Saving money

Shut up, McCain. Obama is right this time.

Dave Farquhar Saving money , , ,

McCain’s camp is mocking Barack Obama’s suggestion that people need to inflate their tires to save fuel.

It’s not like the senator from Illinois said let them eat cake. It’s actually good advice.The biggest problem with Washington is its disconnect with reality, such as the time Bush I went grocery shopping as a publicity stunt and marveled at the scanners at the checkout as if they were something new. Well, newer than unleaded gasoline, perhaps.

Perhaps my biggest frustration with McCain is his lack of understanding at chipping away at a problem. I have news for him. Chipping away can be very effective. I nickel-and-dimed my way to paying off a mortgage in 6 years, partly by doing things like inflating my tires and changing my air filter and using synthetic oil. Besides that, I bought a programmable thermostat, bought compact fluorescent light bulbs, and brought my own coffee to work.

Take small amounts of savings here and there and make them work for you, and you can accomplish something a lot bigger than you might think.

Too bad it’s been seven years since Washington tried to chip away at its deficit. But that’s another issue.

If every U.S. citizen did the routine maintenance that helps improve gas mileage, it would have the dual effect of reducing demand (and therefore prices) slightly, and putting a little more money in consumers’ pockets, so they could better afford the market price.

McCain would rather encourage voters to wait for Washington to fix the problem.

Tell me, which one of these guys is the Republican and which one’s the Democrat? I’m having difficulty telling them apart.

So if a McCain supporter offers you a tire gauge, take it. And by all means use it.

On this issue, Obama is right. As in correct. And conservative, apparently.

What order should you pay off your debt?

Dave Farquhar Saving money , , , ,

The eternal debate, once someone starts on the road to paying off (or at least reducing) debt is short, simple and sounds innocent enough: Which one first?

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Paid in full.

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

This week, my wife and I drove to the bank and signed some papers initiating a wire transfer to our mortgage company.

Yesterday, I had the satisfaction of logging into the mortgage company’s web site, clicking on my account, and seeing the words “paid in full.”

I moved into this house in October 2002. Five years and eight months later, I own it outright. Between the house and our cars, my wife and I have paid off nearly $180,000 in debt in those five-plus years.We aren’t completely debt-free yet. We still have some student loans from my wife’s college education.

Some would argue we should have paid those before the house. I opted against it because one of the loans has a very low interest rate (lower than the house), and because the payments are small. If I walk into work tomorrow and find out I no longer have a job (that very thing happened to me not once but twice in 2005), I can easily make those student loan payments. Scraping together enough for a mortgage payment is harder.

But I’ve gotten ahead of myself. Here’s how we did it.

The debt snowball
The trick is to make your minimum payments on all debts, but pick one debt to pay off first. Then scrape together some extra money to pay it off sooner.

In my case, I started with my car. The payment was about $300. I tried to pay at least $600 on it. Sometimes I paid $900. When I got my tax refund, I paid a whole lot more than that.

By mid-2005, I owned the car outright.

By then I was also married, so we turned our attention to my wife’s car. Her payment was also about $300. So we paid $300 plus $600, the amount I’d been paying on the other car. I had a better job that summer, and we had my wife’s income too, so it wasn’t all that long before I realized we had enough surplus piled up in the bank to pay that off too. So we did.

And that left the house. The mortgage payment was around $1,000. So we paid $1,900. When we started making more money, we increased that. In recent months, I’ve been paying $3,000 on the house since I now make quite a bit more than I made in 2005.

Last month, I noticed we were very close to having enough in the bank to pay the house off while still leaving a comfortable emergency fund. I called the mortgage company to find out exactly how much we’d need to do it, and to get payoff instructions. I figured out that every month we didn’t pay the house off was costing us more than $200. So scraping was worth it.

Finding extra money
I’ve always been a tightwad (just ask my family), but in my late 20s I fell into some bad habits. I didn’t rack up debt, but I definitely wasted more money on conveniences than I needed to. I saved a lot of money the last five years or so by packing a lunch and bringing my own coffee and breakfast to work.

Do the math. I used to spend $2 on coffee and breakfast, plus $5-$6 for lunch. Call it $8/day. Figure 240 working days a year, and that’s $1,920.

