September 30, 2010

Shop Around For Health Care

The blogger Frugal confessions shopped around to get price quotes for a hernia operation at local hospitals.   The costs cited by different hospitals varied significantly.   At the low end, one hospital would charge $3900 to $4900 and the most expensive wanted $16,100.   The most expensive is a shocking 312% more than the least expensive.    Thats a huge difference.  

When Shopping Around Makes sense

You can't shop around if there is an emergency.   It really only makes sense to shop around for costs if your procedure is not urgent and you have the ability to choose the hospital you go to.    Some health plans will tie you to specific hospitals that are "in network" and you won't have the freedom to go anywhere.   In other cases the procedure you require may only be performed at a certain hospitals which my limit your choices.

Comparing costs at My local Hospitals

My state happens to have an online database that cites the median and mean cost for various common medical procedures at each of the hospitals.   That makes it particularly easy for me to shop around.   I looked up a few procedures at the hospitals nearest to me to compare the costs:

1.) I checked the prices for a common procedure at the hospitals around here and the median prices were : $5,309, $6,300, $6,500, $8,722 and $9,456.     The most expensive is $4,147 or 78% more than the least expensive.  
2. ) I searched for appendix removal and the costs for that were : $9,747,  $13,964, $7,244, $12,200 & $9,689  The cheapest was $7,244 and the most expensive was 68% more at $12,200.    Thats a difference of up to $4,956.
3. ) Lets say you need a hip joint replacement.   That would cost you : $20,863, $26,210, $18,597, $22,006 & $21,067.     The cheapest at $18,597 and the most charged $26,210.     That is a 40% premium for the most expensive over the least.    You could pay up to $7,613 more at the most expensive.

So that is 3 semi randomly selected, fairly common procedures that had price differences of 78%, 68% and 40% between the cheapest and most expensive hospitals in the area.

Why Should You Care if You Have Insurance?

You may have a traditional co-pay insurance plan where you are not responsible for paying anything past a $25 co-pay.   But you may also have to pay a deductible and you might also have co-insurance.    Only the very best health insurance nowadays comes with no out of pocket costs.   So most of us are going to have to pay at least some of the bill for a hospital procedure.   If you have co-insurance then you'll be paying 10-20% or more of the cost usually up to a maximum level.    Whether you have a deductible or co-insurance its going to help you save cost if you shop around.     Even if you have no real out of pocket costs yourself there are indirect costs for your insurance and its best for all of us to help keep the costs down.   Just because someone else is paying the bill it really doesn't make much sense to write a blank check to the hospitals.

Consider Hospital Quality

Of course this doesn't say anything about the quality of the hospital.   I wouldn't just go  the cheapest hospital if it meant receiving very low quality care.   It is also important to compare the quality of the hospitals.

September 29, 2010

Looking at Buying a House

Not long ago I was talking about buying a foreclosure as a rental property.  We even drove out and looked at some properties.   We then put the idea on hold.    Another idea that came up was buying a different house for us to live in and then use our current house as a rental.  This would kill two birds with one stone by getting us a nicer home for us to live in and a new rental property.  So now we're actively thinking about buying a different home for ourselves.

We have been wanting to upgrade our house for a few reasons.

Reasons we have for wanting a different house:

More room.  Our house is about 1400 sq. ft. right now.   Thats plenty for my wife and I but eventually we'll want more room for a family.
Better school district.   Our current house is in a low to average quality school district. When we have kids we'd like for them to be able to go to better schools if possible of course.
Upgraded interior.  Our house is in need of some updating.   The kitchen and bathrooms are out of date and could really use remodeling.    If we're going to remodel our current home and spent a lot of money on that then I might just prefer to spend the money to buy another home that doesn't need such remodeling.
Key amenities.   Our home does not have a dining room and the washer / dryer are in the garage.  We'd like to have a dining room and utility room.   This is akin to having more room but with a specific purpose in mind.
Closer to city.   We live in the suburbs right now which is fine.  However we do go into the city on occasion and living closer to the city would be a little more convenient.

Using our current home as a rental instead of buying another property is appealing for a few reasons as well.

Why renting out our current home is appealing:

No closing costs.   We wouldn't have to pay loan fees to get a new property.   Thats a few thousand dollars difference.
Little work.  Our current house is livable as is and we wouldn't have to fix up a property.
Good house in good neighborhood.  Our current home is a nice house and the neighborhood is nice too.   It would make an appealing home for people to rent.
Familiar with the property.   We are already familiar with our current home so I know the shape of the property.  Everything works fine with exception of some minor 'quirks'.    A new property would have unknown issues and potential failures.

Of course buying a larger home for ourselves would cost more but we'd get the benefit of a larger and nicer home.  We're currently putting extra money into our mortgage so we know we can afford a larger mortgage.  Right now seems like a pretty good time to buy a house.   The mortgage rates are very low and housing prices are down as well.   Of course I don't know for sure if the market is at the bottom but if it isn't then it should be pretty close to bottom.   I wouldn't expect mortgage rates to go much lower than they are now and it seems pretty likely that they will be up 1-2% within a few years.

We're only starting to look at buying a different house.   Its not a definite plan yet, but just something we're looking into and considering.   So far we've looked at the and other online real estate sites to browse what houses are out there.   We have a basic idea of what the houses would cost, but we'd have to do some more looking to know more details.    Another major step will be to get pre-approved for a mortgage.   I am pretty sure we can qualify for more loan than we'd need, but we won't know for sure until we're approved.

September 28, 2010

Big Reason Why College Costs Have Increased : State Spending vs Tuition

College costs have been rising at a pretty high rate.   But why are tuition bills going up so fast?  

I ran across a comment from someone who pointed out a fairly common sense conclusion  that: if state funding for universities goes down then tuition tends to go up.   This lead me to wonder if the reason tuition has been going up so much over the past couple decades is simply because state funding has decreased.

I was able to find some good data showing what the states pay for college.   This information is based on state funding for state schools.   So this is specific to public schools.

State Higher Education Executive Officers published a study State Higher Education Financing FY 2009.
Their study talks about state financing of education and the amount tuition revenue that goes towards education.      The report is looking at the money that the actual university systems have coming in.   
Looking at Table 22 on page 22 of the study they give amounts for the educational appropriations and net tuition levels for 1984 and 2009 as well as some years in between.

