Why I Drive a Crappy Car

For someone who makes and has as much money as I do, I drive a very modest car.   I have been asked before why I don't get a better, newer car.  There are times I have thought about it but in the end I can never bring myself to spend money on a new car.  I'll explain why.

I bought the car new in 2002.  It was a beautiful Honda Accord.  I "splurged" a little bit by getting the V6 engine.  It was my first new car; I had an even older, used, Honda Accord before this one.  It was my first major purchase after college and I had never had anything so nice so I treated the car with kid gloves.  I washed it regularly, maintained it to spec, and just kept it in really good condition.  I could not have been happier.

The problem is, the high of buying a new car wears off quickly.  Humans quickly adapt to stimuli.  After the first few months of having the car, it was just a car.  It became the means by which I got from A to B.  I still took good care of it.  I was still happy to have it when I compared it to the P.O.S I had before.  But the same initial delight that came with the new car smell was gone.

Like anything in life, the new car could not keep me at a sustained level of happiness.  This is often called hedonic adptation.  People get used to good things (for that matter they get used to bad things too but that isn't the topic for today).  This is why lottery winners are often no happier several months after winning the lottery than they were before winning.  The initial euphoria of winning the lottery makes them ecstatic.  But people have a natural level of happiness that is specific to them, and they soon return to it almost no matter what.   So in my case, I spent $20,000 for a quick shot of happiness but it wore off as I continued with my life.

I am not trying to say I should not have bought the car.  I needed it and am happy I got it.  However, given the problem of hedonic adaption, my decision not to buy a new car should be a little more clear.  A "better" car would probably cost me in the neighborhood of $40K to $50K, more if I really wanted to splurge.   It is something I can easily afford but to what purpose?  I'm not unhappy with my car.  While a new car would be better, it would only bring me incremental happiness.   Is this bump in happiness for a few months worth delaying my retirement by a year or two?  No, it isn't.

This is not to say I will not someday buy a new, more expensive car.   Someday, my current car will not meet my needs and I will want to look for something new.  But I will not buy it just to satisfy some desire for "newness".   Everyone should think about this when spending any amount of money they consider to be significant.  Study after study shows that the pleasure received in buying things almost never reaches the level expected by the purchaser a few months, sometimes days, after purchase.

 

 

Adjusting to Life after Losing a Job

I was reading an article about people who failed to adjust their life after losing a job.  The article focuses on those who thought they could maintain their lifestyle because they got a severance check from their former employer and failed to realize that they might be unemployed longer than they expected.

It was hard for me to read the article because it is irksome to me to read about people who do not understand the reality of their situation.  It is especially bothersome to me to hear that people act this way in this country where most people have little or no money saved to deal with emergency situations.  Getting severance is a gift.  Few people have the "right" to a severance package.  Most employers provide them as a way to make all the parties involved feel a little better but they rarely if ever have to dispense generous severance packages.

I guess I just do not have a lot of sympathy for people in these situations.  I might if these people immediately cut their spending to the bare minimum to make their savings last as long as possible but none of these people did that.  They all decided to ignore the situation and continue to live as if nothing serious had happened.  I compare this to my own situation of life without a job.

I quit my Microsoft Job in September.  I was officially on payroll until the end of October but I stopped working at the end of September.  I simply used my vacation for that last month.  Despite the fact that I chose to leave, I had enough savings to last several years at my then rate of consumption, I still had a paycheck coming in, and my wife had a job that could cover all the bills, I started to immediately watch my money the day I gave notice.  Why?  I had no idea how long I would be out of a job.

My original idea was to take at least six months off.  That didn't happen because I have a problem not working and the uncertainty drove me nuts.  But despite my very safe position it was just prudent to not spend money the same way as I had before.  I was more careful about anything I bought.  We ate out a lot less.  We canceled plans that would cost us too much money.  I then look at my wife's position when we first moved to Washington.  She did not have a job lined up when we moved.  I made more than enough money to support the both of us but despite this she decided to get a retail job just to bring in some cash.  It wasn't great work but it paid and she wanted to make sure she brought a little something home just to get used to the idea and not feel too "safe".

Perhaps all of this was "easier" for me to do because I made a conscience choice to leave my job so I got to do it on my terms.  The psychology of it does not make much sense to me since I would think that having the situation forced on you would make the problem more immediate and urgent.  But I suppose there are those who would rather avoid the situation than tackle it head on.

