Saving money

Running a marathon with no plan

Dave Farquhar Saving money , ,

Yesterday I commented on a popular financial blog about using a debt snowball to pay off debt. Another commenter said she would never use such "psychological aids" or some other derisive name, if she ever found herself in debt.

I commented back, saying she could call it whatever she wanted, but I’d call it what it is: a plan. And if you’re going to pay off debt, you either need a plan, or some phenomenal luck.

Just deciding to pay off debt without a plan is a lot like me deciding to run a marathon. A couple of people told me I’m pretty quick running short distances, so hey, I might be able to win, right?

Well, every time I’ve tried to run long distances, I took off and usually built up a pretty nice lead early on. But since I didn’t pace myself, not only did I fall behind, but usually I was struggling just to finish. What about winning? In my dreams, maybe.

And that’s why the debt snowball works. It sets a pace. Follow the plan, focus on just the next month rather than on the big numbers, and whether it takes you six months or seven years, you eventually write that final check. And then you’re debt free.

Sure, you can argue about which debt to pay first and all that, but it’s just details. Do it wrong, and you pay your debt off a month or two later than if you do it optimally. That’s not so bad. You still save thousands, whether you do it right or wrong.

My critic said she got out of debt by selling a condo she’d been renting out. That’s great for her. Unfortunately, five years ago I didn’t have a condo to sell. I still don’t. And neither do most people.

I could have waited for a windfall. But if I had, I would still be in debt.

Yes, thermal curtains work

Dave Farquhar Saving money , ,

At 93 degrees, it was the first big test of the year for the thermal curtains today. With the thermostat set at 77, the house is comfortable. Some parts of the house are never comfortable at that setting.

Add that to the list of things I wish I’d bought five years ago.

Do thermal curtains work?

Dave Farquhar Saving money , , , , ,

Do thermal curtains work? Yes. Do thermal curtains keep cold out? Yes. Do thermal curtains block light? Yes. If you’re interested in them, here’s where to find them.

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I think I found my next major purchase

Dave Farquhar Saving money

At Costco today, I found a solar-powered attic fan for $319. I’ve been thinking about an attic fan for a while. Solar power solves at least one problem very neatly: no need to run wiring to the thing.

The idea is that your attic can reach 150 degrees, and blowing that hot air out removes that heat blanket, so your living space stays cooler and your air conditioner doesn’t have to work as hard.Supposedly the savings is around $200 a year. So the fan pays for itself in about a year and a half. Not to mention making the house more comfortable.

I’ll be paying someone to install it though. I hate roofs. I hate heights and have a peculiar talent for injuring myself. So it’s worth it to pay someone else to install it, even if it costs a year or two of the fan’s savings to do it.

It’s worth it. A savings of $200 a year is significant.

I found a blog

Dave Farquhar Saving money

I found a blog: Fivepercent.us is all about saving energy. Over the course of the last 4-5 years, Tom Harrison and his family cut their electric bill in half. I’m impressed.Politics aside (and Tom Harrison admittedly is to the left of me), energy consumption is one place everyone can save some money. He argues that many people can save $100 a month or more. That’s better than a $1,200 raise, because it’s tax-free.

And while I’ve done lots of things to get more energy efficient–programmable thermostat, new HVAC system, plastic on the windows, spray-foam insulation and weatherstripping–my bills are still a lot higher than I would like. $70 a month during the winter, when I’m not running the A/C, seems like a lot. And I know little to none of that is climate control. So I’m glad I found it.

Energy isn’t likely to get any cheaper. So it makes sense to get started now.

I didn’t cause the depression

Dave Farquhar Saving money , , , , , , , ,

Various analysts are blaming the current depression on people like me. The reasoning goes like this: I have money in the bank, therefore, I should be out spending it, for the greater good, to stir the economy.

Let’s correct that right now.People like me “hoarding” cash didn’t cause this depression. I played by the rules. I didn’t lie on my mortgage application. I bought less house than the bank said I could afford, because I didn’t see how I could make that payment and still buy groceries. I bought a Honda Civic because I didn’t see how I could afford a car that cost $25,000 or $30,000 and I really didn’t see how I could afford to put gas in it. I made this decision when gas cost $1.59 a gallon in Missouri.

