Cost Benefit Analysis of M.B.A. Degrees

A little while ago a reader asked if I could look at the value of an MBA or Masters of Business Administration degree.    They suggested a cost benefit analysis for getting an MBA considering the cost of the degree & lost wages versus expected salary.

Luckily Forbes has done the work already.    They have a list of the best business schools for 2009.   You an also find all the schools listed in table format ranked by 5 year gain.
If you go to that table you can see the list of business schools and how they stack up in terms of financial benefit to the students.   They look at the average post graduation salary, 5 year return on the degree and the break even point.

Lets look at the #1 school on their list which is Stanford as an example.   The details for their analysis of Stanford are here.

5 year gain

The basic idea of 5 year gain is how much you will be ahead overall financially with an MBA after 5 years.   They say that the 5 year gain at Stanford is $85,000.   This figure is " 5-Yr total compensation after graduation, minus the sum of tuition, fees and forgone compensation" and its " before taxes and adjusted for time value of money."   So they're comparing how much more money you'd be taking home if you do get an MBA minus the tuition and the lost wages versus what you'd take home if you didn't do the MBA and worked for 5 years.   For Stanford overall you'd be ahead $85,000 in the 5 year period.  The 5 year gain ranges from the $85,000 figure at the top for Stanford all the way down to a marginal $1,000 increase at the bottom  of the Forbes list.

Break even point

They also look at the break even point.   For Stanford this is 4.2 years.   The break even point is when the money in your pocket is more for the MBA path compared to not doing an MBA.   So if you start today in 2010 and then spend 2 years to get an MBA and then 2.2 more years you'd have as much money considering wages less tuition compared to if you just kept working for the same 4.2 year period.

The break even for MBA programs ranges from 3.9 to 5.0 years.   So theres only about 1 year variation there and the better MBA programs "pay off" within 4-5 years.    If you have much more than 5 years left in your working career then an MBA can pay off.

I think a better measure of the worth of an MBA is the net gain in salary or the average post graduation salaries.   Stanford is #1 in the list either way with the highest net 5 year gain of $85,000 and also the highest average post graduation salary of $225,000.

Average graduate salary

Higher ROI is good but I think that the better bottom line consideration should be the average salary post MBA.   I'd much rather have a $100,000 increase in my salary and a $100,000 tuition bill that takes 5 years to break even than a $50,000 increase in salary on a $40,000 tuition bill that only takes 4 years to break even.   The Forbes list gives the average post graduation salary for each program.

While the 5 year gain and break even points are useful metrics, the larger impact will be from higher post graduation salaries.   I would compare schools based on average post graduation salary first and then look at the 5 year gain and break even point as secondary measure.


Also look at Businessweek's ROI measure

Forbes isn't the only magazine to look at the value of an MBA.   Businessweek has done so as well with their ROI rankings for MBA's.   Businessweek uses different methodology and comes to different results.   They have Michigan State as the top US program for ROI and increase in salary.   However they don't use bonuses or stock compensation which I think is likely to be a big factor in pay for many MBA's.   Forbes also considers pay over a 5 year period rather than just the pay immediately after graduating with the MBA.  Also see their list of best US B-School for 2008.



Hot To Put it All Together

These are the basic steps I'd take if I were to compare MBA programs for financial return and cost benefit:

Narrow the list to schools you can get into.  
Look at salary gain post graduation and average graduate salaries first.
As a secondary metric compare the 5 year gain figures.


Benefits of MBA will vary

Of course all of this is looking at average figures for MBA graduates.   Everyone situation will be unique.   What kind of benefit you get out of an MBA will depend on your situation and your career goals.   I'm an engineer and a coworker of mine several years ago got an MBA with the assumption it would get him a raise and on the fast track to management.    He got neither.   Others I know have benefited in their jobs from their MBA training.   Before you jump into an MBA or start measuring your future salary, you should consider what your career plan is and if an MBA is beneficial for your situation.

Bottom Line:   Forbes site has a lot of useful data for comparing the cost benefit analysis of different MBA programs.  Personally I think that average salary and increase in salary among MBA graduates should be the primary measure of the return for an MBA program.   


