March 31, 2010

FREE Admission to National Parks April 17-25th

National Park Week is April 17-25th.   Entrance to all 392 national parks is free during the week.  

For further details visit the website.

I found this one on Fatwallet.

Is Demand for Engineers Going Up or Down? Yes and No. It Depends.

I'm an Engineer by profession.   I sometimes hear conflicting arguments about the demand for Engineers in the USA both today and in the future.   On one hand I see many Engineers laid off and trying to find work.  But then I also often hear people talking about high demand for Engineers or how we need more Engineers.  To find the truth on the matter I did a little research on the Bureau of Labor Statistics (BLS) website. 

The BLS has projections of employment growth and job prospects for various occupations.   They estimate the jobs in the industry and forecast if the number of jobs will increase or decrease and by how much.   Keep in mind these are just forecasts but they are based on trends and industry wide factors.   They should be a fairly realistic expectation but of course there is margin of error with any kind of forecast.

Engineers as a whole are expected to have job growth over the next decade that is  "about as fast as average".   So that means that the job growth for Engineers will be about equal to the increase in jobs in general.

But Engineers are specialists and there are several distinct occupations within the broad field.   The job prospects for the various Engineering specializations varies considerably.

Here is the expected job growth over the next decade for each Engineering  specialty from the BLS:

Aerospace 10%
Agricultural 14%
Biomedical 72%
Chemical -2%
Civil 24%
Computer hardware 4%
Electrical 2%
Electronics 0%
Environmental 31%
Health and Safety 10%
Industrial 14%
Marine 6%
Materials 9%
Mechanical 6%
Mining 15%
Nuclear 11%
Petroleum 18%

Those numbers mostly look good since all but one of them is positive.  But job growth on average should be in the 7-13% range due to population growth.   If we assume that population growth is 7% then a 6% job growth for Mechanical engineers doesn't even keep pace with population growth.

Here is how the growth in Engineering jobs per specialty exceeds a 7% baseline growth:

Aerospace 3%
Agricultural 7%
Biomedical 65%
Chemical -9%
Civil 17%
Computer hardware -3%
Electrical -5%
Electronics -7%
Environmental 24%
Health and Safety 3%
Industrial 7%
Marine -1%
Materials 2%
Mechanical -1%
Mining 8%
Nuclear 4%
Petroleum 11%

Those results are more mixed with several more fields falling below average growth rates.  Its great that there is such high demand for Environmental and Biomedical Engineers but there really aren't that many jobs in those specialties relative to the entire profession.   To put the job growth in more perspective lets look at it sorted by the size of each Engineering field.

I've added another column on the right to show the current number of jobs for each specialty in the 1000's.

Growth # jobs
Civil 17% 278
Mechanical -1% 238
Industrial 7% 214
Electrical -5% 157
Electronics -7% 143
Computer hardware -3% 74
Aerospace 3% 71
Environmental 24% 54
Chemical -9% 31
Health and Safety 3% 25
Materials 2% 24
Petroleum 11% 21
Biomedical 65% 16
Nuclear 4% 16
Marine -1% 8
Mining 8% 7
Agricultural 7% 2

Take a look at just the top 6 specialties that is where 80% of the jobs are.    Four of the top six specialties will see job growth that does not keep up with average.

Next time you hear someone talk about the demand for Engineers you should take it with a grain of salt since not all Engineering jobs are in the same demand.

March 30, 2010

Nissan's Electric Car to Cost $32,780

Nissan announced the price of their upcoming electric car model named the Leaf.   The sticker price will be $32,780 in the USA.   It should qualify for a $7,500 tax credit good on electric cars.   I had previously tried to compare the cost of a Leaf versus a Prius, but I wasn't sure about the Leaf cost at the time.

Government Getting 20% Profit off Citibank Bailout Funds

The AP ran a story recently about how the Treasury says it will begin selling Citi shares.   The article points out that the government is making a $7.5B profit off the shares.   But thats not the whole story.

In late 2008 the government put $45B total into Citibank.   We find details of Citi's bailout from the Eye On the Bailout website that I mentioned previously.   First the government has already received $2.8B in revenue from Citi on their bailout.   That money came in the form of dividends.   The bailout money wasn't a 0% loan or a no strings attached handout as many people seem to think.    The banks that got bailout money were required to make interest / dividend payments on the funds.   Citi has paid back the $20B loan that it received.   The government then converted its $25B in equity into 7.7B shares or a price of $3.25 a share.   As I write this Citi is trading at $4.18.   Thats a paper gain of $7B on the stock appreciation.   

The government gave $45B to Citi.
Citi paid $2.8B in dividends
Citi repaid $20B in loan funds
The Government converted the other $25B in funds into 7.7B shares of Citi.

So overall the government put in $45B and then got $2.8B + $20B and $32B in Citi stock back. The total current value returned to the government is $54.8B.   That is a $9.8B profit in about18 months.    The government is getting back 20% more than it put into Citi.    Over the 1.5 year period this equates to roughly 14% annual return on the money.    20% return isn't bad at all.

Note that this all depends on the market value of Citi stock.   If Citi goes up the government will make more, but if their stock goes down the the government stands to lose some of its profits. 

March 29, 2010

Stuff I'd Like to Buy

There are a number of things that I'd like to buy but I haven't bought.   I've seriously thought about buying these items but I haven't bought them.   I might buy some of these things in the future and others I'll cross off my mental wish list. 

Video game systems: 
PlayStation 3 - About $300 retail. OR an Xbox 360 - $200 and up for the system.
Why I want them:  I've thought of maybe getting a PS3 or Xbox360 since they both have higher end graphics.  This would allow us to play some of the newer games on the market with the latest greatest graphics.  Plus the PS3 would also play Blu-ray movies which is also something I'm interested in getting.
Why I Haven't bought :   I already have the Wii and we don't play it too much.  The cost of the systems doesn't seem worth it given the amount we play video games.

Television equipment:
Blu-Ray player - In the $100 to $200 range.   Tivo HD - $300 for just a box,  $200 for lifetime service
Why : Another item in the entertainment category.   We currently have an HD DVD player and an HD DVR from the cable company.   The HD DVD player works fine for playing regular DVDs so we still use it.  But I bet on the wrong horse for HD movies and now am considering buying a Blu-ray player to replace it.    The cable DVR is not as good as a Tivo.  I have a regular standard def. Tivo series 2 box at home and it worked great but now we're on HD so I'd really like to get a HD DVR from Tivo.
Why not:  I'll likely buy a Blu-ray player sooner or later.  I've been waiting for them to come down in price.  Theres no huge rush since the DVD format is suiting our needs fine for now.  We have a DVR from the cable company so that suites our needs (wants) well enough for now. Plus the out of pocket cost for the Tivo is hard to get over, even though I do think its worth it in the long run.

Netbook - In the $200 to $400 range,Laptop - $400 and up
WHy:   Our main computer at home is getting a bit old.  I think its about 5 years old now.  It still works OK mostly, but its definitely showing its age.  So its about due for replacement in general.   My wife and I have been looking at Netbooks for a while since they'd be handy to use around the house and would handle most of our computer needs which are primarily email & internet surfing.   But I also have an occasional desire to play some video games and a Netbook can't handle that.   So I've also considered getting a full fledged laptop instead.  I don't really play the power hungry games so a Laptop should fit my gaming needs OK.  

