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The Long Ride Home

As I’m writing this, I am just getting back from a round of golf in Richmond.  We had a great time, but invariably we got stuck in traffic coming home on 95.  I hate traffic.  And getting stuck in a traffic jam at the end of a perfectly nice but tiring day is just enough to ruin the entire experience.  I’ve found that the same thing can ruin my entire workday as well.  Maybe I got stuck somewhere on my ride in.  Sometimes it’s the ride home – it doesn’t really matter, both can very easily put me in a foul mood.  And as most of you as both friends and readers can attest, I’m not a lot of fun when I’m in a foul mood.

So, I’ve been thinking that maybe I should buy a bike and ride to work.  This isn’t completely crazy – Arlington is crisscrossed with bike trails that go most everywhere I might need to go, and the work commute most days is under ten miles.  I also have access to showering facilities once I arrive.  There’s only one problem – I don’t own a bike, and I’m remiss to purchase one that might get used a dozen times and then lie dormant in my closet for the rest of eternity.  I always loved biking places when I was a kid – it was the way to get around my neighborhood growing up.  But I really haven’t done much of it at all since I started driving, and that has me worried.

So, in true bWgH (okay, that’s a lame acronym, maybe I shouldn’t use that again) style, I decided to do a financial rundown of the cost benefit to buying a bike and how many times I’d have to ride it to and from work to make it cost effective.  I’ve got a few friends who are avid cyclists, and I’ve at least asked their opinions on this stuff, so my costs shouldn’t be out in left field.

Because of my limited space, I need a folding bike.  The only one I found that didn’t look ridiculous for a reasonable price was the Dahon Jack 7-speed – I can get it with a helmet from Performance Bicycle for ~$500.  And when it’s unfolded it looks like a normal bike.  I have been told that unlike when I was a kid, riding around on busy streets without a helmet is a bad idea, drivers don’t have much respect for cyclists.  I know I’m usually frustrated when I get stuck behind one, so I figure I’m being given good advice.  Over the course of the summer, I’d probably have to spend another $50 on maintenance (tubes and the like, I promise I won’t buy a little bell for it).

So let’s assume this whole experiment would cost me $550.  Not a drop in the bucket, but also not the most expensive thing I’ve ever bought.  Assuming I save about $5/day in gas and maintenance for my car, I would pretty much have to use it as my primary commuter vehicle for the next 5 months to be net even on the entire experiment.  Granted, I would also be great exercise, so maybe it’s not fair to judge it just through a financial light, but it’d making it hard to justify.  But it does alleviate some of the traffic problems I normally have to deal with in the mornings.

I could go cheaper if I had a place to keep the thing and could avoid the whole folding thing – if I just wanted to give this a shot maybe that would be the way to go.  I can also keep my eye on craigslist for something less expensive – as long as it’s in good shape, I could care less if it’s new.  Would you buy a bike just because you want to try riding it to work?

July 13, 2009 | Filed Under Planning / Goals, Spending

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Renting – is it money in the trash?

I hope everyone had a fun 4th of July weekend.  As with a lot of holiday weekends, there were parties, picnics, and all the other obligations that come with being ‘civilized.’  What I have been noticing this year, probably because I’m spending so much time writing this blog, that a lot of people actually do talk about money in social settings – far more than I had previously realized.  I don’t know how much of it is the economy, or the lower expectation of privacy that came along with the Internet age, but no fewer than three separate people decided to bring up a money-related topic, and no, I didn’t prompt them.

A common theme through all of these discussions was renting vs. buying a home – more specifically, that renting an apartment was throwing away your money.  Of course, I took my usual stance that buying is not something that is going to get you ahead.  I talked about how it was 20% more expensive for me to buy than it was to rent, if you factor in maintenance costs on my home and all of the phantom costs.  But the conversation kept coming back to “I don’t want to keep throwing away money on rent.”

Rent is not a waste of money – particularly if you are getting a good deal on your property.  Rich people rent places all the time – it’s middle class, middle income people who are obsessed with home ownership, even if it doesn’t make good financial sense.  Renting is even less expensive when you consider the hassle and liabilities of home maintenance and repairs – I most certainly didn’t expect home ownership to have been as expensive as it has been.