More sources

Payscale.com has detail on salaries for MBA grads at various schools and different job titles
 Online MBA facts from Yahoo.

Remodel or Buy A Different House

My wife and myself have discussed doing various interior and exterior improvements to our home.   I bought our current home close to 11 years ago.   The house is big enough for my wife and myself and it has room to grow when we have children.   But the house is now 25 years old and the interior design and fixtures are starting to get dated.   (Remember the 80's?)   The kitchen and bathrooms could definitely use some updating.   Some of the other trim and fixtures in the home could be replaced as well to better suit our tastes. While our home is certainly livable as it is, improving the home is a priority for us over spending on things like new cars or expensive vacations.



We could do inexpensive improvements like repainting our kitchen cabinets and relatively cheaper floor options.  This would let us improve things for a reasonable expense.  But it would be surface improvements and still leave us with 25 year old drawers and hardware.   If we were on a tighter budget and wanted to make our home look nicer then this would be a good option.

If we want to stay in the home for a long time and want things to be nice then it would make sense to go ahead and spend the money up front and do a full remodel to give us the quality and style we want.  This would mean replacing kitchen cabinetry entirely and possibly knocking down a wall here and there.

This is what leads me to the question:   Should we spend the money to do complete remodeling or should we maybe just buy a completely different house that already has features to our liking?  

This was an interesting idea we came across and I'm not sure why we didn't think of this option before.  I'm going to examine it from at least a theoretical viewpoint.   I'm going to set aside the idea of saving money on remodeling in various ways like DIY and look at hiring professional contractors.  I also don't really know what remodeling would actually cost us so I'm just talking theoretical ballpark estimate at this point.   I also don't really know what kind of home we could buy that would have the features we'd want and what exactly it would cost.   A cursory look through homes for sale in our city on Realtor.com makes me think finding a home with the features we'd want wouldn't be very easy.   But I wanted to look at the idea of comparing the finances of major interior remodeling versus simply buying a different house as a concept.   It could turn out that remodeling is usually the best option or not. 

If we remodel the kitchen and both bathrooms then it could easily cost $20,000.   I'll go ahead and multiply that by 2 since I seem to underestimate home improvement projects by half so we might end up spending something like $40,000 to do all the remodeling we'd want.    The house is currently worth something around $210,000 to $220,000.   That would mean spending about 20% of the value of the home in remodeling the kitchen and bathrooms.   This is a very rough estimate without high accuracy.  I honestly don't know if fully remodeling would cost $20,000 or $60,000.   But I'm picking a number for estimating purposes.

When you remodel a house you don't retain 100% of the money you spent on remodeling in the value of the home.  If you remodel a house properly then you will see some of that money spent on improvements increase your equity but generally only a fraction.  Remodeling magazine does a cost versus value report on how much of your remodeling expenses you retain in home value.   Generally you're likely to see 70% of your remodeling spending retained in equity.     If I use that 70% number as a rough gauge then if we were to spend $40,000 on our home we'd retain about $28,000 of that in home value.   I could guesstimate that spending $40,000 in remodeling would raise the value of our home to something around $238,000 to $248,000.   The 70% figure is also a rough general estimate.   That return rate could vary considerably.

So lets look at theoretical comparison of two feasible options:

Option 1: Start with our home worth $220,000, a bankroll of $40,000 in cash and a $70,000 mortgage.  Spend $40,000 on remodeling.   Retain 70% of spending for $28,000 increase.  Home now worth  $248,000.   Equity of $178,000 and a mortgage of about $70,000

Option 2 : Start with our home worth $220,000, a bankroll of $40,000 in cash and a $70,000 mortgage.  Sell current home for $220,000 and pay Realtor 5% or $11,000 in commission and cash out equity of $139,000.  Leaving us now with $179,000 in cash.   Buy another home for $241,000 and pay closing costs of 3% or $7,200.  Take out a $70,000 mortgage.   We'd end up with equity of $171,000 and a mortgage of $70,000.

