Saving money

Does window insulation film work?

Dave Farquhar Saving money , , , ,
Does window insulation film work?

I spent the afternoon putting plastic window insulation film on my windows. It was supposed to be a short project, and I do get better at it every year, but it still ended up taking about an hour per window. Was it worth it? Does window insulation film work?

Window insulation film is a cheap, effective way to save money and make your house more comfortable in the winter. It can cut your heating bills by 30 percent.

Read more

Don’t try to do it all at once

Dave Farquhar Saving money , , ,

I’ve been writing a lot about personal finance lately. I make no apologies for that; it’s what’s on my mind. Something that happened this weekend reminded me of why it’s hard to get on the personal finance treadmill to begin with.

The numbers are big. They’re intimidating. You can’t possibly fix it all right now.

So don’t try to fix it all right now.I had an unplanned incident this weekend. It was unplanned, avoidable, and expensive. Some people will spend $400 at the drop of a hat without flinching, but my wife and I aren’t among them. I wouldn’t let myself get upset over it, but truth be told, I thought about it a lot over the weekend.

Mainly I tried to formulate a plan to make the money back quickly. And making $400 is certainly doable, but most people don’t come up with a way to make an extra $400 in just a day.

And that’s when it hit me. Don’t try to do it all in a day.

It’s like in baseball, when a team is losing by 8 runs the way the Indians were against the Red Sox for most of last night. Usually when a team is down by 8 runs, they’re going to lose because everyone’s going to go up there and try to hit an 8-run home run. But it’s physically impossible to hit an 8-run home run.

The way you win a game when you’re losing by 8 is by getting on base any way you can, and then getting around and scoring any way you can. If enough people manage to do that, they can chip away at the lead and soon it’s a close game again.

And that’s the way I have to approach this unexpected expense. Look for the opportunity I normally wouldn’t bother with. Take snacks to work so I stay away from the vending machine for a while. Chip away at it, whether it’s a dollar at a time or ten.

That trick works with big debts too. I once used a mortgage calculator to figure out the smallest amount of extra money you could put toward your mortgage and still see a benefit. On my mortgage, the amount turned out to be $10. Just paying $10 extra per month every month would pay the house off a full month early. Ten lousy bucks. Up that to a hundred and you can start talking about years.

So that’s the key. Nickel and dime your way out of debt, and then you can be on your way to nickel and diming yourself into prosperity.

Surviving a recession

Dave Farquhar Saving money , , , , , ,

I saw a link to a short story on Get Rich Slowly called What to do during a recession.

I think I can do a little better. So I’m gonna try.You might not lose your job, so don’t become a self-fulfilling prophecy. The story states that most people don’t lose their jobs when the economy goes south. That’s important to remember. I lost not one, but two jobs in 2005, not the worst year on record but certainly not the best for either of those two employers. I was pretty certain in both cases that there would be cuts and I would be one of them. I couldn’t do anything about the second case because an edict came down from a new CEO to get rid of all contractors, and I was a contractor. In the first case though, yes, I probably made myself a more likely target for downsizing. I wasn’t as bad as the guy in Office Space who got hit by a truck, but if management thinks you think you’re on your way out, they have an excuse to not feel as bad about letting you go. After all, if you saw it coming and you’re not prepared for it, it’s your fault if something bad happens, right?

So if you think you might be on the short list, don’t let anyone know you think that way, and be quiet and discrete about finding your next job.

Work your contacts. When I lost that job, I knew some people who’d asked me at one point or another if I might be interested in opportunities elsewhere. Of course I called them within 24 hours. None of that panned out for me, but at least I got some practice interviewing and some good resume advice out of the deal.

I think it’s a very good idea to ask your friends once a year or so if they know of any openings. In the event of an emergency, it gives you a much better idea of what might be out there.

Build an emergency fund, just in case. Having an emergency fund is also important. When I got hired on at my current job, my boss told me to try to have half a year’s salary in the bank. Some vote of confidence, huh? But the reality of our business model is that we can be forced to make cuts at any time, with no warning. It even happened to him once a few years ago. The upside is that the pay is pretty good and we get at least one or two opportunities to make some extra money each year, so we put up with it.

Six months’ salary can be hard to save, but you should have at least two, and more is better. Sometimes I can find a new job in less than two months, but I can think of two times in my career where my new employer dragged the hiring process out by a month. That was fine the first time it happened, because I still had my previous job, but it really stank the last time, because I’d been out of work a month.