The key to making renting work for you, rather than against you, is to have a concerted investment plan.  Figure out how much you could pay for a house – most people pay more for their homes than they would to rent the same size place.  Take that number and go apartment shopping – your goal is to find a place that is at least 10% less expensive than whatever that number ended up as.  If you can afford $1000/month in rent, find a place that you can rent for $900.  Then, take that extra $100 and invest it every month in an index fund (DOW, S&P 500, Russell 2000, take your pick – just make sure it’s an index that is diversified).  Do that for the next 20 years – more likely than not, you’ll end up on top.

Don’t believe me?  Dinkytown has a great calculator for running all sorts of different scenarios – I popped mine in and it turns out I am going to just about break even over twenty years.  And I bought relatively low.  People who bought at the top of the market are probably never going to recover.  If you’re someone who can leverage that tax credit from the government, you already have a sizable down payment, and you can buy a place you’ll be happy with for the amount you’re willing to spend you ‘might’ come out on top, so run the numbers.  But don’t forget to factor in things like your HOA fees and maintenance costs (the calculator has a section for that – I recommend adding 1/12 of your monthly payment to this field to cover maintenance, plus whatever fees you would have).

All of this is why I don’t think spending money on rent is throwing money in the trash.  What do you think – am I crazy?

July 6, 2009 | Filed Under Money, Planning / Goals

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Finding Time

I’ve had several people ask me where I find the time to write this blog 4-5 times a week.  Not to mention a couple of slightly incredulous people asking me why I would even bother.  The latter can await my answer with baited breath for all I care, but the former probably deserve an answer.

How do I make the time, you ask?  First thing is that I check out Lifehacker.com daily for efficiency tips.  Basically, any tip worth considering eventually finds its way onto Lifehacker, so rather than search around for a faster way to do something, I devote 5 minutes a day to reading that one website.  It has definitely paid dividends – they talk about all kinds of stuff like time management, speeding up your routine, and they even cover some techie stuff like speeding up your computer.

The second, and probably most important thing I do to keep up with the blog is I schedule an hour a day to work on it.  Yep, just an hour.  A 500 word post (which is about my average) takes me about 30 minutes to compose, so that gives me a bit of time to mess around and suffer from my semi-regular writers block before getting to work.  Since the idea of writing this blog is really a marathon, and not a sprint, I don’t worry that I’m not putting enough time in – I figure that if I keep it up long enough, people will notice and keep coming back.

Now, you’re going to think this sounds silly, but there is also a commitment piece of this little puzzle -  I’ve decided that I will post several times a week, and that I will be successful at this.  That decision is almost always the most important part of execution – I’ve never met anyone that was successful at anything that didn’t decide that they were going to be before they were.

Oh, and did I mention that I like to write?  I started getting into this whole personal finance thing a few years ago after I bought my new house but refused to be house poor.  I didn’t want to stop going out with my friends and otherwise doing the things that I enjoy.  That wasn’t the point of buying my condo.  But, buying a house is a commitment, and something somewhere had to give – in this case it was my frivolous spending.  I decided to spend consciously.  But what I found I was lacking was any sort of accountability and support – it’s like trying to lose weight when your spouse keeps bringing home pints full of ice cream.  Since writing is something I enjoy, and gives some visibility without having to organize some sort of personal support, I thought blogging would be a good tool for me.

The last piece is that I make time to do this because I really appreciate the kind words and comments I get from everyone about it.  Since a lot of my readers (at least at this point) still know me personally, I get a ton of great verbal feedback about my blog, as well as the comments people leave.  Seriously, I even like it when people disagree with my thoughts on something – at least that means someones reading my stuff and thinking critically about it.  You can’t imagine how much of a motivator that is for me.

So, do you have something that you want to do, but you’re afraid it’s too much work?  Find the smallest chunk you can do and get a return on it (like my 500 word posts), and then do it.  After you’ve done the first one, keeping it up gets a lot easier.  Just make sure you have someone to give you crap if you start slacking off.  For me, I hope you all will give me that crap if I ever need it.

June 23, 2009 | Filed Under Dream, Planning / Goals

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Should you buy?