Looking at it this way, financially option 2 doesn't seem like a good idea at all.  Since you're having to pay the Realtor commission and the closing costs to buy the new home and finance a new loan that adds up to quite a bit of money.   But we've got some variables that are mostly guesswork.   If it costs $60,000 to remodel instead of $40,000 then that changes the picture.  If the remodeling cost is $40,000 but had a 50% return then the equity would be $170,000 at the end about the same as buying a different house.    On the other hand I don't know if I can get a house that has everything we want for $220,000.   Buying a different house that is in the condition and style we'd want for the right price might be hard.   There are a lot of unknown variables so how it works out exactly is very undetermined.

Option 1 has benefits of giving us exactly the stuff we want.  So if we want cherry wood cabinets in the kitchen and quartz counter tops then we can get that and get exactly the colors and options we want.   Option 1 has a lot of hassle involved in shopping for stuff, finding good contractors, getting quotes and getting the work done.   We also don't have the opportunity to find a bigger house or move to a better school district.

Option 2 has the benefit of possibly getting more for our money and completely avoiding hassle of remodeling work.   Option 2 has the downside of having to sell a home and buy another then move from our home to another house. 

Overall I think remodeling our home a bit is probably the better option financially assuming that is the only goal in mind.   It doesn't seem we'd be able to find another house with the features we want very easily and the transaction costs of selling our existing home and buying another home would not make that option very feasible.

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

Should you get a new toilet to save money?

It might seem odd to think that a new toilet could save you money but it can. Every time you flush your toilet you're spending money on water. The cost of the water used isn't that much per flush really but it adds up over time. Plus of course you are wasting water which can be a big problem in areas with water shortages.

I've talked about EnergyStar in the past. EnergyStar is probably familiar to most people and its the EPA's program to test and label appliances that are energy saving. But I just heard about another program that the EPA has called WaterSense. The WaterSense program does the same thing but for water savings.

An EPA WaterSense toilet is a toilet which uses 1.28 gallons per flush (gpf) or less. Normal toilets sold today use 1.6 gpf.

You can get a WaterSense listed toilet at Home Depot for prices in the $100-$150 range or more. So the prices for the high efficiency toilets are not much more than a regular 1.6 gpf toilet. If you're going to upgrade the toilet then you may as well look for a WaterSense product since the costs aren't much different and they are 20% more efficient.

The Watersense site has a calculator you can use to see how much money you'd save by installing a newer toilet. Keep in mind that the calculator isn't exact since they use assumptions with estimates for the savings and cost of the water. Your toilet may use more or less water than they assume and your water costs may be lower or higher than they assume. They are assuming water cost of about $6/ 1000 gallons and thats a lot more than my utility charges. Here our water is $1-$2 / 748 gallons. So the calculator is about 3 times more. To get a more exact figure I'd recommend you check your water bill to figure your actual water cost per additional gallon used.

Looking at some examples: 1) Say you have a 20 year old home with original toilets and 4 people live there. The calculator says that you'll save $99 in one year and conserve 16,000 gallons of water. 2) If you're a single person in an older home with a 30+ year old toilet then you could save $14 a year and conserve 6,900 gallons. 3) Consider two people living in a house built in 1985 with original toilets. They could save $50 a year and conserve 8,200 gallons of water.

Generally the older toilet is then the more worthwhile replacement will be. If your toilet was made after 1994 then it is already a 1.6 gpf model. That means you'll save a lot less by switching over to Watersense. But if your toilet is over 15 years old then it is likely worth the cost to switch to new Watersense toilet.

One major consideration to keep in mind is the number of toilets you'd have to replace. The calculator is figuring the savings based on replacing ALL of the toilets in your home. So it is going to be more expensive and less ROI if your home has more bathrooms. For example in my home the calculator says I'll save $50 a year by getting new toilets but we have 2 bathrooms so our cost would be over $200 for the toilets. Your payback period would be over 4 years. If we only had one bathroom then the payback period would be just 2 years.

I'm guessing most homes have 2 toilets so I could estimate replacement cost would be around $300. If your toilets are at least 15 years 0ld and you have the national average of 2.6 people in the home then your savings will be around $64 for a year. This mans your payback period is less than 5 years.

If your current toilet is at least 15 years old and theres 2 or more people in your home then its probably a good investment to install new water saving toilets.

What is a college degree worth?

People with college degrees have higher incomes than people without college. The Census bureau lists median and mean incomes based on education levels.