Why Not:   The current computer still works fine and portability is more of a minor convenience.

Energy Savers:
Electric car - TBD, maybe around $30,000 before tax credits
Solar panels - About $6,000 after tax credits and rebates for a 3.5kW system.   It would save about $30 a month on my electricity bill or $360 a year. 
Heat pump - I'm guessing it cost $4,000 to $8,000.   I'm guessing it would cut my heat bill in half roughly.   That would be about $400 per year in savings give or take.
WHY:  I generally like to buy energy saving devices.   I don't like wasting energy.  Its just wasteful and wasteful is bad in my mind.   Course I don't go insane on this and I only buy energy saving stuff that I think is financially worth it.  
Why Not:   Electric cars aren't yet readily available but its looking like they may cost a lot and the gas savings may not quite justify the expense.   Solar panels aren't that great of an investment even with government tax credits and utility rebates.   Heat pump is close to being a good buy but we just got our house air sealed and insulation added last year so were delaying further home energy improvements.

I usually have stuff in my mental wish list that I'd like to buy for some reason but simply haven't bought or I'm still thinking on.   If I ran out and bought everything that crossed my mind as 'neat' or fun to have then I'd be spending thousands of dollars pretty frequently.   I'll continue to mull over this list of stuff I want in my mind.  I might buy some items eventually but I probably won't buy most of them.

March 28, 2010

2% Raise at Work

I got a 2% raise at work for my annual raise.    I didn't get a raise last year since my employer had frozen wages.   Thus far in the past 13-14 years I've been averaging about 7-8% annual raises.   My raises have been mostly 2-4% increases with some 10-20% raises mixed in when I got pay grade promotions.

Given the state the economy has been I'm not at all unhappy with a 2% raise. 

March 26, 2010

Best of blog posts for week of March 26th

Health Care Reform passed this week.   Here's my summary of the summaries:
Bargaineering has a "just the facts" bullet point summary of the changes that health care reform brings  House Passes Health Care Reform H.R. 3590 Patient Protection and Affordable Care Act 
Incidental Economist has a summary of Health Reform Implementation : What Happens When
Consumerism Commentary has their take with The New Health Insurance Law and Your Money
CBSNews has Health Care Reform Bill Summary: A Look At What's in the Bill

FreeMoneyFinance recommends that you Don't Invest Too Much in Your Company's Stock   Thats a mistake I made in the past.   It didn't really bite me but it could have.

Darwin's Finance argues against tax refund loans with : Doing a Tax Refund Loan? Ask Yourself This 1 Question

Healthcare Reform Impact to Health Savings Accouts and My Health Insurance

I've mentioned before that I have a Health Savings Account (HSA).   I was curious if the recently passed health care reform bill would impact the HSA's in any way.  I didn't see anything about HSA's in the bullet point summaries of the bill that I've seen so I was assuming that HSA's were unchanged.  But to be sure I figured I'd check out the full text of the bill. 

The only thing I could find about HSAs in the full text of the bill, was this bit on page 115 :
"CONTRIBUTIONS.—The Secretary may issue regulations under which employer contributions to a health savings account (within the meaning of section 223 of the Internal Revenue Code of 1986) may be taken into account in determining the level of coverage for a plan of the employer".
 That isn't going to impact how I use the HSA.  My employer doesn't make any direct contribution to my HSA so that won't impact me at all.   Even if your employer does contribute to an HSA this looks like its just discussing how they count that money as a benefit of your employment. 

From what I've found in the bill itself there isn't any impact to how Health Savings Accounts work from the healthcare reform.

I was also curious if my health insurance coverage at work would change any due to the reform.   My employer sent out a memo saying that they don't see any impact to our insurance due to the reforms.   Of course thats just their initial reaction to the immediate impacts.  They're still pouring over the details to be sure but they don't expect anything to change for us.

March 25, 2010

Our Whole Big Tax Mess

My wife recently handed all our tax information over to our CPA.  It takes us a while to get our tax stuff in order since we've got a lot of stuff.   I also have rental investments jointly owned with my father so I have to depend on getting some records from him which also slows things.

Last year I used a CPA to do my taxes for the first time.   Before that I had always done my taxes myself by hand using paper forms and a calculator.   I'd have worn a green tinted eye visor while doing it but I didn't own one.

We're having a CPA do our taxes for a few reasons  I had a couple problems doing my own taxes before and wasn't keen on making more mistakes.   The extra complications to the taxes from getting married was enough to push me into finally seeking professional help. .

Our taxes are fairly complicated

Our taxes will include:
Wage income from my employer - W2
Interest income from standard savings accounts
Rental income and expenses (Schedule E)
Depreciation of rental properties (form 4562)
Health Savings Account (Form 8889)
Itemized deductions (Schedule A) for our home mortgage, property taxes, charity giving and state taxes.
Multiple short term and long term stock sales from stock incentives from my employer (Schedule D)
Various charity deductions of household items and cash
Some stock dividends.
And probably something else that I'm forgetting at the moment.

If I had just a simple W2 and deductions from our home mortgage, property tax and state taxes then I'd do it myself no problem.   I think if I didn't have the rentals or the employer stock sales I'd be able to handle stuff like the HSA myself too.  I've done the stock and rental stuff in the past without the CPA but it can get pretty complicated.   In fact the stock sales are one thing I've made a mistake on before.   Thankfully it wasn't a big error and fixing it didn't cause any harm but its not a good thing to make mistakes on your taxes that will draw attention from the IRS.    Anyway, to sum up this point our taxes are complicated enough that I think calling in professional help is a good idea.

The CPA's expert knowledge can potentially save a lot of money

Last year our CPA also found a couple things that saved us money so I think that paying an expert should pay off.   The one idea that she had (which had never occurred to me) saved us I think about $2,000 off our tax bill last year between state and federal income taxes.  One such idea from her easily pays for her fee many times.

I think that an independent expert helps protect against tax problems

My wife and I both think that if we do end up audited for whatever reason that it will help us that we have a professional CPA do the taxes.  I'm figuring that if I accidentally make a simple math error and end up paying $1000 less in taxes then that *might* look more suspicious to the IRS if I did my taxes myself, but if a CPA does the taxes and she makes such an error they are going to assume it was just a simple error and not an attempt at cheating.   Now I'm not sure how much truth there is to this and I don't know that using a CPA makes the IRS look at your returns differently, but this is my opinion at least.

It saves us time and hassle

If my wife or I did the taxes ourselves then we'd have to spend a few hours filling in forms, going over paperwork, checking our math, etc.  Paying someone else to do the taxes is saving us that time.

March 24, 2010

Suze Orman's 2 Pound per $1000 Hidden Debt Rule

Another episode of Suze Orman show brings us another example of Suze's amateur psychologist quackery.   This time was during a question from a caller named Jen from New York City.   Jen was a married school teacher with a 17 month old child.   They had bought a 5 bedroom home outside NY city and were under water on the loan.  They owed about $470k and the house was worth probably $430k.   They had a combined income of $150k, around $22k in credit card debts and no savings.   Jen had a habit of buying new cars every year or two.  It turns out that Jen's husband had hid some credit card debt and tax debt from her.    I believe Jen's question was something about what she should do with the house.

Now forget all the other stuff about Jen.  Suze seized on the hidden debt.   During the segment Suze declared that in her experience Suze had found that for every $1,000 of debt that is hidden a person will gain about 2 pounds of body weight.   So she asks Jen how much she'd gained and what do you know, Jen had gained about 30 pounds of weight!!

