January 31, 2009

Using Hotwire and Betterbidding.com for good hotel rates

I've looked at Hotwire in the past but normally I had decided against using it because I didn't like the blind nature of not knowing what specific hotel you were buying in advance. The other day though I was looking to book a weekend reservation and Hotwire said that the hotels would be like the Red Lion, Radisson or Holiday Inn and those all sounded fine to me. I got a little more curious so I did a google search for "3 star" and the name of the city in question and I found this website called Better Bidding. The Better Bidding forum is a site where users share information on which hotels are sold by Hotwire and Priceline for specific star ratings. With the Better Bidding site I was able to get some useful information on the hotels offered by Hotwire and this gave me confidence to go ahead and buy there. I ended up saving a lot in the process.

For example say you are interested in visiting Las Vegas. You go to Hotwire and they say that they have 4 star hotels on Center Strip for $76 a night. Thats a decent price for a 4 star hotel but you don't know what hotel you're getting. If you go to the Better Bidding forum for Vegas you find their sticky for Nevada and within that they list all the hotels people have reported. For center strip 4 star hotels in Vegas they list Paris, Planet Hollywood and Treasure Island. If I do a search on Orbitz for the same date I see that those hotels are much more. Treasure Island is $89, Planet Hollywood at $135 and Paris at $145. But I also see on Orbitz that Ballys is $65 and Luxor is $72. So in this case I can see that the price for the hotels offered by Hotwire is better than Orbits but I also find that there are cheaper comparable quality hotels at Hotwire. Maybe you like the prospect of TI, Planet Hollywood or Paris at a $76 rate or maybe you'd be happier paying $65 for Ballys or $72 for Luxor. Either way using Better Bidding forum gives you more information to make an informed choice.

While Hotwire isn't always a great deal I think it is usually very cheap compared to the other sites. When I made my bid I got a 3 star hotel for a 2 star price. The only hotels on Orbitz, Expedia or Yahoo Travel that were as cheap as the HOtwire rate were in the 1-2 star range.

is a great resource to use along with Hotwire.

One big thing to be aware of with Hotwire though is that purchases from their service are not refundable and you can't cancel or change them. That can be a big deal. If you think you might need to change or cancel your reservations then I'd recommend against using Hotwire. If you're fairly sure that you'll keep the travel plans then its a good way to save on rates.

January 30, 2009

Best of Blog posts for the week January 30th

Bargaineering (formerly Blueprint for Financial Prosperity) has a nice overview of the treasury bonds available Basics of Treasury Bonds & Securities Explained

Financial Fellow takes a nice look at Employee Stock Purchase Plans: Great Investments

My post on Entertainment Costs per Hour was featured in the Its Only Money Blog at The Oregonian.

From a post on FatWallet: Papa Johns pizza is running a promotion where they are offering a large pizza for 25¢ if the opening kickoff of the Super Bowl is returned for a touchdown. You have to register on their site before hand in order to be eligible for the 25 cent pizza and kickoffs returned for touchdowns are not very common.

How Q4 2008 GDP drop compares to history

Today the news is reporting how the GDP dropped is the 'biggest in 27 years'. The media likes to write headlines with "worst in X years" or "most in X years". We've seen a few of those lately in the bad economic news category. Today's announcement was a 3.8% drop in real GDP. Real GDP is the GDP with inflation considered. The news release from the Bureau of Economic Analysis covers the details.

Previously I looked at the History of GDP Growth and I had a table with the real GDP percentage change per quarter for the past 60 plus years. I updated the graph to include the most recent numbers from the end of 2008.:

The chart is showing the percent change in GDP per quarter from 1947 to 2008. The most recent year end quarter 2008 change of -3.8% is circled in yellow. You can see that it hasn't had a drop like that in a couple decades. But if you look back further we see the period circled in red where there were several more drastic drops. GDP has had worse drops 12 different times in the past 60 years.

Some of the worse drops in the post depression era:
First quarter of 1980 = -8.07%.
4th quarter of 1957 = -10.87%
2nd quarter of 1953 = -6.31%
1st quarter of 1948 = -5.98%

In the end of 1981 there was a recession with GDP contraction worse than what we've had in the past 2 quarters. The drops then were Q4 1981 = -6.56%, Q3 1981 = -4.98%. Compare that to the recent declines of Q3 2008 = -1% and Q4 2008 = -3.8%.

One interesting note in the BEA news release is this: "Motor vehicle output subtracted 2.04 percentage points from the fourth-quarter change in real GDP..." So a very large portion of the GDP decline is due to decrease automotive sales. If you didn't think that the auto industry had a significant impact on the US economy then this should show you otherwise.

The -3.8% drop we saw in GDP is certainly not good news. However the decrease in the economy is not as bad as we've had in some previous decades. Its good to keep things in perspective.

January 29, 2009

The basics of Unemployment Insurance

Unfortunately there are a rising number of unemployed people right now. As of today the Bureau of Labor Statistics is reporting a 7.2% unemployment rate for December 2008 and its likely risen a bit since then. These people are eligible to receive unemployment insurance. What is unemployment insurance and how does it work?

What is unemployment insurance?

Unemployment insurance is money that you can get paid temporarily after you lose your job. This is not welfare but instead a government run insurance system. Every working person has money paid into the insurance fund to cover the possibility of unemployment. The insurance is funded by payments from working people usually paid by the employer. The unemployment insurance system is managed at the state level and each state runs the programs based on federal guidelines.

Who gets it? How do you get it?

You can normally get unemployment if you've been employed and you lose your job through no fault of your own. That last bit is important. You can not get unemployment if you're fired for cause or if you quit your job. You can get unemployment if you are laid off. In order to get unemployment you have to file a claim with your local state agency. To qualify you may need to meet additional requirements that can differ from state to state. Usually the main thing you have to do is actively look for work and report your job hunting progress to the state. This usually means something like applying for 2-3 openings every week and then letting the state know that you are doing so. They don't want you to just sit in front of the TV and collect a check, the idea is that you are temporarily unemployed and looking for work so you should be looking. But again the details will vary from state to state. There can be other specific requirements that vary by state too. For example you may need to register with a state employment office so they can try and match you with jobs. You might also need to take some form of job hunting or career classes offered by the state. My sister had to take an 8 hour resume writing class once.

How much do you get?

The exact amount of unemployment insurance you get will depend on your wages and the state you live in. The more your wages are then the more your unemployment will be. Every state has a maximum payout. Here is a list of the maximum weekly benefits by state. Most states maximums are in the $300 to $500 range. Looks like the minimum is $210 a week in Mississippi and the maximum is $900 a week in Massachusetts. Of course that doesn't mean you'll get the maximum if you're unemployed, the actual benefit amount is proportional to your wages over the past year in some way. In my state the benefit is roughly 2/3 of your weekly pay up to the maximum. To find out the benefit you might get you could find the unemployment site for your state and see if they have a benefits estimator.

How Long does it last?

Normally unemployment will last 26 weeks. If you get a job first or are otherwise ineligible then payment will stop. Sometimes in when there is high unemployment the government may extend benefits longer. In that case benefits are extended another 13 weeks. In some cases they may add another 7 weeks on top of that. So in total unemployment will last 26 weeks with possible extensions to make it 39 or 46 total. But you should not count on an extension.