Make a bare-bones budget. I also suggest having a bare-bones budget. Make up a spreadsheet listing the non-negotiable expenses that happen every month (mortgage or rent, car payment, utility bills, car insurance). Then figure the cheapest you can feed yourself for a day. I have a coworker who might try getting by on three packs of Ramen noodles and feed himself for 30 cents a day, but for most people, $3-$4 per day for food is about as low as they can go. Multiply that number by 30 and add that as a line item. Then add a few bucks for gas (it costs money to drive to the store and to job interviews too). It’s much easier to make a budget like this before you need it than when you need it.

You don’t necessarily need to kick into the emergency bare-bones budget the day you lose work, but I did. It helped my savings last longer.

Start saving money now. Knowing where to get things cheaper will help you build your emergency fund faster, and it will help you when you can’t afford to pay full price. Find out where the nearest day-old bakery is. If there’s a thrift store near you, wander into it sometime to see if it’s any good. If there’s a farmer’s market near you, check it out and compare its produce prices to your regular grocery store–and prepare for a pleasant surprise.

Don’t bail on your stocks. This might be the most important thing. When the stock market takes a dive, a lot of people hop on the phone and take their money out. Unless you own marginal stocks, that’s exactly the wrong thing to do. You don’t need to know what to do with marginal stocks when a recession hits. If you own stock in companies that can’t survive a recession, you should sell them now and buy stock in companies that can. I had a relative who made himself rich by investing in boring companies like General Electric and Coca-Cola–companies that sell things that people buy no matter how much money they have–and holding those stocks for several decades.

That money vanished after a generation (and no, I don’t have any of it), but that’s another story.

There’s a financial cliche that poor people run to buy when stores have a sale, but when Wall Street has a sale, they rush to sell.

The thing to remember is that stock prices are purely theoretical unless you sell. So when they go down, you don’t lose anything. If the company still has decent products to sell, its price will rebound if only because vast heards of rich people will come in and buy more of the stock while the price is low. If you have some savings and you know how to stretch it, there’s absolutely no reason for those rich people to be buying that stock from you.

Why I never kept up with the Joneses

Dave Farquhar Saving money , , , , , , ,

I had a bit of a financial epiphany over the weekend.

I have a well-deserved reputation for being a tightwad. Part of it is in my blood; I’m largely of Scottish descent, and Scots just tend to act that way. But I think part of it is what I observed growing up.My wife and I were sitting at my mom’s kitchen table, and for whatever reason, we were talking about my teenage years. In 1988, we moved to a new subdivision in Fenton, Mo. Fenton is a boomtown today, thanks in part to urban sprawl and also because of its first-rate school district, but in 1988 it was still largely an industrial town. Lots of people worked there, and not many wanted to live there. But in the late 1980s, the McMansions started sprouting up like weeds, and lots of families started moving there, ours included.

We talked about our neighbors, and something immediately occurred to me. Most of them were in their early 30s. They were the same age I am now. Not only were they my age, but they drove new cars, and most of them had at least two kids. Meanwhile they were trying to make payments on houses that cost $125-$150,000 at the time. According to inflation, they should cost a quarter million today. Not only that, though, in 1988, interest rates were a lot higher–10 percent wasn’t uncommon according to my quickie research.

Dad could afford that lifestyle–barely. He was a doctor and had been practicing medicine for 15 years. But even we made sacrifices in order to afford to live in that house.

The problem is, I shouldn’t say "even." Most of our neighbors had nicer furniture than we did. Some of them drove fancier cars. And their kids had bigger, costlier toys.

The absurdity hit me. I wouldn’t even try to compete with the lifestyle of a 45-year-old doctor. Not at 33. I make enough that a bank probably would let me have a mortgage of a quarter mil. I could lease cars that don’t depreciate quickly in order to keep my monthly payments down. But there wouldn’t be much of anything left at the end of the month, and I could probably forget about retiring any earlier than 73 (which is what Social Security is saying my retirement age should be). Just because I could make the payments doesn’t mean I should.

I wondered why so many of them got together every weekend and drank themselves senseless. And I don’t think I consciously ever realized I was living in a neighborhood full of people living way over their means–even the family next door, headed by a young dentist trying to establish his practice with five kids and a wife who insisted they needed a Jaguar.

Suddenly, sitting there at the table, telling old stories, I realized why that woman was such a psycho. She couldn’t pay her bills.

And that was also probably why another neighbor wouldn’t go anywhere without a thermos full of wine, and why another young couple who lived nearby smoked pot every Saturday night.

They had everything any reasonable person could dream of having at 32, but if anything at all ever went wrong–a layoff, an extended illness, or a serious injury–they would be in serious danger of losing it.