I figure I whittled my daily food bill down to about $3 per day, so I saved $1,200 per year. That’s $4,800 over the course of four years. That alone allowed me to pay the house off at least nine months early.

Don’t let other people spend your money
But this is the big one. Everyone has their own ideas what kind of car you should drive, what home improvements you should be making, and other status things that really don’t matter that much.

I drive a 2002 Honda Civic with more than 100,000 miles on it. I know some people look down on that. But the car is still in nice shape, still runs like new, and has never needed anything more than routine maintenance. Plus it consistently gets 35 MPG.

If I had traded that car in after driving it for three years like the marketers say you’re supposed to, it would have slowed down the house payoff by six months. Had we done the same with my wife’s car, we could make it a year.

Frankly I’d rather have the house. In fact, if I could turn back the clock to 2003, I wouldn’t buy the same Civic I bought then. I would have been better off buying an older one that I could pay off more quickly. I could have saved an extra $4,000 or even $6,000, and we would have had everything finished a couple of months sooner.

So what about the cars now? Well, what about them? Remember, I was used to paying $3,000 a month on the house, and that obligation is gone. A year from now, there’ll be enough cash piled up in the bank to buy two cars outright if necessary. Not that I expect to need that, since Civics are famous for going 200,000 miles and beyond. The last time I went to the dealer, they told me someone had traded in a Civic with 500,000 miles on it.

As for home improvements, yes, now it’s time to do some. But why do them sooner? The boob tube tells you to do it to increase the value of the house. But why would I want to do that? So I can pay more taxes? Without me doing a thing, the paper value of this house has risen nearly $40,000 since I bought it, at least according to the county assessor. That means I paid $400 more in taxes in 2007 than I did in 2003.

Unless I was planning to move, there’d be no reason whatsoever to be concerned about property value.

On the other hand, at this point in the life of the mortgage, I was paying more than $200 per month in interest. Now that I’m not paying interest, that’s like getting $2,400 per year for free. That’s enough to finance a modest home improvement project.

But then again, if there’s something else my wife and I want that costs $2,400, we’re entirely free to go after that instead.

In what order should you pay off loans?
This is the paralyzing question for some people. Mathematically speaking, you should pay them off in order of interest. If you have a credit card balance at 19%, a car loan at 7%, a mortgage at 5%, and a student loan at 3%, then you should pay them off in that order.

I’m not enough of a math genius to run the figures, but paying them off in the worst-possible order (reverse order), generally only slows you down by a month or two.

We paid ours off somewhat less than optimally because the student loan is less paralyzing than the mortgage. The minimum payment on the student loans is about 1/5 what the mortgage payment was. When I was out of work, the mortgage was a bit of a struggle to make during a couple of those months, whereas the loans are comparable in size to a utility bill.

If nothing changes between now and then, we can have those loans wiped out in another year. If the economy tanks and I lose my job and my income drops to nearly zero, I can nurse those loans along almost indefinitely, since I have numerous options for making the $1,000 per month it would take to cover utilities, groceries, and those loans.

What about retirement?
Some people argue you should give retirement planning priority over your debts, while others say the reverse. My wife and I haven’t done much for our retirement since we got married in 2005. Frankly I can see the arguments both ways. But we’re still in our early 30s, and now we’re in position to contribute the legal limit into Roth IRAs from now until the government starts making us collect. There’s still time for both of us to pile up enough to retire.

The counter argument is that it’s foolish to invest when paying down debt gives you a guaranteed return. In this economy, given the choice between investing or paying down debt at 6 percent, what’s safer?

While there’s room for criticism if you go either way, either way is preferable to doing nothing. Unfortunately there are all too many people who have lots of debt and little or nothing saved for retirement.

Don’t refinance!
This is another big one. I refinanced in 2004. I got a lower interest rate, and I switched from a 30-year mortgage to 15. The interest rate dropped, but I got nailed for a $2,000 closing cost.

I saved $500 in interest the first year, but I didn’t have the loan long enough to recoup the closing costs.

If your mortgage is the last thing you’re going to pay off and if you can drop the rate, or if refinancing will allow you to consolidate some higher-interest debt, it might make sense to do it, but factor in that closing cost. If you can pay off the mortgage in less than five years, it makes more sense to just pay it off rather than go to the expense and hassle of refinancing.

In my case, if I hadn’t refinanced, I may have owned the house a month sooner.

