Just wanted to announce that I have joined the Yakezie Challenge! You can read more about the Challenge at Financial Samurai.
Thanks to my readers for your support and interest in my blog. We are just getting started!
Since 2010, sharing my journey to help you squirrel away your money and build net worth!
Just wanted to announce that I have joined the Yakezie Challenge! You can read more about the Challenge at Financial Samurai.
Thanks to my readers for your support and interest in my blog. We are just getting started!
What do you think of when you read the words “The One that Got Away”? For many people, those words conjure up images of someone of opposite sex from way back when, with whom you wanted to get serious back in the day but it just wasn’t in the cards and didn’t end up in a serious relationship with that person.
As a personal finance maven – or “maven in-development” more accurately – I thought it would be interesting to look at this from a money point of view. Let’s have some fun with this, and reflect on some crazy little money opportunities that could have been – but weren’t. Nothing too serious, like career opportunities, promotions, real estate market issues, etc. I’m thinking along the lines of the following examples:
You get the idea. Something that could have been, but due to timing, bad luck, or your own decisions, you missed out on an something that would have been one of those little financial victories that would have provided the joy of getting a great deal or something for next to nothing. One of those great deals you can look back on with pride. If I’ve lost you here, then maybe I’m a bit too frugal for you, in that I am glorifying deals as if they were athletic exploits 🙂 Otherwise, go on!
For me, when I think of “The One that Got Away”, I think of my lot of 200 Barry Bonds rookie baseball cards from back in the 1987.
As a 39 year old, I have no interest in these things now, though I have kept them all these years as something to pass on to my kids. The last ones I purchased were probably 20 years ago. That said, back in the mid-1980’s, these were all the rage with many boys – and men – at the time. What was interesting is that these cards, which were available to be purchased in retail stores for $0.50 or so per pack, became “investment” commodities that went up or down in value based on a player’s performance. The most valuable were the rookie cards; if a current player was an all-star, his individual card could be worth a few dollars. If he looked like he could be a potential future Hall of Fame player, his card could shoot upwards of $50. I remember Mark McGwire and Jose Canseco cards being in that range, soon after they were issued.
Anyway, I chose 4 or 5 players young who I decided to invest in, and do it in bulk. That is, I bought 200+ rookie cards of each guy, and paid between $0.03 to $0.17 cents per card depending on the guy, and thought I would “invest” in the possibility of success. The idea for me was that as a die-hard baseball fan, I would pick the prospects who I thought had the potential to succeed down the line. It was sort of like investing in penny stocks or startups with high growth potential.
Lo and behold, one of the guys I invested in was Barry Bonds. I always thought he had the potential to be good; that said, I never realized that he could eventually be the all-time home run leader, albeit one mired in controversy.
I paid $0.17 per card for 200 cards – about $34. Not small change for a 16-year old kid then. If you recall the $50 per card value I noted earlier for guys who looked like potential Hall of Famers, this would mean that Bonds cards – if the overall market would hold – would be at $10,000 at those prices. The thing is, given that Bonds ended up breaking home run records, his cards could have skyrocketed to greater heights – $200, maybe $300 per card wouldn’t have been unrealistic. This could have been a nice chunk of change!
Alas, the baseball card “investment” market collapsed within a few years and values plummeted. There was really no supply and demand tradeoff that supported the crazy values of these so-called investment collectibles to begin with. As supply of newer cards increased by the year, and interest in other sports increased relative to baseball, the values fell off and never recovered. Looking on EBay today, these cards of mine could possibly fetch $1 each – if I was lucky. And that’s before shipping costs!
Well, that’s my “The One that Got Away” story. It’s just baseball cards, and I was just a kid, but man oh man….that would have been cool to see that work out. If nothing else, just for the fun of knowing that I called it right, and picked up a true bargain!
What about you? Anything jump out at you as The One that Got Away?
This article was included in the Carnival of Money Stories at Personal Finance Journey.