Basically, I made a budget and then I made the decision to stick with it. It wasn’t rocket science. Any time I thought about buying something, I sat down with a spreadsheet, entered in all the money I paid out each month, entered what I made, and figured out if the money left over was enough to buy whatever it was I wanted.

We were due for a depression, or at least a recession, at the beginning of the century. The dot-com boom and Y2K was a bonanza, but then two things happened. Y2K came and went, the world didn’t end, and people quit buying survival supplies in large quantities. Meanwhile, these startups failed to come up with viable business plans, continued to spend money faster than the government, and ended up going out of business. This hurt those companies, but it also hurt companies like Cisco and IBM and Intel, because as these companies went bust, their inventory of technology equipment, some of it unused, went on the market at bargain prices. There was no reason to buy a new Cisco router from CDW when you could buy the same thing, still sealed in the package, from a liquidator for half the price.

Then 9/11 happened and it really looked like we’d get our recession. But the government slashed interest rates, changed bank regulations, and encouraged people to buy like there was no tomorrow. GM started offering 0% financing on its cars in order to move them. Soon you could get free financing on anything but a house, and interest rates on houses were ridiculously low. And anyone could get a loan. Republicans loved it because it made the economy go boom-boom again. Democrats loved it because people at any income level could get mortgages.

But the problem was that many of these loans had onerous terms and conditions, and just because you could afford the payments one day didn’t mean you’d be able to afford them in two, three, or five years after some of the back-loaded terms kicked in. Of course, nobody worried about that because they were living the high life.

And then it all fell apart. It wasn’t quite as rapid as it seems. I think people started having problems paying their bills in 2005 or so, but it didn’t quite hit critical mass yet. It hit the smaller banks first. I know because the banks who had my mortgage kept going under, and every year or so, a slightly bigger bank would end up with my mortgage. But those weren’t any match for this monster either. Countrywide got my loan in 2007, but Countrywide wasn’t a dinky little bank. It went under, and when I made my final house payment, that payment went to Bank of America. Now it looks like even the mighty Bank of America might make me look like the kiss of death.

But that wasn’t the only problem. These bad loans got packaged up and re-sold. And somehow, these bad loans got higher grades than they deserved. A guy working as a slicer at Arby’s making $9/hour living in a $150,000 house isn’t a good investment. When everything’s going right, he can afford to make his payments, but the minute something goes wrong, he’s going to start missing payments and might not ever recover. So unless the guy gets a decent job, he’s not going to be able to afford to stay in that house. Yet somehow, a bank could package a bunch of loans like this and spin it as a grade-A investment.

Imagine me going around to my neighbors’ houses on trash day, filling boxes with trash, and selling the boxes, legally able to tell the buyer that the box contains something valuable. That’s great, until someone opens the box and realizes it’s just a box of trash.

No, this depression wasn’t caused by people like me. It was caused by people living beyond their means for too long, and not being able to pay the piper when the time came.

There’s another word for what’s happening right now, besides recession or depression. That word is “correction.” When the economy has been going in one direction for too long, it corrects itself. Sometime in the future, there will be another correction, and the economy will start improving again.

But I read my ultimate proof yesterday. Supposedly, if people like me would just spend their money, things would get better. So why does someone walk into a Jeep dealership with $24,000 in cash, intent on driving home in a new Jeep, and end up driving himself and his still-heavy wallet home in his old car?

And let’s look at people like me one other way. When I nearly lost my job in January, I had almost six months’ worth of income in the bank and a plan in place to be able to live off it for a couple of years, potentially. It wouldn’t have been a comfortable living, but it would have been doable. There would have been no need for me to go collect unemployment. I would not have been a burden on society. And when I retire, I’ll retire with enough money to get me through the rest of my life, with or without Social Security. I won’t be a burden on society either.

People who save their money might not spend it at the most opportune time for everyone else, so they might fail to even the economy out like a capacitor evens out electrical power. But they are never, ever a drag on society.

Be careful where you buy your screws

Dave Farquhar Saving money

So my wife wanted to replace the handles on the pantry doors. She went to Lowe’s, picked out some handles, and brought them home.

The screws that came with them were too short. So I went to Home Depot (it’s two minutes away and open late on Sundays) and bought replacements. I learned something.I needed 8-32 machine screws. I started out in the cabinet aisle, mainly because I found it first, but the 8-32s they had there were either too short or too long. The length I needed was sold out.