What about the tax deduction?
Short answer: Forget about the tax deduction. The tax deductions for mortgages are more overrated than Derek Jeter.

Let’s say you’re in the 25 percent tax bracket. I’d have to ask my accountant if such an animal exists this year, but the numbers are convenient. If I’m in the 25 percent tax bracket and I paid $1,200 in interest this calendar year, then that means in return for me paying my bank $1,200, the government is giving me back $300.

Every other time you spend $1,200 and get $300 back, it’s called losing $900.

For the past five years, I’ve been paying a lot more in interest than I ever got back as a tax refund. Eliminating the mortgage won’t completely eliminate my tax refund, but it did eliminate that interest. In effect, by paying off the house, I gave myself a $1,200 raise this year.

So there’s no sense in keeping a mortgage solely for tax purposes. If you need tax deductions, take your tax return to a good accountant. The accountant’s fee is tax deductible, and the accountant will probably find you additional deductions you didn’t think of.

If you’re in a higher or lower tax bracket, it can make a little more or a little less sense, but you’re still trading dollars for small change in any case.

In conclusion?
There are any number of things we could have done differently. But the important thing is we now own our home and two cars outright. It’s possible that doing a few more things might have made it happen a month or two sooner. But if I’d done everything the traditional way, I wouldn’t own the house outright until age 58 (if I’d kept the original 30-year mortgage) or 44 (since I refinanced to a 15-year mortgage). Compared to 11 additional years of paying interest, what’s an extra month or two if I get a couple of details wrong?

$13.99 a day for three days isn’t $39 total!

Dave Farquhar Saving money , , , , , , ,

On Monday, I had the pleasure of renting a car. The insurance company was paying–the pleasure came courtesy of the 81-year-old woman who rear-ended my wife and son as they sat at a stop sign–but I learned a lot about rental company tactics.The insurance company was paying $24 a day, which would put you in a mid-sized car–roughly the size of a Toyota Camry or Honda Accord. So the rental company tried to upsell me. Enterprise stuck me in a Buick LeSabre once when the Dodge Neon I initially tried to rent had a flat tire. I hated the thing. It was comfortable, but it was huge, I couldn’t park it, the brakes were mushy, and the steering was mushy. I felt like I was stuck in a big bowl of oatmeal.

But they didn’t want to put me in a LeSabre. They wanted to put me in an SUV or a minivan. Completely impractical. Besides, I wanted fuel economy. I pointed to a Ford Focus. “How’s that gas mileage compare to my Honda Civic?” I asked.

“It has to be pretty close,” he said.

“I’ll take one.”

Once inside, he said he also had a Toyota Corolla. I lit up. “I’ll take the Corolla.” He said the last person who rented it got 38 MPG out of it. I like 38 MPG.

Then he took me outside to see the car. It was cleaner than my car, had fewer scratches on my car, when he put the key in the ignition and turned it, the engine started. It promised to cost less per mile to drive than a Civic, and someone else was paying the bill. What’s not to like?

Then he tried to sell me insurance. By then I was getting frustrated because all this upselling was making me even later for work, and I was plenty late enough. They had primo insurance for $23.99 a day, which was more than the daily cost of renting a Corolla. He said it would give me a million dollars in liability. I don’t remember what else. I probably rolled my eyes. I think he sensed there was no way, no how he was going to sell that to me, so he turned to the “cheap” $13.99 insurance.

“I don’t think I need insurance because American Family said they’d cover me since I have full coverage.”

“What’s your deductible?” he asked.

“I don’t know. I’ve never had to use it.” (Remember that second sentence.)

“It’s probably $500. So for $13.99 a day, we can save you the hassle of having to deal with American Family if anything happens.” Then he went over the things it would cover.

I started to get antsy, knowing how late for work I was getting. I tuned him out, which was the best thing to do. Otherwise I’d get even more irritated.

“So for just $39, we can take care of you for three days.”

I ignored the mathematical fact that $13.99 times 3 is $41.97, not $39. Any sixth grader should know that.

“$39 is a lot of money,” I said. That’s true, isn’t it? That’s about how much it costs to fill a Corolla’s gas tank in Missouri right now.

He laughed. “So’s $500!”