Earnings based on education
high school diploma = median income $28,290, mean income $33,609
associates degree = median income $36,362, mean income $41,447
bachelors degree = median income $47,240, mean income $59,365

So the average college graduate makes $59k and the average high school graduate makes $33k. The college graduate makes 76.6% more on average. Looking at the median income levels its $28k for high school and $47k for college which is 67.8% higher. So by this measure college graduates make 2/3 more than those with just a high school diploma.

Lifetime earnings for either can be compared roughly by simply multiplying median income level by the total years someone is likely to work until retirement. To make it simple I'll ignore the impact of inflation.

High school diploma: If someone who is 18 years old right now works 47 years and retires at age 65 then with the median income of $28,290 from a high school diploma they will make $1.3M for their lifetime.

College Degree: With a college degree they will first have to spend 4 years in school and then probably have to repay a college debt. If you figure a rough $15k a year in college costs for 4 years then thats $60k cost for college. Financed over 7% and repaying over 10 years that would work out to $84k total payments including interest. So if someone goes to college, then repays college debt and then works from age 22 to retirement they will net $2.0M, less the $84k for college and you're at about $1.9M lifetime earnings.

A college degree nets the average worker over $600k or 46% more in lifetime earnings above what someone with a high school diploma earns.

These are just average figures and everyone isn't average. Each person should choose the education and career path that works best for them. But the point here is to point out the significant impact that a college degree can have on your earning potential and finances.

How to evaluate the return of energy saving home improvements.

Lately I've talked about some home improvements that can help save energy costs. I installed compact fluorescent lights, I bought a programmable thermostat, I installed a water saving device on my shower, I use an electric mower and I've bought a smart power strip. Each of these purchases help save energy costs and give me an ongoing return through lower electricity bills. But they also cost money to buy in the first place. So how exactly do I tell if the energy savings of an item is worth the cost of purchasing it?


I would evaluate energy saving purchases in two ways. First you can look at the annual return rate and payback period. Second you can calculate an estimated rate of return on the investment.

Figuring a Payback Period

This is the simpler method. Basically all you do is figure out how many years it will take to recoup your initial investment. To do this you divide the initial cost by the annual savings. For example if you could spend $150 today to save $50 a year then you can divide the cost by the annual savings or 150 / 50 = 3 years.

Payback period = initial costs / annual savings.

If your payback period is 1-3 years then thats probably a good buy. Payback period can be pretty useful if you're comparing the purchase of multiple alternatives.

Lets look at some examples:
I discussed previously that buying compact fluorescent lamps for my home is saving me about $61 a year. I paid $50-100 for those initially. If we assume the higher cost of $100 then the payback period is: initial cost / savings = 100 / 61 = 1.6 years payback period.

I also bought a shower attachment for $30 that I figure is saving me $20 a year. For that purchase the payback period is = initial cost / savings = $30 / $20 = 1.5 years payback period.

If I compare these two purchases the shower attachment is marginally better with a payback period of 1.5 versus 1.6 for the CFLs. So if I had just $30 to spend then I'd be a little better off putting it into the shower attachment.


Estimating the Annual Rate of Return

For larger purchases that have a longer payback period it might make more sense to look at the annual return rate over the life of the purchase. Buying a large improvement such as a new efficient furnace or a solar array is essentially an investment so you should figure the rate of return on that investment and compare it to other investments.

TO figure what an improvement returns as an investment you have to look at what it will net you financially. Basically with an energy saving improvement you have an item you're buying for a certain amount today which will then give a fixed annual return for a number of years. For example I might pay $150 for an improvement which then saves me $50 a year in electricity and lasts 5 years. If I just took that $50 each year and sat on it at 0% interest then I'd accumulate $250 in a 5 year period. So my $150 investment turned into $250 over 5 years. We can use the formula for compound annual growth rate (CAGR) to figure the rate of return. The formula for CAGR is:

% return = ( (FV / PV ) ^ (1 / # years ) ) -1

For the example that works out to ( ( 250/150 ) ^ (1/5) ) -1 = (1.66)^.2 -1 = 1.107 - 1 = 10.7%

You then have to compare that to what else you could have done with the money. If I had $150 in the bank right now I could easily throw it into my high yield savings account and make 3.5% interest.