So in summary:

  • You will normally be eligible to get unemployment insurance if you are laid off.
  • Unemployment is ran by each state with each system differing in the specifics.
  • To get benefits you must file a claim with the state and then meet their ongoing requirements.
  • Benefits vary state by state with maximums usually in the $300-400 range but varying from $200 level to $900. The benefit you will get will be proportional to your recent pay rate.
  • Unemployment normally lasts 26 weeks but might be extended an additional 13 or 20 weeks.

For specifics on your unemployment insurance benefits refer to your individual states unemployment program.

Department of Labor Unemployment fact sheet.

January 28, 2009

How does Vegas make its money?

I have been a regular visitor to Vegas for several years now. I find it a fun vacation spot. Its warm, theres lots of stuff to do and its an easy trip from my home. Lately I've started to notice that I've been spending more and more in Vegas on food and accommodations. It used to be in the olden days that every casino in Vegas had fabulous hotel and food bargains to lure people into their casinos in order to lose money gambling. Today though it seems that the bargain food is a rare thing most often seen in the dive or off strip hotels. Every year it seems that buffet prices go up $1 or $0.50. I've wondered lately how much revenue Vegas gets off food and hotel compared to casino operations.

One of the major casino resort owners in Vegas now is MGM Mirage. They seem to own half the major strip hotels including MGM Grand, The Mirage, Bellagio, Treasure Island and Luxor among others. I'm assuming that MGM Mirage operations are pretty typical for Vegas and that other Vegas casinos would be more or less similar as far as how they make money. MGM Grand is a publicly traded company so their annual report gives details on their financial operations. The latest full annual report they have on their website is from 2007. Buried in the report on page 28 is the table below:

Looking at the 2007 numbers I broke it down into a pie chart for the major categories:

We can see that over 60% of the revenue comes from non-casino operations. Gambling only accounts for 40% of their revenue. Table games make less than slots. Rooms, food and entertainment each make more as individual categories than table games.

Keep in mind this is just the numbers for one major resort and I'm making an assumption that other casinos in Vegas have similar income distribution. But I think that is a pretty reasonable assumption.

January 27, 2009

Breaking down my electric bill

My electric utility has an online tool to help you examine your home electric use based on basic features of your home and your electric bills. The exact usage is estimated but its pretty close to reality in my experience.

My home energy usage is pictured as a pie chart with % for each major category.

As you can see the major expense for us is the heating costs accounting for 61.6%. We have an electric forced air furnace for our heating and no air conditioning so its no surprise that heating is our biggest expense. The next biggest expense is the water heater at 15.5%.

Besides being mildly interesting, why is this information useful? If you're going to tackle a problem then its best to put your efforts where you stand to gain the most. When trying to cut costs it makes sense to target the area with the most to gain. Look for the area that accounts for most of the spending and start there.

Looking at the chart its obvious that I have the most to gain by reducing my heating costs. Look at it another way, if I can cut my heating costs by just 5% then thats a 3% savings on the total bill. To get 3% off the total bill I'd have to cut my water heating costs by 20% or cut my
cooking usage by 75%. Tackling the biggest contributor to the problem first will get you the easiest gains.

$25 at Restaurant.com for $3 until January 31st

Here's another limited time offer for cheap Restaurant.com gift certificates:

70% off $25 Gift Certificates + FREE $15 Dale and Thomas Gift Card with your purchase. Use code SUPER and pay $3 thru 1/31/09.

Honestly I looked at the Dale and Thomas site and they sell bags of popcorn for $30-50 so $15 off there is not what I'd call a great deal. Unless you're a fan of that company I would skip that part of the offer.

Info on Restaurant.com certificates:

I have used these at my steak house in the past and they worked great. Unfortunately though the steak house stopped taking the certificates. If you're interested in getting a certificate then first check the Restaurant.com site and see what restaurants in your area take the certificates. Second be sure to check out the rules and limitations for the gift certificates. For example a restaurant may require a minimum purchase of $50 to use the $25 certificate and a mandatory 18% gratuity. The rules differ for each restaurant so pay close attention to them. Lastly I wouldn't recommend buying them unless you plan to use them shortly. The restaurants that accept the certificates can change over time.

For more on saving money at restaurants see my older posts:

January 26, 2009

Use Free trials of Online games before buying

Online video games can be a frugal choice for PC gaming or your entertainment spending in general. A subscription to an Massively Multiplayer Online Role Playing Game (MMORPG) will usually run about $15 a month. Many people play MMORPGs several hours a week so the $15 cost can buy you many hours of entertainment in a month.

Before you pay the monthly fee for an MMORPG, you should first try out various games with their free online trials.

Trying out the games first will let you know if the game is worth paying full price for and worth signing up for a subscription. This is a no lose proposition. You can try the game free for 1-2 weeks first and you risk nothing. If you love the game then great sign up, but if you don't like it then no money is wasted.

Plus I'd also recommend that you try out as many different games as you can before deciding on paying for one. There are a variety of MMORPGs on the market each with different styles and strengths. While World of Warcraft might suit many people you on the other hand might enjoy D&D Online or City of Heroes more. So try out various games first before you settle on just one.

Below are a list of several MMORPGs that are currently running free trials.

World of Warcraft has a 10 day free trial
Warhammer Online You can get a free 7 day trial via a recruit-a-friend referral.
Pirates of the Burning Seas Has a 14 day free trial
Vanguard Saga of Heroes has a 14 day free trial
A Tale of the Desert IV has a 24 hour gameplay trial which can be used over multiple settings.
City of Heroes has a 14 day free trial
Dungeons and Dragons Online has a 10 day free trial
Star Wars Galaxies has a 14 day free trial
Everquest 2 has a 14 day free trial
EVE Online has a 14 day free trial

If you try out the games first you can compare them and find the one you like most. Trying games out free first will let you test them without spending any money up front. Plus if you try out all the games listed here then this will add up to about 15 weeks of free online gaming while you are doing your test drives.

Warning: Online gaming can be very addictive. If you suspect you may have a problem with gaming addiction then I'd recommend you stay away from MMORPGs.

January 25, 2009

Rags to Riches stories

I've always thought that rags to riches stories are inspiring. Hey if someone who came from poverty can make it then so can I. Here are a couple articles with rags to riches stories:

The article 5 rags to riches stories covers the stories of Chris Gardner whos life was featured in The Pursuit of Happyness, actor Jim Carrey, H Wayne Huizenga founder of WMI, Oprah and Andrew Carnegie.

Smart Money Daily has 10 Rags to Riches Billionaires with stories of billionaires from around the world who started from meager beginnings.

January 24, 2009

2010 Census jobs

Every 10 years the USA does a full census of the population. The 2010 Census is coming up and that means that the Census Bureau will be hiring thousands of people temporarily to conduct the census. You can visit the Census bureau jobs website for more information. The jobs are generally part time work and pay in the $10-20 range.