For whatever reason, I never measured my lifestyle against them. My first few jobs didn’t make me a lot of money, but they let me do pretty much anything I wanted. I had a nicer apartment than Dad had at a comparable age. I could go out to eat any time I wanted. I could buy a new computer every year if I wanted to, as long as I didn’t go overboard on it, and for a few years I did. I drove small cars, but there were always at least two or three cars in the parking lot that weren’t as nice as mine, so I was content to drive my 1992 Dodge Spirit. When it died, I got a 2000 Dodge Neon. It wasn’t a status symbol, but it had power locks and windows, which were two things Dad’s 1981 Chrysler LeBaron didn’t have. It had a nicer radio too. And that LeBaron was supposed to be a luxury car.

My lifestyle was far ahead of where Dad’s had been at my age. And not only that, I had money left over at the end of every month.

There were two things I wasn’t happy about. At the time, I didn’t have a steady girlfriend. And my apartment rent was going up by about $50 a year but the management company wasn’t taking care of the place. When stuff broke, they fixed it halfheartedly, and I didn’t want to pay $575 a month to live in a slum.

When my rent hit $575, I told them I wasn’t going to pay it. They offered me a seven-month lease at about $550. Conveniently, I had enough in the bank for a down payment on a house, and I figured I could afford to pay a couple hundred more every month for a mortgage. I just didn’t want to throw that kind of money away on rent.

So I bought a house. There was a neighborhood about a mile away that reminded me a lot of the neighborhoods I grew up in. I found a house about the size of the house we lived in before we moved to St. Louis. It cost more than I had planned, but it was big enough that I could get married and have a family there and not have to move again. I hate moving. Plus, it was (and still is) in a good school district, all the schools are close by, and anything I could need was close. I didn’t know it right away, but in an emergency, the nearest grocery store AND the nearest car repair place are both walking distance.

For an extra $100 a month, it just made sense. I bought the house. And every night, I filled up that Dodge Neon with everything that would fit, drove to the house, and unpacked. Several friends with vans or pickup trucks helped me move the stuff that wouldn’t fit in my tiny car.

Even though my 1-bedroom apartment was stuffed to the gills, it wasn’t nearly enough to fill a 3-bedroom house with a living room, family room, a study, and a basement. But it didn’t take long for that problem to solve itself. Several people offered me some nice furniture. They were hand-me-downs, but there wasn’t anything really wrong with any of it. Before I knew it, the house was full.

A couple of years later, the right girl came along too. At first she wanted me to get nicer stuff. The problem was, even though I’d gotten promoted to a server administrator at work, they were still paying me my old desktop support salary. The house had wiped out my savings, and I couldn’t really take on another monthly payment on anything. We fought about it a little. I showed her how little was left at the end of every month, and I argued that everything in the house was nicer than anything my parents had at my age. For that matter, most of it was nicer than the stuff they had when I was a kid.

She relented. I don’t know how happy she was about it then. But she didn’t complain.

A few months after we got engaged, I lost my job. I was mad about it. I was convinced I would lose everything I’d worked for. I guess for a minute I thought I was like those neighbors.

But because I’d lived within my means, I survived and soon I ended up with a job with a competitive salary for the first time in my professional career.

Something else came out of it too. The day we got married, neither of us had a job. We started a small business out of necessity. Our final paychecks made the mortgage payments during that summer, and we used our wedding gift money to get the business going. Soon it was bringing in enough to make our utility payments and buy groceries. When I got a full-time job, she took the business over and I helped out at night and on weekends. It allowed her to not have to work outside the home. There are probably things she could do that would make more money, but she doesn’t have a lot of stress, and she enjoys the flexibility.

The odd thing is, we’ve been able to upgrade our lifestyle on the cheap. For example, there are three light fixtures we’ve been wanting to replace for a long time. This weekend I found two light fixtures at a yard sale for a buck apiece. My sister rolled her eyes when I told the story, but these fixtures don’t fit the yard sale stereotype. A sticker on them says they were made in February 2005. Home Depot still sells the same fixture (or something extremely similar) for about $30. That’s not terribly expensive, but $1 is a lot less than $30. The third fixture we need to replace is smaller. We can get something that will look fine with them, and look much better than what we have, for under $20. The result will be a significant upgrade in how the kitchen and living room look, at well under 1/3 the price.

That $60 savings may not sound like a lot, but we’re constantly finding ways to save a few bucks here and there like that. We’re never the first to have anything, but it seems like we always end up getting whatever it is we want or need, and meanwhile we’re socking money away and whittling down on that house payment.