“Yeah, but I’ve never had to use that deductible, so the chances of me having to use any insurance this week on this car are about zero. So it really doesn’t make any sense to pay $39 for something I’m not going to use.”

“Suit yourself,” he said.

It suited me fine. The car was in our possession from roughly 9 AM on Monday until about 5 PM today (Wednesday). I guess that’s about 56 hours. My wife ran errands for a couple of hours each day and went to the doctor on Wednesday, but I think it’s safe to say that the car spent at least 41.97 hours sitting in our driveway.

Nothing bad happened in our driveway. I’m sure the dog sniffed it a few times.

I’m guessing the salesman who was helping me was probably 24 or 25, and in all fairness, when I was his age I didn’t think $39 was a lot of money either, even if it was really $41.97. Let’s face it. When I was 19, I was making about six bucks an hour. When I was 24, I was making a shade over $12 an hour, and after $6 per hour, that seemed like a lot of money. That was 9 years ago. Let’s guess this whippersnapper makes $15 an hour and made $8 an hour selling dishwashers at Best Buy five years ago. When you go from making $160 a week to $2400 a month, $41.97 seems like nothing. I’m sure he’ll spend more than that on dinner and drinks on Friday.

And I’m sure he and thousands of others like him manage to convince a lot of people every day that $41.97 is really $39, and $39 is nothing, so they sign on the line. All those nothings pile up really quick, and the next thing you know, you’ve got a $9 billion company.

Slick.

But that “only” tactic doesn’t work on me anymore. Quote me $41.97, and I can tell you it takes me an hour and a half to make that, pre-tax. Factor in taxes, and it takes me more than two hours to make that. That’s a quarter of my day! If I’m going to waste $41.97, I can think of a number of things I’d much rather waste $41.97 on. Maybe a full tank of gas. Or half a week’s worth of groceries. Or 288 diapers, if I shop at Dollar General. That might last my son a month.

But I spared him the Dr. Walter Johnson Economics 51 lesson on Opportunity Cost ($101 per credit hour in 1994 at Mizzou). Like I said, I was already late for work. I’d probably already blown $28 worth of vacation time and I didn’t want to make it $41.97.

Lawnmower Adventures, Part 2

Dave Farquhar Saving money

So the expensive Toro mower I bought a year ago decided to go on strike. Unfortunately, Toro’s "Guarantee to Start" is only as good as the place that looks at it.

In my case, the authorized service center charges a $62 bench fee, did its best to convince me the problem isn’t covered under warranty (they can’t nail Toro for a $62 bench fee, of course), AND they won’t look at it for 3 1/2 weeks.

So what do I do when I have a jungle growing in the front yard and the neighbors are getting irritated?

Say hello to Mr. Reel Mower.I called around a lot, but the local hardware stores either didn’t know what I was talking about, or they laughed. But on This Old House, Roger Cook said the new reel mowers aren’t bad at all. I hit the web, and saw that Home Depot carries a 16-inch mower in the store, and Lowes carries a 16- and a 20. I went to Lowes (I’d rather support local business, but I needed a mower NOW) so I went, plunked down $150, and brought home a 20-inch reel (manual, human powered) mower.

It’s not so adept at hacking through jungle. I found the best thing to do with tall blades was to make multiple passes from different directions and angles. By the time I did my front yard, my 33-year old arms and legs were tired.

With reasonable grass, it’s easy. It takes a little longer than a gas powered mower because it isn’t as wide as a gas powered mower’s cutting deck, but makes no more noise than my electric razor, doesn’t die on big clumps of grass or uneven ground, and it doesn’t cost anything to run.

Eventually I’ll get the Toro fixed one way or another, but the reel mower will take care of me in the meantime. I may not like it in August, but in cooler weather, it’ll cut the lawn without chewing through $4 worth of consumables every time.

The economics of mass transit

Dave Farquhar Saving money

I think I’m going to take the train to work tomorrow.

It won’t save me any time, although with some creativity I could save five minutes some days (but lose five on others). I do figure it can save me some money.I drive 76 miles to and from work every day. My car gets about 35 miles to the gallon, but I just put more than $30 worth of gas in my car and I’ll have to do it again in a week at the rate I’m going. I’ll spend about $6.50 driving to and from work tomorrow.