The College Board has information on trends in college pricing.   This table shows tuition prices over the years going to the 70's. 

Now if we combine the two you get the following comparison between 1984 and 2009: 

1984 2009 annual % increase
appropriations* $21,144 $75,009 5.2%
net tuition* $6,856 $44,527 7.8%
enrollment    7,374,779   10,839,907 1.6%
tuition as % 24% 37%
approp. / student  $      2,867  $       6,920 3.6%
net tuition / student  $         930  $       4,108 6.1%
Total / student  $      3,797  $      11,027 4.4%
Average tuition rate  $      1,228  $       7,020 7.2%

* figures in millions of dollars

Annual increases over 25 years from 1984 to 2009:

Appropriations / student :   3.6% increase
This is the amount the state budgets are spending from state budgets primarily funded by tax dollars.

Total spending / student : 4.4% increase
This is the amount spent by the colleges to support the university operations per student.  

Net tuition / student :  6.1% increase
This is the total tuition receipts less free financial aid grants given to lower income students. 

Average tuition rate : 7.8% increase
This is the sticker price of tuition.

There you go.  

While the sticker price for tuition has been going up at a rate of 7.8% per year the actual tuition paid has gone up 6.1%.   The net tuition has gone up slower than the tuition charges because financial aid keeps tuition lower for lower income students.   The schools keep costs low for low income students so they don't get the full tuition from those individuals and a larger share of the overall tuition is paid by higher income individuals who end up paying full sticker price.   And at the same time the amount colleges spend on students has only gone up 4.4% annually.    State spending has only gone up 3.6%.    This all adds up to mean that tuition rates are going up faster since a higher % portion of the cost of college is being paid by tuition now compared and the portion of the higher education budget paid by state budgets is declining.

College costs aren't really going up as fast.   Tuition is going up because the tuition paid by students is paying a higher portion of the bill and state taxes are contributing less.

Put another way, the states pay less and the students pay more.

How does this work?    Lets look at an example to illustrate how this kind of thing can happen.

Lets say that a small public school only has 400 students.   The school gets $2,800,000 from the state.  They charge $7,000 for tuition.   Students in the bottom 25% of income levels get 100% tuition grants, students in the 2nd lowest income quarter get 50% tuition grants and the students in the top half pay full tuition.   Altogether the school brings in $1,750,000 in net tuition.    The schools total budget is $4,550,000 and they spend about $11,375 per student.   Now lets suppose that the costs of running the school goes up by 5%.   The amount the state gives the school from tax revenues goes up by 3%.   The schools budget is now $4,777,500.   The state is paying $2,884,000.   That leaves $1,893,500 to pay out of net tuition.   If net tuition goes from $1,750,000 to  $1,893,500 then thats an increase of 8.2% in a single year.   But the university decides that the middle income students who currently get 50% tuition grants cant afford a tuition increase, so they give those students the same $3500 tuition rate after grants.   This shifts more of the tuition costs to the students who dont' get financial aid.   The actual tuition rate goes up to $7,717 for a 10.2% increase.  This example is basically what has been happening in general at universities over the past 25 years.

Here's how the example breaks down:

2010 2011 % increase
Budget $4,550,000 $4,777,500 5.0%
State spending $2,800,000 $2,884,000 3.0%
net tuition $1,750,000 $1,893,500 8.2%
tuition $7,000 $7,717 10.2%

Each State is Different

The numbers above are the national totals and national averages.   The figures at the state level differ 50 different ways across the 50 states.   Some states are up in some areas and down in others.

An example of the before and after of budget sources at University of Texas Austin.  In 1984-1985 the tuition segment was just 12.2% of funding but by 2009 it was 23.7%.   In the same time period state funding went from 47% of their budget in 84-85 to 16% in 2009.

Bottom Line:   A key reason college tuition is going up so fast is that states are not increasing spending as fast and a higher portion of the bill is falling on the students.

September 27, 2010

Is There Really a Student Loan Problem?

It seems to me that there is more and more press and discussion on the high cost of college and "burdensome" student loan debts.   College is very expensive for sure and the costs have risen considerably over the past 25 years.   Student loan debt levels have also gone up along with increased costs.  

But I wonder... Is student loan debt really a big problem?  

Note:  there are definitely individuals with large student loan debts that are a burden to them.   Those people may have a student loan problem themselves.   I'm wondering more if the amount of student loan debt carried by households nation wide poses a 'big' problem for us as a country in general.

First of all we have to get a better grasp on how many people actually have debt and how much debt people really have.

The 2007 Survey of Consumer Finances has data on debt levels.   They list the debt amounts and what percent of the population has the kind of debts in question.    The 2007 numbers are a little old but not hugely different then today.

From the 2007 SCF we can get the following data points:

15.7% of families had education loans
10.7% of the bottom 20% of income earners had student loans
13.0% of the 2nd income quintile had loans

Median debt level for all families was $12,000
The bottom 3 income quintiles had median debts of $8,700, $9,700 and $10,000 respectively.

Mean debt for all families was $21,500
For the bottom 3 income quintiles the mean debts were $17,200, $15,700 and $19,400 respectively.

The site discusses student loan debt levels.   They have a little newer data and they have more information on how many graduates walk away with higher debt levels.  They say: 

"The median cumulative debt among graduating Bachelor's degree recipients at 4-year undergraduate schools was $19,999 in 2007-08. One quarter borrowed $30,526 or more, and one tenth borrowed $44,668 or more. 9.5% of undergraduate students and 14.6% of undergraduate student borrowers graduating with a Bachelor's degree graduated with $40,000 or more in cumulative debt in 2007-08."

Two key data points there: 
1) Half of graduates owed less than $20,000

2) 90% owed less than $40,000.

So your typical college graduate has a loan of about $20,000.    One in 10 students walks away owing over $40,000.    

Another data point is a report from the College Board that says that "17% of 2007-08 bachelor’s degree recipients who graduated with more than $30,5001 in education debt."

Debt as % of Income

I think more important than the amount of debt is the amount of debt in relation to the borrowers income.   If someone has $50,000 in debt then that means much different impact if you have a income of $25,000 than if your income is $100,000.

The report College on Credit: How Borrowers Perceive Their Education Debt By Sandy Baum and Marie O’Malley from the National Association of Student Financial Aid Administrators has some information breaking down the debt as a % of the borrowers income. 