Wow.   I was a bit amazed Suze would make this kind of declaration.   This 'rule' of Suze's appeared to be completely unscientific and lacking in any credible evidence.   Suze did not cite any kind of scientific study or source for this concept.   She didn't talk about doing any research or interviewing numerous people or anything like that.   It seems like Suze came up with this idea of hers based on some anecdotal evidence.   Maybe I'm missing something and theres real science to back this but I highly doubt it.

I don't really doubt that the stress of debt or financial problems could help add to weight gains.   So the basic premise that there is some correlation between hidden debt and weight gain is fairly believable theory to me.  The real problem here is that theres nothing more than Suze's anecdotal evidence to support her theory.   In fact there is scientific evidence that psychological stress from things king difficulty paying your bills can impact your weight.  While I'm not arguing against the general idea that theres a tie between stress and weight gain I don't think you can use that to conclude such a specific relationship as $1,000 hidden debt = 2 pounds.

Extremely small sample size based on anecdotal evidence.  Suze can't possibly have much of any data on the amount of weight gained by people with hidden debts.  I'm sure Suze has had contact with various people who have hidden debt.   And I bet that she has noticed that some of those people are over weight.  But I can't imagine that everyone Suze talks to with hidden debt also divulges the amount of their recent weight gains.   What I think we're looking at is a relatively small group of people and a few examples as the basis of Suze's evidence for this theory.   Of course I'm working on assumption here but without any specific evidence otherwise to explain Suze's theory this is all I've got to work on.

Ignores various other potential causes of weight gain.   In the show Suze didn't ask about or address any other potential causes of weight gain.   Jen the caller had a 17 month old child.   I would think that its fairly accepted common knowledge that weight gain after childbirth is not uncommon.    So to me it seems that a more simplistic and straight forward explanation for Jen's weight gain would be the recent birth of her child.  But even if that wasn't the cause there are a number of other factors that could potentially cause any given individual to gain excess weight.   Poor diet, eating too much and not exercising come to mind as a fairly straightforward causes of weight gain.   Hereditary factors undoubtedly have an impact as well for many people.  I also understand that some specific medical ailments (e.g. hypothyroid) can also contribute to weight gain.

The numbers are far too specific to apply in any real way as generalized rule.   There is no way that a 5' tall woman and a 6' 6" tall man will gain the same exact amount of weight in reaction to something.   There is no way that a $1000 debt will impact a poor person the same as it will a millionaire.    A frugal person and a spendthrift will have extremely different reactions to a financial issue.   Even if there is a direct link between hidden debt and weight gain you can't possibly make a rule of thumb so specific as Suze tried to.  People and their circumstances are way too varied.

March 23, 2010

Rich People Live Longer

I don't know if this will come as a surprise to anyone but wealthier people tend to live longer.

An article in SF Gate on the topic discusses a study that compared life expectancy of the poor and the wealthy.   It says that "By 1998-2000, the difference in life expectancy had increased to 4.5 years (79.2 versus 74.7 years), and it continues to grow, he said".  

There are a variety of reasons richer people live longer.  

Health practices and access to good quality health care is one of them.    Lower income people are less likely to have health insurance or get regular preventative care. This USAToday article reported that higher income people are about twice as likely to report "good health" with 71% of high income people doing so compared to 37% of low income.    They also found that diabetes rates are lower for higher income individuals.   Just 6.5% of the highest income population had diabetes compared to 13.9% of the lowest income group.  Lower income people are more likely to be smokers.   

Lower income people are also more likely to live in neighborhoods with higher violent crime or engage in higher risk jobs.

March 22, 2010

A Bunch of Retirement Savings Statistics

If you look at current workers who participate in retirement plans we see that 51% of workers participate in a retirement plan of some sort.

The percent of households who have IRA's is about 40%.  The median balance in IRA accounts in 2008 was $55,000.   So we can infer from this that 20% of households had over $55,000 in their IRAs as of 2008.   Knock about 25% off that assuming it was lost in the decline of the stock market between 2008 and today and you're down to $41,000.

There are 31 million people covered by federal, state and local government pension systems.   But that number includes retired people.   Looking at just state and local government pensions there are 7.4 million people currently receiving benefits and there are 14.4 million total participants.  Thats about 51% who are retired and 49% who are not retired.  If we assume the same ratio for federal employees then for all government plans we've got around 15 million current workers covered by government pensions.

Take another look at workers who participate in retirement plans  and we see it says 20% of the people have defined benefit plans.   Most of those people on defined plans are among the government workers mentioned above.

17% of the population is below 125% of the poverty level.  On the other end there are 2.7 million people with assets of $1.5M or more.    So thats about 18% of the population who is poor or rich.  I wouldn't expect either group to have a lot in retirement funds.   Poor people have no money to save and rich people would likely hold their wealth differently than IRAs & 401ks.    If you look at financial assets then we see that for people in the bottom 20% of income only about 10% have any kind of retirement account.   That means that 18% of the total population has low income and no retirement account.

Younger people are less likely to save.    If you look at the percent of households with IRAs we see that only 28% of people under 35 years old have IRAs.  The percent jumps to 40% for 35-44 year olds and hits 50% for people 55-64.    Younger people are also less likely to have any retirement accounts.   Only 40% of people under 35 years old have a retirement account while 60% of people 55-64 do.   The amount in the accounts also goes up with age.   For people under 35 years old the median value in their retirement account is just $10,000 but for people 55-64 the median value is $98,000.

March 21, 2010

Buy Low and Sell High... Or Lose Most of Your Money Trying To

If you can buy low and sell high you'll make money.   If you do everything just right then you can profit greatly off the market ups and downs.   But that is easier said than done.   It seems human nature that we let emotions get the best of us and we might buy or sell for the wrong reasons.   If you do everything wrong you can lose your shirt.   To illustrate just how much good or bad timing can impact your returns lets look at an example of starting with $10,000 and investing over the past 15 years in the S&P 500.

This is what the S&P 500 looked like at the start of January for the past 15 years:

( note: These are the 'adjusted close' numbers reported off Yahoo finance which includes dividends.   This is not a perfect reflection of all highs/lows of the S&P 500 but just a periodic snapshot of the value at the start of January.   I was being lazy and just grabbed a easy set of numbers.  This is not meant to be super realistic, I'm just making an example here.)

You can see it has been a bit of a roller coaster.  It first went up, then it went down, then up again, then down, and finally its recently being going up again.   What if you'd been smart or lucky and bought at the lows and sold at the highs?   How about if you'd timed things poorly and bought at the peaks and sold at the lows?      Lets look at a worst case and best case scenario.

Bad timing:
Sit on the sideline from 1995 to 2000.
Buy at peak in 2000 - S&P500 at 1394 : Your $10,000 gets you about 7.2 shares.
Sell at a low in 2003 - S&P500 at 855 :  Cash in your 7.2 shares for $6,136
Buy at the next peak in 2007 - S&P500 at 1438 :  Take your $6,136 and get 4.3 shares.
Sell at the low in 2009 - S&P500 at 825 : Cash in your 4.3 shares for $3,524
Start with $10,000 in 1995 and end up with $3,524 in 2009.   Thats a 64.7% loss.
This is a -6.7% annual compound growth rate over 15 years.