Do you like food? Yes, of course, we know that we have the same answer to that question. Now, how about FREE food. I’ll bet that most of us think that sounds good too!
When it comes to free food, some questions might arise as to why the food is free. As I have been quoted before, I think that frugality goes too far when you’re taking advantage of others, or lose your self-respect. That said, there is one source of free food that I have seen enthusiastically embraced, which is the topic of this 6th installment of Squirreling Gone Wild: The Office.
I don’t mean the television show, but I mean “at the office” at which you or someone you know works. The office with lots of cubicles, copy machines, printers, water coolers, executive corner suites…..and people.
About those people….
In a position from way back when, I observed that some very smart, highly professional individuals became just a bit different when it came to how they handled free food in the office. The free food would come in three primary ways:
1) It would be a free lunch, as a part of a meeting that one attended
2) It would be set out for all to eat, in the form of snacks sent by a supplier (pretzels, popcorn, etc)
3) There would be leftovers from a larger, executive-level meeting where some “good” food was served, and then set out in the common areas for everyone else to share.
With #1 above, people were professional in getting food at meetings. With #2, the snacks were nice but not enticing enough to change behaviors. With #3, all heck broke loose!
Now, it was civilized, but when the “free” food from meeting leftovers was left out, it would be gone in a hurry. Typically there would be restaurant-quality sandwiches, pizza, salad, cookies, brownies, and things of the like. The food would be rolled out on a cart, and left in a common area.
It was a typical scene: when the cart rolled by, and someone audibly commented words to the effect of “hey, there’s food!”, the reaction was as if someone in shallow water at the beach yelled “SHARK!!!”. People within earshot got up out of their cubes and scrambled to get the food. Within minutes, the food would be half gone – just as a result of those in proximity to the food.
Next, an email would typically be sent out. This would usually happen right as the food was set out, and as the first people nearby realized there was food. The emails would have a subject that usually had something very simple such as “Food”, and the body of the email would indicate where the food was stationed.
At that point, when people instantly opened their new email, the stampede was on. You would see plenty of people stand up in their cubes, like prairie dogs shooting out of a hole in the ground, looking in the direction of the food. Then, they would politely get up and walk toward the food. They weren’t running, or overtly doing anything uncouth, but they were like heat-seeking missiles, walking briskly toward the food. It was a sight to behold, as you would never see people move so quickly in the office – even for a fire drill. All done politely, but with a purpose: FREE FOOD!
As can be expected, there was one individual who went over the top. She seemed to have a sixth sense for the food coming out, as she would always seem to be in the mix of people with this food. When she did get it, she would go against the “protocol” of taking only one sandwich, cookie, etc – and take multiples. Further, she would come back after a while and take whatever leftovers were still there after nobody wanted anymore. I saw here walking with a huge salad container one time, and just laughed – she did too! That thing looked like it could feed a family for dinner.
This “outlier” individual said that she spent only $100 per month on food, as she was able to use enough leftovers from the office that nobody wanted. Apparently, eating grilled chicken pesto sandwiches 4 days in a row was no problem for her!
I’m guessing this overall scene might be typical for large offices. What do you think? Is this sensible frugality, or extreme frugality gone too far?
This article was featured in Festival of Frugality #280 at Penniless Parenting.
Check out this story from abcnews, featuring a man using his airline points to live in motel rooms while unemployed. He went from a high-flying (pun not intended, but it works) executive to a man without a permanent home who used motel rooms as his shelter. What a nomadic existence this guy had.
More than that, this is an example of a guy who literally lived off an asset that he squirreled away for a rainy day. And that asset wasn’t even cash. Very creative indeed.
He showed further creativity in publicizing himself and his situation, which has landed him a job as CEO of a company!
What do you think about this? Inspirational? Crazy? Motivating?
Sure, none of us want to lose money. That’s no fun! Making money and growing our investments is what we look to do. When you look at the math, its more important than we might think.
