Double Journey

There is something that I don’t think a lot of people get.  I see it every day at work and I see it in the way people behave when ti comes to their finances.  There is a cost of being.

What do I mean by that?  Let me give you an example.  We have a core piece of technology.  On top of that core piece of technology, we have added many small features.  At the time of inception, and without giving it full thought, these features may have made sense.  They were easy to implement and brought in incremental revenue.  This is revenue that is rather insignificant but nevertheless is revenue.  Since this is web based, the “cost” of running these features and services isn’t very much, it just means keeping a web server up and running.

However, there comes a time in any feature that something doesn’t work.  It may be the feature itself, or the feature may have some side effect that was unintended.  When that something doesn’t work, the impetus is always to fix it because you don’t want to have broken parts of your product.  So there is a cost that must be born to fix this almost pointless feature.  There is even additional cost when you factor in that you will now spend time worrying about if this feature will break again.   This feature can even go so far as to holding other features up because you can’t launch new product while the current product is broken.

The same goes with people in their everyday lives.  Just look around at the things you own that you probably never use.  I’ve complained before how, during my move, I found boxes of things I moved up to Seattle that I never even opened, and was now shipping right back to L.A.  This has a cost both in terms of the move and in terms of me storing it for years.  People have extra cars they don’t drive or gadgets that just sit on the shelf, only ever used once.  All these things have some cost associated with just “being”.  If we just got rid of all these small, incremental cost, the total sum of the savings would probably be quite significant.

What do you have like this?  What insignificant things do you just keep around that, if you think about it, really have a cost?

There has been plenty of talk about how the high price of oil is changing habits for American consumers.  American’s are finding ways to save money by combining shopping trips, finding alternative ways to get to work, and trading in their SUVs.   The pain that American’s are just beginning to face is very real.  But note the key words, “just beginning”.  While demand is softening in the United States, demand worldwide is still quite strong and getting stronger.  On the other end, supplies are still restricted and it doesn’t seem like OPEC can do much about it.

The change in behavior hits all segments.  Its funny how that can happen even to the people that it doesn’t really affect.  That’s the problem with inflation, its all about expectations.  If people expect inflation, it happens.  With the expectation of inflation people are going to change their behavior.  Take myself for example.  I do think about the price of gas and I let it affect my decisions.  While I am still driving to work (having decided the train isn’t for me) I’m taking my girlfriend’s car that gets better gas mileage.  I live close to lots of stores, and have resorted to walking so long as I don’t have to carry anything back.  My weekly trips to Best Buy just to look?  Curtailed it and now I only go when I’m headed in that direction anyway.  So if this is affecting someone like me, one can only imagine what it is doing to the rest of the population.

With oil now back under $130 (it’s odd that people now think of $130 oil as low) and looking weak, will this trend continue?  If we suddenly wake up and oil is “only” $80 or even $50 a barrel, will America’s addiction to oil continue, or did this summer’s events just let the genie out of the bottle?  However awful it sounds, I actually hope that oil stays high.   I see people making changes, and they are changes that I think are good in the long run.  I would hate to see energy prices suddenly fall and people go back to the way things used to be because the next time it happens, it will be like the boy who cried wolf, only this time it will be the boy who called high oil prices.

What about you, have you let high gas prices change your habits?  Do you think high prices are here to stay?

I get paid twice a month, on the 15th and on the last day of the month.  That would make today payday.  As I was sitting at my computer today, I said out loud, “Oh, today is payday.  I almost forgot”.

My coworker looked at me and said, “There is clearly a man that doesn’t live paycheck to paycheck.”  Of course, he is right.

I certainly understand this is a luxury that many might not have.  It’s hard enough in this day and age to save any money let alone enough where you can almost completely forget that it is payday.  However, I tend to think most people have a lot more fat in their budget than they realize.  So I tend to think that if more people tried, they could eventually not end up living paycheck to paycheck.  The key is to break it up.

To not live paycheck to paycheck, you probably have to have six months of living expenses.  This is the standard amount that almost any financial advisor would give you to say that you are financially sound.  It is a hard goal to manage, but it is very doable.  The key part of that is not the money you save, but it is the money you spend.