A friend of mine from high school and I were chatting the other day about homeownership. He was telling me he felt like he “had to buy now” because prices are so low, and he felt like prices in his area were leveling out. Our conversation was cut short after I told him that if I had to do it over again, even now I probably would still avoid buying, but I promised him a follow up blog entry about my position on this, since I feel like the topic is definitely in the purview of the site. So, as I see them, here are the benefits and drawbacks of owning your own place.

Drawback: The Burden of Debt

This is my major reason for disliking the “homeowner” experience – I hate the fact that I am effectively in debt up to my ears. I don’t have any non-mortgage debt anymore (I’ve paid off my consumer debt pretty aggressively over the years, mainly because I hated that debt sensation as well. The truth of things is that debt, to me at least, is like a yoke around my neck, keeping me enslaved to my desk. For you, maybe indebtedness is less visceral. But I am aggressively paying down my mortgage to return a sense of control over my finances, even though it means cutting back on other things for which I would like to be saving.

Benefit: Pride

This is the main reason I bought a house in the first place, and remains the best part of the whole experience. I don’t want people to think I’m down on homeownership in concept – it’s more mortgages that I dislike than anything else. How much is this pride worth to you? For me, it isn’t worth the extra expense of owning, but for someone else who knows. My priorities aren’t necessarily right for the guy down the street.

Drawback: Unexpected Expenses

When I bought my place, I was not obvious to me the extra expenses that I would incur as a homeowner, and my parents, whom I was looking to for guidance on this, hadn’t rented in so long that they couldn’t accurately provide sanguine advice on the topic. It turns out, year over year, owning is costing be about 20% more than renting would in my neighborhood. Not because of my mortgage (my minimum mortgage payments are within 3% of the going rental rate), but because of all the extra crap I am responsible for as an owner.

The fact of the matter is, stuff breaks. Either you are paying for it directly (paying the plumber, the electrician, or buying appliances) or indirectly through your HOA dues. But you’re paying for it. When you rent, the owner of the property eats that cost. It doesn’t affect your rent directly, and if they raise the rent when you are up for renewal, you’re free to move to someplace less expensive. You don’t have that freedom as an owner.

Benefit: Control Over Your Home

If you own the place, you can paint the walls crazy colors, flush mount your entertainment system, knock down walls, etc. It’s your house – you can’t do those things in a rental. If you want more space, and are so inclined, you can add a room. Or build a pool. This kind of control over your environment, your own personal kingdom, is very satisfying. The most fun I had when I bought was picking the colors for the walls, and figuring out where everything should go and what I wanted to ‘do’ with the place. When I was just renting, there was not that same level of excitement.

Granted, normally, I don’t give a crap about that kind of stuff – but when it’s for your house, all the sudden it holds your attention. I’ll admit it’s a bit weird, but I feel like other people who have gone through the same experience will back me up on it.

Drawback: Even the Best HOAs Suck

This is more of a recent thing, and if you can manage to get a place without an HOA, you’re a lucky person. Even well managed HOAs take away from some of the proceeding benefit. They can force you to do things their way, for some reason that may not make much sense to anyone. This is a huge negative, because then you can’t just do what you want with what you own. Not to mention its just one more thing you have to pay for – the purpose of an HOA is to socialize some costs so as to both reduce overall cost and increase cost certainty. But in exchange you give up some of that control over your property. I’m not sure if it is really a fair trade.

Drawback: Opportunity Costs

Opportunity cost is funny, because it’s not something that is easy to show. There are several places that have talked about this at length, and although it’s a topic I would like to go into in more depth, this piece really isn’t the place for it. I will say that the additional cost of owning is magnified because it is in effect tied up in an investment that doesn’t rapidly increase in value, and could probably be better invested elsewhere. It’s really interesting to me how the math plays out in this, I actually think its similar to the idea of should you buy a new or used car – and the best answer is ‘it depends.’

Benefit: Stability

This is a benefit and a drawback, and I’ll discuss the drawback side of it next. But there is definitely a benefit here in that owning a house causes you to be more stable. Are you someone that would like to ’settle down,’ at least conceptually? Buying a place will definitely force you to do just that – the added responsibilities are substantial, and will cause you to be more deliberate in your actions going forward. Also, you don’t have to worry about the landlord deciding not to renew your lease, so moving isn’t something that can be subjected upon you.

