Archive for March, 2009

7 + 4 Things That Aren’t Worth Your Money

The Wall Street Journal has a nice post on 7 things you are better off without. You can read them here.

I generally agree with all of these, especially the “Extended Warranties” which is no more than ridiculously overpriced insurance. This list of 7 items has inspired me to write up a few things of my own that are simply not worth money and to also comment on a few things that are.

Four more things that aren’t worth the money:
  1. Buying magazines at the airport – Your bored and you want something to do… so you fork over $5 for a copy of Men’s Health or other such magazine. Each edition is guaranteed to at least a few of the following topics: Great abs, 101 tips to having better sex or loosing weight.

    Let me save you the money: Eat less and workout more.

    If you really enjoy the articles and buy at least 6 copies of it a year… its probably best to just subscribe.

  2. Outrageous Closing Costs – If you happen to be in the market for a home these days… watch out for the fees. Processing Fee: $595, Administrative Fee: $595, Paper Work Fee: $295. They might as well just have a “do our job fee”. Shop around and ask for “Good Faith Estimates” from multiple lenders. Make sure you compare apples-to-apples when looking at them. Things “above the line” are typically negotiable… the items below the line (like prepaid taxes etc) are just estimates and you will pay the “actual amount” anyway. So lets say Lender #1 has $2000 in above the line fees and estimates the prepaid items at $1000 and Lender #2 has $1000 in above the line fees and estimates the prepaid items at $3000. You might way “WOW” Lender #1’s closing costs are only $3000 and Lender #2’s are $4000. The truth is that Lender #2 is actually $1000 cheaper and probably just overestimated the prepaid items.
  3. Trip Protection Insurance – This is a new fee that I have seen popping up on Expedia and even airline websites. You buy ticket and are then offered Trip Insurance for $25 or so. Just like Extended Warranties, these are nothing more than overpriced insurance. If you expect to need to change your ticket, consider buying a different fare class or research the change ticket fees. For example, some airlines only charge $100 to change a ticket. Using Poker “pot odds” math on this, you need expect at least a 25% chance you will both qualify and use the “insurance” for it to be worth it.
  4. Name Brand Drugs – Generics can be as much as 90% cheaper than the brand name drug. Consider Claritin… you can buy 90 tablets for $34 or 300 tablets of the Sam’s Club generic brand.

    That is $.37 each or $0.04. The generics work just as well and are regulated by the FDA.

A few things that are worth the money:

  1. Decent Q-Tips (Cotton Swabs) – Being the frugal guy that I am, I am totally fine with store brand products. Typically they are the same quality or in some cases even the same product, for 10% to 30% less than the brand name. I will say though, having tried several times, saving the extra $0.75 on 500 cotton swabs isn’t worth it when compared to the extra cotton and comfort you get with the good stuff.
  2. Decent Kitchen Knives – A good set of knives will last you a life time. Decent knives easily cost 2 to 5 times the cost of El Cheapo’s but, if taken care of will last at least 10x longer. I have had a set of Global knives for almost 10 years now and they are as good as the day I got them. My parents have had their set for almost 30 years.
  3. Safety Equipment – Whether it be construction masks, goggles and gloves or bike/ski helmets; these devices need to work when you need them. I may be frugal, but when it comes to things I rely on for my health or safety, I don’t cut corners.

    While on the topic, if you ski or snowboard and aren’t wearing a helmet, I recommend it. They are a lot warmer than hats and can save your life when you small your head on the ice or into a tree.

    If you wear eye glasses, shatter resistant polycarbonate lenses are also worth the extra money in my opinion.

    BTW – I don’t consider generic drugs cutting corners. Unlike safety equipment, generics are designed to be identical.

  4. A good vacuum – Just like a good set of knives, a decent vacuum cleaner will last you a very long time when compared to an El Cheapo model. While I am not an expert on vacuums, from my own experience and research you can easily spend $200 on a piece of trash that will literally die on you in a year, or you can spend an extra $200 and get one that will last you 5 or 10 years. So, for 2 to 3 times the price you can get a unit that will last 5 to 10 times as well.

    Be careful though, don’t confuse price with value. Just because it costs more does not mean it will last longer… the El Cheapo’s can get pretty expensive when you add all the stupid features such as dirt sensors and crazy attachments. This is typically just more trash and more stuff to break. A vacuum is a machine with moving parts and you want it to last a long time. It should be simple and do its job – suck.

    The important thing here is to evaluate the ratio of cost to longevity. This is probably a good topic for another post.