Table 3 on page 11 shows the percent of people at varying amounts of debt / income levels.   For people with bachelors degrees specifically the rates are:

Debt / Income % borrowers
Up to 4% 18%
>4% to 8% 31%
>8% to 12% 19%
>12% to 16% 14%
>16% to 20% 5%
>20% to 24% 4%
>24% 9%

Almost half of borrowers (49%) have debt payments of 8% or less of their income.   For someone making $50,000 salary 8% of that would be a debt payment of $333 a month.   Or for someone with wages of $25,000 they'd be paying about $167 a month.  This is not a burdensome debt level.

The 9% of people with loan payments over 24% of their income are hurting the most.   That may include people with very low salary levels and those who are underemployed.   For example if you get $50,000 in loans and then can only get a job paying $24,000.   Your loan payments are $575 a month and your salary is $2000 a month so you're using 28% of your income for your student loan payments.    You could also have someone with $100,000 in loans and $48,000 income in the same situation.

So How Big Is the Problem??

I don't think that $20,000 in debt for a college education is what I'd call a giant problem.    Even $40,000 isn't an unmanageable amount of debt unless your income is low.

Granted more debt is not a good thing, but you have to consider what value people are getting out of these loans.   Is college education not worth owing $20,000 or $40,000?    If you don't think its worth owing that much then you should not be going to college in the first place if you ask me.   If college isn't going to get you a higher wage than if you hadn't gone to college at all then it doesn't make financial sense in the first place. 

Compare Student Loans to Car loans.

Looking again at the 2007 SCF we can find data on the amount of car loans households have.

34.9% of households have vehicle loans
Median vehicle loan debt for families holding the debt is $11,600

Now look back for the numbers on student loans.   15.2% of families had median debt of $12,000.

Twice as many families have car loan debts and the median debt levels for households who have either is similar.

So I could conclude that the student loan "problem" is only half as bad as the car loan "problem".  But we don't seem to think we have a car loan problem do we?     If the student loan "problem" is only half as bad then I guess we don't really have a student loan problem either.   (Or have I uncovered a vehicle loan problem that nobody is talking about?)

Isn't owing $20,000 for a college education a better value than owing $20,000 for a new car?   I would argue its a lot better deal.    The college education stays with you forever and opens doors to higher paying jobs.   The new car will quickly depreciate and break down after several years.   Yet we all seem OK with spending money on new cars.

Very Few People actually  have very Large Student debt Levels

It seems that anytime I read anything in the press about the student loan "problem" it is obligatory for them to mention someone who has $180,000 in student loan debt and utilizes their art history degree from an obscure private school you've never heard of as a night clerk at 7-11.   I have tried in the past to find any kind of data on the amount of people who have very large debt levels but not seen anything on that topic.   The closest I've found is the bit from saying that 10% of undergrad graduates have debts over $40,000 level.      $40,000 in debt is a pretty hefty amount but its not $100,000 or $150,000.   I don't know exactly how many people really have debts over $100,000.   Since we know that only 10% of the borrowers have over $40,000 in debt then less than 10% of the population owes more than $100,000.    I would hazard a guess that less than 1-2% of borrowers end up owing over $100,000.   If anyone has evidence to the contrary then I'd love to see the data.  

A small minority of people do have student loan debt over $100,000.  Many of those people are in a tough spot for sure.  However many of those people with very high student loan debts are professionals with graduate or professional level education including doctors and lawyers.   Those professionals will have relatively very high income levels.    A doctor who makes $200,000 a year should not be overly burdened by a $100,000 student loan debt.   

Summary points

Half of borrowers owe less than $20,000 
Twice as many households owe money on car loans with a similar median debt level.
Only than 10% of borrowers end up owing over $40,000
Only 9% of people have debt payments / income ratio of 24% or more
Very few households owe very high amounts

If you add all that up I don't personally think there is a major problem with student loan debt.   The amount of debt is on the rise and that is something to be concerned about but the vast majority of borrowers do not have excessive debt levels or overly burdensome debt payments.  The anecdotal evidence of very high debt borrowers are not representative of the typical borrower.

September 26, 2010

Free Stuff We Used to Have to Pay For

The other day I was posting an ad on Craigslist and it occurred to me how nice it was that I didn't have to pay the local newspaper $40 to run a 2 line add for 3 days.  I started to think about how there are a few things we used to routinely spend money on that are now generally had for free.   Heres a list of a few things I thought of that I get for free now but paid for in the past.

Classified ads - It used to be that the only real way to do any kind of classified ad was to call up the local newspaper and pay for an ad.  Now Craigslist is used by the vast majority of local classifieds and its free.

Long Distance Phone Calls - I remember when long distance phone calls were around 10¢ per minute.   I would easily spend over $20 a month on telephone calls just to call my family.  Now its very easy to avoid paying for long distance as most people use cell phones which do not charge extra for long distance.  Even without a cell phone many phone plans offer free long distance and you can use Google voice or other online methods for free long distance.

Newspaper and Magazine articles - With the internet you can usually get the content of your local newspaper and many magazines free on their website.    Of course not all papers and magazines have everything free but many do.

Checking Accounts - When I first got my first checking account in the late 80's the standard was to pay a monthly fee for the account.  Now most checking accounts do not have monthly fees so this expense is easily avoided.

ATM Fees - I recall paying for ATM usage when the machines came out.   Nowadays you should easily be able to avoid paying ATM fees.   Some banks and credit unions do charge you fees for using their own machines but it is very common to find free ATM usage at least for a banks own machines.

Stamps for bills - I used to sit down once a month to pay my bills.   Now I have everything on auto pay.   Using auto pay saves the postage you'd have to spend to mail the bills.  

Encyclopedia sets - In the "olden days" people would spend a LOT of money to buy an encyclopedia set.   Today with all the information freely available on the Internet the need or practical use for encyclopedia sets is all but dead. 

Faxes - I don't remember the last time I had to send a fax.  I never owned a fax machine myself so if I did have to send one I'd have to go to the copy store and pay them $1-$2 or something.  Nowadays email has essentially replaced the fax.  

I'm probably forgetting some other items that are now free. 

Can you think of any other things that are commonly free today but we had to pay for in the past?

September 24, 2010

Best of blog posts for week of September 24th

Interesting piece from JD at Get Rich Slowly The War On Work  The piece includes a video of a speech by Mike Rowe which is quite compelling but a little shocking (viewer discretion advised).