The world reknowned super investor Warren Buffet has even been paraphrased as indicating: Rule #1: Never Lose Money. Rule #2: Don’t forget Rule #1.
Sure, we have to take risks at times. It is a part of being an investor, and there is a risk/reward dimension that frames many of our choices with our finances. It even frames choices in our life too. But as a personal investor, its important to manage your portfolio with some simple math in mind.
And it really is quite simple, conceptually.
Here is a classic example:
Scenario 1: You have $100, but lose 10% in year one and gain 10% in year two. This means that after year one you have $90, and after year two you have $99.
Scenario 2: You have $100, but lose 20% in year one and gain 20% in year two. This means that after year one you have $80, and after year two you have $96.
Think about it.
When you look at both Scenario 1 and Scenario 2, its clear that once you lose money from a certain base amount, gaining the same percentage back on the new base won’t get you back to where you originally started. This is where losses in your portfolio – be it equity or real estate – can really wreak havoc with your overall financial situation. It might not be evident a the time, but it puts us behind the 8 ball, so to speak, when we lose money.
To further illustrate this, lets focus again on Scenario 2. With a 20% decline from $100, you’re then at $80. To get back to $100, you need to have a 25% increase in the following year. Again, showing that once you lose a certain percentage of money, you need to increase it at a higher percentage to get back to where you started. This can be a challenge; a 5 percentage point difference is fairly significant, all things considered.
An additional point to consider when looking at Scenario 1 and Scenario 2: look at where you end up in Scenario 2 vs. the first Scenario. In Scenario 2, since the percentages were higher, you end up at a lower amount after year 2. Thus, the bigger the loss, the harder it is to recover.
The takeaway from this as it applies to our investments is to carefully manage risks. Losing money puts you on a slippery slope when it comes to getting back to your starting point.
A further takeaway from this concept, taking it further, is that money can be hard to come by. Keep your earning power by having marketable skills, and live within your means by embracing sensible frugality. This puts you in a position to recover in other ways if your portfolio takes a hit.
Home ownership has long been touted as a foundational element of building personal wealth. Rather than rent, the theory often goes, by taking on a mortgage you are avoiding “throwing away money”, as a portion of your payment goes toward principal, and you obtain tax deductions as well. Plus, it feels better for many to own than rent, as you have a sense of possession and pride with your own home. The emotional component of this is important to note. Overall, home ownership seems like a great deal, especially for those aspiring to buy their first place.
I am very positive toward home ownership, as long as the market is stable (a topic for another day). If your hope does appreciate at a modest rate – say 2% per year – you can amplify the return through leverage. This means that if you have a $300,000 home with 20% down ($60,000), your 2% increase ($6,000) can appear to be a 10% return on investment. Very good, indeed.
The only thing is – those same people looking to buy their first home tend to overlook the true costs of home ownership. I will make the following two suggestions here:
1. It is more expensive to own a home than many first-time buyers realize
2. You don’t ever truly own your home
It is more expensive to own a home than many first-time buyers realize
Taxes: When people rent, they typically pay the rent, plus renters insurance, and that’s about it. With homeownership, there is the mortgage payment, plus insurance, plus property taxes. That last component can be significant. The national average in the US has hovered around 1.0% of market value, but many counties have average rates well over 2.0% of market value. Thus – with that $300,000 home I mentioned, taxes at 2.0% would be $6,000. Sure, there is a tax break, but if you end up paying a net $4,000 of taxes after deductions, it comes out to around an extra $333 per month. That’s not small change.
Association Fees: This isn’t applicable to all homeowners, but most condominium or townhouse complexes will require association fees. The fees typically cover things such as common area costs (roofing, siding, landscaping, etc). These fees vary by complex or building, due to each one’s unique needs, but these fees can be relatively significant. For a $300,000 home, you could be looking at $100 or more per month – perhaps in the $500 or more range for a high rise building. With single family homes, this is less prevalent, but some newer ones do have neighborhood association fees.