Spending in Bunches

Diverging from my Italy trip for a while because, well I'm back and I'm tired of writing about it.  I may pick it up again.  I may not.  I do have a crazy Rome Airport story.  Seriously, something out of a comedy movie.  But that may be left undocumented.

So only a quick post tonight.  I'm just getting back into the swing of the markets.  I had not made any trades in quite some time because of the wedding and the honeymoon.  I also just don't think it is a good time to enter the market one way or the other.  I knew the market would probably trade sideways for a while and it has for the most part.  I was in no hurry to either go long or to go short the market.

So my question for all those out there today is, do you ever notice that your spending happens in bunches?  My credit card bill for the last two months is, as you might imagine, quite high.  But it is not just the wedding and honeymoon that is causing it.  I had to get new tires for my car.  The bill for my internet hosting came due.  I had two separate membership fees come due.  My wife had to register for classes this month.  And there were more things than that.

Now, lucky for me, I'm a good little saver and these random and volatile spurts of spending can easily be managed but I have noticed this happening to me in the past.  I wonder if this is really a phenomenon or you just happen to notice those medium size purchases a little bit more when you have had other large expenses to pay for?  How about it, do you ever notice that you spending fluctuates greatly and that you will just have one or two months a year where it seems everything comes due at the same time?

When Time Became More Valuable Than Money

I have officially crossed the line.  I fought it off for years but I think my time has officially become more important than my money.

I love a good deal.  In fact, I can not buy most things without getting a good deal on it.  I'm the type of person who will spend hours making sure I not only get the absolute best product to fit my needs but that I also get the absolute best deal I can find.  Well I have been in the market for a new video card for quite a while.  Like usual, I scoured the internet to figure out what the best card was and find the best deal on it that I could.  The problem was that I could not find a card that met all my needs so I kept searching.

Now usually, I have a lot of patience on this type of thing.  I waited almost 5 years before I finally bought my TV.  But I hate not having the use of my computer so it really bothered me to not have my computer working.  I kept looking for a good deal, looked every day.  I went to the brick and mortar stores to look but was not crazy about the prices there.  Then last week, I finally found what I was looking for at Frys (I had been there several times before with no luck).  It wasn't perfect, but it was pretty close.  The only problem was that I was going to have to pay full retail price. 

I am Chinese.  If there is one thing I hate doing is paying full retail price for any sort of electronic device when a deal is almost always to be found on the internet.  But I was more tired of waiting to fix my computer and I was even more tired of looking every day to try and find a deal on a card.  So rather than keep looking, and maybe save $20 or $30, I decided to just buy it.  When I think back on it now, the hours I spent looking for the card was nowhere near worth $30.  If someone offered me $30 to just nothing but search for a great price for a product for several hours, I am certain I would turn it down.  Why is it that I find it necessary to do when the cost is not as explicit?  What about you?  Do you do equally illogical things?

Should You Splurge?

This past weekend was my birthday. I turned 31. Being who I am, we did not do too much. I prefer to stay at home which makes it pretty easy to not spend too much money.  We got up in the morning and had homemade waffles.  Shortly after that I got to open up my birthday gift.  My fiancee got me a new tripod, the Manfrotto 190XDB, to go along with my camera.

We decided to go to the local arboretum to spend the day.  It was a beautiful California day.  It was actually to the point where I was sweating part way through.  It must have been in the 80's.  I got several good shots with my camera (no shots with the tripod unfortunately) and was ready to call it a day by 2:00 p.m.  I was dead tired, the sun will do that to you, so i was ready to go home and just plop on the couch.  I watched the NCAA tournament and waited to go to dinner at some mysterious location.

Well the location ended up being the Arroyo Chop House.  It is a high-end steak house, similar to Ruth Chris but probably better.  We had been there once before several years ago but I honestly did not remember too much about it.  This time what stood out was the excellent service they provided.  They knew ahead of time that it was my birthday. So they reserved a spot right next to the fireplace.  They even left a card on the table wishing me a happy birthday.  I thought that was a very nice touch.