This person with very bad timing has managed to buy at the very worst times and then sold at the worst times.  This isn't all that of an unrealistic scenario.  People see the market going up so they decide to jump in.  They don't notice it going up initially so they miss half the gains.  Then by the time they take action the market has basically peaked and they jump on the bandwagon when its too late and they buy at a high.   Then the market starts to plummet and they start losing all their money.   They're afraid of losing more so they panic and pull everything out after the plummet and sell at the low.

Good timing: 
Buy in 1995 - S&P 500 at 470 : Your $10,000 gets you 21.2 shares
Sell in 2000 - S&P500 at 1394 : Sell your 21.2 shares for $29,643

Buy at a low in 2003 - S&P500 at 855 : Buy 34.6 shares with your $29,643
Sell at the next peak in 2007 - S&P500 at 1438 : Sell the 34.6 shares for $49,823
Buy at the low in 2009 - S&P500 at 825 : Buy 60.33 shares with your cash
End 2010 with  60.3 shares worth about $64,784
Start with $10,000 in 1995 and end up with $64,784 in 2010.  This is 547% growth.
That is a 13.3% annual compound growth rate for the 15 year period.

Now compare that to a passive investment strategy of simply buying and holding for the entire 15 year period.

This is a less realistic scenario.   But if you're smart or lucky or a combination of both then you could possibly accomplish this.  To put it in perspective however, the great Warren Buffet saw his Berkshire Hathaway grow from about 24k a share in 1995 to 122k per share today.   So Berkshire grew about 11.4% annually in that period.   Its not too realistic to think many people are smart or lucky enough to beat Buffet's performance over a 15 period.

Buy and Hold
Buy in 1995 - S&P at 470 : Your $10,000 gets you 21.2 shares
End 2010 with 21.2 shares worth $22,828.  
Start with $10,000 in 1995 and end up with $22,828 in 2010.  That is 128% growth.
Over 15 years this is a 5.8% annual compound growth rate.

Doing nothing but sitting on an investment for 15 easily beat the failed market timing by over 12% a year.   This isn't nearly as good as the 13% gains from buy low and sell high good timing.  But considering that the market was essentially flat for the past 10 years getting a 5.8% annual gain out of the 15 year period is pretty good.

Now to be clear this is all made up examples based on S&P ups and down.   I don't expect people trying to time the market will limit themselves to buying on the 1st of January once a year.   And the numbers I used include dividends and someone buying and selling will see much less of an impact from dividends.

The bottom line:    Yes you can make gobs of money if you time the market perfectly.   But that is not very likely.   I think most people are much more likely to time the market poorly and lose most of their money doing so.

March 19, 2010

Best of blog posts for week of March 19th

Free From Broke has Health Savings Accounts (HSA’s) Are Awesome – 7 Reasons

Free Money Finance talks about Six Levels of Emergency Funds  It has different emergency fund amounts tailored for different situations which makes sense to me generally.

The Problem With Gold Bugs from Pop Economics gives their opinion on the current hype for buying gold as an investment.

An Example of High Markup Options Sold By Car Dealers

Generally I think that buying "add-ons" at a car dealer is going to be a poor investment.    There is a long history of dealers selling "rust proofing", extended warranties and other highly marked up add-ons to cars at the end of a purchase negotiation.   This sales pitch usually seems to happen after you've agreed to buy the car and when you're going in to sign the papers and handle the purchase.  Apparently selling high profit services at the end of a sale is a common trick of car dealers to increase their profit margins.   I'm not saying that all dealers are scam artists or that all of the dealer addons are worthless.   However its very common for dealer addons to have high profit margins and some of the items sold are not really necessary.   This older CNN article covers the topic in general.   I recently ran across a good example to illustrate why these purchases aren't a good idea.

On FatWallet recently a poster asked about a "Maintenance Package" that they had been offered by the dealer on a new 2010 Ford Fusion.   They said the dealer originally offered it for $2,250 but then came down to $1,500. The fact that the dealer quickly dropped the price from $2,250 to $1,500 means that they originally had at least $750 markup so this product was at least 33% profit.   A little digging on Ford's site shows that its even worse than that.  The Ford Owner website has details on the scheduled maintenance and the Maintenance Package.  You can even get a quote on the exact same Maintenance Program at Ford's site where the cost is $1,240.  The dealers lower price of $1,500 is $260 higher than the price straight from Ford.   Thats another $260 of profit mark up for the dealer.   The dealer tried to take a product that Ford sells online for $1,240 and sell it direct to a car buyer for $2,250.   Thats a $1,010 profit markup the dealer tried to add to the car purchase.   

Whats more the actual value of the Maintenance Program does not seem worth the even the direct cost from Ford.   The contract covers 15 service visits at intervals of 5,000 miles.   If you look through the scheduled maintenance program for the Ford Fusion in question there is little more done than inspection and oil changes.   They do cover premature failure of "wear and tear" parts including break pads, spark plugs, etc.  However those parts should not fail within the first 75,000 miles.  And even if they do it doesn't really justify the extra cost of the maintenance contract.   I think the real value of the program is something closer to $500 to $750 considering it replaces 15 oil changes that should run you $30 each and provides insurance on some parts that shouldn't fail.    Basically you're getting little more than $450 worth of oil changes and Ford will charge you $1,240 for it or the dealer will gladly take $2,250 for it.   Looking at it another way that $2,250 for 15 oil changes would equate to $150 per oil change.

Other car makers offer similar plans so this is not something that Ford alone is doing.   Even if the manufacturer doesn't offer a plan its possible the car dealer may create their own service plan and try to sell it to new car buyers.  

March 18, 2010

Avoid High Priced Private Two Year Schools

If you're looking to go to a trade school and get a two year degree then I'd strongly recommend going to a local community college.    There are a lot of for profit trade schools out there but they are very expensive and I see little evidence that the education experience is any better than a public community college program.

I've noticed an increase in the advertising from private trade schools.    These are schools that train people in things like information technology, dental assistant, medical billing or the culinary schools that train chefs.   I've never had a positive view of these schools.   I know of a couple people personally who went to these schools and ended up in piles of debt with virtually nothing to show for it.

The NY Times has an article about the for profit schools : "In Hard Times, Lured Into Trade School and Debt".  They talk about some for profit schools that charge relatively high tuition and who's students end up with significant debts. 

Lets look at one example:  
One guy named Jeffery went to a private for-profit trade school for auto body refinishing and upholstery.  He was told by the recruiter that they had a 90% placement rate and graduates made $50,000 to $70,000 a year.   HE paid $30,000 in tuition for a 9 month program and now he says  "I've got $30,000 in student loans, and I really don't have much to show for it,.."  By comparison you can get a 2 year associates degree in auto body repair from my local community college for around $7,000 to $8,000 in total tuition and fees.   The median wages for auto body jobs is about $37,000 a year.   90% job placement also seems grossly over stated.   Considering that Harvard MBA's had a 92% placement rate in 2009.    I find it a little hard to believe that employers are as eager to snatch up people with auto body 'certificates' from a school I've never heard of about as much as Harvard MBAs are in demand.   So it seems the recruiter grossly overstated placement rates and salary potentials.  