Six months of living expenses is much easier to manage if you cut down your living expenses.  If you can cut your living expenses from say $1500 a month to $1000 a month, that equates to $3000 less you have to save every month.  Now that’s a big difference.  I have helped others do this by simply making them list out what they spend in a month, and then asking them a simple question, “Would you rather continue to struggle and worry about your finances day in and day out and have that latte, or would you rather sleep better at night?” (both from being financially secure and having less caffeine)  The answer should be obvious.

For me, saving six months of living expenses has never been hard, and it isn’t because I made a lot of money or lived in a cheap area.  It’s becasue I controlled my cost.  At no time in my life have I spent more than 70% of my paycheck on my living expenses.  This means I’m saving 30% at a minimum.  Now that number runs closer to 50% as I make more money, and I keep my standard of living relatively flat.  Think its impossible?  It isn’t.  When I first graduated college, I made less than $50,000 a year.  While that may seem like a lot to some people, try living on that in New York City.  Now try saving money.  Not so easy.  My paycheck came out to roughly $1600.  I got this twice a month.  Keep in mind this is a NET number after taxes as well as whatever I put away in my 401K (which should never be considered as part of your pay. You should just do it and forget it.  Learn to budget without this money) My goal was then, and is now, to only have to spend one of these paychecks on my living expenses.

Out of college, I shared a two bedroom apartment with two other people.  Our apartment was $3400 a month.  My share of it came out to a little more than $1100.   So how the heck do you live on $500 a month in NYC?  Well to be fair, I did cheat a little.   I was a consultant so I travelled a lot which means I also got a small living stipend for each day I was gone.  This would more than cover any meal I had (I ate cheap) as well as any incidentals.  In fact, I got to save most of the money.  But even without this, I could have made it.  I had no car so no insurace or gas cost.  I limited my going out and my cab rides.  I didn’t go to a lot of shows or movies or buy things I didn’t need.

Before I left NYC, I had a nice little cushion.  More than enough to cover my move back to L.A, which I had to pay for myself, as well as all the other setup cost I had to incur like security deposits, setup fees, etc.  Not once did I have to go into debt despite the sudden large expenditures I had to make.  Why, because I told myself I would never have to be one of those people staring at the calendar wondering when the next Paycheck was going to come.

In this case ignorance really is bliss.

In fact the deal can be bad for you in multiple ways. Here is what I’m talking about.  I went to get a sandwich today at Quiznos.  I decided to get a small sandwich because I wasn’t that hungry and I find that the small is a good size for lunch.  Anything more than that is too filling.

But as I was ordering my sandwich,  I noticed that the large was only $7.00, only $2.00 more than my small.  This must be a recently reduced price because normally the large is about $9.00.  The part of me that loves a good deal was tempted to just order the large.  After all, it was only $2.00 more and I would have gotten much more sandwich.  But that’s the problem, and actually it is two fold.  First off, I didn’t really want more sandwich, but we love a good deal so we are willing to spend more money for something we don’t really want.

The bigger problem was that the sandwich would make me bigger.  As I’ve gotten older, I definitely have to think about what I eat.  It would have been so easy to just order it and eat the whole thing.  American’s love of a good deal combined with our desire to “finish what’s on your plate” definitely isn’t helping America’s waistline.  So not only would I waste money, I would be getting fatter, and I would eventually have to deal with all the consequences of getting fat.

Do you find yourself doing that too?  Do you buy things you don’t really need just because you can get a good deal on it?  Why do you think you do it?

Is it possible to live debt free?  It was a questions I saw on the front page of MSN Money today.  Since I am probably in the 1% of Americans who is 100% debt free, I felt qualified to answer this question.

Yes, it is possible to live debt free, and it really isn’t all that hard.  I have found it easy becasue

1. I grew up without much money
2. I was determined not to grow old without money

So throughout my whole life, I have planned.  I made sure that I would end up with the right job and that I would live the right lifestyle.  So when you combine a high salary with a simple lifestyle, it becomes very easy to be debt free.