Maintenance: When you rent, it’s a matter of calling the landlord to have him come fix the problems. When you own, you’re on your own (so to speak)! If the roof leaks, you have to fix it. It there is a plumbing problem, you have to handle it. Either you personally fix problems or you pay someone else to do it, which will be expensive. Plus, you have to account for the periodic replacement of certain things – the aforementioned roof, sump pump, appliances, etc. It is a wise idea, I believe, to budget at least 1.5% of your home value for such expenses. Thus, for the $300,000 house, you put away $4,500 annually for such expenses. It might not all be spent up each year – some years less, some more. But the money should be regularly set aside. Problems will happen, and shouldn’t be entirely unexpected.
Updating: If you buy a pre-owned home, you may be tempted to update a room in the house – perhaps the kitchen, maybe the master bathroom. You might even want to put new flooring throughout your place. Even if you like the place as is, you might want to change some things after living there for a long period time. All of this takes money, and in some cases it takes significant money. For example, a total remodel of a large kitchen can easily cost over $30,000 (U.S.).
Outdoors: If you are renting, outdoor maintenance is covered. If you own attached housing such as a condo or townhouse, this is likely included in your association dues. With a single family home, you will have to pay for things such as lawn mowing, snow shoveling, landscaping, etc. Even if you do it yourself to save money, you will be spending time on such activities.
You don’t ever truly “own” your home
Lets say you purchase a home and take out a mortgage. What a great feeling, you are a homeowner! Now, if you try to stop making those mortgage payments, you’ll see whether or not you truly own it. Remember – if you have a mortgage, you may have the title, but you’re still paying for it. It’s not yours free and clear.
Speaking of free and clear, what exactly does that mean with respect to home ownership? In most circles, this has come to mean the mortgage is paid off in full. Some people hold little parties for this accomplishment, when their loan is finished and they feel that they own their home outright. And make no mistake, it is a great accomplishment as you no longer owe money to the party that is servicing your mortgage.
Realistically though, your payments are not done. Furthermore, they probably won’t ever be done. In effect, you have rent payments to make on your home, and they go on in perpetuity. These payments are called property taxes. Back to that example above with the $300,000 home – those taxes of $6,000 annually will most likely move higher over time. If you try to stop making those payments, once again you’ll see if you truly “own” the home.
All of this said, should a first time homebuyer be leery of buying a home? After all, its easier to just write the rent check and forget about it. As I said, I’m pro-home ownership. Long-term, it’s a good move financially, and there’s something about having your own home that’s point of deep personal pride for many of us. But the timing has to be right, and it’s a step that can be taken with complete knowledge of the true long-term costs of home ownership – which continue even beyond when the mortgage is paid off.
This article was included in Carnival of Personal Finance #257 at Canadian Finance Blog
I recall a conversation with a former colleague of mine, a sports fan like I am, talking about a $500,000 bonus that a former collegiate sports coach had lost based on violating terms of his contract. We were both shaking our heads, each of us having a hard time understanding how someone could basically just throw away this kind of money with a simple mistake.
My former colleague then made a comment to the effect of: “If you had $500,000, you might be able to retire.” This comment surprised me, as he was generally very bright guy, good at his work and a very sensible, level-headed person. The reason this was surprising to me is that he was in his late 30’s, with a family, and felt that he might be able to retire on that amount. Mind you, this means retire with no pension to supplement – just the $500,000 principal.
Intrigued, I asked him how this would work. He was someone who watched his expenses, like me, so I expected an answer based on extreme penny pinching. Rather, he told me that one could earn 10% in the stock market, and then would have $50,000 per year coming to them. Not bad as retirement income, passive income nonetheless, he said.
Of course, I had to jump in with my own feedback. Sure, 10% each year could happen, but the market would be up and down, so it isn’t a reliable way to earn a steady amount passively. That said, even if you had some investment that paid at that rate, you would have to pay taxes, have transaction costs, etc.