Phone Home

I know its an easy target, but its fun to pick on Comcast. They try so hard to make us believe that they “care”, but just how caring can a monopoly be? But this post is not really about Comcast as a company, or its fancy new commercials (which I happen to really like) instead it is about one of their products and how its pricing just doesn’t seem right.

The service is called Comcast Digital Voice and essential it is a broadband phone service. The way it works is that you have a device in your house that converts your analog phone touch tones and voice into digital packets that are transmitted over your internet connection like anything else. The system then routes your “call” to a device where you are calling and that then converts it from digital back into analog and the call goes through. Its really a very cool technology and it is why “long distance” is free, because the packets are just flying over the internet. The service includes all the usual goodies like voice mail and caller id.

Now let’s talk pricing. Comcast charges $39.95 a month for service, which includes unlimited calling and free long distance. This isn’t exactly cheap. Especially when you consider that the typical “local land line” will cost you about $30 a month (Plus taxes of course). Now if you make a lot of long distance calls or go with a plan with unlimited long distance, you probably will end up at the same price of about $40 anyway. So it is a wash.

But what about the “other guy”… you know Vonage? They offer the same service, same features, same everything and it all runs on the same lines and over the same internet. Yet, Vonage charges only $24.95 a month and has a better promo deal.

1 Year Comparisons – Vonage vs. Comcast

Comcast Vonage
Price Per Month $39.95 $24.95
Promo $29.95 for 3 months $9.95 for 3 months
First Year Cost $449.40 $254.40

Note: Even when you “bundle”, I keep finding that Comcast, Verizon, etc charge a good $150 more a year for their “phone service” than Vonage does.

Having said all that, why exactly do you need a home phone anyway? My wife and I have been living very happily without a land line for almost 6 years now. All I have is a cell phone and that is something I need and you are probably paying for already anyway. When you think about it, I have saved on average $35 a month for the last 6 years by not having a land line. I only had to up my cellphone plan by about $10 a month to get the extra 100 minutes or so needed to handle the offset usage. So that is a delta for $25 a month times 72 months, for a total savings of $1,800. That’s not chump change and has been happily collecting interest in the bank over that time.


Don’t Leave Home Without It

Some people will tell you that credit cards are for suckers or that the best thing to do is just “cut up your credit cards”. This might be true if you don’t have the willpower to resist impulse purchases or if you have trouble not buying stuff you can’t afford. But if you can control yourself and you can pay off your balance in full every month, credit card reward programs can be… well… rewarding.

I can’t stress this enough, reward programs, miles, points, etc are WORTHLESS if you make a late payment or pay a finance charge even once!!! So don’t do it!

Don’t believe me? How about we think about it for a minute. Let’s say for example, you have a point card that gives you $0.01 per dollar you spend. Now, lets say you manage to spend $3,000 in a year and have earned $30 in “rewards”. Now lets say you finance this on your card at 20% interest and pay it off over the course of a single year. This $30 in “rewards” cost you $334 in finance charges. How exactly is that a deal? What else could you have spent that $334 on? What if you plan to pay it off every month, but are late one time? That will be a $30 late fee and boom your “rewards” are now toast.

For those that care, here I use 3 credit cards I use and why:

Starwood Preferred Guests
American Express

I have always liked American Express and have been a member for 10 years now. Things I like about the card:

  1. One Starwood Point is worth between 1 and 5 cents depending on how wisely you spend them. This is far better than most point programs which lock points at $0.01 or lower. Some examples: 14000 Starpoints = $150 at and 9500 Starpoints = $100 at William Sonoma. Cash your points in for “instant rewards” and the points can be worth a lot more. $100 hotel credit at the “W” was 7500 Starpoints or 12,000 points for a $600 a night stay in Hong Kong.
  2. The card sync with Microsoft Money
  3. If you spend $30k a year on your card you get free Starwood “Gold Status” which let’s you earn bonus points on stays (making those dollars worth more)
Alaska Airlines Visa

I travel a lot and I have status on Alaska Air, so it make sense I get an Alaska Airlines credit card. Other airlines have similar deals, so if you travel a lot, I would be sure to pair this with your elite status. I like this card because:

  1. I get 3 miles for every dollar I spend at (this adds up) and 1 mile for every other dollar
  2. “Miles” are worth between $0.02 cents and $0.10 cents depending on how you use them. Hint: I only use them when I am getting the best value for the mile and that is usually international First Class. If I can only get $0.02 per mile of “value”, I usually just pay for the ticket.
  3. $50 Companion Ticket – This thing is AWESOME. I fly back East once a year with my wife and a coach ticket non-stop is usually $700 or so. This perk saves me $650 a year at least.