I also had a bunch of maintenance done this week. I figure the consumables in my car–oil, timing belt, shocks, tires, compliance bushings–cost me about a nickel a mile, so potentially it costs me more like $10 to drive to and from work every day.

I’m not factoring in depreciation since I intend to keep the car 10 years, and I’ve only had it five. But going by the IRS’ standard mileage deduction, my commute costs a whopping $38.38 a day. And I don’t get to deduct that. Ouch.

The closest Metrolink station is 8 miles away, but the route from it to work is impractical–it’ll add almost an hour to my commute both ways. I need to go to a station closer to work and catch the train there. I figure I can drive about halfway, take the train the other half, and not end up spending three hours on the train every day.

A monthly Metrolink pass costs $60. Assume 21 working days, and that’s $2.86 a day. Even if all I was saving was gas, it’s worth doing. But I stand to spend $2.86 to save $5.50. That’s a good deal. Or if you ask the IRS, I stand to spend $2.86 to save $19.19. Even better.

If gas goes to $4/gallon like some are predicting, it becomes an even better deal. And there’s nothing I can do to control the price of gas.

Nothing, that is, except burn less of it.

Don’t fall for get-rich-quick schemes: Check out the claims before you sign

Dave Farquhar Saving money , ,

The pitch sounded too good to be true. While most bank accounts in the United States are paying a piddly 4% interest, and rates are more likely to go down than up, there’s another country whose economy is booming, is one of the safest places in the world for your money, and routinely pays 9, 10, or even 14 percent interest on three-month CDs.

I clicked the banner ad. I read what the guy had to say. But I didn’t sign on the dotted line. Here’s why.First, there’s no shame in checking out what the guy has to say. Maybe he does know something nobody else knows. That’s fine. What’s wrong is signing up without checking out the claims in more detail.

In this case, the sales pitch was for 3-month CDs in Iceland. Icelandic banks offer tantalizing interest rates, but there’s a catch.

The salesman said the reason is because Iceland’s economy is booming. Do some more research, however, and you’ll find the real reason for the outlandish interest rates is because the Icelandic Krona isn’t a very stable currency. They offer these tremendous interest rates in hopes that foreign investors will pump their currency into the Icelandic economy.

I did some more digging, and the value of the Krona versus the dollar varies wildly. In the same year, it can be as high as 80 Kronas to the dollar, and as low as 50. Doing a little math, if your timing is perfect and you buy low and sell high, your $10,000 investment could be worth more than $17,000. You make about $900 off your interest, and $6,000 off market timing. But if you time it badly, your $10,000 investment could drop to $6,800 in value, in spite of the high interest rate.

This is what my dad used to call a "Las Vegas investment." If it wasn’t inherently risky, they wouldn’t be paying these kinds of interest rates. And it’s pretty clear to me why everyone isn’t doing it.

But here’s another problem: The U.S. banks that sell Icelandic CDs charge you a 1% fee on the front and back ends. So they charge to convert your dollars into Kronas, and then when you pull your money, they charge you again to convert back to US dollars. In effect, that 9% CD immediately becomes a 7 percent CD.

The other problem is there’s a $10,000 minimum. You should never tie up more money than you’re willing to lose in a risky short-term investment, and for the average person, 10 grand is a lot of money.

If you’re looking for a safe place to store money for a short period of time and get a good interest rate, a lot of banks and credit unions have started offering so-called "extreme checking" accounts to attract new customers. These accounts often pay in the neighborhood of 5.5 to 6 percent, have a small minimum and a $25,000 maximum, and usually have a few other requirements you have to meet, such as making a certain number of transactions per month with your debit card. But otherwise it just acts like a plain old checking account that lets you add and withdraw funds at will. The rate isn’t that much lower than what you can get in Iceland once you pay the conversion fees, and you have easy access to the money in case of emergencies, and best of all, there won’t be any unpleasant surprises in three months if the exchange rate isn’t favorable.

Unless you can afford to tie up $10,000 until some random, future date when the dollar happens to be low against the Krona and your CD is eligible to be cashed in, I can think of a lot of better ways to invest. If you’re looking for a long-term investment, this is a good time to buy stock index funds because stock prices are in the toilet right now. The long-term returns will be good, and you don’t have to be nearly as precise about your timing. For a short-term investment, a high-interest checking account looks better to me. You don’t need as much money and there’s much less commitment.