When I told him that his $50,000 would buy him less and less every year, he didn’t get it. The biggest thing he seemed to miss was the time value of money: a dollar today is worth more than a dollar tomorrow.
I didn’t get into a full discussion with him, but if I could go back and continue the conversation, I would tell him about the concept of PV – present value. PV = the value of future cash flow in today’s purchasing power. The calculation is as follows:
C / (1+I)^T
C = cash payment
I = inflation rate
T = Time – years into the future
In explaining the concept, I would illustrate with the following example:
Lets say you had $50,000 due to you. Which way would you like to receive it – all up front, in equal $5,000 installments for 10 years, or all at the end of 10 years? No reinvestment, compounding, etc. Just straight cash payments. Inflation rate is 3%. Let us examine the PV of each scenario.
Scenario 1 – All up front. PV is $50,000.
Scenario 2 – $5,000 at the end of every year, for ten years. PV is $42,651.
Scenario 3 – $50,000 at the end of the 10th year. PV is $37,205.
Clearly, getting the money up front is a better deal. Why? The time value of money – a dollar today is worth more than the same dollar tomorrow.
So, when my former colleague does his retirement planning, and projects what his needs will be in the future, lets hope he considers the impact of time on the value of his money. We should all do so.
Do you ever think of the time value of money in this way, where the purchasing power today is greater than it will be in the future?
How do you apply this concept to your finances?
Can you imagine buying a single family house in a major metropolitan area – one with 4 major professional sports teams, major international corporations, and plenty of entertainment – for under $10,000? Perhaps even well under that figure? No problem. There is one city that has well over 1,000 listings within that price range. Even more interesting, recently a few have sold for less than a premium cup of coffee – one dollar!
The city where you can charge your house on a credit card (remember to pay it off right away!), is Detroit, Michigan. The good old Motor City now presents some absolutely shocking prices for single family homes. Yes, we’re talking about $1 homes in Detroit.
This is something that has captured my attention. Personally, I am not a native of Detroit or of the state of Michigan; in fact, my direct experience with Motown is centered around the 3 months that I was there on a professional assignment in the 1990s. During that time, I discovered an intriguing story: a once great, formerly prosperous city that was synonymous with American manufacturing might, had declined to the point of being downtrodden, crime ridden, and – surprisingly – neighborhoods full of interesting homes with nice architectural details.
The city has clearly had its struggles. The decline of Detroit has been well documented, and the city has seen better days. The population has dropped from over 1.8 million in 1950, to under 1.0 million in the 2000 census. Some people believe this figure will be determined to be around 850,000 in the 2010 census count. City neighborhoods have been abandoned, and home values have plummeted. This problem is not completely unique to Detroit; while it might be the most publicized example, this general situation can be applied to other markets. Further
Here’s the question: While a tragic disappointment for many, does this real estate market offer opportunity for others?
Investors have been purchasing homes for a fraction of what they were worth at one time. There are plenty of articles and stories that you can find through a Google search that document this phenomenon. While plenty of people are moving out, there are people that are buying for investment purposes, and some that are buying simply to live at a very low cost of living. Some are urban “pioneers”, like artists, who see this as a unique opportunity.
It is an interesting proposition. I have the following questions, after researching this situation:
1. What are the chances of any kind of stability coming to that metropolitan area, in light of its dependence on one industry, whose companies are struggling?
2. What will transpire with the city’s possible agenda of “shrinking”, to reduce the populated footprint in an effort to cut public service costs?
3. What are the possibilities of the area seeing an influx of new residents from elsewhere – say, immigrants – who could take advantage of the existing housing stock in the city?
4. What are the costs and risks associated with renting a home in such an area?
5. How can an out of town investor safely and profitably purchase and subsequently rent homes there?
6. Ultimately, is the real estate market there headed down even further? In other words, is the situation there so bad that these potential investments are fool’s gold?