I ordered what else, a steak.  She ordered a lobster tail.  The food was excellent, better than you can get at other places like Ruth Chris.  All told, the meal, with two glasses of wine, cost us $150.   Was it worth it?  It is hard to say.  Is it ever OK to spend $150 on one meal?  It is not something we do very often but it is sometimes nice to splurge.  We can afford it easily, so it is not like we have to stretch to make this work.   We probably only eat out like this two or three times a year, my birthday, her birthday, and on our anniversary.

So should we do this? I tend to think it can actually be important to splurge every once in awhile.  You cannot be frugal all the time and it is important to once in awhile enjoy the fruits of your labor.

What do you think? Are extravagances like this justified?

Don't Spend that Bonus!

I got my company bonus in the last week.  It was not the full value of what my bonus should have been, but it was very generous when you consider the economic climate and the struggles my company went through in the last year.  Truth is, I was expecting to get nothing.  So were most of the people under me.  Most were very appreciative of getting anything, however small it may have been.

So how did I spend this windfall?  I am not doing anything I would not have done otherwise.   I have never ever decided to do a little more spending just because I got a bonus.  Ironically, there is no real need for me to do this because I honestly have quite a bit of savings.  It is true, I will have lots of expenses this year.  There will be the wedding and I want to buy a house sometime soon if housing prices continue their precipitous decline. I have my eye on a new Home Theater receiver, but if I buy it, it would have been something I would have done regardless of my bonus situation.

Now my advice now is the same as my advice would be regardless of the economy; you should not do any extra spending just because you get a bonus.  If you want to celebrate, do it in a small way.  But under no circumstances should you buy something just because you happen to get more money.  This is how people become poor.  Their pockets are like sieves.  As soon as money comes in, it goes out the other end.  Most people do not have money problems because they do not earn enough, they have problems because they spend too much.  It is easy to spot these people.  These are the same people who get upset that there might not be a bonus.  They are upset because they have already spent the money!

So do yourself a favor and ignore the fact that you got a bonus.  Believe me, saving it will bring you much more happiness than anything you can possible buy.

Why You Should Not Spend Money on Your Pets

One thing I have learned over the years is to not try to spend money on my cat.  When I first got my cat, I used to go to the pet store and try and find things he would like.  I spent lots of money on toys, and bedding in an attempt to make him happy.  The thing I quickly learned was that my cat often did not like anything that I spent money on but would instead prefer the scraps off other things.

I first learned this lesson the first Christmas I spent with my cat.  I got him a few catnip toys and a few fake mice.  His favorite gift?  The ribbon and paper that everything was wrapped in.   Just to make sure that I learned my lesson my cat decided that he would make as his new bed the cardboard crate that the new dartboard I bought came in.  I am not sure why he likes it, it is not particularly soft and is kind of noisy with the plastic wrap, but he sleeps in it pretty much every chance that he gets.  So save your money and instead just give your cat the refuse off of the things that you buy.  I promise you, your pets' tastes are probably pretty different from yours.

How to Split the Finances

Lately, I've had some conversations with people about how I split my finances with my fiancée.  Here and I have talked a lot about money and our expectations about how we spend/save it since we started living together more than three years ago.  We have had further talks to see how we will handle things we we get married.  Lots of couples avoid having this talk and think things will just figure themselves out.  That is a complete mistake.  Most marriages fail because of money issues.  It is better to get this topic out front and talk about it than let it stay in the background.

So what do we do?  Our formula is pretty simple.   Lots of people would just split their finances 50/50 but I did not think that was very fair.  So early in the relationship I suggested something different.  If you add up our combined salaries, I make 72% of the income.  I therefore pay 72% of our shared expenses.  Shared expenses are things like rent, groceries, eating out, and household items.  We do not split things like clothing, electronics, student loans, or our individual car payments.  Those our paid from our individual accounts.

So lets take an example.  Let us imagine we take home $10,000 a month combined.  For the sake of simple math, let's say I earn 75% of the income and she makes 25% of the income.

Now lets say our combined household expenses are $3000 a month.   I would pay $2250 a month and she would pay $750.  We used to add up the money to be exact, but it ended up being close to the same amount every month so instead we switched to a model where I pay all the household bills, and she cuts me a check for the same amount every month.  Our expenses have probably changed since we came up with the system, but we figured it is close enough and there is no need to quibble over a few bucks here and there.