Judged against the standards of my neighbors in 1988, one could argue I’m a failure. I drive a five-year-old car and most of the time I use a six-year-old computer, and the four shirts I bought in 1998 to comply with my then-employer’s dress code are still in my rotation today.

But let’s look at things another way. Not only do my wife and I have nicer stuff than my parents had when Dad was 32, we also have an easier time finding money for necessities like groceries. She can shop at the health-food stores even though they’re more expensive. As long as nothing unexpected happens, we’ll own everything outright and have absolutely no debt–no student loans, no car payments, no mortgage–well before I turn 40. I stress over some things, but money isn’t one of them.

In my early 20s, I watched some of my friends from high school rack up massive credit card debt. At least it seemed like massive debt at the time. I knew then I didn’t want to be like them, at least not in that regard. Now I know that the average American family has $9,900 in credit card debt. That’s about what one of those friends owed, and about twice what another one owed.

I know who I want to be like. I want to be like my wife’s parents. They paid off all their debt sometime in their late 30s or early 40s. Today, when my mother in law sees something she wants, she doesn’t think about it. She can just buy it. Not only that, she’s retired, and she’s nowhere near 73.

I’m not saying I want to buy anything and everything I see on a whim. But not having to think much at all about money seems really nice.

And I guess on some level I’ve known that for almost 20 years, since I was in my early teens.

Garage sale adventures: The treadmill

Dave Farquhar Saving money , , , , , ,

Earlier this year my wife asked me to look for a treadmill. So I started keeping an eye out. A month or two ago I spotted one at an estate sale, but everything was wrong about that deal.

Today, I pulled the trigger.Unlike the last one, this one wasn’t a hulking beast of a machine, and it looked like it would come apart fairly willingly. At $45, the price was in the neighborhood of what we were willing to pay, and the owner was willing to let us test it out. I called my wife to ask her to come look at it.

She liked it. Then she tried it out and still liked it. I whipped out a couple of twenties and a five, and the previous owner’s husband and I set about disassembling it enough to fit in the back seat of a Honda Civic.

They had mentioned to another patron a willingness to come down to $35. I didn’t try to talk them down. Why? I knew I’d need his help getting it apart and getting it into the Civic. If I nickel and dimed them, he probably wouldn’t be nearly as willing to help me out.

It wasn’t a good fit. After some manhandling, we raised up the machine, rolled down the window, put a towel over the window, and I drove home with about three inches of treadmill sticking out the rear window.

I reassembled it right after lunch. I wanted to get it back together while the memory of disassembling it was still fresh, since some parts of it weren’t quite obvious, at least not to me.

Once I had it all together I cleaned it up. Sometimes a little dish detergent and an old rag is all it takes, but this one had some black marks that required Purple Power. The Purple Power did a nice job for me for the most part.

But there were a few black marks (probably from shoes) that the Purple Power didn’t do so well on. For those, I pulled out another trick. I rubbed metal polish on them. The polish actually removes a bit of the surface of the plastic, so it can affect the texture or sheen, but the slight difference in texture or sheen will almost definitely look better than the black marks would. I’ve used this trick numerous times to restore old plastic train cars, computer cases, and video game cases.

There are some scratches on the painted surface that would require some touch-up paint if I wanted it to look new, but at least I got it clean. A sunny day, a willingness to either take it apart or drag it outside, and a can of Krylon primer and gloss white paint is all it would take to get the metal parts looking new again. It might be a while before we get that sunny day.

Now we have a machine that should last several years and that I know how to take apart if and when the motor dies. If that happens, a new set of brushes should be all it will take to get it going again. It may be time consuming but the parts will cost less than $5. A new one would probably cost $200 or $250, so I think we got a pretty good deal. And while it doesn’t look completely new, I think it certainly looks presentable now.

How I saved $380 on a cellphone plan

Dave Farquhar Saving money , , ,

I read earlier this year how some families are spending more than $1,000 a month on cellular phone bills. To me, it’s absolutely ridiculous to pay more than some people pay for their mortgage for communication. When I was growing up, a second phone line ($25 or so per month) was a luxury most families didn’t indulge in.

To me, the cel is primarily for emergencies. I have a pretty liberal definition of emergency–if I’m on my way home from work and my wife wants me to stop at the grocery store to pick up a couple of things, I think that’s reasonable. What I don’t think is reasonable is the expectation that I’ll spend all the time I spend in my car yakking on the phone. If it’s going to take more than a couple of minutes, we’ll talk on my landline when I get home.

Here’s how to have a phone for emergencies for less than $9 per month.The first thing is to get your hands on a phone. You may very well be able to avoid buying one in the store or signing a contract you don’t want to sign in order to get a free one. My mother in law gave us her old phone after she upgraded to a newer, snazzier one. That saved us around $20.