The argument for paying your mortgage off early

Dave Farquhar Saving money , , ,

I’ve had a number of people tell me I’m making a mistake paying my mortgage off early. If all goes well, my wife and I will be rid of that debt sometime this year.

I can understand the logic behind keeping that "good debt." But that’s idealistic. I have lots of reasons for getting rid of that as soon as possible.First, there’s my personal experience. Right out of college, I invested everything I could, and for a time I looked like a genius because the market was doing gangbusters in 1998 and 1999. Then the double whammy of the dotcom bust and 9/11 happened, and I literally lost half of it. Now that those investments have mostly recovered, the market is in the toilet again. How much will I lose this time?

Of course, when the losses are piling up it’s a great time to buy at low prices and hold. If that were the only factor, I might do it.

But in the meantime, I know exactly what the return will be if I pay off the mortgage early. And it doesn’t really matter what the rest of the economy does.

The second factor is job security. Let’s look at my recent history. In 2005 I lost my job. About six weeks later I found another one. It wasn’t ideal, because the company was having financial problems and I knew going in that it might not last. I took it because I was on the hook for pair of $400 car payments and an $1,100 mortgage. By my math, the money I had in the bank would last about four more months. I took the job because I didn’t like my odds of finding anything better.

The job lasted four months.

When that ended, I interviewed with another company for a temporary job. It was anything but ideal: About an hour away, and it was only for two months. But it was late October, not a good time for job-hunting, and this would get me through the holidays. The interview was a home run.

I didn’t get the job though. Later that very day, the company did a round of massive layoffs, and the job I interviewed for ceased to exist. I lost the job before I even had it.

For two months I looked and didn’t find anything. I couldn’t even find a desktop support job.

Finally at the end of December I got another job. It wasn’t ideal either. The biggest problem was that it was 45 minutes from home. For seven years I’d worked 10-20 minutes from home. Did I want the job? No. Did I have a choice? Given my recent history, not really. My car was paid off but my wife’s wasn’t yet, so we were still on the hook for $1,500 every month. This job was secure for at least a couple of years, which was a lot better than the last two opportunities. So I took it.

I’ve looked for something closer since then. The problem is that there are so many other people who want any job that comes up. I’ve had a few phone calls, but never an interview.

My job is reasonably secure until September or October. Beyond that, it’s anyone’s guess. If the house is paid off before then, it doesn’t matter nearly as much.

In decades past, if you got a job with a good company, there was a reasonable expectation on both sides that you would work for that company until you retired. That world doesn’t really exist anymore. A lot of companies want turnover, because it keeps wages down. It almost seems like some companies try to make sure you won’t be around more than five years so they don’t have to give you a third week of vacation.

Other companies run themselves into the ground before you can stick around five years.

In that kind of environment, being on the hook for $2,000 a month for 30 years just doesn’t look very appealing. There will be periods of time in your career that you won’t have that money coming in. The only question is when it will be, and for how long.

Changing careers becomes much easier without a mountain of debt. A lot of us end up in jobs that don’t really suit us, for whatever reason. We go to college and study four or five years, hoping to figure out what we want to do with our lives. It’s really not enough time, and most of us don’t actually find ourselves until we’re somewhere north of age 30. By then it may be too late. We’ve built up our debts and our lifestyles to the point that we can’t afford to change careers and start over at the bottom of the pay scale again. And if you have to go back to school on top of that? Ouch.

What if you want to chase the American Dream the classic way and go into business for yourself? The problem with that is that most businesses can’t make enough to support the owner until they’re two or three years old. This is why most businesses don’t survive more than 18-24 months.

If you’re not on the hook for $2,000 a month, you can much better afford to weather a few lean months or even a couple of years until you can either climb the pay scale in a new career, or your business matures to the point where it can support you. Getting rid of debt puts you back in control of your own destiny.

Finally, I’ve seen what it’s like to not have debt. Some friends of my mother in law and father in law convinced them that it would be a good idea to pay off all of their debt, and they gave them a plan to do it in seven years. They did it. And even though the two of them had modest salaries–she was a schoolteacher and he was a disabled veteran with no college education, which limited him to jobs that didn’t pay a lot–without that debt, they were able to live very comfortably and retire while they were in their 50s.