Right now, I have no debt of any kind unless you count my credit card which I pay in full every month.  I have no mortgage, no car loans, no student loans, nothing.  It’s fantastic.  You just live within your means.  You do it long enough and lots of possibilities open up.  For example.  This weekend, my girlfriend and I decided to buy some furniture.  We saw a TV stand we really liked.  Like all good furniture it is expensive.  In total it cost me $1400.  This wil shortly be paired with a TV that cost $2500.  That will be followed up with a living room set that will probably cost around $2000 and that will be followed by a bedroom set that some more as well.

Now I don’t ever spend money like this.  This is highly unusual for me.  But the point is, I can do it, and I can do it all without incurring any debt.  This is coming straight out of savings.  Now to be clear, debt isn’t a bad thing if used correctly.  However, I believe it should only be used for productive reasons.   That is, the debt you incur should only be used if the money will be used to earn more money later or to finance a purchase that would otherwise be impossible.  This generally only means

• Student Loans
• Buying a house
• Buying your first car

Student Loans is obvious, this directly leads to you being able to earn income later.  A house falls under the impossible to do without category (although this wasn’t always the case).   The latter I allow for simply because it is a big ticket item that a lot of people just starting out can’t afford to buy without a loan.  And since most people have to drive to work, I think it is acceptable to take out the loan.  Every car after that though I think you should have the ability to pay for it in cash.  I qualify with “ability” because even though I could now buy pretty much any car I wanted to in full, I doubt I would buy a BMW M5 in cash.  The money could be used better investing rather than laying it all out for a car.

What do you think?  How close are you to being debt free?  Do you find it hard to live with or without debt?

Today, I decided to upgrade my gym membership. I have access to all 24 Hour Fitness Sports. These are generally the highest level club for the chain. However they have a few limited Super Sports which are a little bit bigger and nicer. In particular the regular sports around me don’t have full basketball courts but the Super Sport does, so I joined.

Now, it wasn’t an easy choice for me. One thing I’m pretty adamant against is having too many financial obligations that you have month to month. It is almost a sure way to spend more money without knowing about it. It’s important that most of your costs are variable, not fixed. That way, when you have to scale back, such as when you quit your job, it is much easier to do.

In the end, I decided to do it because I would use the gym a lot less if I didn’t. I haven’t been going to the gym as much as I would normally and it is important to me to be in good physical health. Since I love basketball as much as I do, it is really important that I have this option available. It will cost me an additional $32 a month to go, since I’m paying for me and my girlfriend’s membership. That comes out to almost $400 more a year. I also had to pay $160 in total initiation fees, that kind of sucked. But it is a month to month membership, so if I decide to cancel, sometime in the future it shouldn’t be a big deal.

That’s the key. If you are going to take on another financial obligation, make sure you can get out of it easily. That’s one reason I’m hesitant to sign up for DirecTV service even though thy probably have the best HD service around. They force you into a two year commitment.

Gas is getting more and more expensive.   Here in California, we are at about $3.75 a gallon depending on where you are.  $4.00 looks like an absolute certainty.  Despite this lunacy, I think it is even more ridiculous the lengths people will go to to save a buck on gas.

If I asked you to just stand still for five minutes for $0.60, would you do it?  I’m betting most of my readers would not.  However, that is exactly what is going on down the street from me.  There is a 76 station down the street that is known for having the least expensive gas in the Pasadena area.  Since it is down the street, I drive by it often and regularly see lines extending out to the street to get gas.

I never wait in this line.  If there is nobody there, and I need gas, I’ll get gas. But if there is the smallest hint of a line, I just go further down the street and get gas somewhere else.  The thing is, the gas is about $0.05 cheaper than it is just down the street.  On a 12 gallon fill up, that amounts to about $0.60 or a 1.3% savings.  Is that really worth waiting in line for?  I’m all about saving money when it makes sense, but this doesn’t make any sense.  Now if you factor in that a lot of these cars will sit and idle while they wait, then then these people are actually spending more money by sitting and waiting then they would be just going down the street.