January 23, 2009

Best of Blog posts for the week of January 23rd

Blueprint for Financial Prosperity has a very good, short list of things to do when buying a car in the article How To Buy A Car (Without Getting Screwed)

FMF starts the March Madness blog post competition for 2009 with the first round:
Free Money Finance March Madness, Round 1, Posts 1-4

MyMoney Blog has the details on the 2009 Marginal Rate Brackets For Federal Income Tax and some interesting historical tax info with Historical Federal Tax Rates by Income Group

January 22, 2009

Entertainment costs per hour

You get a lot more 'bang for the buck' out of some forms of entertainment. A deck of playing cards is going to last you countless hours and only costs $1. On the other hand tickets to an NFL game can easily run $50-75 and the game lasts about 3 hours.

Below are a list of common forms of entertainment and how they compare in terms of cost per hour. The costs and number of hours are estimates. The figures given are averages and in many cases you could easily spend considerably more or less.

CostHoursCost / Hour
Library book$0 10$0.00
Playing Cards$1 100$0.01
Reading a newspaper$0.50 2$0.25
Online MMO video game subscription (10hr/week)$15 40$0.38
Buy a used book$4 10$0.40
RedBox DVD rental$1 2$0.50
Netflix 3 at a time (3 movies/week)$15 24$0.63
Buy a new book$8 10$0.80
MMO subscription (4hr/week)$15 16$0.94
Second Run movie ticket$3 2$1.50
Cable TV subscription$70 40$1.75
Buy a new video game$50 25$2.00
Blockbuster DVD rental$4 2$2.00
Video Arcade$2.50 1$2.50
Movie ticket$9 2$4.50
2 Rounds bowling$10 2$5.00
Mini Golf$5 1$5.00
Pool & drinks$11 2$5.50
3 day frugal trip for 2 to Vegas (no gambling)$600 82$7.32
Adult movie ticket & snacks$15 2$7.50
Ski lift ticket all day$60 8$7.50
Breakfast out$12 1.5$8.00
MLB ticket $25.40 3$8.47
18 holes of golf$39 4$9.75
Dinner out$25 2$12.50
5 day spendy trip for 2 to Vegas (no gamble)$1,500 114$13.16
Music concert$50 3$16.67
NBA Tickets$49 2.5$19.60
NFL ticket$62 3$20.67

January 21, 2009

Getting more with a Green Mortgage

It seems that 'green' is one of the biggest buzz words as of late. Its in fashion to throw 'green' in front of everything or use 'go green' as a verb. So it seems no surprise to hear about a Green Mortgage. But how can a loan be 'green'? Actually the term Green mortgage is being applied to an Energy Efficient Mortgage (EEM) which has been around since the 1970's. Basically what this kind of loan does is it will take into account the cost savings you should see from an energy efficiency home and then allow you to borrow more on your mortgage because of it. The idea is that if your home is more efficient then your utility bills will be lower so you'll have a bit more money to spend towards your mortgage. For example, if your utilities ran $200 a month and your mortgage was $1200 a month then if you instead bought a home with cheaper utility costs of just $100 a month then you would have an extra $100 each month that would help you afford a mortgage of $1300. You can get an EEM to cover existing home improvements or you can get one to cover improvements you will make after purchase.

Why would you want one?
Generally a green mortgage would be a good way to wrap expensive home improvements into a home loan so that you can finance the purchase over a long period with a relatively low interest rate. Say you are buying a home but want to upgrade the heating system, add insulation and install new energy efficient windows. Those improvements might cost you $20,000 total. If you got an home equity loan to pay for it you might be paying 6% with a term of 10 or 15 years. Your monthly payments would be around $170 to $220. But if you could wrap that $20,000 into a conventional 30 year fixed loan at 5.1% then the additional payment would be about $110.

How to get one

Ask lenders about the Energy Efficient Mortgage program. The Energy Star site has information on the loans and how to find lenders who have them.

You DO have to get a home energy rating from an auditor. The auditor will inspect the home and then write an appraisal on the energy efficiency and expected energy savings from the home. This audit will cost you some money, probably a few hundred bucks. That cost can be wrapped into part of the loan.

Then you apply for an Energy Efficient Mortgage with a conventional lender. Most lenders can offer an EEM as a conventional loan backed by Fannie Mae or Freddie Mac.

More information:
Go Green With Your Mortgage at CNN Money
How to cultivate a 'green mortgage'. at MSNBC

Photo by +fatman+

January 20, 2009

Whats cheaper a shower or a bath?

I always take showers and for whatever reason I had assumed that a shower wasted more water than a bath. But then I came across a page on the web that claimed otherwise. So I decided to run the math for myself and figure it out.

A typical shower would run about 10 minutes. With a shower head that flows at 2.5 gallons per minute that means you'd use 25 gallons of hot water for the shower. Water costs 1-2¢ to heat. Therefore a 10 minute shower would cost you 25-50¢.

A typical bathtub has about a 60 gallon capacity. However some of that area will be displaced by the person in the tub. Exactly how much area your body will displace will depend on how big of a person you are. However we can at least look at the average. The average American is about 75kg so they would displace roughly 75 liters or about 20 gallons. So you'd have to put about 40 gallons of water in a tub to fill it with a person. To heat 40 gallons of bath water would cost 40-80¢.

A typical shower is cheaper than a typical bath.

It will vary of course depending on exactly how long your showers are, how much water you use in a bath, how big your body is, etc. But on average it appears that showers are more frugal for average adults.

January 19, 2009

Is Angie's list worth it?

I have heard of this website called Angie's List. Its supposed to be a site where people post reviews and get referrals for various service providers in their town. By service providers I mean stuff like auto mechanics, plumbers, movers, etc. It can be difficult to find a good business to work with when you need something fixed around the house or have a car breakdown. You never know going in if you'll get over charged or if they'll do the job well. So it would seem that a site like Angie's list would be a good resource since it would help give you some information on the quality of different services.

The fees seem to vary depending on location. They have a page where you can find the fees.
Roughly it looks like they charge about $50-60 a year or $7 a month give or take. The fees seem high to me. However this cost could easily be offset by one good referral and avoiding one bad experience. The fees may be worth it but it really depends on how good the service is.

On ePinions they have a 2.5 / 5 rating which is not particularly good. Many of the reviewers complain of low quality data and small amounts of reviews. I found this page with a bunch of comments and very mixed reviews with many negative reviews.

I asked around and found out that my Mother in Law had been a member of Angie's list here and she had cancelled it. She was a member when it was free but didn't continue the service after they started charging fees.

Given the reviews I don't think I'll sign up for Angies' list.

I really like the idea and it seems like it could be a good money saver in general. But unless I have a good idea that the service is worth paying for I'm not about to fork over $25-50 to sign up for it. I really wish they had a free trial offer so you could at least see the volume of reviews in your town. Otherwise you're signing up totally blind and I hate pay services like that.

January 18, 2009

How much exactly would an Autocirc1 save in energy costs?

Previously I discussed a hot water recirculator pump called the Autocirc1 in the article Autocirc pump to save water, money and get hot water faster.

The Autocirc1 is made by Laing. The Autocirc1 pump is designed to keep hot water in your pipes at all time. The pump saves money by not wasting hot water so the manufacturer claims that it will save you on your energy costs. However the pump keeps the water in your pipes relatively hot most of the time and this will cost you money.