While Detroit’s situation has some unique elements to it, there are other markets in the US that have seen precipitous drops in recent years – Phoenix, Las Vegas, Miami to name a few. These markets present opportunities with their own set of questions.
What do you think about the viability and potential of investing in a city like Detroit, which has been devastated by economic trends? What about the potential of the warm-weather markets that were hit very hard by the real estate downturn?
In the 5th installment of Squirreling Gone Wild, I’ll go back to a story about my old college buddy. While the last SGW post went away from the college buddy and covered an airport carry-on loophole, I’m thinking its time to revisit another extreme penny pinching tale from the past.
Much like some previous examples – gas station penny trick, picking up change from under the drive through, etc – the following example is one that I personally don’t advocate for mature adults🙂 Rather, its an interesting example of how people will go to great lengths – often crossing lines of self-respect – to pinch pennies.
In this case, lets go back 20 years, to undergraduate days. By the way, as a side note – just typing 20 years makes me realize how time flies, and things move fast. Anyway, back to the story. At the school at which I did my undergraduate work, sometimes people would grab lunch at the main library cafeteria. Depending what your class schedule was, or if you needed to be studying at the library, this might be your only choice to grab a meal or snack if you weren’t carrying your own. Needless to say, as college students, most people weren’t carrying their own food!
This cafeteria offered standard fare: sandwiches, pizza, snacks, drinks. I would occasionally go there and would often run into the same friend who invariably would have popcorn and a soda as a snack. No big deal, but what was interesting was how he purchased them. A box of popcorn cost $0.50, and a drink cost $0.75.
He would first get a tray, the standard cafeteria-style offering. Then, he would go the popcorn bin, grab a popcorn box (much like at a theatre), and fill up the bag with popcorn. But he didn’t just fill up the bag with pocporn – he showered the bag with popcorn, as if it were a popcorn hurricane. The aftermath was a cafeteria tray that had a mound of popcorn, with a popcorn-filled box buried within the larger mound.
Next, he would get a 32 oz fountain drink (or about 946ml for our Canadian friends). He would fill up the cup with diet coke, would take a straw, but would not put a lid on the drink. Rather, he would go to the cashier line – usually 3 or 4 customers ahead of him, and look for the “stamp of the day”. So, what was this mysterious stamp? Well, it was a stamp that the cashier would apply to a 32 oz drink lid, so that the customer could get a $0.25 refill that day if he or she wanted. The stamp was only valid that day.
After going to the cafeteria long enough, this guy noticed that there were 4 possible stamps, and that the cashiers used one specific stamp per day. The stamps seemed to rotate somewhat randomly by day, but you never knew for sure what stamp would be. So, what he did was he saved the stamped lids from prior cafeteria visits, and then kept them in his backpack. As he got closer to the cashier, he peered over the customers ahead of him to see which stamp the cashier was using that day. Then, he reached into his backpack, and pulled out an old lid from a prior visit, which happened to have today’s stamp. Then, he put the lid on the drink, and ultimately paid $0.25 for the drink as if it were simply a refill, instead of $0.75.
Devious? Yeah, I think so. I couldn’t do it. But it was funny to see someone else do it, and do it over and over. Even funnier was his delight at gaming the system.
So, basically, instead of paying $1.25 for a drink and box of popcorn, he paid $0.75 for a drink and the equivalent of two boxes of popcorn. He would eat what was in the box (you know, the one buried in the popcorn avalanche), and then refill the box with the rest of the popcorn covering the tray and take it to go. He looked at this as paying $0.75 for a $1.75 value.
Extreme penny pinching that went too far, but could be excused as youthful immaturity. What I find interesting are more “grown up versions of extreme penny pinching. Do you have any examples from either yourself or someone you know, in terms of adopting offbeat yet above-board ways to save a few dollars or cents?