Chances are you may have to buy a prepaid phone outright. Some of them cost as little as $30, which isn’t bad, considering you could easily spend $30 trying to hunt down a new battery and charger for a used phone.

And I just let the cat out of the bag. The key is to buy a prepaid plan, rather than getting on the monthly contract treadmill.

If you buy a prepaid phone, all you have to do is activate it. If you get a secondhand phone, you need a new SIM card. In our case, they charged $10 for the new card. This is why I’m not too keen on spending money on a used phone because by the time you buy a SIM card, a new battery, and a charger you can easily spend more getting a used phone going than you’d spend on a new one. If you luck into a good, working phone for free like we did, great. If not, spend the 30 bucks.

The salesperson will undoubtedly try to upsell you to a monthly plan. In our case, she didn’t even try to upsell us to the cheapest monthly plan–she tried to sell us the $40/month plan, not the $30/month plan. Don’t let the salesperson get very far into the pitch. I told her we expected to use the phone once or twice a week and not for much more than 15 minutes a day.

It’s hard to upsell you to a 500-minute plan when you say something like that.

And this is the key to saving money on all purchases. Do your homework, and go in knowing what it is you want from the start. The salesperson’s job is to get you to buy a phone that does more things than most people do with their computers. Since most of us carry a phone so we can either be reached in an emergency or reach someone else in an emergency, we don’t need a computer. Keep the goal in mind and refuse to pay extra for functionality you aren’t going to use.

After she swapped the card in the phone, we just had to buy minutes. We buy minutes in $25 increments, and we get 90 days to use them. In our case, it costs a dollar a day to use the phone (you’re only charged on the days you use it), and 10 cents per minute. The other plan charges a flat 25 cents a minute. Depending on how we end up using the phone, the 25-cent plan might be better. We’ll find out. The nice thing is that since we have no monthly contract, we can walk away just as soon as we’ve used up the minutes and switch to something else.

And after the first day of use, I can say it’s not bad. At the end of every call, I get a text message telling me how much is left on my balance. That makes budgeting the minutes very easy. I’ve never seen a monthly plan do that.

I think we can get what we need with the prepaid plan. We have a land line, which we use for normal, everyday calls. That costs $24 a month if you eliminate all of the extras. You don’t need call waiting if you have a cellular phone–people can call you on that and leave a message if your line is busy. You don’t need call notes if you have an answering machine. Those cost $10 and you only have to pay for them once. Call forwarding is useless. Caller ID is useful for screening your calls, but you can screen your calls with your answering machine too, and that doesn’t cost anything.

If you’re subscribing to those things on your land line, I suggest you take a long, hard look at those features and see if you’re getting any real benefit from them.

Some people suggest getting rid of the landline altogether, but I’m not so keen on that. For $24 a month, I can make all the local calls I want for free, with no restrictions on use. And people can call me all they want for free. Plus, having the phone line lets me get DSL for $20 a month. The long distance stinks, but we don’t make a lot of long-distance calls.

I’m almost certain I would quickly end up spending more than $24 per month to make up for not having the landline.

I’ll have a better idea in 90 days if this is going to work, but for now it looks like I’ll be able to meet my cellular needs for a Scrooge-like $8.34 a month.

Save energy and money with smart power strips

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

I stumbled across this money-saving tip today. A company called Bits Limited sells “smart” power strips. Here’s how they work: You plug a device into one of the plugs, and when you turn that device on, it switches power on to other outlets. The strip also figures out how much energy the device uses when it’s off, so when it senses you’ve turned that device off, it cuts power to those other outlets.

Here’s an obvious use: Plug your TV into the master outlet, then plug your VCR, DVD player, cable box (or powered antenna if you’re a cable-hating tightwad like me) into the autoswitching outlets.The reason these strips work is because most home appliances use power even when they’re switched off. A powered-off TV uses power because part of it has to stay on all the time waiting for you to hit the power button on your remote. The same thing is true of your DVD player, VCR, and anything else that has a remote. Any device that uses a plug-in “wall wart” transformer is also consuming power. The transformer chews up a watt or two even if the device it powers is turned off.

So if you can bring yourself to walk over to the TV to turn it on rather than using the remote, you can buy the cheapest $31 model for each TV in your house and plug your stuff into that. (To save more money, check for refurbs.)

The manufacturer states one of these devices can save you $11.55 a month, on average, when used with a computer.