A commenter Tony said:

"I am not convinced that this device will really save money for many people. By keeping hot water in the pipes, constantly drawing it from the tank when the pipes get cool, you're forcing the heater to heat more water than it would otherwise do. That will reduce or even outweigh the savings from the water consumption."
Thats a good point and I wanted to get a better idea for myself about how the Autocirc1 would or wouldn't save money.

So the question today is: How much money will an Autocirc1 actually save and how do you figure the savings?

Before I begin, let me state specifically that these are very rough numbers and I'm making estimations here. There are some variables I'm ignoring on purpose to simplify things. I'm doing a fairly crude estimate on purpose here because I can't realistically do a perfect model or it gets way too complex.

This pump keeps hot water in your pipes all of the time. This means you get hot water at your faucets instantly and you don't have to run the water for a minute or so to get hot water. The maker of the Autocirc1 claims it saves homes $100 to $300 annually. But unfortunately they do not go into specifics on their website about HOW you save energy.

First of all you have to look at how it saves money. The key concept is that it takes more energy to heat water up to the 125F that your hot water heater keeps it at than it takes to keep water at a 85-95F level.

Normally water comes into your home at 40F and then your hot water heater heats it up to 125F. When you use some hot water in your home and then turn off the faucet all the water in your pipes is still hot and just sits there. That water cools of pretty quickly and is effectively wasted. The longer your pipes are the more water will be wasted. In addition to not having to heat the water you also don't have to pay the water utility for the water itself.

On the other hand, with the Autocirc1 it works to keep the water in your pipes at 85-95F all of the time. That means it only has to heat up the same amount of water by 10F degrees periodically when it cools down. Its a limited amount of water that it is heating as well.

Lets look at a couple families with different homes and different situations. These two examples are meant to represent two extremes and I think most homes will fall somewhere in between.

I start with some assumptions. First of all I assume that it costs 2¢ to heat a gallon of water by 80F (as discussed previously). I also then assume that it costs about 1/4¢ to heat a gallon of water by 10F.
I assume that municipal water bills cost 0.2¢ per gallon of water on average. I assume that the pump recirculates the water 3 times an hour average.

The Smith House:
Their hot water pipe is 3/4" and their hot water heater is about 90' from the bathrooms on the other end of the home. They have an electric hot water heater and pay 11¢ a kWh. Their hot water pipes hold about 2 gallons of water and it costs them 2¢ to heat a gallon of water 80F.

With normal pipes:
Normally you run water 20 times a day spread out about evenly through the day. That means that any time you use hot water you will pull 2 gallons of hot water out of the tank which then fill the pipes. You then use up some water and leave those 2 gallons of hot water sitting in your pipes. That hot water then cools down over time. This is effectively 2 gallons of hot water you're wasting every time you use hot water. A gallon of hot water takes the Smiths about 2 cents to heat from 40F to 125F using their electric water heater. So you're wasting around 80 cents a day. Thats $292 a year. You're also wasting 40 gallons of cold water that you run down the drain waiting to get hot water at the tap. You have to pay your water bill and that water costs money. At 0.2 cents per gallon that amount of water would run you about $29.20 a year in extra water bills. So total cost is $321.20

With the Autocirc1:
Now lets say you have the circulator setup. It keeps the water in your pipes constantly at 85-95F. The circulator pump has to kick on every 20 minutes to circulate that water. So in effect you're heating up 2 gallons of water 10F degrees every 20 minutes all day. You have the timer setup so it runs 16 hours a day and shuts off when you're asleep. That means you're heating it about 48 times a day. That would cost about 24 cents a day or about $87.60 to heat the water.

The Autocirc1 would save the Smiths $233.60 per year.

The Jones House:
This house is the same design as the Smith home. But the Jones family is a couple with no kids who uses their hot water faucets just 6 times daily.

With normal pipes: Normally they run the water 6 times a day at 2 gallons each. It costs them 2¢ to heat the water and 0.2¢ per gallon to buy it from the water utility. They waste 12 gallons of hot water a day or about 4,380 gallons a year. This costs them a total of $96.36 a year.

With the Autocirc1:
Their costs with the Autocirc1 would be the same as the Smith family which were $87.60 a year.

Total difference for Jones family would be $8.76 savings per year with the Autocirc1.

Keep in mind that these are very rough calculations and the figures will vary a lot based on the exact variables. If you vary the size of the pipe, water costs, electricity or gas costs, and average ground temperature of the water than that will impact the figures.

How did Laing get their numbers?

On their website Laing says that the Autocirc1 will save people energy costs in the $100-$300 range per year. They have a study they did to come up with these numbers. Their website however doesn't give the specifics on how they figured it. About their study they say: "Above summary based on study and analysis prepared by Edward Saltzberg and Associates, consulting mechanical engineers. Copies of this detailed analysis are available on request from Laing Thermotech, Inc." So I went ahead and sent them an email to ask them for a copy of that study and they quickly sent me it. I looked through their study to see how they figured the savings. They used the same basic ideas that I did. The Autocirc1 would save you money by not having to heat the water and based on water bills but it would cost you money based on keeping the water in the pipes relatively hot.

I'm not going to go through their entire study line by line or examine everything they did. If you want to look at their study then I'd recommend you just email them and ask for a copy. I will say though that it seems their conclusions are fairly realistic and I don't see any major faults in it, but it is based on certain set of assumptions.

They figured that a family would waste about 34 gallons of hot water daily. They are looking at a family of four and assuming they'd use the shower 4 times daily and sink uses of about 11 times a day. Thats a fairly heavy water use so if you have a small family and/or use water infrequently then your experience will differ.

They assume a water cost of $2.02 / 100 cu ft and $1.35 / 100 cu ft. Theres 748 gallons in 100 cu ft so this equates to about 0.2¢ for water and 0.1¢ for sewer. Those assumptions are in line with average water costs, however water utility cost varies a lot from city to city so again your circumstances may differ.

They state that heat loss from a 3/4" copper water pipe is 25 BTU per hour per linear foot for uninsulated pipe and 10 BTU /hr/ft for insulated pipe. This is a key piece of information for the calculations. With this number you can easily figure the cost of keeping the hot water warm in the pipes. With this you can figure the costs pretty easy to operate the Autocirc1.

Lets say your water pipes are uninsulated and 60' long and you keep the Autocirc1 on 16 hours a day.

= 60 ft x 25 BTU /hr /ft x 16 hr/day x 365 day/yr = 8,760,000 BTU /yr

There are 3413 BTU per kWH. So that means you'd be using 2566 kwH a year or about $256 a year with electricity of at 10¢ /kwh. There are 100,000 BTU in a therm so it would take 87.6 therms and if therms are $1 each then this would cost about $87.

For insulated pipes the costs would be 40%. So that would be $102 for electric and $34 for gas.

From Laing's study the cost of keeping the water in the pipes hot would be $34 to $256 for 60' of pipe.

On the other hand they are figuring that your water savings are about 12,000 of hot water per year. With hot water costing 2¢ to heat and 0.3¢ for utility costs thats about a $276 cost for the wasted water.

My methodology and that used in the Laing study differ a bit. But it is clear that the savings from an Autocirc1 will vary a lot depending on the usage level of home. The more water you use and more often you use your plumbing then the more the Autocirc1 would save. However if you do not use your plumbing very frequently then the Autocirc1 may not really save you much if anything. And any application of an Autocirc1 is assuming that the home has fairly long pipes running between the hot water heater and the sinks.

