re one of the conscientious few who know how to pay their freaking bills on time, you’ll be a free rider. In this case, literally.

The folks at Nerd Wallet are diligent about submitting every week. This week, Laura Edgar pits the Chase Freedom card vs. the Capital One Cash card in a plastic-on-plastic battle to the death. Which card is better? We’ll spoil it for you. The Chase Freedom. Capital One Cash’s biggest selling point is its low interest rates, which we’ve explained time and again are the least important criteria for getting a card.

(An aside, and a new requirement for submitters: stop getting your Indian virtual assistants to write your stuff for you. They’re supposed to help only with time-consuming, menial tasks that no one has yet programmed a robot to perform. If you consider writing blog posts to be in that category, then you’re insulting Control Your Cash’s readers. Don’t pull that crap around here.)

Odysseas Papadimitriou at Wallet Blog is one of the very few guest bloggers whom we allowed to contribute to Control Your Cash. You need to subscribe to his feed, and read what he says this week about usury laws. Odysseas seems to believe, as we do, that there’s no such thing as gouging. No one’s obligated to sell you a service or product at a price that you like, and in the event of a shortage, high prices serve to put a good in the hands of the people whom that good is most important to.

Personal finance bloggers are finally starting to reexamine and get off that ridiculous frugality kick, realizing that pennies and nickels aren’t saved instantaneously. And in the end, they’re still just pennies and nickels. Suba at Wealth Informatics explains how if you value your time, it’s cheaper to eat at P.F. Chang’s than attempt to cook their signature dishes yourself. Furthermore, those people waiting at Costco to save 11¢ a gallon on gas would be better off paying a little more at the empty gas station across the street. Also, Suba claims that there are people who wash and reuse Ziploc bags. We hope to God she’s joking.

There are people who actually refer to themselves as being members of “Generation Y”? Apparently there are, and Teacher Man at My University Money is one of them. You’ll be happy to know that he’s not only bought into marketers’ jargon, but that he thinks young employees should give their bosses uncompensated labor. Nothing makes a boss happier than hearing that. (“You’ll work for me, and I get additional bang for each buck without even asking for it? Count me in.”) This post contains a comment from a Brit who includes the phrase “dog’s bollocks”, which it turns out is complimentary.

The above post represents the lower threshold for crimes against the English language that we’ll accept in a submission. TM didn’t hire an editor, so we’ll help out in our capacity as carnival masters:

It’s “shy”, not “shed”.
A person is “who”, not “that”.
By “different from”, you mean “different than”.
A left parenthesis needs a right parenthesis.
Every time you use an adverb unnecessarily, an imp gets his horns and tail. You’re welcome.

We finally figured out why Dave Ramsey calls his debt reduction strategy a “snowball”. It’s because it’s a deadly combination of cocaine, heroin, and other opioids that people can easily develop an addiction to. The latest victim is Tim at Christian Personal Finance, who cites this mathematically confounding strategy as a way to pay down multiple student loans. It remains a mystery why you’d take out multiple loans in the first place with no guarantee (or even likelihood) of a job that’ll not only cover the loans, but provide a better income than you’d have had if you’d just gone to trade school in the first place.

Drat. We hate it when Free Money Finance counters the point we’d made one second earlier. He swears that the debt snowball works with people who are clueless about money. He noticed this while working as a debt counselor, so we’ll take his word for it.

Phil at PT Money is thinking entrepreneurially. Why sell your old house while buying a new one, when you can rent out the former and increase your cash flow passively? He ran the numbers, and more to the point, isn’t looking to get rich by exchanging his time for a flat sum of money. Phil’s decided to hire a property manager because he’s a rookie. (Pro tip: the more experienced you get at this landlord thing, the more call you’ll have for a property manager.)

Finally, there it is again. The eternal quandary of time vs. money. Ben Franklin equated the two quantities, but Barb Friedberg knows that there’s more to it than that.

And we’re done. Same time next week. You comment now.

The Limits to Frugality

October 21, 2011

What, are they saying white women are cheap?

Note: This post appeared in a vastly different form on Adaptu, where Greg contributes. Really, the only similarities are the message and the title. Go there and read it, after this.

In the 1930s, people made ends meet during the Great Depression by moving out of the Dust Bowl and eating possum stew. Today, people ravaged by the worst financial crisis since then are valiantly fighting economic stasis with…scissors and paper clips.

With the rarest of exceptions, coupon clipping is penny wisdom and pound folly. For all the effort the average coupon clipper puts into saving a few quarters on toaster pastries and bottled water, there are better and more financially rewarding ways to spend one’s time.

(Oh, and by the way? “Coupon” is a noun, not a verb. Now excuse me as I resume paragraphing.)