When we want to buy things that one person wants, we do not argue about it.  The person just buys it because they have their own money.  So when I decided to buy my new Plasma TV, there really was not any discussion about it.  I just did it.  In fact, she probably pushed me to buy it.  After all, she would get to enjoy it while I was paying for it :)

I find that this arrangement works great.  There literally has NEVER been an argument about how we spend money because we have figured out a system that works for us.  There have been times when one person wanted something and the other person did not and we discussed if it should come from the common fund or not.  But in the end, if one person really does not want it, it would just be up to the other person to buy it from their own funds.

Is this going to change much when we get married?  Not really.  We will probably get a shared account which we do not have now and put our money into that joint account.  We do have a shared credit card where we do put our shared expenses on, but not a joint bank account.  Some of the separate expenses will be combined.  So we will combine our car insurance payments and our medical expenses.  The only real difference we have discussed is how we are going to handle our savings.  We will probably have a predetermined amount we decide to save. This will just be added as a shared "expense" and then put aside.  For example, say we decide to save 40% of our income.  So if we use the numbers in my previous example, we would simply treat the $4000 as a common expense.  I would put in another $3000 a month, she another $1000.  That means I would put in my own account $2250 and she would put $750.  While it may seem like I certainly get to save more money, in reality it does not really work out that way.  Neither of us really spend money, so in the end it does not really matter who ends up with more money as neither of us will spend it.

So what do you think?  How do you split up your finances?  Do you think what I do is fair?

2008, a Look Back

I've had this blog a little bit over a year.  In that year, I will admit I haven't done a heck of a lot to try and grow this site.  I would like to make the excuse that my new job has been much more demanding then I would have realized.  I could argue that I have done really well in my financial goals by putting my focus there rather than to focus on this site.  But in the end, it would just be excuses.  It would all be true and valid but I for one do not like it when people make excuses, so I will not be making them here today.

However, despite this lack of focus in building this site, I am somewhat impressed I have blogged as much as I have.  I have a little over 200 post for the year.  That's no small feat and means I'm averaging about a post every week day.  I hope to do even better next year.  More on that to come.  I decided I would look back at what I wanted to accomplish with this website and see how far off I veered.

1. Double my $20,000 - I gave up on this one just a few month into the year.  I just didn't have the time to do it and in reality, I'm sure I would have failed at it given how poorly the market performed.  I would have done better then the market, I probably would have even made money in the money I was trading, but I would not have gotten anywhere close to doubling the money, that is for sure.


2. Develop another source of Income - I did not get to this one either.  Sad really.  It was something I really really wanted to do.  I make a nominal amount through this site, but just barely enough to cover my yearly cost so nothing much to speak of here.


3. Watch my basket more carefully - This one I have actually done thanks in no small part to this website and the discipline it has made me have.  Still, I lost track of a stock or two and held on to a few I probably should not have.  But everyone had losers this year and I'm chalking this one up to the bad market.


4. Spend more money - This one was the crazy one.  Easy for some, hard for me.  I did loosen up the purse strings ever so slightly.  I bought myself a 50" Plasma TV , a new Digital SLR camera, and a host of things for the apartment (including upgrading the apartment itself).  I even bought an engagement ring.    Admittedly the last one should not count as I would have done it regardless of my decision to spend more money or not but the first few are definitely a departure from me and my frugal ways.  All said, it was a lot of money for me.  Does it prevent my fiance from calling me frugal?  Nope.  She is probably right.  I still skimp and save probably more than I should given our income level.  But in the end, it always comes down to the fact that I rather save now and retire early later.  Then again, with the way our economy is going and the reaction of our government, they may make that impossible.

So all in all, not a very successful year from the blog perspective. It was a very successful year for so many other reasons.  I got the job under control now, where before I was miserable at times.  I got back to California and could not be happier with that move.  And of course, I got engaged!  I honestly could not ask for much more of a successful year.  Well, that is until we turn the calendar to 2009 ...

Save Money on an Engagement Ring (and get higher quality at the same time!)

To add to my post about my engagement, I learned one interesting thing about engagement rings.  It pays to go to a small specialist.

Like a lot of people, I tend to feel  more comfortable shopping at big chain stores.  That is why I tend to do my shopping at places like Best Buy, Target, and Amazon.  They tend to have the widest selection and the best prices because they have huge stores and usually do not offer high level of customer service.  I actually prefer this since it not only keeps prices low, but I do not like to be bothered by sales people when I am shopping.