Some references:
Online discussion on Autocirc savings
BTU conversion figures

January 17, 2009

Potential Trap in Bond Funds

Right now with the state of the stock market investing in bonds is looking more and more attractive. If you can get a more dependable get 4-8% return off bonds then that is more attractive to many people than investing in stocks and hoping for a 10% long term annual gain but risking a -20 or -40% short term loss.

An ETF that invests in high yield corporate bonds like the iShares iBoxx $ High Yield Corporate Bd (HYG) can yield about 10% right now. While these are low credit quality rating bonds so the default rate is higher the wide diversification of an ETF and the high yield should make up for the higher defaults. Or you could go with a lower risk and lower yield ETF like the Vanguard Long-Term Bond ETF (BLV) which invests in high quality bonds and yields about 5%.

Say you own 100 shares of BLV today and it trades at $77.79. The yield is 5%. Lets say just for example sake that 12 months from now the average interest rates go up. Lets say at that point that a typical AAA bond will sell with a yield of 6%. If someone can easily buy a bond for 6% then thats what bonds are going to sell at. This means the price of the existing bonds being traded will be less. If you could take $100 and buy a new bond at 6% or you could buy an existing bond at 5% then you wouldn't want to pay the full $100 face value for the 5% bond. That older 5% bond would only be worth about $83 since the return of $5/$83 would equate to a yield of 6%. So if interest rates go up from 5% to 6% then your current bond investment would drop to 83% of what you paid for it. That would mean your BLV could easily drop down to a price of 83% of $77.79 or $64.56.

If the interest rates go up then the price of bond funds will go down.

Given the current situation the interest rates are near or at historic lows. Its very likely that interest rates will go up in the upcoming years. For this reason investment in a bond fund right now could have a built in loss looming in the future.

This is one of the major down sides of investing in bond funds. The price of the bond will go up and down based on changes in prevailing interest rates.

January 16, 2009

Best of Blog posts for the week January 16th

Everybody Loves Your Money alerts us to Free Coffee and Donuts on Inauguration Day The free donut is from Krispy Kreme and the free coffee from Starbucks

Lazy Man and Money looks at a few ways to Save Money on Your Landline Phone

Early this week I got a mention in The Digerati Life blog roundup: Dividend Paying Stocks from The S & P, Volatile Stock Market: The Roundup

Wise Bread covers the fact that Old calendars never really go out of date. which means you can recycle old calendars for current years.

The WSJ recommends you file for college financial aid early: Seeking Financial Aid for College? Better Get FAFSA Forms in Early

Early Retirement Extreme presents the first 2 weeks of a step by step 30 day Extreme retirement plan : Day 15: The first two weeks of the make over

Figuring our Baby Budget in Advance

My wife and I are planning on having kids "soon". So in preparation for that I want to determine the rough budget for our first baby.

Using a Baby Cost Calculator

If you want a quick, ballpark figure then using a premade calculator is the simplest way to go. Thankfully folks have already made calculators that let you estimate the cost of a baby. The BabyCenter website has a Baby Cost Calculator. The calculator is easy to use and customize the expenses you expect for your situation and choices. I plugged in our choices in and the calculator estimated our baby first year expenses would be $3,800.

Adding everything up

To get a better estimate of your own costs it makes sense to estimate add up all the costs that you expect to have for your own situation. Everyones expenses for categories like medical, childcare, babysitting, diapers, etc. will vary greatly from one couple to another. Below I'm going to look at each category of spending and estimate our expected costs for my wife and myself.

Cost of Childbirth

Childbirth total costs would probably run $5,000 to $10,000 ballpark. Since we have insurance this will be covered by our medical insurance plan. We have a high deductible with a Health Savings Account. So much of the cost will be paid out of our HSA. However we fully fund our HSA up to the maximum so we will have more than enough money in the account. Our maximum cost for the year is $4,200 which is pre-tax so this equates to about $2,800 out of pocket. This is money we've already got dedicated in our current budget so there will be no net budget change.

Medical visits and expenses

There will be required visits to the doctor for the baby and other medical expenses such as immunizations. Like childbirth these medical costs will be covered by our insurance. I'm pretty sure we'll cap our deductible with childbirth so any other expenses for the year after that will be covered 100% by our insurance. No net changes.

Furniture, Clothes and Stuff

Here is a page with a list of baby gear. Its a lengthy list of various furniture and accessory items deemed necessary for a baby. The prices vary a lot and they give wide ranges for each item. I figured the totals for the gear ranges from $1,781 to $7,895.

Diapers and Food

Disposable diapers run roughly 13¢ to 20¢ each for the first year. If I assume that we'd change diapers 5-10 times a day then thats about 1,800 to 3,600 diapers a year. This comes out to something around $450 a year on average for disposable diapers. We might also with cloth diapers and cloth diapers could cost us anywhere from $500 to $1,000 a year depending on how we do it. We plan on breast feeding so that should mean very little cost for formula. However for whatever reason we may need to buy formula instead. So its a potential we could spend another $100 to $150 a month or a possible $600 to $900 for formula for the first 6 months. In the second 6 months we'd start to introduce baby food into the diet. I figure that cost would be another $600 to $900 for baby food for the second six months. Overall our costs for diapers and food will run us somewhere between $1,050 to $2,800 total for the year.

Extra Travel

We'll probably want to take a trip to visit relatives and show off our new baby. This kind of travel will be in replacement or combined with our normal annual vacations. So there should be no substantial additional out of pocket costs related to travel.


My wife works from home and plans to be a stay at home mother. We will not need daycare in general therefore there should be no additional costs.


I figure we'll want to go out for a nice dinner on occasion and not have to deal with a possibly noisy baby in a nice restaurant. A night out would likely last 2-5 hours and end up costing $20-50 roughly for babysitting. If we do this weekly or monthly then the cost for babysitting would range from $250 to $2,500 a year. This might also be paid for in part with our entertainment budget.

College Savings

We plan to start 529 savings accounts for our kids and putting $2,000 a year away per child. So this will run is $2,000 per year.

Other, Miscellaneous

I'm probably missing some expenses. I think you could add another $0 to $1,000 to cover other things I haven't considered.

Add it up

Total costs would range from $5,081 to $16,195.

Thats a pretty wide range and mostly due to the possibility of spending higher amounts on the one time expenses. I expect our spending will be closer to the lower end since we're fairly frugal. However I should budget for more than minimum.

Potential Savings

While its true that a baby will cost us a lot there are savings in some areas.


We'll probably get some gifts from family and friends. I would have no idea how much or what we might get. I'd guesstimate we could get gifts in cash or items worth anywhere in the $100 to $1,000 range.

Reduced spending Due to changes in our Habits

With a baby we'll be less likely to eat out and spend money on entertainment. But its hard to say how much this will change. We might spend less on eating out but then spend more by paying for a babysitter or more expensive meals at home. Honestly I don't know enough at this point to know how much we'd save if anything in this area. Since I don't have enough data I'm going to leave this category out of my figures for now.