I generally favor the value of going to a public school over a private school.    If you are talking about a respectable four year college like Harvard or Stanford then I can certainly see the potential value of paying more for the educational experience and name of the school.   But for a two year degree nobody is going to pay you a big fat salary for getting a medical transcriptionist or auto body repair degree from a pricey private trade school.   Theres virtually no up side in paying up to 10 times as much to go to a private trade school.

Not only are these schools providing low value to their students they are also doing it at the expense of our tax dollars.

The Businessweek article How Colleges Are Buying Respect explored another aspect of the for profit college world.  Apparently the profit colleges are buying up small regional private schools in order get the accreditation.  In the Businessweek article they say this about ITT:

"ITT runs 120 nationally accredited technical institutes with 80,000 students, most of whom pursue associate's degrees. The cost of attending an ITT Technical Institute, including tuition, fees, and off-campus room and board, was $26,775 in 2008-09, according to the National Center for Education Statistics. Of students who entered ITT's two-year schools in 2004, 29% graduated. ITT derived 70% of its 2009 revenue from federal financial aid."

Assuming that Businessweek has all those figures correct then a bit of math tells us :  80,000 students x 71% drop out x $26,775 annual cost x 70% federal financial aid =  Over $1 B in federal financial aid going to pay tuition for students that drop out of ITT.  Yikes!    And much of that money is in the form of federal loans that those students are responsible for repaying.

ITT isn't alone in getting large amounts of money via federal funds.   The NYT article says: "The Career Education Corporation, a publicly traded global giant, last year reported revenue of $1.84 billion. Roughly 80 percent came from federal loans and grants, according to BMO Capital Markets, a research and trading firm. That was up from 63 percent in 2007.
The Apollo Group — which owns the for–profit University of Phoenix — derived 86 percent of its revenue from federal student aid last fiscal year, according to BMO. Two years earlier, it was 69 percent."

Now to be clear the federal financial aid money is part Pell grants and part federal loans.   So much of that money comes in the form of federally guaranteed and subsidized loans which the students are then on the hook to repay.

Bottom Line:   Avoid expensive private trade schools and go to a community college if you're looking to get a two year degree.

March 17, 2010

40% off HP ink and toner at Newegg through 3/18/10

Right now you can get 40% off printer ink or toner cartridges at Newegg.   To get the discount find your ink or toner cartridges and then use the promo code HP4TONER at checkout.

You can also get an extra 1% back via Ebates.

I heard about this one on Fatwallet

The Lasting Impact of Credit Card Interest

Back when I was first in college I got my first credit cards and quickly started to pile up some debt.   I don't have good records from that period and I don't remember exactly how much debt I had but I'm pretty sure it was in the ball park of $10,000 or less.

Lets work with the theory that I had a maximum of $10,000 in credit card debts at the peak.   I carried credit card debts gradually built up over a 8-9 year period.   I could very easily have paid something like $10,000 in interest for that debt in those 9 years.   If I started at $0 and ramped up to $10,000 over 9 years then 20% interest would come out around $10,000 roughly.   So on $10,000 of spending I likely paid around $10,000 in interest to credit card companies.

I paid off those credit cards around 12-13 years ago. That was about the time that I bought my first car with a loan.  Before then I'd driven clunkers that my parents gave or lent to me.   I paid about $7500 for my car and financed it.  If I hadn't paid the interest on my credit cards I'd have had about $10,000 in the bank and I could have bought that car with cash instead of getting a loan.   My car loan was about 7%.   I paid the car off after a couple years but not before paying around $1,000 in interest on it.    So that earlier credit card debt indirectly cost me another $1,000 in interest payments for my car loan.

A year or two after I paid off my first car I then bought my home.   I bought the home with a 3% down payment (yeah I know thats not a good idea but hindsight is 20/20).    If I hadn't paid the interest on the credit cards and the interest on the car loan I'd have had about $11,000 extra in cash that I could have put into the home loan.  My initial home loan was about 7%.   I paid on that for a couple years then refinanced down to 6%.  After another year I refinanced again to 4.75%.   If I had put that $11,000 into the home downpayment then I'd have saved myself about $4,800 in interest (after tax deductions) over the past 10-11 years.

Originally I paid around $10,000 in interest directly on the credit card debt.    If I had never taken on the credit card debts in the first place I would have been about $10,000 ahead around 12 years ago.   I then bought a car and paid about $1,000 interest on the car.   If I had had that $10,000 in cash I could have avoided that $1,000 in interest on my car loan.   I would then have been about $11,000 ahead around 10-11 years ago.   If I had that $11,000 in cash at that point I could have put it into my home loan and I would have avoided about $4,800 in interest on my home mortgage in the past 11 years.   That would put me about $15,800 ahead over all.    This chain reaction has caused my initial $10,000 of credit card purchases to cost me $15,800 so far over all.

Of course you can play this game a variety of ways.   If I had not paid off those credit cards and just kept making minimum payments I'd have paid over $28,000 in interest on it and I'd still have over $6,000 on the cards left to pay off.   

March 16, 2010

Top Undergrad Business Schools

Businessweek magazine recently ran an article on the top undergaduate business schools in the nation.   Their website ranks the top 50 schools.

Here is a list of the top 10 undergraduate business schools and the tuition rates:

#1 Notre Dame $38,477
#2 Univ. Virginia $9,872
#3 MIT $37,782
#4 U. Penn $38,970
#5 Cornell $21,814
#6 UC Berkeley $10,333
#7 Emory $38,036
#8 U. Michigan $11,645
#9 Boston College $39,130
#10 U. Texas $9,808

If you didn't know anything else about these schools other than the rankings and tuition rates then do you think it makes more sense to go to Notre Dame or University of Virginia?   What about U.C. Berkeley or Emory?

This list should speak for itself as evidence that you don't have to pay private school tuition rates to get a top notch education.

Of course I wouldn't pick a school based on just the tuition rate and a magazine ranking.   There are a lot of factors to look at.  For example if you get into MIT and your family income is under $75,000 then your tuition is free.   Or if you are from out of state your non-resident tuition & fees at Univ. Virginia is $31,870.

March 15, 2010

Suze Orman Blames Womans Financial Dishonesty on Husband

So my wife and I are watching the Suze Orman show this weekend and she gets a call from a woman named Jennifer in Indiana.  [edit, I found a video of the segment with Jennifer on CNBC's site]  Jennifer had secretly ran up $65,000 in credit card debt over three or four years without her husband knowing about it.   One would expect that Suze would admonish this woman for her reckless debt accumulation and dishonesty to her husband, right?    Well no thats not what happened.   Suze puts on her quack psychologist / fortune teller hat to handle this one.   Suze asks the woman what she spent the money on and more or less pushes her to answer how Suze wants.  Suze asks the woman if she spent the money on necessities like groceries and gas for the car.  She uses a lot of "isn't it true that" prompts and only asks what she wants to hear yes to.   But then when the Jennifer says she also bought clothes Suze brushes that off and categorizes clothing as a necessity.   After Suze has basically pushed Jennifer into agreeing that she spent the money on food, gas and clothing Suze then basically absolves the woman of it.  Suze lays the blame on the husband for not bringing home enough money.   Let me repeat that.  The woman secretly charged $65,000 on credit cards and Suze blames the husband.  Suze even gets sarcastic about how the woman is lucky the husband is staying with her.   While Suze is on a roll in her psychic quack psychologist gig she also decides the woman has put on weight and asks her about that with a leading question.   The woman says her weight is up and down and she's gained 10 pounds over the 3-4 year period.   Suze then declares that the weight gain is also due to the financial issues.   She didn't outright blame the husband for the weight gain too but she may as well have.