Drawback: Loss of Flexibility

I put this last because it sums things up nicely for me. I regret the loss of flexibility in my job (and in turn my life) because I own a home and have a mortgage. That’s not to say that I don’t like the work that I do, just that I mourn the loss of that ability to say “You know what, I want to go live on the beach and write full time, instead of working my 9-5.” But beyond that, your needs change over your life, and what you needed 5 years ago in a home is probably not what you need today. I wonder how many families are crammed into too small a house because they just couldn’t afford to sell. If that same family was renting, moving to a larger place would be much less of an undertaking.

June 15, 2009 | Filed Under Investment, Money, Planning / Goals

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Buying used

Buying a used car can be a scary experience.  There’s no warranty, but you’re still spending a lot of money, and who knows, you could end up with a lemon.  However, there are some things you can consider to protect yourself, particularly if you are buying from a private party:

Even if you end up spending a bit of money on the car after you buy it, though, you are probably still better off than if you had bought a brand new car.  So don’t worry too much.  The last time I bought a used car the starter on it died a month later – it sucked, but since I got a great deal on the car anyway, it wasn’t much of a problem.

June 11, 2009 | Filed Under Money, Planning / Goals, Spending

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Getting a car from a dealership

Yesterday, I talked about how much it costs to buy a car, and the difference between buying new and buying used.  Today, I want to talk a bit about how to get the best price you can on a car from a dealership.  These tactics don’t work as well on a private seller, because there is no commission structure to encourage a sale, but I’ll cover that in another post.

The most important thing to remember about buying a car at a dealership is timing.  Nothing substitutes for good timing – both when you go in and a willingness to be patient.  Also, it’s important to be flexible – if you want a very popular model of car, don’t expect to get a good deal, because that’s where dealerships really make their money.

My tips for getting a great deal on a car -

When I was buying my current car, I was looking for a late model (slightly used) coupe.  Something that would get me where I needed to go, and was fun to drive.  I went into the Toyota dealership with that in mind, but they had a brand new ‘03 Celica for sale (it was April ‘04, the car had been on the lot for almost 8 months).  I took it out for a ride and liked it, but didn’t do anything other than make sure I scared the crap out of the saleswoman during the test drive (i.e. make sure you know how the car really drives).

I convinced the saleswoman I was also interested in a few other vehicles, and told her while I liked it, it was more than I wanted to spend.  I then told her what the other cars I was looking at were selling for (about 10k less than the Celica sticker).  They really wanted to get rid of this car – it was loaded with the sports package, and several deals had fallen through because no one could afford the insurance, so I was in a very strong negotiating position.  Long story short, I ended up getting the car for $9000 below sticker (this was $500 below the blue-book value), and they gave me a $1000 for my old clunker, that was probably only worth $500.  Not a bad deal.

Before you think I am some sort of brilliant negotiator, I screwed up and accepted their financing, rather than shopping around – that got me a bit, so my total cost for the car ended up being about 5k higher than that.  I could have probably saved myself $2000 over the course of the loan had I been a bit more savvy about the financing.  Oh well.

The same tactics will work for used cars, but I wouldn’t buy one at a dealership unless it came with some sort of certified pre-owned warranty.  If it’s as-is, you’re better off buying from a private party.

June 10, 2009 | Filed Under Planning / Goals, Spending

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Cars, cars, and more cars – does it pay to pay for transport?

About 6 months ago I finally paid off the car that I foolishly bought brand new as I was graduating college (don’t get me wrong, I got a great deal, but I really couldn’t afford it and didn’t understand that at the time).  When I got the thing, I was enamored with it, but after it was broken into a few years ago, it lost it’s luster for me.  Now, it looks like any other 5 year old car, dinged up and dirty, although I keep up with the internal maintenance, so it’s still running like a champ.  Recently, I’ve been fielding questions about what my plans were to replace it.