Pop Economics talks about The diminishing returns of a college education   Generally they are pointing out the value of a degree even though the return is getting lower.

Fivecentnickel shares  The Future of the Schwab Visa Cash Back Credit Card  This card gave a very good 2% rewards into your Schwab account but it appears they're now shutting it down.

Gold Hits $1,300 / oz

Long while ago I made the prediction that gold had hit a high (in my opinion) .   I was proven wrong in that prediction and gold went on to exceed that level.   Now today gold hit a price over $1300 an ounce which is the first time ever it has hit that level.   It closed a little lower than that but during trading it did exceed $1,300.

I still think that gold is not a good long term investment.   You can undoubtedly make some money by speculating on gold in the short term if you're lucky and it booms a little longer.   Of course you have to time the market right and that is not easy to do.   But I still think that inevitably the price of gold will crash sooner or later.   The price of gold could easily come down 30-40% within the period of a year or less.    That means if you buy today around $1,300 then it crashes 40% it could be under $800 within 12 months.  

When will gold peak and what price will it hit at the peak?    I'm not going to go out on a ledge and predict gold prices for the future.   I tried that already and I was wrong.

Photo by tao_zhyn

Why You DO Want a Blue Collar Job

The other day I gave a bunch of reasons why blue collar jobs may not be as wonderful as some bored, day dreaming office dwellers might think.    But of course there are also a lot of positives to blue collar work. 

Hourly Pay
If you're on a salary right now and the boss comes by around 4:30 PM on Friday afternoon and tells you that he's gonna need you to come in on Saturday to work on the big project then you get paid diddly squat.   If you are a blue collar worker then generally by definition you are paid by the hour.   Every hour you put in is paid for and if you work overtime then you get paid extra.  This can be huge.   

No College
You do not need college degrees for blue collar jobs.   You don't have to spend four years studying and paying tuition bills to get a college degree.    Blue collar workers get a 4 year more time working and earning wages.

Get Paid To Learn
Blue collar jobs generally train you on the job.  You are typically paid to learn in the earlier years.   In skilled trades you will have formal apprentice programs where you learn your trade and then become licensed.  Instead of having to pay for college you get generally free training while you're paid to work.
Self Employment Options
Self employment among skilled construction trades is relatively common.   If you are a plumber or other skilled trade then starting up your own business to offer your services is fairly straight forward.  

Leave Work at Work
In general its much easier for blue collar workers to separate work and leisure time.   You can't take your roofing job home when the day ends.   

Casual Dress
Blue collar work environments do not require you to wear a suit and tie or a skirt.  Casual dress is the norm in blue collar work places.

Lower Responsibility or Stress
Many blue collar jobs carry little responsibility and stress.   Generally the responsibility level of a blue collar worker is limited to the project they are currently working on.   The responsibility level can be minimal and this in turn helps keep stress lower.   Of course any job can be stressful if the circumstances are poor, but a lot of blue collar jobs are either low stress or basically stress free.  

Physical Activity Keeps You Healthy
In blue collar work you are most often doing some form of physical effort to varying degrees.   A bit of physical activity is good to help keep you healthy.  

No "Case of the Monday's" 
You are not likely to be asked on a construction site if you have a "Case of the Monday's".  You are not subjected to "motivational" posters or corporate slogans meant nearly as often. 

Of course every work place is different and there is a lot of variety in blue collar jobs and workplaces.   So not every blue collar job will share all these positives.   But generally I'd say most blue collar jobs do have these benefits.

September 23, 2010

Why You DON'T Want A Blue Collar Job

Office Space - Special Edition with Flair (Widescreen Edition)I really enjoy the movie Office Space.   Its one of my favorite movies.   I work in the hi-tech industry and empathize with the characters in the movie.   I've also gone through my own phase of day dreaming about a simple and low stress blue collar job like Peter Gibbons ends up with at the end of the movie.  While he shoveled debris he had a big grin on his face and it was a happy ending.  I'd like to see if Office Space 2 is a follow up that shows us how awful his construction job turns out.

Many of us who work in boring office jobs can have a tendency to look at blue collar work through rose colored glasses.   If you work in a white collar office job you may view a blue collar job as being better in various ways.   I've heard people talk about wanting a stress free job where you get the pride of build things and accomplishing something with your own two hands and then don't have to take your work home with you at night.    But peoples views of blue collar jobs may be a case of "the grass is always greener on the other side of the fence".   People who work white collar jobs may not be very familiar with blue collar work and may be simply romanticizing the work.

There are a lot of positives in blue collar jobs that may make then a great choice for many people.  But blue collar work has negatives along with the positives.   Every job and industry is a bit different but some downsides that blue collar jobs may have are given below.

Low Job Security
Right now unemployment in the construction industry is 25%.   That is not good.   My father was unemployed for about 1/2 of the 1980's due to the recessions and low construction activity.   My father also had to travel for work sometimes and was away from home and family for months at a time.   When I finished one of my stints in construction I was handed a pink slip on Friday afternoon and given a 'thanks'.  There was no advance notice and no severance and that is commonly how it works.   You are laid off when the project ends or when the employer decides to cut staffing and thats that.

Safety Hazards and Higher Fatalities
Blue collar jobs are much more dangerous than cushy office jobs.   As I sit in my cubicle the largest work hazard in our office is people falling in the stairwell.   As an electrician my father spent most of his day risking death by electrocution.   My grandfather had his hand cut off in an industrial accident.   They were able to reattach it but he had permanent nerve damage.  Construction industry jobs are among the most dangerous and have a very high fatality rate.  Police officers and firefighters are paid well for their highly dangerous jobs yet the fishermen, loggers, roofers and linemen usually die on the job at higher rates.   The list of most dangerous jobs is full of blue collar jobs.

You Won't Necessarily Build Anything
Some people romanticize the idea of blue collar work by equating it to "building things".   They sum it up with the mental picture of someone dusting their hands off and standing back to look at the magnificent building or thing they helped to create themselves.   Your first day on the job you will NOT be handed a hammer, hard hat and blueprints to create the Taj Mahal 2.   You are likely to be handed a broom, a shovel or instructed to move heavy items from one location to another.   That menial labor may be your roll for several months if not years.   Some blue collar jobs never really create things but instead you may end up repeatedly fixing things.  My father worked as a maintenance electrician for many years which meant repairing various miscellaneous broken items.