So to sum up the segment:   Jennifer charges $65k in secrecy without telling her husband.   Suze's judgment: its the fault of Jennifer's loser husband who apparently isn't man enough to bring home enough money for her and he probably also made her get fat.

I was frankly astonished that Suze could argue that spending $65,000 and deceiving your spouse about it was justified in any way.   Well honestly I wasn't all that astonished.  Suze seems to like to play quack psychologist fortune teller fairly often.  Its not unusual for Suze to make a virtually baseless assumption about someones circumstances and then push her assumption on the person to explain the situation.  In this case the assumption seemed completely unwarranted and was unjustified.   Suze's assumptions and conclusions were wrong for a number of reasons:

Jennifer spent too much for just food and gasoline.   The woman spent $65,000 in 3-4 years.   $65,000 is a lot of money even spread over 3-4 years.   Thats $16,250 to $21,667 per year or $1,354 to $1,805 per month.   Thats a pretty large amount of money to be spending on necessities to supplement an income.  The average household in USA spent $3,465 on food at home, $1,881 on clothing and $2,384 on gasoline.    For a family of four the equivalent spending would be $5,544 on food $3,009 on clothes and $2,384 on gas which adds up to $10,937.   The woman spent 50-100% more than the average household spends on food, gas and clothes.    Furthermore the amount spent by the average household was a household with income of over $63,000.   I don't think you're struggling if you have that average income.   So either the woman spent way more than typical on necessities or she bought things other than necessities.

We don't know how much her husband brought home.   The biggest flaw in Suze's logic is that she didn't know how much the husband made from his job.  If he made a relatively small amount like $25,000 a year then Suze's conclusion might make sense.  But we didn't know that.  For all we know the husband may have been bringing home a large income north of $100,000 a year.   Or its just as likely that he made a middle income in the $40,000 to $60,000 range.  The conclusion that he didn't bring home enough money was totally baseless and unverified.   All Suze had to do was ask how much the husband made but she didn't do so.  She just assumed he didn't make much and then ran with it.

They live in relatively inexpensive Indiana.   They live in Indiana where cost of living isn't very high.  The median home price in Indianapolis was about $111k at the end of 2009.   If they have a median priced home then their mortgage payments would be around $800 level.   Since the cost of living where they live is relatively low I find it even harder to believe that she spent all that money on simple necessities.  Its a lot easier to stretch a dollar in Indiana than many places.

No matter the reasons, secret debts and financial dishonesty with your spouse is just plain WRONG.   Keeping secrets about your finances from your spouse is not OK.  Even if your reasons for spending money aren't the worst ones, keeping the spending secret is not all right.  Lying to your spouse is bad.  Turning around and blaming them for the dishonesty is plain stupid.

March 14, 2010

How Frequently Do Insurance Companies Fail?

One of the risks of dealing with an insurance company is that the company might fail.   If you buy an annuity or some other form of investment from an insurance company like cash value life insurance then there is a small chance the insurance company might go bankrupt.   If an insurance company does fail then state guarantee associations guarantee your investment up to a maximum amount.   I don't think the risk of insurance company failure is high, but it does exist.   Even companies that appear solid aren't immune to risk of failure.  AIG had an A+ 'superior' rating in 2008 not long before the government had to step in and bail them out. 

Given that insurance companies can fail we know there is risk.  So how much is the risk of insurance company failure?  I did a bit of web research on this to try and answer that question.   I didn't find a definitive source with historical data on insurer failure rates.   I did find a number of different sources with bits of data that I think gives a decent rough estimate on the failure rate for insurance companies.

The National Organization of Life and Health Insurance Guarantee Associations has a partial list of Life / Health (LH) insurance companies that have been "impaired" or gone insolvent.   I count over 60 companies on that list and the list covers from 1983 to today.   But thats just a partial list so more then that have failed.   But if over 60 companies failed in 27 years then thats an average of over 2 failures / year.    About 11 of the companies on that list were just "impaired" which means that they remained in business but were taken over.

An old article citing a study from A.M. Best said they had found that "Overall, life/health insurer impairments remained relatively rare for the 27-years of the study, ranging from about 1-in-250 companies in the more stable times to 1-in-35 companies during more difficult ones. The annual average of impairments was 1-in-109 companies over the entire study period."

The III says that there are "There were 2,741 P/C insurance companies and 1,128 L/H insurance companies in the United States in 2008."   Another source cites some failure  #'s from 2004 and it says: "Overall, last year saw 22 insurer insolvencies, compared to 28 in 2002. Four life and health insurers and 18 property and casualty insurers failed in 2003, compared to three and 25 respective failures in 2002."  Those two sources above gives me #'s of failures in 2003 and 2002 and total insurers in 2008.   Of course 2002-2003 and 2008 are different years but the # of insurers is not likely to have changed significantly in a few year period.  So I can roughly estimate failure % rates using the failures form earlier years / total insurers in '08.   In 2003 there were 4 insolvencies of L/H companies and in 2008 there were 1128 such insurers.   That is about 0.3% failure rate.   They cited 18 P/C failures in 2003 and there are 2,741 of those in 2008.  That is a 0.6% failure rate.    For 2002 the failure rates are pretty close at 3 for L/H and 25 for P/C or roughly 0.2% and 0.9% failure rate.    

Bottom line, my estimate from these sources is that the rough annual failure rate for insurance companies is 0.2% to 0.9%.   Thats 1 in 111 to 1 in 500 level.

March 12, 2010

Best of blog posts for week of March 12th

If your kid gets good grades then they can get a Free Blockbuster Movie Rental via Mommy Snacks

Consumerism Commentary discusses the awkward situation When Your Friends Become Social Sellers and Multi-Level Marketers

Rues That Warren Buffet Lives By from Investopedia via Yahoo.

Bad Money Advice thinks that story about the woman who left $7M to a college that I mentioned last weeks roundup is a  The Bad Example of the Secret Millionaire

Wisebread lists Top 10 Real Estate Tax Write-Offs

Also from Wisebread check out their 6 Slick Tools to Save Money on Car Repairs   I especially like the site RepairPal

DVR's Can Save You Lots Of Time

When I go home tonight my wife and I are going to watch a basketball game.   We'll also probably watch another program or two. We have a DVR so we'll record the shows in advance and then watch the recorded copy.   This will cut about 33% off our viewing time by allowing us to skip the commercials.  We'll probably skip around 60-90 minutes of commercials tonight by using our DVR.   By allowing you to skip commercials DVRs can be a great time saver.

Lets do some math...
The average American watches 4-5 hours of TV a day.
4 hours per day x 365 days/year = 1460 hours / year
33% commercials per hour x 1460 hours / year = 481.8 hours of commercials / year
With a DVR you could save yourself 481 hours a year by skipping the commercials.   That is about 40 hours a month in saved time.    If you pay a fee of $15 a month to get a DVR and watch an average amount of TV then you're spending 37.5¢ per hour saved.

If I told you that you could have an extra hour of free time today for 37.5¢ would you take that deal?   I assume most people with some cash on hand would take that bargain.

But maybe you only watch a bit of TV, can it still be useful?  Even if you only watch 1 hour of TV a day on average you'd be paying only $1.50 in DVR rental per hour of commercials skipped.