So I went a couple of aisles down to the general hardware, located the machine screws, and found what I needed. I also noted the price. A package of four 8-32s cost $1 from the hardware aisle. A package of two of them cost $2 in the cabinet aisle. Same screws, just slightly different wording on the packaging. I had no idea.

It’s cheaper still to buy them by the box, if you need a lot of them, but I only needed two. I paid my dollar, took the package of four home, and mounted the handles on the doors. The leftover parts are in my stash of screws and other hardware that I’m saving for a rainy day.

A shift may be coming

Dave Farquhar Saving money ,

I’ve been seeing news segments and stories about how people are choosing not to replace things, but rather, repair them, saving money in the process, but hurting the big-box stores as well.

I can see how this could be a good thing in the long run, though.Think about it. Big-box stores sell cheap goods made overseas, paying underutilized and/or unskilled workers less than $10/hour to do it.

Repair is semi-skilled or skilled work, depending on what it is you’re fixing. By definition the work has to occur on the local level. And the local level is where we’re hurting for jobs.

Not only that, it’s easy to find storefront space, assuming the repair doesn’t take place on-site. Most commercial districts have some vacancies; go into the older parts of town or into shopping malls, and you can find lots of vacancies. Last weekend I ran into an acquaintance from high school who just opened a store; he said rent is dirt cheap right now. Landlords are begging people to lease storefront space.

In the long run, it’s almost always cheaper to spend a little more money on a higher quality product (say, a pair of shoes) and then repair it when it needs it. So it’s a win-win all around.

It’s bad for the big-box stores I guess, but having worked in a big-box store myself, I know firsthand that big-box stores aren’t good for anyone but the corporations who own them and the corporations who lease to them. They don’t utilize their workers to their ability, they don’t encourage their workers to better themselves, and if they pay a living wage, they just barely do it. That’s if they bother to pay the worker at all–in my second stint at a certain big-box store, they missed two pay periods before I got fed up and told the store manager I needed my money so I could pay my bills.

I’d love to see more big-box stores close and more small, independent specialty stores and repair shops open in the business districts that the big boxes destroyed. Society as a whole will save money, and it will create jobs that are actually worth having.

How to turn around an automaker

Dave Farquhar Saving money , , , , , ,

So if you’re a CEO of one of the Big Three automakers, you have to fly a private plane, as corporate policy, for safety reasons.

Congress suggested they save money by flying first class, or plane-pool at the very least.I guess the problem with flying first class is that they might run into some angry shareholders. And maybe one or more of those angry shareholders would recognize them and beat the snot out of them?

But that raises another question. Speaking as someone who lost a lot of money in Ford stock (but back in 2000 or so, so don’t cry too hard for me), how many of those shareholders would have enough money left to fly first class? The angry mob would have to be sitting in coach, right?

But seriously. There’s a lot wrong with the three domestic automakers and cutting the corporate jets isn’t going to fix the problem, at least not alone. But let me tell you a story.

In the mid 1990s, I was briefly the treasurer of a student organization while I was in college. My organization had a serious cashflow problem. At midyear, I estimated the remaining expenses for the year based on bills from the first half, and came to the conclusion that we were spending more money per member than we were taking in.

I made this startling discovery by dividing the amount of money we were spending by the number of members we had. It was a bigger number than the amount of money we charged to be a member of the group.

Sure, it’s sixth-grade math, but someone had to do it.

The problem was that I faced a room full of good-ol’-boy, stubborn German Lutherans, some of whom had difficulty doing sixth grade math, and I just couldn’t convince them what we needed to start charging more.

I couldn’t balance the budget by cutting things, but I figured being $100 short at the end of each month was better than being $200 short. And I knew it would get my point across. So I started slashing line items like the stingy Scottish miser I am (and was). Cable TV? Gone. Telephone service? Gone. But most importantly, everything related to parties and beer got cut. That sure got the good ol’ boys’ attention. After all, the only thing more important to a German Lutheran than stodgy hymnals and poorly maintained pipe organs is beer.

When I refused to sign any checks related in any way to the annual Super Bowl party, I got the changes I needed in the budget. They got a slightly cut-down party, and I got the bank account balance back up above zero. This was a compromise, because I wanted to have a surplus at the end of the year. You know, just in case anything broke sometime and needed to be fixed or replaced.