Working In The Elements
When you are working construction there is generally no climate control.   If its raining then you get rained on.  If its 20F degrees outside and snowing then you are cold and you get snowed on.  Other blue collar jobs often work outdoors or in unfavorable working environments.   I worked in a UPS for a few months while in college and it was a vast open warehouse which was hot in the summer and cold in the winter.

Demanding Work that Takes a Toll 
Blue collar jobs often require physical effort that strains your body.   Demanding physical labor can take a toll on you over the long run.   The work is demanding and it doesn't stop being demanding if you're having a bad day or your back is sore.   When my back is sore I can still go to work and I'm fine.  When my dad broke his foot he simply couldn't work for months.

Every Job has Stress
If you don't think that a blue collar job has stress then think again.    Every job can have its share of stress.   A manager who is a jerk is going to be stressful on any job and there are an equal share of such managers in blue color jobs.  Your work load may be heavy, your co-workers may be jerks who drop the ball and you may have annoyed customers upset with something that you get blamed for.   There is no reason that blue collar jobs should be considered immune from stress.   In fact all the negatives listed in this article can contribute to stress too.   Don't tell me that hooking up electric lines at the top of a ladder in 12F degree temperature while it is snowing and your back hurts is "stress free".

Any Job Can Be Boring
You may end up doing the same tasks over and over and over all day long for weeks at a time.   One time I spent an entire month changing light bulbs.   Many people would get bored with such work quickly.   Blue collar jobs can be boring just like any white collar job can.

You Can't  Escape Futility
White collar workers may bemoan how their jobs are basically a futile waste of time in many ways.   You go to a pointless meeting then your boss makes you work late to write a report nobody actually bothers to read because the customer abandoned the project.    Blue collar work may also have instances of futility in your daily work.  You spend all day putting up drywall and then you just find out the electrician has to move his wires since the project manager read the plans wrong, or you can't do any work on the electrical since the carpenter isn't done framing or you get to do something three times since the customer keeps changing their mind.

Inflexible Hours and Low Vacation
I don't think my father ever had any paid vacation and at most he got 2 weeks a year he could take unpaid.   He had to be at work at 7:00AM or 6:00AM or whatever early morning hour the bosses decided work started and he had to work the full 8 hours with a 30 minute unpaid lunch break.   I get to come to work at 9AM if I choose and I can take a 90 minute lunch if I want.  I get 4 weeks of paid vacation in my cushy white collar job. I generally get to take vacation when I want and I've only had to 'work' one holiday in the past 13 years.

While things are better nowadays I don't think that construction work is beyond sexism.  Few women work in the construction industry and there are still lingering issues with sexism in the blue collar world.

Lower Pay
Of course pay varies from job to job and there is no absolute but average pay in blue collar jobs is lower than white collar positions. From a slightly dated 2003 BLS report : "Nationwide, average hourly earnings of workers in white-collar occupations exceeded those in blue-collar occupations by about 45 percent;"

Of course every blue collar job won't suffer from all of the negative things above.   You might have good vacation time and low stress at some jobs.   But the above are negative aspects that blue collar jobs may commonly suffer from or at least aren't immune from.

September 22, 2010

Income Sources for Senior Citizens, 31% Have Pension Incomes

I was curious how many retired people currently receive a pension.   I found data on the census that indicates the income sources for people at various ages.   Looking at the age group of people who are over 65 is close to the same as looking at retired people. 

Here is a graph showing the % of people over 65 receiving income from certain sources:

The answer to my question is that roughly 31% of current retired people receive pension income.   

Note that this is for all people over age 65 and it isn't saying anything about how much income people get from these sources.   So whether you make $10 in interest from your savings account or $100,000 from dividends from your stocks you'll be counted among the 55% of people receiving property income.   Pension income covers a few categories including : company pensions, government pensions, military pensions, railroad pensions as well as annuity income.   Property income includes interest payments, dividends and rental income.   Wages and social security are straight forward.   Another 3% of the population over 65 has self employment income.

Here is the full list for people over age 65 giving the number of people receiving each kind of income:

    Total 36,506
Earnings 7,611
  Wages and Salary 6,525
  Nonfarm Self-Employment 1,109
  Farm Self-Employment 252
Social Security 32,406
SSI (Supplemental Security Income) 1,139
Public Assistance 63
Veterans Benefits 1,070
Survivor Benefits 1,939
Disability Benefits 192
Unemployment Compensation 297
Workers Compensation 147
Property Income 20,192
  Interest 19,213
  Dividends 6,577
  Rents, Royalties, Estates or Trusts 2,621
Retirement Income 13,198
  Company or Union Retirement 8,326
  Federal Government Retirement 1,172
  Military Retirement 537
  State or Local Government Retirement 2,656
  Railroad Retirement 194
  Annuities 315
  IRA, Keogh, or 401(K) 334
  Other or Don't Know 381
Pension Income 11,424
  Company or Union Retirement 7,417
  Federal Government Retirement 956
  Military Retirement 408
  State or Local Government Retirement 2,421
  Railroad Retirement 140
  Annuities 149
Alimony 57
Child Support 38
Educational Assistance 27
Financial Assistance from Outside the 189
Other Income, N.E.C. 203

And here is a list of combinations of income: 

  Earnings & Social Security 34,629
  Earnings, Social Security, or 35,556
      Other Retirement
  Social Security or Railroad Retirement 32,539
  Social Security or Other Retirement 33,594
      Income or Both
  Government Transfer Payments 33,775
  Public Assistance or SSI or Both 1,191
  Social Security, Public Assistance, 32,962
      or SSI or Both
  Retirement, SSI or Public Assistance 14,309
      or Both

September 21, 2010

You do NOT NEED to Take Annual Family Vacations

When I as a kid growing up we did not take family vacations every year.   What vacations we did take were all by car and mostly to nearby states.   I don't think we took any vacation at all half the years I grew up.   I never thought this was abnormal and I never felt I was being "cheated" by not getting to go on vacations. We didn't go to a Disney theme park until I was in my late teens.   There were 3 specific vacations we took while I was growing up that were specifically memorable including the Disney trip.  Any other vacations we took were camping trips or the like that I don't really remember specifically.