If you enjoy watching a certain amount of television like I do then a DVR can help you get some of your free time back.   Even if you do nothing productive with that freed up time its worth the relatively small cost.  You can use some of that extra time for your other enjoyable pursuits or you can use some of it to make or save some money.

Photo by somegeekintn

March 11, 2010

2nd Anniversary of Free By 50

Today is the 2 year anniversary of Free By 50.

 My first post on March 11th 2008 was I want to be financially independent by age 50  and it had this short message:   "It is my stated goal that I plan to be financially independent by age fifty. I plan to chronicle and discuss my efforts towards that goal on this blog." Financial independence by age fifty is still my goal.

A lot has changed in two years but much has stayed the same.

When this blog started in March 2008, the unemployment rate was 5.1%.   It peaked at 10.1% in October last year and has now dropped to 9.7%

I was single and engaged two years ago and now I'm happily married.

I was eating out too much and spending around $900 a month, but since then we've cut back on our eating out and are now spending closer to $500 to $600.

I've got the same job but I got a pay grade promotion and a 14% raise in 2008.   In 2009 my company froze wages.

I live in the same house but we got the front yard landscaped and had the house air sealed and insulated which I figure has saved us about 40% on our heat this winter.

Our net worth grew by about $161k or about +34% from $467k to $628k.   A large chunk of that growth came from when my wife and I got married and combined finances so "my" net worth became "our" net worth.

On March 11 2008 the S&P 500 opened at 1,247.    It then climbed to a peak of 1,440 by May 2008.   Then it started to drop and around a year ago in March 2009 it had hit a low of 666.   Today it has recovered considerably and closed at 1,145.   If you had bought at the peak and sold at the low you'd have lost 54%.  If you'd bought at the low and held it until today you'd be up 71%.

March 10, 2010

Free By 50 on Twitter

Free By 50 is on Twitter.

Follow Freeby50Blog on Twitter

I have it setup so any article posted here will be announced on Twitter.  So if you're a Twitter user and would like to get quick links to my posts then you can follow me on Twitter.

I'm also on Facebook :

freeby50 on Facebook

February heat down 60%, Winter total down 40%

Since we got our home air sealed and insulation increased I've been tracking the heat costs of this winter versus last year. 

Our February heat bill was down 60% from last year, however it was considerably warmer in February this year compared to 2009.

February 2009 heat bill =$219
February 2010 heat bill = $90

February  2009 degree days = 698
February  2010 degree days = 565

There is now five months of data from Oct 2009 through Feb 2010 to compare to last winter. 

Its been a marginally warmer this winter:
2008 Oct - 2009 Feb Degree Days =3,008
2009 Oct - 2010 Feb Degree Days = 2,955

But we've spent a lot less on heat costs:
2008 Oct - 2009 Jan Heat cost =$823
2009 Oct - 2010 Jan Heat cost =$488

Total accumulative heat savings $335 or 40%.

Winter is almost over so I'm getting close to wrapping this up.  

March 9, 2010

Are Credit Unions Better Than Banks?

Lately it seems I've seen a few bloggers or  personal finance experts advocating joining a credit union over a bank.   It seems to be prevailing opinion that credit unions are generally better thank banks.   But I've wondered how much of this was just backlash against the "big banks" getting bailouts from the government and how much was really about credit unions being better.

I've been unconvinced that credit unions are all that great.  I've only been a member of a credit union once and I left them unhappy.  My father also had a problem with a credit union a few years ago.  My limited personal experience with a credit unions hasn't been positive.  But then I've never had a ton of success with banks either.  Eventually every bank will do something to annoy me.

I decided to do some research and compare banks and credit unions over all.    I should note that some of the data below comes from credit union organizations so it would be right to question if its biased, but I am trusting that they aren't publishing lies.

Interest Rates = winner Credit unions

Current data comparing rates between credit unions and banks is published at the NCUA site.

A Comparison of Historic Rates published at NCUA shows the rates for credit unions versus banks for 2003, 2004 and 2005.  In most cases the rates for credit unions were better than banks.  Here is a table comparing some of the rates for 2005 :

Credit Union Bank Difference
36 month used car 5.62% 7.49% 1.87%
30 year fixed mortgage 6.38% 6.39% 0.01%
3 year ARM 5.55% 5.66% 0.11%
credit card 12.06% 13.27% 1.21%
6 month CD, ($10k+) 3.13% 2.88% 0.25%
Money Market 1.44% 0.99% 0.45%
Regular Savings 0.67% 0.67% 0.00%

On average you get better rates with credit unions over banks.

Fees = winner credit unions

According to the CUNA, the average NSF fee is $25 at a credit union and $30 at banks.   Average credit card late fee is $20 for credit unions and $35 for banks.

Better Customer Service = winner credit unions

The Ohio Credit Union League published an article that cites a Gallop poll of consumer satisfaction for banks and credit unions.

Percent of customers "very satisfied" were :
Credit unions = 73%
Banks = 58%
S&L's = 59%

The American Consumer Satisfaction Index has scores on industries.   The overall score for Credit Unions was 84 and the banks got a 75.   They have scores for individual banks and Bank of America scored 67, JP Morgan Chase got a 68, and Citibank got 68.   All other banks got a score of 80.   So the smaller banks did much better than the biggest banks in terms of customer satisfaction.

Other Considerations

Sometimes the location of a bank branch matters to you more than other factors.    The location and convenience of ATMs may also be a big deal for you.  But for some people neither of these really matter all that much.    The features and ease of online banking like bill pay or other online transactions may also matter a lot.  

Bottom Line:   Looks like over all that credit unions win on better rates and better service.    There may be other considerations that would cause you to go one way or another.   I'd do the comparison myself between credit unions in your area and banks.

March 8, 2010

15% off on Alice gift cards

I got an email from advertising 15% off on their gift cards.   The discount is available until March 11th.

The standard prices on aren't the cheapest.   For a few things I looked at Alice's prices were more expensive than Costco.   So its not exactly a bargain shop.   But it does have some benefits.

The key benefit of Alice is their Coupons.   Coupon deals on Alice can give you good prices.   For example some current coupon deals on Alice : Theraflu packets for $3.39 which are $5.79 at Safeway. Old Spice 'High Endurance deodorant for $1.87 compared to $2.99 at Safeway.  Crest Multi-care whitening for $2.06 versus $3.49 at Safeway.  Convenience of shopping online and free shipping.   Also you can buy US postage stamps on so this is a way to get stamps at a discount.

 If you combine the coupon discounts with the 15% off on gift cards you can get even more savings.  For example, say I bought some of the Crest toothpaste.   Right now with the coupon it is $2.06 per tube.  With the 15% off discount that is $1.75 per tube.   Thats about 50% off the normal price at Safeway.

One catch with Alice is that you have to buy minimum 6 items at a time for them to justify shipping an order.  The products on Alice are all name brands and you can often get much better prices by buying generic or store brand equivalents.

Overall I have mixed opinion of Alice.  I think that if you use it right then it can give you some pretty good deals.  But don't assume you're getting the best price there.

March 7, 2010

I Like DIY A Little Too Much

I tend to have a negative emotional reaction to hiring work done around the house in most situations.   Its not that I want to do the work in fact I'm rather lazy to be honest. But I feel that I "ought to" do the work myself or that paying someone to do it is somehow not right.  Plus I always want to try and save money by doing work myself whenever I can.