The savings won’t be as high with other devices like TVs, but you can expect to save a few dollars and in the summer, you’ll save slightly more because those devices won’t be generating excess heat that your air conditioner has to dissipate. Each strip you buy should pay for itself in less than a year.

Plus, those wall warts will last longer if power is cut to them when they aren’t in use. I’ve come across numerous “broken” old-school video game machines whose only problem was a burned-out wall wart. Replacements can be pricey ($10-$20), so if these power strips save you from having to replace two of those over the lifetime of the unit, they pay for themselves right there.

The company also sells beefier units with more outlets and more protection intended for computers. The idea there is you can plug the computer in, and when you turn your computer off, it will automatically shut off your monitor, printer, and any other peripherals you have in order to save power.

I have mixed feelings on using these with computers. From an energy consumption standpoint, having a computer powered on all the time is comparable to having the lights on in the room all the time–and we’re talking old-fashioned incandescents here, not CFLs. So plugging your computer into one of these devices and turning it off when you’re not using it would save a lot of power. While computer monitors should be turned off when not in use, there’s nothing worse for the computer itself than turning it off and on repeatedly. I leave my computers on all the time, and in the last 10 years, I’ve had two hardware failures. One was a hard drive crash in a laptop (very difficult to avoid), and the other was a dead power supply in an HP Pavillion desktop after a power failure. As underpowered as that power supply was, that failure probably was inevitable too. Two failures in 10 years is a pretty good record.

Electricity is expensive, but computer failures are expensive too. I prefer to leave my computers on, save power where I can (I own several computers but they all only print to one printer, for example), and maximize my computers’ life expectancy.

I’m thinking very seriously about at least ordering one of these for the living-room television. It won’t pay for itself as quickly as the programmable thermostat did, but they only cost about $5-$10 more than a traditional power strip with comparable protection ratings. If I look at them as a $10 investment instead of a $30 investment, they’ll pay for themselves pretty fast.

I did go looking for other manufacturers. It appears that Fellowes made these in the past but has discontinued them. For now, it appears Bits Ltd’s offerings are the easiest ones to find. It would be nice if that changed.

A crude way to get some of the benefit of these is to use an electrical outlet timer. Plug the timer into the wall, plug your power strip into the timer (assuming the timer has a grounded outlet), then set the timer to cut the power off at night. The savings won’t be as dramatic, but if you happen to have a timer or two around the house to control Christmas lights, you might as well put them to use saving you some money during the other 10 months of the year.

How to find motivation to balance your budget

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

This week I read a story on Get Rich Slowly about a couple who refuses to budget. The conversation ended when the person who needed to budget bragged about getting five shrubs on sale for $10 each. She didn’t need them, but the deal was too good to pass up.Consumerism is an easy trap to fall into because of easy credit, and the messages are all around us. Most people who know me probably categorize me as an extreme cheapskate. Certainly there are lots of things I could be doing that I don’t, but even by doing a few little things you can improve your financial situation immensely.

Watch less TV. I think this is a really big one, because TV is the primary source of marketing messages. It’s not just the commercials either. The TV shows give lots of messages about how you’re supposed to live. It’s not a realistic picture.

At one point in my life I was able to go a year without watching TV, just watching the World Series each year. I watch more now. I try to catch This Old House on Sunday evenings and sometimes I’ll watch a show with my wife, so I probably watch 3-4 hours a week now. But that’s a lot less than average.

My advice to someone who wants to watch more TV than I do would be to watch older movies (1940s-1960s), as that would make it harder to compare your life to someone else’s. Plus, there’s a lot less product placement and other marketing shenanigans going on, and if you watch it on video, no commercials.

Have realistic expectations. A lot of 20-somethings seem to think they have to have furniture as nice as their parents. That’s unrealistic and sometimes impractical. The previous generation didn’t always have what they have now. Walk into the home of a 50-something, and some of the furniture will be new, but some of it will be 10-15 years old, possibly more. The furnishings were bought over the course of many years. Plus, nicer things are impractical when you have kids running around. There will be spills and stains and dirt. Kids need to be taught to respect things, but what’s the point of ruining a $1,000 sofa to teach the lesson? It’s better to put something older and cheaper in harm’s way instead–much easier on the credit card and on your sanity.

Budget. A budget isn’t some mystical thing. It’s a simple list of your money as it comes and goes. It can be as simple as a spreadsheet. In one column, list all your sources of income–your paycheck, plus anything you make on the side. Add up that total.

In another column, list your monthly expenses. That’s everything–your car payment, rent or mortgage, credit card bills, utility bills, gasoline, food, and entertainment. You may have to save your receipts for a month to do this realistically. Add up that total. Hopefully it’s a smaller number than the first total.