 My family didn't have a lot of money growing up.   As a kid I knew we were not rich but I didn't think we were poor.  I thought we were somewhere in the middle.  Sometimes I wanted more toys or a new bike or wish my family had a fancier house or nicer cars.   But I don't ever recall wishing my parents would take me on vacations.   I never yearned for travel or vacations as a child.   I don't think most children naturally desire to travel far from home nor expect it.  

I think that outside influences cause people to feel vacations are necessary.  Kids may see marketing by Disney or other theme parks and get the idea that they "need" to go on a vacation to such a destination.   But if we bought our kids every thing they saw on a commercial that they wanted then they'd have every toy known to man.  Parents see their peers and others going on vacations and feel it is the expected norm and then decide it is something they ought to do.   And of course parents may want to take vacations themselves for the enjoyment of it.   If we bought everything we wanted we'd all be broke.

A combination of parental want and perceived needs of the child can be used to justify expensive vacations.    I think that some parents take their own desires for a fun vacation and then using the rationale that their kids 'need' it to justify an unwarranted luxury expense.    If you were broke and single and wanted to go to Las Vegas would you spend that money?   If you did it would clearly be a frivolous expenditure.   But if you're married with kids and want to go on a vacation then you may feel it is 'justified' since the kids need it as a normal part of growing up and you don't want them to go without the normal things you think kids should have yadda yadda yadda.  

Younger children do not remember vacations or don't remember much of them.   I vaguely remember a trip to San Francisco as a very young child and about all I really remember was riding the San Francisco cable car and buying  cable car toy.     I have a vague recollection of going to Montana at some point when I was young and all I recall of the trip is that it was muddy.   My wife went to Disneyland when she was 2-3 years old and she doesn't remember the trip at all.   Her relatives remember the trip and they have some pictures to prove it.   I hope our parents didn't spend a lot of money for those vacations as I am only left with two notable memories and my wife doesn't recall her trip at all.   In my opinion, I would say that taking a child on a vacation when they are under 7 years old is basically a waste of money cause they probably won't remember anything about the trip.

Travel spending adds up

If you look into the data on spending at under the 'everybody's money' section you can find out how much different demographic groups spend on travel expenses.   The image on the left is from the Bundle site.  : Married families with kids making $20,000 to $40,000 per year spend an average of $46 per month on travel expenses.    Thats annual average spending of $552.   That may not sound like a lot of money but if you're a family with kids making under $40,000 then your basic expenses are relatively high for your income level and $552 a year is a large amount.    Sending on travel and vacations can have a significant impact of a family, especially families with lower income levels.

Vacation spending is a luxury and not a 'need' at all.  It is not abusing your children if you don't take them to Disney World every few years.   In fact your children do not 'need' to go on any vacations at all.   Vacations are a luxury expense that should fall very low on your spending priorities.    Of course vacations are fun and I'm sure most people enjoy taking them.   It is natural that people 'want' to take vacations.  If you can afford it then that is great, I think you should enjoy a nice family vacation now and then.   But if your family has cash problems or is having a hard time saving for basic things then spending money on a vacation is an unnecessary luxury.   You should not feel obligated to take annual family vacations and doing so should not be prioritized over spending on basic needs or saving money for your retirement.

September 20, 2010

Recession Technically Ended in June 2009

Today the news is that economists have declared that the recession ended in June 2009.    The National Bureau of Economic Research (NBER) says the recession lasted 18 months from December 2007 to June 2009.  That makes it the longest recession since WWII.

The commonly cited definition of a recession is two consecutive quarters or more of negative growth.   So under that definition if the GDP is negative by any measure for 6 months then that is a recession.   The recession then ends if GDP is positive.     However the NBER does not use that definition and instead they say: "The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."

Of course the economy is not exactly thriving.    Unemployment is still high and growth is fairly slow still.   However we're at least out of the recession.   

September 17, 2010

Best of blog posts for week of September 17th

Bargaineering lists what they think are the Five Worst Car Maintenance Scams

DIY Stove Repair

I have a theory that the major appliances and heating / cooling equipment in rental properties are able to tell when it is a holiday and this determines when they break down.    So when Labor Day weekend came around I wasn't surprised that we got a call that the stove in one of our rentals had stopped working.   The baking element in the oven had gone out and they weren't able to do any baking.

I did a little research on baking elements and figured that it wouldn't be very had to fix if I could get the right part.   I asked the renter to find the model number of the stove so I could then try and find the right element.   While I figured I could fix it I wasn't entirely sure.   So I decided to check into alternatives.  

The four possible options that I came up with were:

Fix it myself :   Cost $25 to $50, Time 2-4 hours
Pay Repair Man : Cost $115 to $150, Time 0
Buy used Stove : Cost ~$50 to $100 + $50 delivery, Time 1-2 hrs
Buy New Stove : Cost ~$300

Each option has its merits.   Honestly buying a used stove was not high on our list of preferred options.  We've had bad experience with a used appliance before.   If you buy a used appliance you run the risk that it won't last long.   My wife and I like the reliability of a new appliance.  Hiring a repair man would get the job done easily at a medium cost.  However we'd still end up running the risk that the appliance just break down again.    And if I can fix it myself it would be worth the 2-4 hours of my time to save myself $65 to $125 cost.  If I couldn't repair the stove myself we may very well have decided to just buy a new one.   It would cost more but would give us reliability of a new appliance and would not take much of our time.    We decided that I would try and repair it if I could or just buy a new one if I couldn't

On Friday my wife and I first went to Home Depot and they didn't have any baking elements but the woman who works in the appliance section there told us about a couple local repair shops that do carry parts.   While we were there we checked out their selection of new stoves and found that the cheaper options could be bought for $300 to $350 range with free delivery and haul away.     Our next trip was on Saturday and we stopped at one of the local repair shops.   I told them the model number of the stove that the renter had given me,.  While it didn't come up in his system he was able to figure out that the letter 'P' in the part number I had was actually supposed to be an 'R' and the leg of the R probably just wore off.   He had the right baking element in stock and it was a reasonably priced $30.    My last trip was out to the rental to actually fix the stove.  The repair itself actually only took about 5 minutes.   All I had to do was unplug the stove, remove a couple screws, disconnect a couple wires from the element, remove the old element, connect the wires, return the 2 screws and plug the stove back in.   Thankfully it worked fine.