I usually respond by saying that I’m not looking to replace it anytime in the near future.  Generally, I drive a car until it’s getting ready to die or has already died and been brought back to life once.  My first car lasted me through 150k miles (it was my parents old car, we’d had it since the mid 80’s), and my second car lasted to about 200k miles (of which I put on about 70k).  I will probably be driving this one until at least 150k miles, unless something goes horribly wrong with it or it’s in a major accident.

Transportation is a huge expense for most people, just behind housing as many people’s largest expense.  So, would I buy a new car?  Honestly, I think it depends.  If I were to do it again (and eventually, I will), I probably wouldn’t buy new unless I could get it for below blue book.  And to answer the question, yes, I paid less than blue book for the Celica when I bought it in 2004.  Tomorrow, I’ll spend some time and talk about how I did that.  Today, let’s focus on whether a cost sensitive individual should buy a new or used car.

The best way to look at how much a car costs over time is to look into TCO, or total cost of ownership.  I usually think about TCO as a factor of mileage, usually talking in cost per thousand miles driven.  My current car costs me $400 per 1000 miles.  That’s a lot, but that number includes all my car payments (not the cost, but what I ended up paying after the financing), gasoline, and maintenance.  I’ve had one major repair, on my AC compressor, which was thrown into the calculation.  That car was purchased new.  I drove my old car about the same number of miles as I have my current car, and it only cost me $140 per 1000 miles.

But that isn’t completely fair, because that old car was ready to go when I sold it, while my current car will go at least to 150k miles.  Assuming I keep it that long, my cost per mile will go down, to about $240 per thousand miles.  If I continue that out to 200k miles, I get down to $210 per thousand.

So, basically, even if I keep my current, new car until it dies (the new car gets about 3 miles per gallon better gas mileage than the old car – that’s factored into the calculations), it will still have cost me more per mile than my last car did.  A huge amount?  About $8000 if you’re talking driving each car 80,000 miles.  I guess that means it pays to buy a gently used car.

June 9, 2009 | Filed Under Money, Planning / Goals, Spending

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Insure to protect

False economies are places where you cut a small, immediate cost, but they cause you to possibly (or likely) incur a much greater cost down the road.  Since I’m spending the next few weeks talking about ways to get big wins cutting back on expenses, I thought this was the opportune time to bring this up.  Some frugal minded people will go to far with all of their cost cutting and end up not spending appropriate maintenance money to keep something working at peak performance.  An example of this would be skipping out on oil changes for your car.  Eventually, if you do this, your motor will cease up and die.  Skipping out on $200 worth of oil changes just cost you $2000.  You get the picture.

One of the places everyone seems to do this is with insurance.  Maybe they don’t have enough home owners insurance (or are skipping out on renters insurance entirely).  Maybe they have just the minimum car insurance.  If you have a good insurance agent, they will bring these things to your attention – please listen to them.  I’m not suggesting you buy all kinds of crazy insurance or anything, just make sure you are suitably covered.

The other thing I think everyone should have is umbrella liability insurance.  This is insurance that kicks in if you get into a situation where you’ve catastrophically injured someone else or destroyed a substantial amount of their property.  That way, if you get sued, someone else ends up paying the bill.  The good news is that a policy like this, that only kicks in after your other insurance is used up is pretty cheap, and you get covered pretty thoroughly (most of these policies are written for millions of dollars of coverage and cost around $200/year).   Now, I’m not an insurance expert, but $200-ish a year to make sure everything is taken care of in case of a horrible accident sounds pretty cheap to me.

The best part?  You can actually reduce your liability on your other policies to help cover the cost.  So while you might normally need $100,000 in liability insurance on your car in case you got into an accident, maybe you can reduce that because of this additional policy.  Obviously, you shouldn’t make changes without talking to an insurance professional, and there are pros and cons to any decisions you make on this, but not having this type of coverage could cost you big time if you ever have the misfortune of needing it.