Sometimes you make cuts in the budget not because it’ll balance the budget, but because it sends a message.

If I were the CEO of an auto company, I’d get the rules changed so I could fly in commercial aircraft. I might even go so far as to fly coach. And I’d get rid of those planes.

I’d also get rid of the executive cafeteria. Bob Lutz argued in one of his books that the executive cafeteria isn’t just a perk, it’s a great place to get work done. The problem is the message it sends. I’m not an auto executive, but somehow I manage to get my fair share of work done over a microwaved lunch from Costco that I bring from home every day and eat at my desk.

Incidentally, my boss eats lunch at his desk too.

I don’t need to eat gourmet food provided by the company behind locked doors in a lavish room to be productive. And if you do, you’re not creative enough.

I’d go even further than that, though. I read that Rick Wagoner made $14 million last year. A $14 million salary suggests that you’re the executive of a successful and growing company. Rick Wagoner is not. Time for another story.

In 1997, there was a struggling computer company in Cupertino, California. This struggling company merged with another struggling company, one that specialized in trying to sell underperforming, overstyled computers that ran Unix. I say trying because nobody was buying.

It wasn’t long before the CEO of the struggling company departed, and the erstwhile CEO of the company he bought became interim CEO.

The interim CEO gave himself a base salary of $1. One lousy dollar. The bulk of his compensation came in bonuses and stock options. I don’t know exactly what his motivation was, but it tied his yearly compensation to performance.

It worked. Prior to his taking the helm, pundits had the company on a deathwatch. I don’t have to tell you how the company is doing today or how it got there. All I have to tell you is the name of the company was Apple, and the executive was Steve Jobs.

I don’t know if Apple would have turned around if Steve Jobs had taken a more traditional compensation package. But it’s safe to say that Jobs is highly motivated. And while I personally don’t care much for the products his company makes, he’s obviously successful.

Taking a page or two from Apple’s book seems like a good move for car companies, starting with executive compensation. How Apple manages to remain highly profitable and successful with a market share of around 10 percent would also be a good case study for U.S. automakers, since it’s clear they’re going to have to live with a smaller market share than they’ve been used to having, at least for a time.

Turning the Big Three around isn’t going to be an easy process, and it’s going to take a lot more than a $25 billion loan from the government to get it done. A true turnaround is going to require a change of culture, lots of shared sacrifice, and the motivation to think long term, far beyond the next quarterly report.

Changing things like corporate jets and corporate cafeterias won’t balance the budget, but it’ll help in the shared sacrifice and changing the corporate culture.

And in the long run, maybe some of those perks can come back some day. I don’t know this for certain, but I’d be willing to bet Steve Jobs doesn’t eat lunch at his desk.

Use your coupons!

Dave Farquhar Saving money

So on Friday, I went to the local Walgreen Drug (no, I won’t misuse an apostrophe) to buy Zicam to ward off a cold. I spent $20, and they gave me a $2 coupon. I went again today, spent another $20 on similar products, and got another $2 coupon. And yesterday, Target sent us a coupon for $10 off a $100 purchase.

It seems stores are trying to lure us in. If you’re smart, that means savings.In the case of Walgreen Drug, we’ll use the coupons on non-FSA stuff. The chain isn’t exactly known for low prices on consumer staples, but if you can get $2 off with few strings attached, then it’s worth it. Especially if you have to go there anyway because it’s cold season.

In the case of Target, we made ourselves a list of things we needed and stuck to it. We bought two cans of formula instead of one (we’ll use it), and stuff like furnace filters that we’ll use eventually anyway, and tracked it as we went along. It wasn’t long at all before we had $110 worth in the cart–a bit more than we needed, but that’s OK. Everything we bought was either on sale, or cheaper at Target than wherever else we’d buy it.

We got a coupon from either Petco or Petsmart this week too. So we’ll use that to go stock up on dog food–once again, something we’re going to need eventually anyway, so there’s no harm in buying three bags if that’s what’s necessary to get the coupon to kick in.

So we saved ourselves some money at Target. And we’ll save a little at two other stores too in the near future.

It’s not a lot, but every dime counts. Especially in this economy. So if the stores near you are sending you coupons (or printing them for you at the register), use them. Be smart about it, but use them.