Tax Savings

I should be under the limit to qualify for the child tax credit. That will take $1,000 off our tax bill. With another mouth to feed we'll have another dependent to claim so this will give us an additional $3,400 deduction. Our marginal IRS bracket is 25% so that $3,400 deduction will net us another $850 savings. Our federal tax savings will be $1,850. We'll also get approximately $350 in savings on our state taxes. Net tax savings would be $2,200 per year.

Bottom line Cost - Savings

Overall we're looking at a cost somewhere around $3,800 to $16,200. This will be partially offset by tax savings of about $2,200. Potential gifts could cut another $100 to $1,000 of our costs. So our total out of pocket expense for a new baby in the first year will be anywhere from $1,500 to $14,000. Its most likely this figure will fall somewhere around $3,000 to $5,000.

Keep in mind that this is just a rough budget and I'm sure the final amount we spend will vary some. However I wanted to do this in order to get at least a ballpark estimate of what it will cost for our first baby's first year. If you go and have a child without taking a look at all the potential costs then you could deplete your savings rather quickly. Its important to consider and plan ahead for the costs involved with raising a child.

January 15, 2009

My Financial Story : Part 4 - Gainfully Employed

This is the fourth part of a series on my own personal financial story. First I discussed my childhood years, then I talked about my first four years in college and then I talked about my second college trip. Today I'll talk about my years in the work force leading to the present.

I started work in 1997 and was making about $42,000 a year. I had a few thousand in student loan debt at the time and no other debts. For the first couple years I rented an apartment. After a couple months at work I bought myself a late model used car. It was an inexpensive compact car model with good mileage and I got a loan via the credit union for about $7,000 for the purchase.

In the first couple years at work I paid off my student loans and my car loan. Then in 1999 I started looking for and bought my first home. I bought a home for $142,000 at the time and paid only 3% down and got the seller to pay the closing costs. By that time I'd gotten a promotion and a couple years worth of raises and I was making around $50,000 a year base income. I had also stopped smoking cigarettes.

Around 1998 to 2000 I enrolled and contributed to my companies 401k and I dabbled in some individual stock investments. When the dot-com bubble burst in 2000 I lost about 50% of my 401k money and my stock investments did poorly too. I walked away from the dot-com bust with a negative attitude towards stock and 401k investments. I discontinued my 401k contributions after that and stopped investing in stocks too.

My employer has a stock purchase plan where I can buy company stock at a 15% discount two times a year. I invested the maximum 10% of my pay into this program since its a guaranteed 15% return. For the first 7-8 years I bought the stock and then held onto the shares. Over those years I accumulated quite a large stake in my company stock. To make matters worse my employers stock did has not increased in value over the past 10 years. It peaked in late 2000 and then lost most of its value and hasn't come close to its 2000 high yet. I wasn't diversifying this money. I was overly invested in my own employer stock and the investment was not performing well. Eventually I stopped holding the shares and would instantly sell the new shares as I got them to cash in the 15%. Since then I've sold off most of the stock I bought and was lucky to liquidate most of it early in 2008 before the bottom fell out of the market in late '08. I sold my shares for about 2 times what the stock is currently trading at. Overall I am at a loss on the stock I bought through employee purchase plan.

I continued to do well at work and get raises and promotions over the years. My salary grew from about $42,000 in 1997 to over $100,000 today. By doing a good job at work I've seen my income grow. More importantly I've avoided 3-4 separate rounds of layoffs within my department and I've remained employed at a high income the entire time.

I've kept my expenses low and lived well within my means. I've lived in the same home the entire time. I drove my first car for about 10 years and then bought a second late model used car with cash. As I made more money and got raises I would not just spend more money but would instead save more and more. For a time, I would say to myself that for my next raise I would dedicate half the additional income to savings and then allow myself to spend the other half. So as my income grew my savings as a percentage of the income grew at a higher rate.

A few years ago I started investing in rental real estate. I had seen the success my parents had with their rental properties and I gained some knowledge of how to invest in rentals successfully. I bought my first property around 2003 as a 50% partner with my Dad. I found the unit for a very low cost and it was a fixer upper. My father did the work and is the property manager. We bought a second unit in another 50% / 50% split a couple years later. My initial investment in those two properties was about $75,000 total and they are my half is now worth around $120,000 and they generated a cash flow of about $8,000 for me in 2008.

In 2008 I got married for the first time. My wife and I are a good match in many many ways. One of the ways we are a good pair is our attitudes towards money. We both share similar philosophy towards finances. Once we got married my wife and I combined our finances. My wife had owned two houses of her own. One was her original home that she was renting out and the second was the home she lived in at the time we met. We decided that she would move in with me and we'd rent out her current house. So now between the two of us we own our home, we have two other homes we rent out and we own half of two other rental properties with my father.

After we got married it took us a while to get all her possessions moved out of her house and either move them to our house, sell them or give them to charity. We also took a while to fix up her house to get it in the state to rent it. We took our time moving things out and sorting things. We tried to do most of the work on the home ourselves with the idea of saving money. All together the house was vacant and in transition for nearly six months. That was six months that we paid mortgage and didn't have rental income to offset it. So by doing everything ourselves at our own pace we took 6 months and spent a few hundred dollars total in materials. What we should have done is hire professionals to do the work quickly so that we could rent the home faster. It should have been easy to hire movers to move all our items out and then hire contractors to do a bit of work and get everything done within 1 month. Even if we had to pay people a few thousand dollars we'd have still come out ahead with the additional rental income we never saw.

Since I've started my working career I've made very good progress financially. I went from making about $42,000 to over $100,000 annually. I went from having a negative net worth to being married with a net worth over $500,000. Two keys to my success were 1) having a good paying job and progressively getting promotions and 2) spending less than I earn. I've made some mistakes along the way especially in the area of stock investments and retirement savings but I've learned from and since corrected those mistakes.

60 Minutes piece on how speculation drove up oil

I'm sure everyone fondly remembers the days of $140 barrels of oil. A while back I wrote about Why does oil cost so much? At the time I discussed how I thought that political turmoil, low dollar and speculation were the causes of the drastic increase in the price of oil last year. Well 60 Minutes has a piece discussing the role that speculation played in increasing oils prices.

January 14, 2009

My Financial Story : Part 3 - College Do-Over, 3 More Years

This is the next entry in my multi-part personal financial story. In the first two parts I discussed my childhood years and my college years. Today I'll talk about my second try at college and the years around that.

After I graduated from college I found myself at home with no job prospects and several thousand dollars in debt. I bummed around for a month or two and felt sorry for myself. I eventually got a temporary job that lasted about a month, just to keep busy and make some sort of income. Eventually my Mom suggested that I might consider going back to college for further study and she generously offered to pay the tuition bill at the local state school. At the time tuition at the state school was around $2500 a year. I decided to get a second B.S. degree and this time I would study computer science.

This time around in school I applied myself to my studies. I got near perfect grades the entire time. I did all my homework and studied a good amount. I didn't goof off or party much if at all. I went to all my classes even if they were the early classes at 8:00 A.M. I applied myself and it showed in my grades.

I also worked part time during school. I worked on campus in computer labs the whole time I was in school. For a couple quarters I worked a second job at UPS. For those quarters I was taking a full time class load, working two jobs for around 30 hours a week and commuting around 45 minutes each way from school and back. I worked and saved money and I didn't gain debt and even managed to whittle down some of my credit card debt a little bit.