For this example paying that $150 will end up netting me a 10% return over 5 years. Thats a good return rate compared to 3.5%.

As a general process for figuring the rate of return on an energy saving investment:

First of all I determine the annual energy savings of the item. This depends on the item you are buying. Hopefully there is enough information on the type of improvement that you can figure the savings. If you are buying an appliance you can compare the energy guide documentation which will tell you the annual energy usage of the item.

Second I determine a lifetime for the item. The lifetime of the item will depend on the nature of the item. I basically take an educated guess to estimate the lifetime roughly based on how long I would expect the item to last. A small item I might figure a life of 5 years. For a large appliance I'd pick a 10 year lifetime. If the item is a major improvement such as a new furnace or something like a solar panel then I might go with 20 years.

Then you simply run the CAGR calculation using a future value of the annual savings * lifetime of the item.

That gives us an equation of:

expected % return = (( annual savings * lifetime in years / cost ) ^ ( 1/lifetime in years) ) -1

If you are not certain on the values then you should run the equations for the minimum and maximum estimates so that you can get a range. For example if you think the item might last 10-20 years then run the equation for 10 years and again for 20 years.

Note that I'm making a couple assumptions in order to simplify the calculation. I'm assuming that the item I buy is not going to retain any costs. In other words I assume it depreciates completely. Basically I figure if I buy a new fridge then over a number of years that fridge will wear out and basically be worthless at the end of its life. The other assumption I'm making is that there is no difference in tax impact from the item. This isn't true exactly but it makes the calculation and comparison simpler.

Lets look at a couple examples:

Example #1 buying a heat pump:

I'm considering buying a new heat pump furnace. For example purposes let say the heat pump costs $5000 to buy and have installed and that I will save around $300 to $500 a year in energy costs. I also figure the heat pump should last me about 10 years minimum.

Given the formula:
expected % return = (( annual savings * lifetime in years / cost ) ^ ( 1/lifetime in years) ) -1
We plug in the numbers for the minimum case to get:
return = (( $300 * 10 / $5000) ^ ( 1/10) ) -1
= .6 ^ .1 -1 = .95 - 1 = - 5%
And the maximum case is :
return = (( $500 * 10 / $5000) ^ ( 1/10 ) ) -1
= 1 ^ .1 - 1 = 0%

So for this example I'd be facing a -5% to 0% return on my money.

The choice of a 10 year lifetime was pretty conservative and its possible the heat pump might last 20 years.

If I figured a $300 annual savings for 20 years then it would be :
(( $300 * 20 / $5000) ^ ( 1/20) -1 = 1.2 ^ .05 - 1 = 0.91%
or at the $500 annual savings over 20 years is :
(( $500 * 20 / $5000) ^ ( 1/20 ) -1 = 2^.05 -1 = 3.5%

Therefore overall if we buy a furnace for $5000 and expect it to give an annual energy savings of $300 to $500 and the furnace will last 10 to 20 years then our expected rate of return on the investment is -5% to 3.5%. I can get 3.75% right now in a CD so this isn't a good investment.

Is Amazon Prime worth $80?

I've been a subscriber to Amazon Prime for about 7 months now. I buy a lot of stuff on Amazon. Items I buy are usually an occasional DVD, book or video game. They have good prices and selection and I've had good experiences with them in general. I originally subscribed to Amazon Prime when I was buying an HD-DVD player. If I recall right I helped avoid a shipping charge at the time by signing up for Prime. But now looking back since I signed up for Prime I am wondering if it was worth the $80 or not.

I looked at the items I've bought since I signed up. Most items are over $25 and would have qualified for Amazon's free super saver shipping. I have made 7 purchases and 3 of the purchases were over $25. The other 4 purchases were less than $25. Of the purchases that were less than $25, two of them could have easily been combined into a single purchase over $25. That leaves 2 items that I bought that were individual purchases less than $25. One of those was $24.99 so I could have easily thrown in a $1 cheap item to get free shipping on the total purchase. That leaves just one book I bought for about $13 as a single purchase.

