Healthy Living

The Control Your Cash Mailbag, Part II of II

November 11, 2011

You missed Wednesday’s Part I? Here it is.

Continuing where we left off, here are more questions from confused CYC readers. Get your questions in to info at Control Your Cash dot com.

Free to make. Expensive to keep up.

Dear CYC:

I’m 31, my husband’s 33, and we’ve decided that we’d finally like to start a family. However, wouldn’t you know it, he just got laid off from his $42,000-a-year job. I don’t really have a question, just a couple of statements. Thanks. Love your blog!

Sincerely,
Katii in Des Moines

Dear Katii: 
You do understand that children cost money, right? Regardless of the countless non-monetary benefits they bring to your life (sleepless nights, filthy undergarments, permanent supervision, constant screaming for attention, the potential for physical catastrophe at every turn), they come with a financial obligation that’s impossible to ignore or cut corners on.

So yes, get pregnant as soon as possible. Maybe you’ll be blessed with twins. As for secondary concerns like your cash flow having dwindled to zero, you can worry about those later. Besides, there are always credit cards: most people don’t come anywhere near their spending limits. That’s thousands of untapped dollars, right at your disposal. Knock yourself out.

Dear CYC:

I started at my job 3 years ago (district representative, golf and tennis equipment sales) and have yet to see a promotion. My figures are consistently in the top 40% of the company. I thought I’d be a regional manager by now, but I’m still waiting. It’s almost like they’re daring me to look elsewhere, where my talents will be more appreciated. In August I asked my boss about a promotion and/or pay increase. He hasn’t gotten back to me. Should I leave him another message, or should I try the HR manager instead?

Sincerely,
“The Chadder” in El Cajon

Dear The Chadder:

You mean your boss didn’t rush to you to say “What we can do to keep you happy, and keep you here?”? If he needed something from you – a sales report, receipts from your last business trip, a status update on your new intern – he’d ask for it instead of waiting for you to volunteer it. That he’s not doing the same thing with your salary increase request should tell you something. Maybe you can’t figure out that by “something”, we mean “he doesn’t want to give you more money.”

And why should he? You think you deserve it, but what leverage do you have? Your boss can either pay you what he’s paying you now, or pay you more, but either way he still has you as an employee. So he has no incentive to choose the latter.

Your choices are not only greater than you think, but different than you think. Forget about memorizing his lunch schedule so you can catch him in the hallway for a salary discussion. You’re going to have to do one of the following:

Line up another job and threaten to walk (this is the least good idea, because it’ll put you in the same position, just with a different company.)
Venture out on your own. Spend $500 registering with your state governing body and incorporate. But as what? A sports equipment wholesaler? Something completely unrelated to your current gig? We don’t know all the details of your situation, but right now you’re at the mercy of someone whose job description includes trying to pay you as little as possible. You need to be at the mercy of yourself.
All that money you spend on liabilities, rather than assets, is keeping your options limited. There are people who spend hundreds of dollars a month on alcohol and other entertainment expenses. A little discipline exacted over a short period can turn that money from a negative into a positive. Instead of going out with the fellas or buying a gaming system, earmark your spare cash for a down payment on some real estate, a residence, or maybe part of a commercial building. Find a realtor to find you a renter. Get the latter to indirectly make your mortgage payments. Invest the surplus if any, and take the tax deduction. You just need to think beyond putters and ball retrievers.

Sorry, we just don’t have the stomach for a Part III. Next month.

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Filed Under: Bad Examples, Estate Planning, Healthy Living, Making Smart Choices Tagged With: letters, mailbag, Personal Finance, readers

The Control Your Cash Mailbag, Part I of II

November 9, 2011

Got a question? Submit it to info at Control Your Cash dot com. Today we discuss college education and weddings, two of our favorite topics. Our long-winded answers follow, with more mailbag goodness on Friday.

This pigeon has more financial sense than some of our readers

Dear CYC:

I’m a junior at a fairly prestigious (non-Ivy League) school in the northeast. I’m doing a double major in English and philosophy, and maintaining a 2.5 average. My student loan balance currently stands at $29,708.48.

Even though I still have another year to go, the problem is that all the job fairs around campus specify “engineering majors preferred” or “mathematics and business students only need apply” or some such thing. I’m beginning to wonder if there’s going to be a job for me once I graduate. I know that the average college graduate makes $1 million more over the course of his career than someone who never went to college, so I’m not worried. But a little advice would be nice.