However, with the ring, I went a different route.  I should say, my fiancee went a different route.  Someone like me would be tempted to go to one of the big engagement ring stores like Robin's Brothers, Jared's or Tiffany's.   Especially the latter one because the name is so well known.  I would shy away from a small mom-and-pop type setup because I would not feel as safe going to a place like this given how expensive this purchase is (it is now probably the most expensive thing we own).  But my fiancee had a particular style in mind, so she decided to do some shopping.

She picked a style and decided to ask several of the local jewelers for quotes.  To her surprise she found one that quoted her a very reasonable price just for the band.  She also asked about the solitaire diamond and they gave her several options, each of which were actually cheaper than anything we could find elsewhere.  This was very surprising to me because their prices were actually better than the online retailer Blue Nile. Blue Nile is known to have very good prices on its single diamonds and when we tried to find one of the same quality as the one our jeweler offered, it came out to be more money online.

This was a very good diamond, it scored very well in the 4 C's (Cut, Clarity, Color, Carat).  In fact, we found that many of the chain type stores could not match the grade of diamond that we were getting.  While most people worry about the big C, Carat, we found that it was probably the least important factor.  Her diamond is brilliant, it really sparkles in the light because it scores so high in all the other factors.  So my strong recommendation out there to anyone looking to get a diamond ring, focus on the OTHER C's.  It is much more important than you think.

My only other concern was how I could be sure I was getting what I paid for.  That was easily taken care of by going to a third party jewelery appraiser which I had to do anyway to get the ring appraised to buy insurance on.   Of course, the appraisal went fine and my fiancee could not be happier.  So we found not only better service but better price and quality by going with the small guy.  It may make me rethink what I thought I knew.

My Black Friday

Despite the fact that I absolutely hate crowds, and I hate fighting to get a parking spot, the last few years I have gone out on Black Friday.  I never buy anything, but I like to get a sense of the crowds and to see what people are buying.  I have never actually bought anything because of one simple fact.  While there are great deals to be had on Black Friday, they are usually for things I don't need.  Now there is the part of me that loves a good deal.  I see something at 50% off, and it instantly piques my interest.  However, I find the whole thing rather sad as people line up more than twenty-four hours in advance to take advantage of doorbuster deals.

I only went to a few places.  I went to a Best Buy, a Borders, and a Macy.  I also just glanced in a few others.  While some pundits have predicted this to be a horrible shopping season, there were some pretty significant crowds at the Best Buy. The parking lot was quite full, with several cars continuously circling for a parking space.  I ended up parking pretty far away but I at least did not have to wait for my spot. I walked in and it was pretty crowded.  There was however no line at the registers.  It was kind of odd.  It was the first time I have not seen significant lines at a Best Buy on a Black Friday.  It might mean that Best Buy is getting really good at getting people through the line.   This is entirely possible because all the registers were opened and they had several makeshift registers throughout the store.  It might be also that there are lots of people like me, looking just not buying.

The same thing at Macy's and Borders.  It just was not all that crowded.  It seemed even lower on Saturday and Sunday.  This is in contrast to what is being reported in the news as most news outlets are reporting higher foot traffic this year than in years past.   It will be interesting to see how this news will be digested by investors.  It will really show how much bad news is actually baked in into the equity markets.

Buying a Digital SLR Camera

I've decided to buy myself a digital SLR camera. I, like always, did a lot of research on what to buy, and I ended up deciding to buy the Canon Rebel XSi. I've been interested in photography for quite a while. I owned a Canon Elan 7E and was pretty happy with it so I decided to stick with the Canon line.  It has the additional benefit that I can use most of my old lenses on the new camera, so I should save some money since I won't be buying all new gear.

This is actually a little unusual for me.  When I buy electronics, I almost never buy the entry level.  I'm a firm believer that you should basically buy the upper middle of a product line.  You should not buy the best because usually the price premium is too great to justify the benefit you get out of the extra features.  You usually should not buy the entry level either because the manufacturer often saves the better, more useful features for the step up models.  The upper middle of a product line tends to be where the sweet spot is in terms of price and performance, so it is what I generally recommend people do.