Chase Freedom Mastercard

I have had this card since it was a Shell Gas Card and I was getting 5% cash back on gas. I still use it now, but only for gas purchases as it was getting me 3% off whatever I purchased “the most of in a month”. Over time though, this card has become less and less rewarding and I will probably cancel it before too much longer.

The thing I absolutely hate about this card though, is that it does NOT sync with Microsoft Money.


Only if you need it…

On the right side bar I have a section called “Only if you need it”. I have this to link to “deal sites” and other places/reward programs I use to try to get the best deal or value for something when I buy it. The title, of course, comes from the fact that buying something at a “good price” is only a “deal” if you actually need it or dare I say “want” it.

Americans spend so much money on useless crap it is not even funny. Just look at how “they” market to us. It is common to see sayings such as “Buy 2-get-1-free” and “The more you buy the more you save” – Only in America do you have to spend money to “save” money. This is an unfortunate perversion of the much better and truer saying “It takes money to make money”.

To make my case, if it pleases the court, I present Exhibit A: The Snuggie!

The “deal” here, is that for $19.95 + $7.95 + $7.95 ($35.85) you get the following:

  • Two “Snuggie” Blankets
  • A plastic book light

I am no expert, but lets break down what you are getting for your hard earned $35.85.

  1. First the lets cover the “book light” that is “free”. This light costs less than $1 to make and can be bought in bulk $1.47 each.
  2. Second, the “blanket”… this stuff is made from “Fleece”, one of the cheapest mass produced fabrics around. I don’t know the exact dimensions, but let’s say it is 50×60 inches. You can buy a fleece blank in bulk for $4.13 each.

So, we now have $1.47 + $4.13 + $4.13 in “raw material” costs. Now that is for your average Joe running a mom-and-pop operation. If I was a better business man, I am sure I could get the price of the price of these things down for large orders of 50,000 or so. Let’s be generous though and add in an allowance for cutting the “sleeves” and other Snuggie extensions to the blanket. I think it is safe to say that with these extras, the price of the “raw materials” would probably be closer to $1.10, $3.50 and $3.50. Or a total of $8.10. (Basically the price of “Shipping & Handling” – this must be a “secret rule of thumb” for this industry)

Now let’s add in postage (assuming it weighs 2LBs and its shipped with some form of bulk rate) $3.50.

Now let’s add in labor to package the thing and ship it out. Let’s say it takes 5 minutes per blanket set at minimum wage. $0.60

So $8.10 + $3.50 + $0.60 = $12.2

Let’s add in the cost of additional labor, storage, credit card processing fees, insurance, offices, etc and make it an even “$20” per blanket set. By these calculations… they probably make about $15.85 of “pure profit” on each blanket. Let’s say you sell a million of these things… you have a company with $35.85 Million in revenue and $15.85 net profit. Now that is a business I want to be in and its all made possible by American consumers buying a fancy blanket on TV.

Now this is not all bad of course. This is partly why America is great. This single product has probably made a few very smart entrepreneurs wealthy and employed 100’s of telephone operators and a handful of other “workers” – not to mention a bunch of factory workers in China, as well as postal workers and the like.

But for you, the poor reader that just wanted to get a “deal” on a stupid blanket, this is not good for you. Your money would be better spent buying a real blanket from somewhere else for $10. Or better yet a blanket that might actually save your life for $6.

A little bit of “want”…

Welcome to my new blog. A blog that I have dedicated to the best advice my parents ever gave me “live below your means”. These words are more than just a phrase, they are actually a way of life. While some are excited by the purchase, I and others like me are excited by the deal and by benefits of living frugally.

Living below your means and in turn living richly, is all about balance. It’s not about saving every penny and dying a wealthy old miser that never had a day of fun in their lives. It’s also not about living paycheck to paycheck like there is no tomorrow. It is about the balance between the two and the countless micro decisions you make throughout your life that will determine on which side of that scale you life. A little bit of “want” never hurt anybody and the hard working pursuit of that “want” is the cornerstone of a healthy and sustainable society. Instant gratification, free unlimited credit for all and maxing yourself out is the other extreme of communism and Hedonism. Embrace the balance.

My goals for this blog are simple:

  • Share my thoughts, stories and ideas about living richly and below ones means

  • Help others to enjoy the benefits of living below their own means

  • Help restore the global economic system, by educating people on the benefits and risks of debt and how living below ones means actually (in the long run) betters the world at large
  • In the spirit of this blog and to kick off my first post, I will leave you with this simple but true system to get out debt.