Imagine what it would be like to have the freedom to change to a career that suits you, reach the point where you’re able to retire in your 50s, but not really want to retire yet because you enjoy what you’re doing.

Not having an anchor of debt hanging around your neck opens a lot of possibilities, doesn’t it? I think it’s worth sacrificing a couple of years of investing to get to that point.

What I learned today about Black Friday sales

Dave Farquhar Saving money ,

Although a lot of people, including money saver types, recommend against buying anything at all on the day after Thanksgiving, I rolled out of bed and fought the crowds early this morning.

I think I came out ahead.Having the ads ahead of time helps to plan out strategy. I don’t read Fat Wallet religiously like some people do, but earlier this week I found a link to a nice spreadsheet on Digg that listed all of the available deals, sortable by category, store, and everything else imaginable. That helped immensely.

A big part of the key is knowing what you want and sticking to it. Get into the store, get the biggest item right away, then go get the smaller items.

I nearly got burned by not planning for traffic. I figured since I left my house before 6, I should be able to zip through the commercial area to get to Office Depot in about five minutes. I was wrong; with the stoplights all on flash, it was worse than rush hour. My five-minute trip took more like 30, and the store was open by the time I got there.

I went in, but it was a waste of time. There were three things on my shopping list, and all of them were gone, including the little things. I grabbed a ticket for the printer I wanted, but when I took it to the register, I was told they were all gone, after I stood there by the register for 15 minutes. "Well, we’re a little busy now," was the smart-aleck reply I got from the stock guy when I asked why it took 15 minutes to tell me they were gone.

Lesson learned: If it doesn’t look like they have what you want and someplace else has it, leave. Immediately. It’s more productive to stand in line at a store that hasn’t opened yet.

I somehow managed to get to Office Max about half an hour before they opened. The line was already wrapped around the side of the building when I got there, but by the time the store opened, the line was much longer.

I know Office Max’s layout a lot better than Office Depot’s layout, so I actually managed to get everything on my list and get out of there quickly. The item I really wanted–the printer–cost $20 more there, but it was still a good deal at the higher price, and there weren’t any rebates for me to mess with.

If I’d been going to more than two or three places, it would have been a good idea for me to map out my route using Google Maps to eliminate any backtracking. That way, if two stores I wanted to visit were going to open at the same time, I could get to the nearest store.

The Office Max trip really drove something home: If you’re really serious about getting something, it helps to visit the store earlier in the week to get familiar with the layout, so you can get to the items on your list quickly.

Another important point: I didn’t mess with anything not on my list. Everything I bought came at a substantial discount. Part of the idea of Black Friday doorbuster sales is to get you into the store to buy other things because you’re there anyway.

And about that list: Before you put something on your list just because it looks like a good deal, ask yourself if you’d still buy it if it were full price. Last year I bought a USB flash drive and a spindle of DVD recordables because I needed them. This year I bought a bigger USB flash drive because I keep filling up the 1 GB drive I bought last year. These are things I would have bought anyway, but it was worth waiting for a good deal.

If you only use a printer once, it’s not a bargain, whether you pay $99 or $249 for it.

I also checked to make sure the price really was a good deal. Sometimes the prices at Newegg, Amazon, or some other online vendor are lower already. I didn’t buy anything that I could get cheaper online from the comfort of my living room.

Finally, you need to make sure you save enough money to make it worth your time. This year I saved more than $200, so it was worth getting up at 5:30 this morning to go do it. It’s not worth getting up at 5:30 and standing in line for 30-45 minutes to save $6 on a USB flash drive. Last year, since my savings amounted to about $20, I bought my stuff online and saved the trip. Of course the stuff ended up being backordered, so it took nearly a month for it to arrive. I was willing to live with that.

Today, I was home with my loot by 7:30. That’s as good as making $100 an hour. Actually it’s better, since it’s tax-free.

So, to recap:

1. Make a list of the things you want.
2. Make a list of the stores you’ll visit, based on the things you’re going to buy. Start with the store opening the earliest.
3. If possible, visit the stores earlier in the week and find the items on your hit list, so you’ll be able to find them quickly on Black Friday.
4. Locate the addresses of all of the stores, and plot out your route using Google Maps to avoid backtracking if possible.
5. Try to arrive at each store half an hour early. The less time you actually spend inside each store, the better. Most of the killer deals are gone within 20 minutes.