I first did this in college when I was treasurer for my fraternity. We were in serious financial trouble but nobody knew why. I grabbed the checkbook, did the simple analysis I described above, and figured out we were spending more than $400 per member every month. We were only charging $380 a month for people to live there.

When we couldn’t raise rates, I started cancelling things. I cancelled the Super Bowl Party. I cancelled cable TV in the lounge. If it wasn’t a basic necessity of life, it went. It made me unpopular and it didn’t balance the budget, but it cut the shortfall.

I’m guessing most of the people who voted against me raising rates are having more trouble paying their bills today than they need to.

The expenses involved in a personal budget are different than for an organization, but the principles are identical. You still need to have more coming in every month than comes out, and if you can’t figure out how to make more, the only way to have more money is to spend less.

Reward yourself. Practically. A few years ago my budget was tight and I’d taken on an expensive hobby. Then I realized what I spent on food every day. It started with $1 for a cup of coffee and a doughnut. Lunch was $5 at the cafeteria. And usually I spent another dollar or two in the vending machine. I let my ego tell me it wasn’t worth my time to pack a lunch.

Then I did this math equation: (365-52-52-10-10)*7 and came up with $1,687. I was spending $1,687 a year on (mostly) bad food because I thought I was too important to pack my own lunch.

I was also making about $15,000 a year less than I make now. Dice.com tells me I’m slightly underpaid now, let alone then. Who was I kidding? That $1,687 was a luxury I couldn’t afford.

So I went to the store, bought a Thermos and a big can of coffee, bought some instant oatmeal and some breakfast bars and granola bars, and started packing fruit and sandwiches. What was left became my hobby budget.

I couldn’t motivate myself to cut that expense just to have more money, but being able to afford something I otherwise couldn’t was enough motivation for me. Eventually I shrunk the hobby budget and started using that money to pay down debt.

But had my situation been different I don’t think it would have been a bad thing, necessarily, to keep using that to fund a hobby. It’s easy to get discouraged when it seems like everyone else is passing you by, even if they’re passing you by on borrowed money.

Look at opportunity cost. Opportunity cost is about the only thing I remember from college economics. The theory goes like this: The cost of a new car isn’t $20,000. It’s what else I could have done with that money. So the cost of a new car is a plasma TV ($5,000), a high-def DVD player ($500), a nice computer ($1,500), a new high-efficiency furnace ($4,000), a nice vacation ($3,000), all three current generation video game systems (roughly $1,000), a new living room set ($2,000), and you’d still have $3,000 left to replace two or three appliances with high-end models, or all your major appliances with new low-to-mid-range models.

Would it be worth driving an older car for a few more years to be able to afford to go on a home-improvement binge like that?

Or here’s the way I prefer to look at it. I could invest that money conservatively, using a no-load index fund that just does exactly what the Dow Jones Industrial Average does. Historically, money invested in the DJIA doubles every seven years. Some seven-year periods are better than others, of course. If I dump $20,000 into that kind of a fund, it will be worth $320,000 in 28 years.

The sticker price on the Honda Civic sitting in my driveway was around $15,000, but that’s not what it cost me. It didn’t cost $16,500 either (I paid some interest on it because I didn’t have the cash to buy it outright immediately). It cost $264,000.

I know some people look down on me for driving what’s now a five-year-old car, but I can build myself a very nice nest egg just by keeping my cars two or three times as long as everyone else does. Will they still be looking down on me if I retire at 65 and they have to work 10 more years because they still have debt to pay off?

If the cost of a secure future is driving a car typical of what 16-year-olds drive, I’ll pay that price. It’s a bargain.

Don’t pay interest. If you have a choice between financing something and waiting a while and paying cash, wait and pay cash. Paying interest is like paying rent. It’s paying money off and having nothing to show for it in the end.

I do use interest-free periods to buy things because that gives me a little more time to get the money together. I financed a furnace earlier this year because they offered 6 months same as cash. I probably could have paid cash on the spot but it would have been less comfortable. Being able to spread my payments out over six months allows me to pay more on the mortgage, which does charge interest.

So gas/solar/electric hybrids might make sense

Dave Farquhar Saving money

Last week I saw an article about aftermarket solar panels for a Toyota Prius.

I’m glad on two counts. It’ll reduce fuel usage, and while maybe it doesn’t prove my idea was a good one, it does prove that someone else had it.The system costs between $2,000 and $3,000. The manufacturer says it makes more sense with gas at $4 a gallon, in which case it will pay for itself in two years.