Sincerely,
Trenton in Ithaca

Dear Trenton:  

Thanks for writing. You’re an imbecile. A college-educated one, but still. That old and misleading axiom about going to college being worth $1 million is an example of paying attention to the mean while ignoring the standard deviation, two relatively simple statistical concepts that they were teaching in the adjacent building while you were busy trying to make sense of William Faulkner. The students who earn marketable degrees each average well over $1 million more in earnings than their counterparts who never attended college. In fact, those students will make so much money that they’ll lift the average up, even though you and your fellow English and philosophy majors are dragging it down.

The hard sciences will always be in demand. There’s a reason they’re called “hard”, by the way. To learn chemistry or zoology, you can’t simply wait until the night before a paper’s due, spew 3000 words on the page, and hope that proper grammar and spelling will at least get you a C. Go into any Starbucks (or Coffee Bean & Tea Leaf, or Seattle’s Best) and you’ll be greeted by college-educated employees who are thin, sallow, well-spoken and impoverished. Most of them are loath to admit the stark reality that they wasted (at least) 4 years of their lives and will never recoup the costs of their education.

Drop out now. Go to a local trade school and study to become an electrician or an HVAC tech. It’ll cost next to nothing compared to what you’ve wasted so far. You’re not going to listen to that, but if you run the numbers you’ll realize that you can still salvage your life and build some positive net worth before it’s too late.

Dear CYC:

My boyfriend finally proposed!!!!! I’m so excited!!!!! Sorry I know you hate excalamation points but I couldn’t help myself. Anyhow, we’re planning the wedding for next summer. I found the PERFECT dress and the PERFECT bridesmaid dresses. We’ve decided we’re going to hold the ceremony on Santa Catalina Island and maybe turn it into an all-week affair, invite all our friends and family. I hired a wedding planner (can’t start these things too soon!) and she estimates that it’s going to cost us around $50,000-$55,000. I don’t want to cut corners on what’s going to be the most important day of my life, but my fiance is already a little apprehensive about it. My parents have said they’d help out, and quite frankly I don’t see why “spare no expense” should be a bad philosophy to have for just one day. What do you think?

Sincerely,
Kim in Laguna Beach

Dear Kim:

According to our estimates, 98% of indebted couples started off with ostentatious weddings. Look, the Duchess of Cambridge gets an obscenely expensive wedding. You don’t. You should have married a prince instead of a assistant quality control supervisor, but what’s done is done.

As for what’s not done, there are few financial decisions as dumb as that to spend money on a wedding ceremony. You’re getting married, so presumably you’re an adult now (unless you’re one of those Mohammedan child brides.) That means that you should have advanced past the immature belief that instant gratification is the most important thing in the world. For the opportunity to spend a few hours stroking your ego and being the center of attention among your friends and family, you’re committing to spending months if not years paying for the privilege.

Yes, your wedding planner is a friend of a friend and she’s just trying to make a living. Yes, you’ll look radiant in white taffeta (and more importantly, everyone will know it.) Yes, your bridesmaids will look hideous in that chartreuse ensemble that accentuates their belly fat, all the better to make you seem even more glamorous by comparison. Now let’s look at the other side of the equation:

That $50,000 estimate will get you a down payment on a quarter-million dollar residence. Granted, in Laguna Beach that probably means a condo the size of a matchbook cover, but this isn’t China: you can move wherever you want (except for Mercury, Nevada.)

If you spend the money on the wedding instead, you’ll have to rent, giving all of your residential expenses to someone else and receiving nothing of lasting value in return. Or you’ll have to borrow even more to buy a comparable place to live, which will be exceedingly difficult seeing as mortgage lenders aren’t in the habit of giving 100% loans to people anymore (and haven’t been for a few years now.) When you’re living in a squalid apartment a year after you’ve gotten married, seething with envy at your friends who bought houses and are building wealth right out of the gate, and wondering if you should extend your lease, you can look at the photo album of your wedding day and those memories will make it all better. Assuming you’re in the lucky half of couples who don’t divorce.

Part II Friday.

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Filed Under: Bad Examples, Estate Planning, Finance, Healthy Living, Making Smart Choices Tagged With: letters, mailbag, questions, readers

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.

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