Some people recommend buying online instead of going to the stores, or buying the item earlier in the week and then price-matching it on Friday afternoon when the crowds are smaller. Make sure you know the rules; some stores won’t do this.

As for buying online, Office Max was selling its items at full price this morning. Office Depot’s web site wasn’t working, so they probably were honoring their prices but I wouldn’t have been able to buy them. Keep in mind that if you buy online, you’re at the back of the line, so you won’t get the item quickly and the store may weasel out of giving it to you at all.

Saving the world (but not necessarily your wallet) with biodiesel

Dave Farquhar Saving money

So it looks like someone in Kansas is building diesel-electric hybrids. Just not really from scratch.

Johnathan Goodwin converts vehicles, new and old, to diesel-electric hybrids. His clients include Governator Arnold Schwarzenegger and Neil Young.

Young happens to hang out on one of the train forums I frequent (he’s the minority owner of Lionel) and they asked him to elaborate. Some people took him to task for ruining a classic by removing its original engine. He said the car was a beater when he first acquired it. He also said he does expect to get 100 miles per gallon out of it, and its range will be longer than one can safely drive nonstop. He’ll plug the car in at night, and for a short trip or commute, the car wouldn’t have to use the biodiesel at all.

The conversions aren’t cheap–Young sold some cars from his collection to finance the project. It typically costs $40,000 to convert a car. But it’s nice to see that the super-rich can convert their big cars to pollute less than my Honda Civic does.

It makes me wonder, though. If Young’s 1959 Lincoln Continental will get 100 miles to the gallon, what kind of mileage would a converted Honda Civic get?

Young also said that if cars using this kind of setup were mass-produced, the cost would be comparable to a Cadillac Escalade or Lincoln Navigator. That’s 2-3x what I paid for my Civic.

Let’s do the math. I drive about 400 miles a week. At $3 per gallon, I’m spending $34.29 a week on gas. According to what Young said, I could probably do all of my driving purely on plug-in power, but let’s assume the worst-case scenario and say I’d burn 4 gallons of biodiesel per week. Call it $12.

So I can expect to spend $1782.86 per year in my Civic. If I were driving one of these biodiesel-electric hybrids, I’d spend $624.

That’s a lot of money, but I’d have to drive that hybrid 17 years to save more than I save by driving my Civic. That’s 353,600 miles. A Civic can last that long if you’re careful with it, but will one of these hybrids? I guess it depends how good the rest of the car is.

Under the best-case scenario where I don’t use any biodiesel at all, the time drops to a more reasonable 11.22 years or 228,800 miles. That’s still a lot longer than most people are willing to drive the same car, but I could see myself driving one car for 12 years.

If gas hits $4 per gallon, then it takes 13 years and 269,231 miles for it to even out under the worst-case scenario, and 8 years and 175,000 miles under the best-case scenario.

Of course, Neil Young’s point is that not everyone wants to drive a Honda Civic, so the comparison isn’t entirely fair. If you want to drive something big that would get 15 miles to the gallon running if it were burning gasoline, the comparison is more fair.

At $3 per gallon, things even out at the 5.66 year/117,647 mile mark under the worst-case scenario, if you put a price premium of $20,000 on the hybrid version. Under the best of circumstances, it evens out at 4.8 years/100,000 miles. That’s not entirely unreasonable.

At $4 per gallon, it looks even better: 4.24 years/88,235 miles worst-case, 3.606 years/75,000 miles best-case.

Since most people like to keep their cars about four years, this is looking practical. And if these hybrids have a higher resale value than conventional cars, which is highly likely–ever price a used Toyota Prius?–it looks a lot more practical.

The CNN article says people are beating down Goodwin’s door to partner with him. I can see why, and I’m glad.

As for me, I’ve been trying to do the math and make things work, but no matter how I juggle it, I’d have to keep a gas-electric hybrid or a diesel car about 10 years before it would pay for itself compared to a conventional Honda Civic or Toyota Corolla. I’m perfectly willing to keep a car 10 years but I’m not sure I want to pay the premium up front. I did the math back in 2003 and ended up buying a Civic. At the time I made the decision based on $1.75/gallon for gas. Even if gas hits $4/gallon next year, it looks like the time isn’t right yet for me to change course.