Every time something needs fixing around the house my first inclination is to do the work myself.   I think theres at least a couple reasons for this reaction.   One of the thoughts that crosses my mind is "I can do that."   Another thought that I'll have is that "it would be expensive to hire someone".   These are my primary reasons for wanting to do work myself. 

DIY work can often save you money.   There is no doubt about that.  I've saved a lot of money by mowing my own lawn and painting my home among other things.   So some DIY is certainly a good idea from a cost saving perspective.  

The problem with my desire to do DIY is that its not always rational.  Sometimes I end up doing DIY work that I probably shouldn't.   Generally when I'm considering DIY I don't much consider whether or not I really want to do the work, if I have time to do the work, if I'd rather do something else, if I could make/save more money doing something else with my time or if I'd do a decent job doing the work.    These are all very good reasons to hire someone else to do something.   They may very well outweigh the benefits of cost savings.   But I seem to automatically choose to do DIY without a lot of consideration of the pros and cons.

Sometimes this inclination of mine to handle work around the house can backfire.   When I first got my house I signed up for satellite TV.   I decided that I would install the dish myself and save some money.   So I climbed up on my roof, installed the dish and then spent several hours failing to find a signal.   I eventually gave up and hired someone for $80 or so and they came out and had it running within minutes.   Then weeks or months later I started having occasional reception problems with my signal.   I first thought it was just outages from the service itself, but eventually my signal failed entirely.   I ended up on the roof again checking my dish and I figured out that I'd done a poor job of sealing a cable connection and water had leaked into the joint and ruined a cable.  All together my DIY efforts ended up causing me to waste many frustrating hours on my roof fiddling with the satellite dish and I didn't save any money.

 The fact that I feel I can do work myself is a big reason that I consider DIY at all.   If I know that I can't do the work then I don't even think of trying it.  For example I didn't attempt to fix my main water pipe when it broke and I didn't try to remove an overgrown 25' pine tree from my property.  I knew I didn't have the skill or equipment to do those things so I didn't think of doing it myself.  But if work is something I think is within my capabilities then my automatic reaction is to do it myself.  It think part of that may be a feeling that I should be doing things for myself.  I'm not sure if its an egotistical reaction that I would feel less manly if I hired a plumber to fix my sink or what.  But I seem to feel that if I can do something then I should do it.

Why is this a problem?    Well I already gave one example where installing my own satellite dish ended up wasting me a lot of time and effort.   So sometimes my efforts at DIY fail and I waste time and effort.   But another big reason why being to inclined towards DIY is a problem is that it causes me to be biased towards DIY.   I assume I'll save more time and money then I really do.   It makes my evaluation of whether or not I should do DIY out of whack and I make the wrong choices.   It is important to recognized your own biases or they will lead you astray.

March 5, 2010

Best of blog posts for week of March 5th

The Christian Science monitor wrote Who's poor in America? US tweaks how it defines poverty.
About how the government is going to adjust how poverty level is figured.  It should be more accurate and at the same time increase the number of people who are in poverty.  Click.  Now you're poor.

MoneySmartLife compares exempt and non-exempt work with Overtime Exempt Employee vs Non-Exempt Employee.

Darwin's Finance talks about  401K Loan Rules – Taxes, Interest, Pros and Cons and he points out that there is no "double taxation" on 401k loans.   A great explanation of 401k Loan Double Taxation Myth from The Finance Buff.

A story I heard about via Yahoo: Amazing Grace: Lake Forest secret millionaire donates fortune to college
A nice success story for buy-and-hold investing with dividend reinvestment.  She paid $180 for 3 shares of  "special" stock that 75 years later it was worth $7 million.   Thats about a 15% compound annual growth rate.   Not bad.  Wish I could have bought "special shares" of Abbot Laboratories (ABT) 75 years ago and held on to it for the past 75 years.

Updown performance February 2010 - S&P500 beat me by 1.8%

Practice invest

My Updown account is currently UP 0.97% in February 2010.  By comparison the S&P 500 was up 2.85% so I got beat by the index by 1.88%.

Thus far in 2010 I'm up about 0.8% which is 1.8% better than the S&P 500.

Since starting in March 2008 I'm up 5.3% while the S&P 500 is down 22.3% in that timeframe.

I bought some Freddie Mac and AIG stock in Updown at the end of the month.   I bought relatively small positions in both of them to test out short term speculating.  I've set limit sell orders to dump them once they've gained some.

March 4, 2010

Amazon Trade-In for DVDs

On Amazon they have a service called Movies & TV trade In.   I stumbled upon it the other day while looking for something on Amazon.  The basic idea is that you round up your unwanted DVDs or Blu-ray discs and mail them in to Amazon for store credit.  Amazon lists the simple steps of the process as :

1. Select Items, 2. Ship items FREE, 3. Get a Gift Card
I thought to myself that this might be an easy way to quickly sell some DVDs.  But I wondered if you'd get a good price for your DVDs doing this.

As a test I chose to check the trade-in value of the Sopranos seasons 1-4.   The trade in prices seemed OK to me.  But I wondered if I could get more money by selling the items myself via Amazon Marketplace or on eBay.  I decided to compare the Trade-In prices to what you could sell the DVD's for on the Amazon Marketplace or via an auction on eBay.   For the Trade-in program the prices are fixed.   For Amazon Marketplace I just used the lowest used price for the items.   On eBay I did a search of current auctions showing the ones ending soonest then took the minimum price on the first page of results.

Amazon Trade in values:
Season 1 = $3.50, Season 2 = $6.75, Season 3 = $10.50, Season 4 = $6.00 for a Total = $26.75
Amazon Marketplace values:
Season 1 = $12.72, Season 2 = $16.89, Season 3 = $17.48, Season 4 = $20.98 for a Total = $68.07  [-$14 fees]
eBay prices.  

Season 1 = $7.00, Season 2 = $10.00, Season 3 = $10.50, Season 4 = $19.50 for a Total =$47.00 [-$5 fees]

[edit:  I originally forgot to account for the fees you have to pay on eBay and Amazon Marketplace. Roughly speaking from what I can tell the fees on the eBay sales would be 25¢ + 8.75% cost you around $5 and Amazon Marketplace would charge $1 + 15% for about $14]

You can make a lot more money selling the items yourself on eBay or Amazon Marketplace.   Selling them yourself will take a bit more work and there is no guarantee they'll sell quickly.  But if you're willing to do a little work and wait a week or two to sell things then you can make a lot more selling items individually on Amazon Marketplace.

Amazon Trade-in doesn't seem to be a bad service, it does what it is supposed to.  But if you want to maximize the amount of money you get from DVD's then I wouldn't recommend it.

March 3, 2010

Personal Savings Rate History 1959 to 2010

You can get recent savings rate information at the BEA.   For the 4th quarter of 2009 the personal savings rate was just over 4%.   The personal savings rate is the percentage of personal income saved, so its the total amount saved / total personal income for the nation.

The Fed has historical data on the personal savings rate going back to 1959.    I plotted that data in the chart below to show the trend from 1959 to 2010.

From 1959 to 2010 the Average was 7.0%, the Median was 7.5%, the minimum was 0.8% and the maximum rate hit 14.6%.   From 1959 to 1995 the rate averaged 8.4%.  The average rate from 1995 to 2010 had dropped to 3.4%.

Blog Widget by LinkWithin