Worth the Time

Altogether I spent about 3-4 hours and $30.  If I had spent $115 on a repair man that would have been another $85 out of pocket.   My 3-4 hours of work saved me $85 or more so that works out to a savings of $21.25 to $28.33 per hour.  

This DIY effort worked out fairly well.   For $30 and a few hours time I got the stove fixed and saved myself minimum of $85.   I probably would have spent over $300 to buy a new stove if my repair didn't work.

September 16, 2010

DIY Car Repair

A few weeks ago my car broke down.   The car in question wasn't my normal driving car but instead my classic car that I only drive occasionally.    I decided to take it out for a spin on a sunny afternoon and only got a few blocks away before it stalled out and wouldn't start again.   I tinkered with it a little but couldn't find anything obviously wrong so ended up walking home.

Decide To Fix it Myself

The car wasn't far from my house so I called my friend who has a truck and he towed me home.   This saved me a tow fee which would have ran about $50.   To pay back my friend I bought him dinner for about $13.   The problems with the car didn't seem too major and I figured I should be able to fix it myself. When I got the car home I tinkered with it some more and ended up making a couple trips to the auto stop for parts.   I spent $8.66 at the first trip to the auto shop and then another $8.97 on my second trip.    I don't know exactly how much I would have had to pay a mechanic to do the work but I'm assuming it would have cost something in the range of $100 to $200.

Worth the Time

All together I spent less than $31 on the parts and dinner for my friend.    Towing the car would have cost $50 and having a mechanic fix it would have ran minimum $100.   So I would have spent at least $150 if I hadn't done the work myself.   I saved at least $119.   I didn't exactly track how long I spent working on the car.  I'm guessing I spent 3-5 hours total between my tinkering and trips to the auto shop.   Since I worked 3-5 hours and saved about $119 that comes out to a decent hourly wage.  On an hourly basis I saved $23.80 to $39.67 per hour.

A little help, a little luck, the right situation

Of course I also benefited with the help of my truck owning friend.   Every frugal person needs a friend with a truck.    I'm not a car mechanic and not very knowledgeable or experienced with car repair.  I've done a few minor repairs over the years but am not too confident in my skills and I count myself somewhat lucky that I got the car fixed properly.   If I hadn't been able to fix it myself I might have wasted several hours of my time and the $18 on parts and still had to pay a mechanic.    If this was my only car then I might have had to hire a mechanic first thing in order to make sure I had transportation.  Or if I was busy doing other important things I might not have had the time to do the work myself.  

In this case it worked out just fine and I saved myself some money.   The more work I do on cars the better I'll get at it. 

September 15, 2010

Rental Investment - Plans on Hold

Couple weeks ago I talked about how we were interested in possibly buying a foreclosure or short sale property to use as a rental investment property.   My wife and I then took a look at a few properties.   We didn't actually get a realtor involved but instead just drove out to the properties and did what looking we could from the outside.

For the time being we're putting the idea of buying a rental on hold.  We're just too busy right now in our personal lives to be taking on a major project like buying and fixing up a new rental.   The idea still appeals to us but it will have to wait for now.

September 14, 2010

Food Expiration Dates - What do They Mean?

Little while ago I ran across this article about the use-by or sell-by dates on foods.

The article talks about what sell-by dates and use-by dates for foods really mean.  First of all the use-by date and sell-by dates are not explicitly some sort of threshold after which the food is 'bad'.   Generally the dates mean when the food is expected to start to lose its quality and/or when the food should be removed from the store shelves due to being past its prime.   Food past the sell by or use by dates are quite often perfectly fine and safe to eat.   The article cites examples of common foods, including:

Milk :  Will remain safe to drink for about a week after sell-by date.

Eggs : Should last at least 3-5 weeks after sell by date.

Generally I've simply thrown out foods once I notice they are past the use-by or sell-by dates.   Sometimes it depends on the food and I'm more likely to throw out eggs or meat that is expired than something less perishable like bread or ice cream.

But for some items I simply ignore the dates.  Good example is soft drinks.  Have you noticed that soft drinks now have a use-by date on them?    This is a relatively new invention of the beverage industry and frankly in my mind the expiration date on a soft drink is virtually meaningless as far as food safety.   I don't even know exactly how soft drinks would go "bad" over time.   They may lose their carbonation and "go flat" over time but that just makes the taste a little different and I also understand that the artificial sweetener in diet soda start to lose their luster over time. 

The article also points to the site Shelf Life for more information on how long various items last.   There you can look up various foods to find the basic shelf life.

Of course it should go without saying that if food smells bad or looks like it is contaminated in any way then you are best to throw it no matter the shelf life or use by or sell by dates on the packaging.   This is an area that I would err on the side of caution.   You can always buy more food and this is not an area to be a cheapskate.   Of course if there is nothing wrong with the food and it still has time on its shelf life then there is no reason to throw it out either.

September 12, 2010

0% Balance Transfers - Read the Fine Print

I just opened a letter from a bank telling me that I was pre-approved for a 0% promotional offer for 12 months on a credit card.   Seems like a great deal..   If I had a large balance on another credit card at a 20-30% rate then I could save a lot of interest by getting this new card at 0% for a year and transferring the existing balance. 

Then I turned to the back page of the offer and saw the details.   The rate will go up to 24.99% after 12 months.  Ok thats not necessarily worse than I might be already.   But the kicker was that the balance transfer fee was "$5 or 4% of the balance, whichever is higher".    You're actually paying a 4% fee up front in order to transfer the balance.    So you're effectively paying 4% interest up front not 0%.  I remember years ago you'd get 0% promotional offers from credit cards and they would often have no fee for it or a relatively low fee that capped out at $25 or $50 or something like that.   Those may have been rare but I recall seeing offers like that.   Then later the credit cards started putting in % fees so you're paying them a % of the balance transfer.  Ideally you should look for a 0% APR promotion that no balance transfer fees.

The 4% fee is still not a bad deal especially if you're currently paying a high rate.   I'd rather pay 4% today and 0% interest over 12 months than pay 15%, 25% or 30% interest over 12 months as is typical for credit cards.

You should also pay attention to what rate the new card will end up at after the promotional period.  That 24% rate is fairly high and it should be kept in mind.  Of course 0% for 12 months is good so it is probably worth considering if you've got a large balance.   But I'd just keep in mind that after 12 months you'll be paying 24%.    What if your current card is at a fairly reasonable 14% and you don't currently have the ability to make extra payments?   If you get stuck in that 24% rate for years you'll pay more in the long run.