The jar of pickles that your coupon reduced from $2.99 to $2.59 is not a 40¢ saving. It’s still a $2.59 outlay. Food producers aren’t in the habit of leaving money on the table, any more than anyone else is. Rather, they’re just testing multiple prices on the same public and seeing which guinea pigs bite, as it were. If a manufacturer issues a coupon and thus reduces its profit on each jar by a few pennies, but the result is that significantly more people each buy a jar than otherwise would, then the manufacturer’s learned some valuable information about its clientele.

Of course, we’re more interested in coupons from the consumer’s perspective, not the producer’s. From the consumer’s perspective, the time involved in achieving that miniscule saving is almost never worth the effort rendered. Especially when there are so many easier ways to save money, and especially when people insist on confusing spending with saving.

Take the recent multitudes lining up to buy the TouchPad, Hewlett-Packard’s dead-on-arrival competitor to Apple’s ubiquitous iPad. The rush on TouchPads didn’t start until HP announced they weren’t going to make any more of them. Ever. No improved model down the road, no software updates. Just the opposite, in fact.

TouchPads went for $500 the day before HP announced they’d stop making them, $100 the day after. To the common gullible consumer, that means an extra $400 in his pocket. But here’s a truth that’s so obvious that it’s easy to miss:

Buying a consumer product – any consumer product – doesn’t make you money. It’s not as if each customer is skipping out of Best Buy, triumphantly waving four $100 bills that he wouldn’t have if he’d never entered the store.

Retailers dropped TouchPad prices 80% out of necessity – unsold inventory is no fun – and the masses did what masses do. Given how quickly smartphones and tablets lose resale value (my own HP Pre went from $550 to a $30 eBay cut-and-run sale in under 2 years, an inevitable byproduct of technological progress), even $100 for an end-of-line product can be a lot.

Why do people spend beautiful Sunday afternoons indoors, sorting through flyers when they could be out enjoying life? Or waiting in line for a durable good that will almost certainly be a paperweight in a couple years’ time?

They fall victim to the oldest psychological trick in the retailer’s playbook, anchoring. Instead of offering a product at price x, offer it at price x+y with a y discount. It sounds so simplistic that you’d think it couldn’t possibly work, but it does. In the early 2000s a sewing supply shop in CYC’s hometown took out the same tiny ad in the local paper, every day. The ad stated that you could bring it in to buy a particular sewing machine for $168, or pay $899 without the ad. This example is more blatant than most, but it’s an important reminder that a coupon has no intrinsic value. It’s not worth 40¢, $1, or in the case of the sewing supply store, the price of a flight to London. If you’re altering your behavior to spend money because of a perceived saving, think about the 100% saving you’d enjoy if you didn’t spend the money in the first place.

Speaking of psychological tricks, say you can buy a certain shirt at a store across the street for $40. But the exact same shirt is available on the other side of town for $10. Would you drive across town to buy it? (Or to phrase it differently, Would you still buy it across the street for 4 times the price?) Most people who like the shirt, and even some who don’t, would make the trip for a colossal 75% saving. Sounds reasonable, right?

Okay then, would you buy a new car for $29,658 across the street, when a dealer on the other side of town is selling it for $29,628? Most people (who haven’t been exposed to the previous question) would prefer to stay close to home, rather than waste time and fight traffic to take advantage of a measly .1% saving.

Hopefully I don’t need to point out that the two scenarios are equivalent. To be consistent, you should say yes either to both or to neither. A $30 saving is a $30 saving, regardless of how expensive the underlying item is.

Why are coupons so popular? Because taken at face value, they appear to be one-sided marketplace victories gained without effort. I got one over on the grocery store. But more often than not, using a coupon means buying something that you’d otherwise have been ambivalent about at best.

Instead of spending valuable hours saving microscopic amounts, go for the big fish. Every year, buyers leave billions on the table because they’d rather spend their time dealing in impersonal printed discounts than learning the fundamentals of negotiating. The same people who devote one day a week to clipping coupons are by and large the ones who are terrified to try to talk a house seller or mortgage lender down a few thousand dollars.

If you’re buying necessities, and don’t have to change your behavior to acquire them, coupons could make sense in theory. (You’ll notice that your power company and water utility aren’t in the habit of issuing coupons.) If you’re buying frivolities, things that only caught your eye because of the reduced price, then you’re not saving money no matter how hard you justify doing so. And if you’re buying expensive necessities – a house, a vehicle – the amount you’ll save by learning how to stand your ground and walk away if necessary will dwarf anything you’ll save by making the supermarket clerk scan Universal Product Codes.

This popular article is featured in the following carnivals:

**The Carnival of Financial Planning: Edition #209**

**The Totally Money Blog Carnival #42**

**The Carnival of Financial Planning Edition #211**