With my past 7 purchases I could have gotten free shipping relatively easily on all but 1 of the purchases.

For the remaining purchase that I didn't qualify for free shipping, the shipping charge probably would have only ran me a few dollars. I also did save some shipping on the original purchase of the HD DVD player. I don't recall what the original shipping cost from the HD DVD player would have been exactly but I assume it was in the $25 range give or take.

Overall my Amazon Prime subscription has probably only saved me around $20-40 in shipping costs over just using their free super saver shipping.

Thus far Amazon Prime has not paid for itself in pure shipping savings. However Prime does give you 2 day shipment whereas the standard super saver is just regular ground or postal delivery. 2 day shipping is faster and also a little more dependable.

Personally I don't plan to resubscribe to Amazon Prime. Its a convenience item that wasn't worth the $80 I paid for it. If you buy a lot of items from Amazon and typically pay shipping on them or upgrade to 2 day shipping then it might pay for itself, but its probably not going to be worth it for most customers. I definitely do like getting 2 day shipments and its a nice service, just not worth the price in my mind.

Looking at my NetFlix usage

I've been a loyal Netflix user since 2003. I enjoy their service and find it to be very convenient and pretty cost effective. Lately however I've been pretty busy and I haven't been watching my Netflix DVDs very regularly. So I decided to go look at my Netflix account history and see exactly how many movies I've been watching.

From late 2003 till mid 2008 I've rented 329 movies from Netflix for an average of 6.2 movies a month. With a monthly fee of $17 that comes out to $2.73 per movie average cost for the total history. That's not bad versus typical $4 movie rentals but I might do better with RedBox rentals that are only $1 /night.

I've had ups and downs in my rental activity at Netflix over the years. In 2005 I was most active and had 115 movies or 9.5 per month for an average cost of $1.77 per title. Lately though my activity has slowed. In the first 5 months of 2008 I have been fairly inactive. I've only had 8 titles out so far and at $17 a month I'm averaging over $10 per title so far in 2008! Ouch! I've also used some watch on demand with Netflix so that raises my average up to more like 10 titles equivalent so my average per title is more like $8.5 so far in 2008. Still not very good considering I can drive to Blockbuster and pay half that easily.

However its only been a few months and I've had some dips of activity in previous years too. In the past 30 days I've watched 5 titles so I maybe back on track to more regular usage moving forward. But still its worth considering cutting the Netflix plan down to a lower rate option.

The available plans on Netflix are:

• 8 at-a-time (Unlimited) - $47.99 a month
• 7 at-a-time (Unlimited) - $41.99 a month
• 6 at-a-time (Unlimited) - $35.99 a month
• 5 at-a-time (Unlimited) - $29.99 a month
• 4 at-a-time (Unlimited) - $23.99 a month
• 3 at-a-time (Unlimited) - $16.99 a month
• 2 at-a-time (Unlimited) - $13.99 a month
• 1 at-a-time (Unlimited) - $8.99 a month
• 1 at-a-time (2 a month) - $4.99 a month

Right now I'm on the 3 at a time plan for $16.99. Given my recent usage level I could probably drop down to the 1 at a time plan. Even looking at my long term history I could probably work just fine with the 2 at a time plan.

I could abandon Netflix entirely to just go to regular rentals at a local Blockbuster or RedBox outlet. But one big benefit of Netflix is that you can get a lot of obscure titles. I skimmed through my history and found that about 40-50% of the DVDs I watched are more obscure titles that I don't think you can find in a typical Blockbuster or REdbox. The remaining 50-60% of the movies are mainstream titles that are probably going to be available in most video rental locations.

Netflix also has a titles that you can watch on demand over the Internet. This is a relatively new feature of Netflix and I've used it a bit in the past year. In the past 12 months I've watched 53 titles which includes individual TV episodes. I figure this equates to roughly 1 extra DVD worth of entertainment per month.

The convenience level of Netflix is also a great bonus. You can save time and gas money with Netflix. I don't have to drive down to the video store and go through check outs. I can just browse the Netflix site once in a while and load up my list of movies then they come to me automatically. If you're not driving to the store then you're also going to save on gas. If I were to make weekly trips to the Blockbuster near me then that would be about $3-4 in gas costs monthly.