June 5, 2009 | Filed Under Planning / Goals, Spending

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Save money on your house – homeowner edition

Yesterday, I mentioned some things you can do as a renter to save money on your home costs.  From yesterday:

  • Wrap the windows (you can get window wrapping kits at Home Depot during the winter – this helps a lot with drafts and can reduce your heating / cooling bills by a lot if done properly)
  • Install a low-flow shower head and faucet aerators
  • Wrap the water heater (if you have access to it) in insulation or a thermal blanket
  • Replace the light bulbs with CFL or LED lightbulbs, just don’t forget to take them with you when you leave
  • Put a full 1-liter soda bottle in each of your toilet tanks
  • Install electric timers on anything you want to be off during the day

These things are great for homeowners too, but there are some more permanent solutions that are available.  Here’s a quick list of other things you can do:

Refinancing your mortgage can be a big win, particularly if you haven’t done it in a few years and you don’t owe more than the worth of your house.  Unfortunately, I’ve been told that there is a lot more paperwork involved in a refinance than there is in a home purchase, so getting a mortgage broker on the phone to talk about it might be more difficult than you would expect.  I’ve been looking into doing this over the past few months though, and I expect it to save me about $200/month and well over $25,000 over the life of the loan, so it’s well worth doing.

I’m sure there are other things I could be doing as well – if you have any thoughts or suggestions definately let me know.  I’ll be sure to include any suggestions in later posts.

June 4, 2009 | Filed Under Planning / Goals, Spending

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Internet Shopping Hacks

I’m not someone who needs to have a ton of stuff in general, but I am definitely a technophile and have a habit of buying expensive things if I’m going to buy something at all.   However, for a long time I didn’t actually have the money to buy the things that I wanted.  Obviously, this was a problem.  I didn’t want to dig into my savings, but I also wanted that shiny new gobbledygook that Orange released last week.

So I developed some rather advanced shopping patterns to make sure I payed as freaking little as possible for everything with the minimum amount of difficulty.  Before I continue though, I want to say that I don’t generally do all of these things every time I make a purchase.  If we’re talking about a smaller item (say, under $100) I might just hit Live Cashback or Fat Wallet and take the lowest price I can find there.  I’ll take my cashback from them, and the few percent I’m getting back from my rewards card, and assume I’m not getting ripped off.

I only go through this process when I’m making a big purchase.  It can be a pain in the ass.  Don’t fear, though, you’ll get through it.  Several months back, I ended up getting a brand new Dell XPS 1330 (fully loaded, same model even now costs more than $1100 after shipping and taxes) for $620 shipped.  I spent a bunch of time getting the price down, but it was worth it (and a good bit of that time was just deciding exactly what to get – my criteria was ‘as small as I can get with a dvd player’).

Here’s a list of all the accounts you should sign up for first (if you haven’t already):

The idea is to marry as much cash back and discounts together as you can.  It’s like the coupon game that some stay-at-home mom’s play, but for the Internet age, and can lead to huge discounts.  There are some powerful site combinations here that you should be aware of – the most powerful of which is the ebay/live cashback combo(requires paypal).

untitled I don’t have enough time to go into all of these shopping hacks in detail, but the deal with eBay and live cashback is you can get x% cash back from ebay, immediately credited to your paypal account, for any ‘Buy It Now’ purchase.  So you can go to the live cashback page, search for an item, compare store prices (with cashback that you get in about a month), and then check out eBay through the sponsored link to possibly save even more.It will look something like what you see to the left.  I guess tonight (I’m writing this on Sunday evening) you get 8% eBay cashback.

I will generally check all of the retailers on these sites to find the best base price / cash back combo I can find.  I will also hit up Froogle and make sure that the Google spyders don’t have something even better.  Then I start hunting for coupon codes.  For tech stuff, I like GotApex but in general, I usually just search Google for codes.  If what I am looking for is from a specific site or manufacturer, I will go with something like “Dell coupon code” or “Dell Certificate” and check out what pops up.  If the site I’m looking to shop at has some sort of special name for their coupon codes, I’ll also do a search for that.

This level of comparison shopping can take you just as far, if not further, than negotiating can at a store.  Stores have a lot more overhead, so in general they are going to have higher prices – a warehouse that doesn’t have to pay salespeople to sell their stuff can usually cut you a better deal.  With a little research and some time investment, you can save hundreds (and possibly thousands) of dollars off a major purchase.

June 2, 2009 | Filed Under Negotiation, Planning / Goals

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