While I was in school I started checking the on campus career office to find work. I frequently checked for internship jobs related to my field. I also attended career fairs and actively applied for both summer and full time positions. I finally found a good internship job in the next state which I applied for and got. The job was nine months and paid very well at the time. I was making over $15 an hour and it was at a very good company. I managed to pay off all my credit card debts from that job and save a bit of money. Most of all however the internship job was very valuable work experience related to my career field.

After the internship I returned to school to finish off a few quarters of classes and get my second B.S. It took me about three years total to get my second degree. At the end of my studies I was actively applying for jobs in my career. I applied and interviewed for a couple positions at the company that I had my internship. I also applied for and got another job offer from a company in town. That internship directly resulted in me getting a full time job offer from my former internship employer.

In contrast to my first four year degree in college I applied myself and it paid off. In my second college degree I worked hard in school and got good grades. I actively sought and got an internship job directly related to my field. Ultimately I got a good job offer in my field and graduated with a job waiting for me.

January 13, 2009

My Financial Story : Part 2 - Four Years of College and financial errors

This is the second installment of a multi-part series on my own personal financial story. The first part of the series was about my childhood experiences with money. Today I will be talking about my experiences with money during college. I made many financial mistakes in college but I learned a lot from those errors.

When I got to college I had a relatively fixed budget and mostly fixed expenses. I had scholarships, grants and some loans to cover most of my expenses. My parents helped out some but their contribution was just one portion and less than my loans overall. I also worked on campus part time. Generally I had enough money coming in to cover all my needs plus a bit of spending money.

Like many people college was the first time that I had real experience handling my money myself and budgeting expenses and bills. I was probably an average college kid in this respect. I wasn't extremely irresponsible with my spending but I wasn't the most responsible either. I made sure to pay my housing bills and always fed myself. I only recall a couple times in college where I had was late paying a bill. I generally spend my college years living paycheck to paycheck and blowing any extra money that came my way and gradually accumulating debt.

College students are a major target for credit card companies. They push credit cards on students with easy applications and qualifications. I fell for this trap myself. I don't remember the circumstances of my first credit card application or why I got it for sure. However I do remember my first major purchase that I bought with credit. I bought a stereo receiver for about $250 and paid with my credit card. At the time I figured that I could just pay it off later but I'd have the stereo NOW and it seemed like having my cake and eating it too. I assumed I'd be making good money once I graduated so I was not at all worried about having some debt since I figured I'd just pay it off once I got a good job. Terms with over 20% interest didn't really frighten me and it didn't register in my mind how much it would cost me and I didn't know how long it would take to pay off with minimum payments.

Once you've started using credit cards its easy to keep using them more and more. I had my cool stereo and all I had to do was pay $20 a month to the credit card. So why not buy some CD's too since its just a few dollars more. Gradually I started deficit spending and putting more and more expenses on my credit card. In my Sophomore, Junior and Senior years I gradually partied more and screwed off more and more. That meant spending more money on things I didn't need and couldn't afford. A lot of that spending went on credit cards. I started drinking and smoking too. By my Junior year I was smoking a pack a day at about $2 per pack ( at the time). I stopped drinking and partying heavily by my Senior year. When I graduated my credit card debt was several thousand dollars and I had an addiction to cigarettes.

In addition to partying a bit I also goofed off. The majority of my goofing off was in front of a computer screen. In the early 1990's I discovered this thing called the "Internet". At the time the World Wide Web did not exist and the net consisted of green text on a black computer terminal screen. But even without fancy pictures there were fun games to play and interesting people from around the world to talk too. I spent more and more of my free time playing on the Internet terminals on campus. At one point I had over 2000 hours logged on one university mainframe. I got heavily involved in online games my Junior year and it was a heavy addiction which distracted from my studies.

The partying and goofing off didn't' help my studies either. My grades dropped and I didn't apply myself much. In my freshman year my GPA was around 3.7. But by the time I graduated my overall GPA was around 3.4-3.5 range. This is not bad at all, but I could have done better if I'd worked harder and applied myself more.

While my grades weren't that great, I did make good progress in my classes and degree completion. I had 15 credits from A.P. exams that gave me a step ahead in college. I decided on my major by my Sophomore year and I didn't change majors. I planned out my schedule quarter to quarter and I took the right classes at the right time. I only repeated one course in the entire four years due to a bad grade and never dropped or withdrew from a course due to grades. I managed to finish school with a B.S. in four years through good planning and avoid additional costs from extra unneeded quarters or years of school.

In my Junior year I started to question my choice in major. I wasn't that thrilled with the program and the topics and work never really 'clicked' for me as what I wanted to do for the rest of my life. I thought about switching majors for a while but with some consideration I decided to stick it out and finish my major. If I'd switched majors at that point I would have been in school 1-2 extra years or I could just spend the next year and finish in four years.

Most summers I went back home and bummed around all summer. I didn't work over the summers and I didn't work hard to try and find internships related to my field. The summer between my junior and senior year I stayed at school and worked on campus as a computer lab aid. It was OK pay for that type of job for the time but I had to pay rent and expenses so I really didn't come out ahead for the summer. Over four years of college I either didn't work summers or worked but didn't save any money. I didn't have any internships related to my field so I had no useful work experience for my resume.

When I graduated I had around $5000 in student loan debt and probably about that much or more in Credit card debt. I had no work experience had wasn't very interested in my chosen major field. The economy wasn't doing well at that point either.

While I was in the end of my senior year I got a "job" at a small start up software company. The company was ran by a man and his wife along with a partner. This was their first business venture and they were new to running a business. I took the job with the agreement that I would work primarily for a % of the eventual profits. I worked the end of my senior year and then most of the summer after graduation for them. They paid me some money to help with my bills but I don't think it ever amounted to more than $1000 or $2000 total. I don't believe the software title ever made a profit so I never saw anything from my % stake in it.

I attempted to find employment after graduation. I applied to a few companies and got little response. I think in total I received one polite rejection letter. I had no experience, ok grades and the economy was not well. Worst of all however was that I never really applied myself or tried very hard to find a job. I didn't apply to many places and I don't think I even looked far out of state for work. It was a half hearted attempt.

Through my college years I made several major errors that directly or indirectly impacted my financial success thereafter.

I started spending on credit cards and piled up credit card debt. I partied and goofed off too much which both increased my spending and hurt my grades. I failed to get any internship or other work experience related to my field of study. Then I took a profit sharing based job with a start up software company.

At the end of four years I ended up with a degree, over $5k in student loans, over $5k in credit cards and no prospects for employment. I returned to live with my parents at the end of the summer after I graduated.

January 12, 2009

My Financial Story : Part 1 - Important lessons of Childhood

A little over fifteen years ago I was 22 years old, unemployed, living with my parents and in debt with credit cards and student loans. Today I'm gainfully employed making over $100k, married, own my home as well as rental properties and we have a net worth over half a million dollars. I've made good progress in the past 15 years. Though I'm no Bill Gates or Oprah, I'm doing better than average. How did I get where I am and what shaped my journey? To understand my perspective I think its best to hear the entire story including all the mistakes and successes I've had along the way. Over the next few days I am going to write about my own personal financial story. I'm going to cover my own experiences with money from early childhood through present. Today I'll start with my childhood years.