Now while I could have afforded to buy the step up model, either the EOS 40D or the EOS 50D, I decided that this time the entry level model just made more sense to me. The step up features did not seem to mean too much to me.  The step up models have better construction, higher ISO settings, and a few more controls to tweak.  None of these are a show stopper for me, and not worth the price gap of over $300, or over a 50% premium.  The resolution of the XSi is actually better than the 40D and slightly under the 50D but I don't expect this to make much difference.  Photography at high levels depends much more on your lenses than it does on the camera body, so for me I think it is all a wash.  So this time, I decided to save the cash and hopefully use the price difference to buy a nice lens or two.

I also decided to just save some money on this purchase.  It is not as if I'm worried about my finances, far from it, but it cannot hurt right now to be a little cautious just in case.  In fact, I'm saving money mostly because there is a host of other things I want to buy and I did not want to go overboard buying too much photography equipment; especially when you consider the fact that I've taken a few years off from this hobby and I'm not so sure how much energy I'm going to put back into it.

So if anyone has any experience with this camera, or any of the other ones I've mentioned, let me know what you think.  I'll be buying it off Amazon soon, much like I will be for most of my purchases going forward, to get around some of the things going on in California.  More on that later ...

Sharing Meals

I try and find lots of ways to save money.  Some of them are pretty aggressive and probably unnecessary, like waiting five years to buy the the new HDTV.  Some of them are actually quite easy.  The simplest one I do is to share meals with my girlfriend whenever we go out.

It actually started really early for us, on our first date.  Funny enough, it was one of the things that attracted me to my girlfriend.  Not because she wanted to save money by sharing food (I'm not that cheap :)) but because I loved how comfortable she already was with me on our very first date.  Anyway, ever since our first date, we have made it a point to almost never order two entrees whenever we go out to a restauarant.

At first, I admit I felt a little guilty.  I didn't want to "cheat" the restauarant out of business by not ordering two meals.  I soon got over it.   I just had to look at it the other way.  Most restaurants give you WAY TOO MUCH food.  These meals can easily feed two people.  What was worse?  For me to "waste" money by buying food I didn't want, or for me to waste food by ordering something I wouldn't eat?   You just have to channel your mother telling you about the starving children in Africa.

This ends up being fantastic for two reasons.  Not only do I save money, but I end up not over-eating which has benefits all by itself.  As I've gotten older, I definitely can't eat like Michael Phelps anymore, so sharing the food ends up acting as portion control for me.  Just the other day, my girlfriend and I shared a hot dog and Coke at Costco.  Total cost $1.50.  That's crazy cheap for a meal for two.  Better yet, it prevented me from eating too much of something I really shouldn't be eating in the first place.  And the thing was, I wasn't hungry after eating my half of the hot dog.  I wasn't full either, but I find that I often only need to graze a little here and there to feel satieted for the day.

What do you think?  Is this a good idea, or am I just being cheap?

Ways to Spend Money Other Than on a Wedding

I was watching My Big Fat Greek Wedding on TV today with my girlfriend.  We have often talked about what we will eventually do when we get married.  None of the ideas involve having any sort of big standard wedding that we so often go to and that was depicted in the movie.  The money for the wedding will definitely be coming out of our own pockets, since neither of our families has the money for a big wedding anyway, and neither of us think the expense matches what you get out of it.

Instead, we will find some other way to spend the money.  The average cost of a wedding in the United States is around $30,000.  That's a lot of money.  When you factor in that a lot of people probably spend close to $0 on their wedding, what the heck are all the other people spending?  Weddings get expensive.  Weddings are stressful.  Weddings are hectic.  Weddings are not about the Bride and the Groom.  So to avoid all of that, we will probably take off and get married in Italy and start on our honeymoon.  So what will we do with the money?  Some ideas

• Spend more on the Honeymoon than we probably would have otherwise.  We will probably go longer, see more, and stay at nicer places than if we spent the money on the wedding


• Put it towards the house (if we don't already have one)


• Have a kick ass party for our friends when we get back

Any other ideas?

The Cost of Being

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 it 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?

High Price Oil Changing Habits

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?

Ignoring Your Paycheck

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.

That Good Deal, Not So Good

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?

Living Debt Free

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?

Monthly Bills - To Spend or Not To Spend

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.