This is all just an illustration  and reminder of how important it is to read all the fine print in ANY kind of financial offer. Always read the fine print!

September 10, 2010

Best of Blog Posts Week of Sept 10th

Lazy Man and Money suggests that we Ignore Your Personal Finance Guru

4 Things You Should and Shouldn't Buy at Target from Moneywatch

Money Roller takes A Deeper Look Into the Unemployment Rate

Why I Pay Over $100 a month for TV

We pay over $100 a month for television because we can afford it and because we want it.

I was tempted to end the article right there.   Isn't that really saying enough?  If you can afford something and you want it then isn't it OK to buy the things you want?    I think it is. 

I decided to write this topic after reading yet another of the 1,548 different articles or comments on personal finance blogs from people saying how you should drop your cable and save a ton of money because theres free TV.     I wrote such an article myself about free and inexpensive alternatives to pay TV and its actually good advice for many people.   If you can satisfy your TV watching needs with free alternatives then canceling your cable bill can save you a ton of money.  For many people this will work just fine.   However this is one area I don't follow my own advice for several reasons.

Yes I can afford it... for real

When I say that I "can afford it" I mean that we have disposable income and save a significant amount of our money.    Some people think "I can afford it" means they can scrounge up $100 a month from somewhere.  If you're struggling to pay bills or piling up credit card debt then you can't afford spending money on luxuries like cable TV.   Part of this is prioritizing your expenses.   I can afford cable TV, partially because I drive a used car and live in a below average size house.   For other people they may value a bigger house or nicer car over watching more expensive TV.   Thats fine with me.  

Its a want, not a need... and we want it

Let me be clear: cable TV is a luxury and not a need.   I do not need cable TV and neither do you.   I want TV and so do the vast majority of American households.   If you can honestly afford something then its OK to spend money on it if you want it.   Its OK to want things.   Its OK to spend your money on things you want. 

Can't I get FREE TV? 

Yes if I went and bought an antennae I'd get several HDTV channels off the air.  I can also get a lot of TV via Hulu or direct from network websites.   We also have Netflix which gives us a lot of stuff via online streaming.   This all ads up to a LOT of TV that I could get for free.   But in one word the reason this enough for us is "sports".    The sports teams we watch are not available on free venues.   With the exception of a handful of games I can only see our teams on pay TV.   

Free TV isn't that great for us

The broadcast HDTV reception available at our home is not that great.   There are various channels but I can't get all the major networks here.   My experience with Hulu is varied.  Sometimes it works great but other times the video is choppy or jerky.   If it isn't playing well then it is extremely annoying to watch.   Of course free TV has the major advantage that it is FREE.

Paying More for Comcast Preferred package

We currently have Comcast for our cable TV because they have specific networks that carry all the sports we want to watch.   DISH or DirecTV do not offer those networks.   We could switch to Verizon if we wanted but haven't done so, largely in part since our experience with their service from them has been poor.   So we have Comcast.   We have the premium cable package since it offers HD and all the specific shows we want to watch, again there are the specific networks that carry the sports we watch most.  We could drop one tier to save about $15 a month.   But we choose to keep the preferred level package since it has the BBC America channel and the Encore movie channels.   I watch certain BBC shows and Encore has various good movies on them. 

Hooked on DVR

One reason our TV bill is as high as it is is that we have a DVR.    I really wouldn't ever want to go back to TV without a DVR.  I've had a Tivo and now a DVR from Comcast for at least 7 years now.  Our DVR costs about $15 a month.    I do not want to sit through 20 minutes of commercials for every 1 hour of programming.   With a DVR I don't have to.   I don't want to miss the big game since I have to be somewhere else or have other obligations when the game is on, with a DVR I never have to.  I don't want to idly surf channels looking for something good to watch, with a DVR I've got a selection of good programs pre-recorded anytime I feel like watching them.   

My wife likes HBO

We pay another $15 a month of our $100 bill for HBO.   I like HBO a lot but I could live without it and just watch the shows after the fact on DVD via Netflix.   However my wife likes the ability to watch good movies on demand and she prefers to keep the HBO subscription.  She wants it, I don't mind it and we can afford it so this is cool with me.

Another $6 a month for sports

I recently signed up for a sports package that has a bundle of minor sports channels.  I did this specifically to watch one game.   Yes thats right, I said I did it for just one game.   Watching that one game was worth enough to me to pay an extra $6 a month.   I will probably keep the package till the end of football season since they might show more games on one of those channels.   At most I'd be paying $24-$30 for this package over the 4-5 months of football season.   That is easily worth it for me.   Keep in mind that I would also definitely pay over $500 in hotel and stadium tickets to go see a game in person, so by comparison $30 to watch one game is a bargain.

My Sports teams are NOT available free

When you tell people that you have cable because you watch sports invariably you get some people who will ask "well can't you just get that free on the Internet or watch it on the networks?"    No.  I can not.   Some sports organizations have neat deals where you can watch all the games for all the teams online for a flat fee.  Some teams are always on the local network.   My teams don't have those neat online deals or local network coverage.   At best I'd be lucky to be able to watch 10% of the games for free via local networks.   I want more than that.

I Don't Want To Go To a Sports Bar

Some people expect that I should be able to watch any sports program that I want at the local sports bar.   That might work well for some people but not me.   I enjoy watching sports in the comfort of my own home or in the actual stadium.   I am not much of a drinker and I don't enjoy hanging out in bars for several hours.   I especially do not enjoy watching my favorite team play in a bar full of people who are rooting for the opposing team. 

TV is not evil

Often times people who have "cut the cable" are also not very fond of television.  This makes me wonder why they were paying for it in the first place, but thats another matter.   These people will declare that now that they don't have TV they are doing better, more productive things with their lives.   No longer is that evil brain altering box sucking all their time and making them fat and forcing them to buy things via its insidious advertisements.   Now they spend their time reading and enjoying the outdoors and other stuff.    Ok thats great for them.   I do not buy the concept that TV is inherently evil or lesser of a media than reading trashy romance novels or the 184th Steven King book.

Bottom Line:   We pay over $100 a month for cable  TV because we want it and we can reasonably afford it.   We don't use free alternatives since they don't give us the sports programming we want most.

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