I’m not sure I understand the math. Basically when you have one of these you can drive about 20 miles a day for free. That’s about $2 worth of gas, at $4 a gallon. Drive those 20 miles every day for two years, and you’ve saved 730 x 2, which is $1,460.

At that price, one of these outfits has to be about more than just saving money because you won’t save any money unless maybe you live in California, where gas prices are much higher. If you just want to save money, you’re better off buying a conventional car that gets really good gas mileage to begin with, such as a Honda Civic, then start making some modifications like ripping out the seats and replacing them with high-performance racing seats (which can weigh 10 pounds or less). Or better yet, replace the driver’s seat and leave the rest of the seats out. Every hundred pounds of weight in your car decreases gas mileage by 2 percent.

No, I haven’t started messing around with the seats in my Civic yet. But don’t put it past me if gas prices keep going up.

But back to the original idea. A Prius is a $22,000 car. It gets about 55 miles to the gallon. A 2007 Honda Civic retails for about $16,000 and gets about 30 miles to the gallon, although I should note that I get closer to 35 miles per gallon out of my 2002 Civic, and if I really behave myself, I can approach 40 miles to the gallon.

Let’s run the numbers. For an extra $6,000, you get 25 more miles per gallon with a Prius.

If you drive 20,000 miles a year, you’ll burn 363 gallons of gas with the Prius, versus 667 with the Civic. At $3 a gallon, that’s $900 a year. So it would take 6-7 years for the Prius to pay for itself.

Let’s factor solar panels into the equation. The maker of the panels says they improve a Prius’ fuel economy by 29 percent. That bumps it up to roughly 70 miles per gallon. So, driving 20,000 miles a year, you’d burn about 285 gallons, saving about $250 a year at $3/gallon. At $4/gallon, your savings are more like $375 a year.

Hmm. Now I’m starting to see why these aren’t standard equipment.

I think hybrid cars and solar panels are great things for people who can afford them. I do have to say I was shocked and relieved to see the new Saturn commercials that include the words “Rethink status,” trying to sell hybrids as a status symbol. GM is one of the companies most guilty of marketing oversize pickup trucks as status symbols. So this is a nice change.

Solar panels are very conspicuous, so I can see those becoming a status symbol potentially. And that wouldn’t be a bad thing. If every U.S. driver did something to save 80 gallons of fuel per year, the world would be a better place.

Considering the amount of violence that surrounds oil anymore, maybe it would even be a kinder and gentler place.

More lawnmower adventures

Dave Farquhar Saving money , ,

Well, the $25 lawnmower my wife scored at a yard sale late last year died a week ago. It just quit in the middle of the yard, leaving me with a yard with a mohawk, since I’d already cut the front and most of the sides.

I bit the bullet and bought a new Toro.Why a Toro? I bought a $300 Toro because I can’t afford another $100 no-name special. My first mower was a Mastercut that had been given to me because it mostly worked but the people who gave it to me had problems with it, and the second was a Yard Machines (MTD) mower that died after its first mowing season and only worked 3-4 times after I worked on it. Buy three of those throwaway mowers and you’ve paid for a Toro.

Consumer Reports said the Toro 20171 is the best sub-$300 mower on the market. I saw another news story where the reporter asked a lawnmower repair shop what brands break the least, and he said Toro and Honda. And I noticed that almost all of my neighbors have Toro mowers. More importantly, most of them have old Toro mowers.

So it’s what I got. I hated paying $300, which is over half the principle on my monthly house payment, but I justified it this way: The mower has a three-year warranty, so it ought to last at least that long. Probably a lot longer. If the mower starts on the first or second pull instead of the 35th, it saves me a lot of time. The mower has a 6.5 horsepower engine, a 22-inch blade, and is self-propelled, and mulching, so I was able to cut the lawn in an hour with it. Normally cutting the whole lawn used to take me closer to two hours, counting wasted time emptying the bag, trying 35 times to start the stupid mower, and making more passes due to the 21-inch blade.

I figure if I have an extra hour a week that I’m not wasting on yard work, I can spend a little bit of that time doing things that make me money, and hopefully pay for the mower.

The other thing I noticed is that the mower seems to use less gas than the cheap Yard Machines mower I’d been using–even though it has a bigger motor in it and is self-propelled. I was burning a half gallon of gas mowing the yard with the other mower. I filled the Toro once and still had gas left when I finished. I guess that’ll save me another five minutes since I won’t have to refuel in the middle of the job. And with gas at $3 a gallon, maybe, just maybe the mower will pay for itself in fuel savings over its lifespan.

Initially I felt bad about spending the money, but I think in the long run, in this case I probably needed to spend money in order to save some money.