I believe we learn our financial habits primarily from the example set by our parents. My parents set a very good example for me and taught me good money skills. Most of my financial story growing up through childhood was the various money lessons I learned.

When I was very young my first recollection of money was about saving. I remember being at the toy store and wanting to buy an item that cost more than my 50¢ allowance. My mother told me that if I wanted the toy I could save up my money from more than one allowance period and then buy it later. I think I must have been around 4-6 years old at the time.

Another strong lesson about money I learned a while later in childhood was from my father. I'm guessing I was around 8-10 years old. Dad had offered my sister and I some money to do some work around the house. If I recall right he offered to pay us the mighty sum of 75¢ each to do the job. The work turned out to be harder, more boring and time consuming than we thought. My sister and I wanted to quit and get paid at least partial payment for the work. However my Dad would not let us do half the job and he insisted that we finished the work we started per the agreement in order to get the pay. At the time we thought he as a heartless ogre but he knew what was right. I learned a few things from this. I learned that making money took hard work and I learned that you need to honor contracts.

In general my parents were always pretty frugal. My dad didn't buy new cars. We never bought expensive clothing and eating out was an infrequent treat. My parents didn't spoil us and the words "we can't afford that" were often used. Mom shopped for bargains and clipped coupons. My parents didn't carry credit card debts and I remember Dad being pretty against debt in general. I learned to control spending from my parents and they taught me that its not necessary to have new expensive stuff and keep up with the Jonses in order to be happy. However as a child at times I felt embarrassed by the run down old car we drove, my used bicycle or the off brand clothes I wore. I sometimes felt my parents were 'cheap'.

I grew up in a single income household. My mother didn't work when I was growing up and she was a stay at home mom. My Dad and uncle both worked in a skilled construction trade and were members of the union. They had a hard time finding work in the 1980's due to the economy. At times Dad worked only half of the year and he had to travel to other states for months at a time in order to find work at all. I saw how hard it was for him to keep a steady pay check when the economy got rough and I learned how work isn't something you can always count on. When Dad wasn't working our income was fairly low. We never wanted for any necessities. Thankfully we had no mortgage or consumer debt and our spending was low as well so we never really hurt from it but it was still a struggle for them to get by in those lean years. I learned the value of keeping spending and debts low.

Starting in the 1980's my parents invested in rental real estate properties. They bought rentals with a down payment and then carried mortgages on them which were paid by the rent income. Over the years they bought more properties. Generally this didn't net much cash flow at least initially and it was mostly a tax dodge and a long term investment. So many years went by that my Mom and Dad spent a lot of their spare time working on rentals and dealing with renters for little direct benefit. However gradually as time went by the rents kept going up and the mortgages stayed the same resulting in slowly increasing cash flow. Then after many years the mortgages were paid off one by one. Now in retirement my father has several rental properties all debt free providing him a significant annual income. I saw how well rental real estate can be as a long term investment and I saw exactly how much work and costs it can entail.

My parents always encouraged applying myself in school. I did well in school academically and somewhere along the line I learned that good grades and applying yourself in school are important for your future. Even though my parents were pretty frugal they did splurge on one item and bought us a personal home computer. At the time in the early 80's there were numerous 8-bit based computers being marketed to home consumers. My parents bought our family a computer and this played an important factor in my future career. I recall that a big part of the reason they bought it for us was so that it could be used to help our education.

When I got into high school I started to compete in academic competitions. This was mostly for fun and as an extra curricular activity. Some of the competitions actually had cash prizes. In my junior and senior years I won several hundred dollars in regional and state academic competitions.

Pretty early I decided I wanted to become an engineer. This decision was mostly based on my interests and aptitudes and it was mostly a happy coincidence that engineering jobs are paid well. My parents never pushed any particular direction me career wise but they encouraged that I look at jobs with good demand and earnings. I joined the Explorer scouts in high school and I learned about careers in engineering. One evening after the meeting I was waiting in the parking lot for my Mom to pick me up with some other kids. We saw a Porsche in the parking lot. One of the engineers from the program came by and saw us admiring the car and he told us how his coworker had bought it with cash.

I knew that my parents didn't have a lot of money and really hadn't had a chance to save towards my college education. It was clear that I'd have to get scholarships and/or financial aid in order to afford college. I applied to about seven schools and got scholarships and substantial aid packages from most of them. Ultimately I was only able to afford two of the schools. One was a private school in my home town and the other was a large public school on the other side of the state. I could afford both schools given the scholarship and aid packages. I ended up choosing the public school since the loans would be lower and it was out of town. So off I went to college where my first real dealings with personal finance started.

In my childhood I learned a lot of important very lessons about money: I learned the value of saving. I learned the value of hard work. I saw directly how low expenses are important in tough times. I learned frugality from my parents. I saw how rental real estate can be a very successful long term investment.

In the next part of my personal financial story I'll talk about my money experiences in my college years.

January 11, 2009

To refinance or not to refinance. That is the question.

Rates for 30 year fixed mortgages are hitting historic lows right now. A sample of some of the current rates (as of 1/8/09) offered:

US Bank quoted 4.875% with 0 points
4.750% at Wells Fargo's rate page but they don't show points. I dug deeper and requested a rate quote and got a result of 5.5% with 0.125 points
4.6% to 5.8% at Amerisave
My local credit union is quoting 5.0% with 0 fee, 4.675% with 1 point and 4.5% with 1.5 points.
Wamu quotes 5.0% but that had points, I checked for 0 points and its 5.125%

So thats a variety of sources for rates in the 4.6-5.5% range and a couple banks that have 4.875%-5.0% loans with no points. Keep in mind that rates are changing daily and will vary based on the exact situation so you should check current rates in your area.

With such great rates, is now the time to refinance? The short answer to whether or not you should refinance is always going to be : it depends.

First lets start with some basic questions to ask yourself:

1. Do you have equity in the home? If your home is under water, where the home is worth less than the mortgage, then you are unlikely to be able to refinance unless you can add equity out of pocket.

2. Do you plan on staying in the home? If you only expect to be in a home for a couple years then it rarely ever makes sense to refinance. I wouldn't consider refinancing unless you expect to be in a home for several years.

3. Can you get 1% or more off your rate? If you can lower your rates by at least 1% then it may make sense to refinance. But if you won't get 1% or more to refinance then it is probably not going to be worth it.

If you have some equity in the home, plan on staying and are paying 6% or more right now then it could make sense for you to refinance.

To get a solid answer on whether or not it would pay in the long run to refinance you should compare the specific numbers for your situation to figure out exactly how much you'll end up saving. It is easiest to do that yourself by using an online calculator to compare your current loan with new refinance terms. Try this refinance calculator from BankRate. Or this calculator at Dinkytown.

Remember when comparing loan rates that the amount of points, discount fees and closing costs have a big factor too. So keep all the expenses in mind when comparing loans and don't just look at the interest % rates. Also make sure to consider that if you refinance a loan that it will normally mean you'll be paying the loan for more years.

With today's great rates on mortgages it is possible for a lot of people to save a lot of money on interest. But before you rush into a refinance make sure to look at all the details of the loan and do a comparison to make sure it will pay off for you in the long run.

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