What do you think?  Do you think it is worth it to wait for cheap gas?  Why do you think other people think it is worth it?

My Birthday was this weekend.  This would explain the lack of post on Friday as I took the day off of work to just lounge around and not do a heck of a lot.

It was a big birthday for me actually.  I’m now 30.  However, I’ve long gone past the point where I do anything really significant for my birthday.  I spent the day looking for some furniture and enjoying the California weather.   My girlfriend came down from Seattle this weekend and it was good timing for her.  While it was warm and sunny down here, I heard it was snowing in Seattle.  Sucks to be up north.

At night, we went to Ruth’s Chris Steakhouse.   We were going to eat in but I decided that it would be better (and frankly easier) to just go eat out.  Ruth Chris is well known for its steak, and it didn’t disappoint.  I got the Surf N’ Turf which meant a lobster tail and Ribeye steak.  It was mighty tasty.  Since I don’t really drink alcohol, and we generally don’t order apetizers, the bill came to “only” $130.

I was thinking as I was eating in the restaurant how fortunate I am to be able to go to this type of place when I feel like it.  I really don’t worry about how much money I’m spending at these types of things because I do it so rarely and have more than enough saved so that it doesn’t hurt my bank account.  At dinner, my girlfriend and I talked about her friend who is a lawyer who makes more money than I do yet has almost nothing saved.

Now if I wanted to, I could probably eat out at this type of restaurant almost every single night.  It would be expensive, and at the end of the month, I wouldn’t have very much saved, but I wouldn’t be going negative either, not even close  So it got me thinking what on earth can people be spending their money on to go through that much money.  If I can afford to go out to one of the nicer restaurants in the country every single night, what must someone who makes more money than I be spending his money on?

Other than that, it was a nice relaxed weekend.  The one other highlight was going to watch my friend Jenny play in a softball game and being part of her team’s first victory.  If you have seen them in other games, you would know what a big victory it was as most people have never played a game of softball in their life.  I think my cheer leading was a major reason they won as this was only my second game in attendance, and they generally lose.  Coincidence?  I think not!

Yesterday we had a very nice, albeit typical, California day. It was in the mid to high 70’s for most of the day and even got to the point I turned on the AC just to cool the apartment down a bit. There was one person who was even more happy than me to be back in California. That would be my cat pictured above. One of the big drawbacks in living in a place like Seattle was that we just did not get much sun. To make matters worse, my apartment in Seattle did not really get any direct sunlight.

When you have a kitty that loves to sun bathe, that can be a problem. Now that we are back in Southern California and I have a southern facing apartment, kitty just loves to spend his day sprawled out and laying in the sun. Lucky for him he doesn’t realize how much more expensive it is to live here. Despite a higher salary than what I was earning in Washington, I’m really not saving more money. In fact, I’m probably saving less. We will see how it all equalizes as soon as my move in cost are gone and my girlfriend eventually makes it down, but for now, definitely not saving as much money as I was before.

Don’t try to keep up with the Jonses. After seeing a post on MoneyNing about working on Chirstmas, it got me to thinking about how people always try to compare themselves to other people. While MoneyNing’s post was about working on Christmas Eve, I think the advice is true in ALL aspects of life.

I used to really care what other people thought. Thank god I got over that before I actually started earning my own living. Ever since I was on my own, I cared much more that I was doing well and not so much that people thought I was doing well. Don’t get me wrong. Sometimes I look around at my peers and want the things that they have. Would I like the nice car or the newest gadget? Of course. But I would also like to stop working at a young age, and I won’t be able to do that if I accumulate stuff rather than wealth.

It’s just a cycle you can’t win. So stop trying to buy whatever it is that you think you have to buy just to look like you can. Believe me, the Jones’ probably can’t afford it either, and you are trying to win a fool’s race.  All that will happen is that you will push yourself into debt.  And you won’t even accomplish what you want, because the Jonses really don’t care what you have, they have their own problems.

Be rich, don’t look rich.