For this reason I am not ready to quit Netflix entirely. But I could cut back my Netflix plan and possibly partially replace it with Redbox rentals.

So given my normal usage of Netflix whats my best choice? Normally my usage with Netflix is 6.2 films a month with 50% obscure titles. So that's 3.1 obscure and 3.1 mainstream titles on average. Option 1: I could get that with the 1-at a time unlimited Netflix plan for $9 a month plus supplement it with 2-3 rentals at Redbox for $3. So combined that would give me 1-at a time Netflix for $9 plus 3 Redbox rentals at $3 for total of $12 a month cost. That should give me enough movies for what I've watched historically and it would be $5 less. However it would be less convenient to have to make trips to Redbox. Option 2: I could just drop down to 2-at-a time option on Netflix. This would give me plenty to hit that 6 films a month average and cost $3 less a month. I also wouldn't have to bother going to REdbox.

So that gives me
Option 1: 1-at-a time Netflix for $9 plus 3 Redbox rentals for $3 = $12 total
Option 2: 2-at-a time Netflix for $14 total

I'm going to go ahead and try out Option 2 and drop from the 3-at-a time plan to 2-at-a time.and see how that works. I'll test it for a month or so and if it works out all right then I'll stick to it.



Could you benefit from this kind of analysis? Maybe. Consider at least looking at your DVD rentals over a few months and see how much you rent. If you're using Netflix now then look through your account history and see how many movies you actually use. You might be surprised how little you use it and what the actual cost per DVD is. If you rent a lot of DVDs (especially more obscure titles) then it might be worth looking into using Netflix.

Why spending $700 on a HD TIVO is a good idea

I have owned a Tivo for over 5 years now and greatly enjoy the convenience of a DVR and I also like the extra features that Tivo brand has. But recently I switched over to HD cable service and got the Comcast HD DVR box. I chose to get the Comcast DVR because it supports HD and my Tivo is a standard Tivo series 2 with no HDTV support. But now I'm having to pay Comcast $13 a month for the HD DVR box.

With my Tivo I had originally purchased the lifetime subscription they offered for around $250 and I think I spent $200-250 for the Tivo box itself. So I had spent about $500 on my Tivo2 and had no monthly fee. So I've had Tivo service for about 5 years and avoided the Tivo monthly fees all that time. By spending that $250 five years ago for the lifetime subscription option I've saved myself $750 in monthly fees. I could sell the Tivo2 box with lifetime subscription for $150+ on eBay now . That puts me about $600 ahead versus not having bought the lifetime subscription. SO I made out very well with the lifetime subscription on my Tivo2.

Today I received an email from Tivo offering a Tivo HD model with lifetime subscription for $700. So I looked at what it would cost me to keep renting the Comcast HD DVR versus buying the TivoHD box. If I simply depreciated the value of the TivoHD 100% over its life of use then I'd break even on the purchase of the TivoHD in about 4 years 10 months versus paying $12 a month to Comcast. But the TivoHD box will retain some of its value so I could resell it in future years. In a period of 3 years I'd pay $432 in fees to Comcast. Or if I bought the TivoHD it would cost me $700 and I should be able to resell it for $250-350 giving me a total cost of $350-450. Comcast monthly fees for 4 years would run me $576. If I bought the TivoHD now for $700 I could sell it in 4 years for $150-250 and my total cost for that option would be $450-550. If I used the Tivo for 5 or more years it would gradually depreciate but not as fast as Comcast fees would cost. (I should note that I'm ignoring inflation or opportunity cost of my money just for simplicity sake)

Bottom line: I figure if you addin resale value of the TivoHD then the break even point of buying a TivoHD at $700 versus renting a Comcat DVR for $12/month is around 3.5 years.

I have high confidence that I'll be using a DVR of some sort for that 3.5 years. The monthly fee might fluctuate over time or I might switch to another provider but its also highly likely that I'll be paying $12 a month fees for a rented DVR. So buying the TivoHD with lifetime subscription would be financially better choice than renting a DVR.

I fully realize that doing without a DVR and canceling my subscription to cable would save me even more money. But cable TV and a DVR is one of my pleasures that I consider very much worth the cost.