Squirrelers

Since 2010, sharing my journey to help you squirrel away your money and build net worth!

Squirreling Gone Wild #13: Youthful Mistakes

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Within the last few months, there was a controversy in Italy about a large batch of mozzarella cheese balls having a blue tint after being exposed to air.  The cheese was produced in Germany, and the issue created quite a stir in Italy. Around the world, it was a general interest story.

I have to say, when I saw the story, I immediately chuckled. Not because I want anyone in Italy, or anywhere for that matter, to consume cheese that is alarmingly discolored. Rather, it’s because it reminded me of a story from way back, when a college buddy of mine scored a free pizza.  This 13th edition of Squirreling Gone Wild will tell the story of frugality gone amok, with youthful craziness as the driving force behind it.

The college buddy of mine who obtained the pizza had his share of money saving antics, as I shared in several of the early editions of this series. This was no exception. The difference, however, is that he got something for free that he should have paid for.

I remember the important details of the evening well enough to tell the story, even though it was about 20 years ago. It was a weeknight, probably 10:00pm or so, and we were hungry. Both of us were committed enough to our grades at that point to spend the evening studying, though we didn’t study together. Rather, we met up later.

At that time, we were both hungry, but had very little cash on hand. Back then, there weren’t ATM’s around every corner, and many delivery places didn’t take credit cards. We had enough to go in for a pizza, but each of us would be left with little for the next day if we ordered it. We went ahead and ordered a smaller sized pizza anyway.

Once the pizza was delivered to us, we devoured it in no time. We were still hungry. Unfortunately, we didn’t have the money to have any more food delivered to us, and we had no food available.  This is where my friend decided to take matters into his own hands. He called the pizza place, and told them that the pizza they delivered had spoiled cheese. When they asked what the pizza looked like, he improvised.

“The pizza has blue spots on it”, he said.

The pizza place argued with him and told him that they had had never heard of blue spots on cheese. Nevertheless, he insisted that this one did, and that we should get a replacement pizza.

They sent the driver back to us, and within 45 minutes or so he called to tell us he was outside.  We went out to get the pizza, and saw that he was considerably less friendly than he was when he delivered the first pizza.

“Where’s the pizza with the blue spots!” the driver demanded to know.

“Uhhh, we threw it away”, my friend said. I stood there and said absolutely nothing.

The driver shoved the pizza at us as he handed it off, and said that he would tell his management. We walked back inside and started laughing. This wacky tall tale had just landed us a free pizza, and took care of our hunger for the evening.

At the time, I thought it was funny, and still do. But deep down, I knew that it was wrong.

Now, I didn’t do any talking. I didn’t come up with the idea, nor did I call them or talk to the driver outside. Nevertheless, I did eat the free pizza which was obtained by less than straightforward means.

That’s taking frugality to the level of cheating.

Anyone that reads Squirrelers has probably picked up on my insistence on being fair when trying to get a good deal, and not taking advantage of others. Clearly, that one evening as a college kid, I did something different than that.

What about you? Have you had any youthful indiscretions when it comes to taking frugality too far?

Don’t worry, it’s ok to confess:)

 

The $600,000 Dog

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Recently, I shared an article on how a pet owner left a dog in a car while shopping for items that included dog food and supplies, only to find the dog dead in the scorching hot car. Apparently, based on reports, she summarily went right back into the store and tried to return the items purchased for the dog.  Reactions to this story ranged from more or less calling her incredibly callous, all the way to suggesting that maybe she was in a state of shock. However one looks at it, most would probably agree that the pet owner picked a very odd time to think about saving a few dollars.

Here’s totally different situation: a couple in China spent a lavish sum to buy a purebred Tibetan Mastif, which is deemed a “status symbol”. Now, there are lavish sums, and there are extra-lavish sums. What they spent rates as a world-class lavish sum :

$600,000.

Yes, these people spent $600,000 on a dog!

Full disclosure: I’m not a dog owner, and never have been, due to allergies. I do like dogs, and enjoy seeing those owned by friends and family. If I wasn’t so allergic to them, I could see myself being the type of person that would be into them and have a lot of fun and love to give one.  I have seen a number of friends and coworkers totally miserable after their dogs died, so I totally get how dogs can a part of the family.

That said, can you – pet lover or not – see yourself spending that much money on a pet?

I would want that dog to be able to slam dunk a basketball, pour a glass of wine, tell funny jokes, and basically be the coolest pet the world has ever seen.

I don’t know how much money these people had, but clearly they were wealthy. Having said that, let’s pretend that you were very wealthy – to the tune of, say, $100 million in net worth. Would you spend $600,000 on a dog in that case? It would be like someone with $100,000 in net worth spending $600 on a dog, based on 0.6% of income. That seems reasonable for a pet lover.

But on an absolute scale, $600,000 is still $600,000! How about buying a “downscale” dog for say, $10,000? This would still rank well up in the top range of all expensive dogs worldwide. Let’s say that you saved another $20,000 for the dog’s lifetime (luxurious) care. This would give you $570,000 of savings, and you still get a very expensive dog that will get great care. Then, perhaps you could take some of that $570,000 and be charitable to people-related causes that are dear to you? You know, like helping feed kids starving to death, people who can’t afford life-preserving health care, etc.

Now, I realize we can say that about any big-ticket expense, but this one really caught my attention as being pretty funny, quite frankly. $600,000 for a dog. Really?

If the dog lives 10 years, that’s $60,000 per year for the dog (not counting food, toys, etc).

At $60,000 per year, that comes out to $5,000 per month. Which, as an after-tax figure, would cover many families’ monthly expenses.

So, where does this go from here?

Maybe, with this publicity, there will be an increase in demand for these dogs. I’m sure Google searches on “Tibetan Mastif” have increased lately. With increased demand, perhaps there will be increased breeding. Perhaps this will ultimately lead to such high prices that there will be an increase in the breeding of these dogs. Then, several steps down the line, maybe we will see a “Tibetan Mastif” bubble 🙂

Anyway, this was quite a sharp contrast to the lady who wanted a refund on the dog food, don’t you think?

Small Stocks = High Return and High Volatility

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When I have looked at asset allocation, I have considered a variety of factors to keep my investments balanced. One of these is large/medium/small cap categories of equities. Historically, I have weighted my U.S. stocks heavier in large and medium-cap funds, while maintaining a small percentage for small cap.

This interesting article in Kiplinger’s provides some interesting information on small cap stocks. According to the article, long-term historical data of U.S. stocks from 1926 to 2009 shows that there is a clear difference in returns, anchored by the following groups:

  • Top 10% by size (largest of the large cap companies) returned 9.1% annualized
  • Bottom 10% by size (smallest of the small cap companies) returned 13.1% annualized

Ok, so the small cap stocks returned more. What I found particularly interesting is that when the companies are broken out into deciles based on market capitalization, that returns increase steadily by decile as market caps get smaller. For example:

  • Stocks in the 3rd decile (within the large cap group) returned 10.7% annualized
  • Stocks in the 8th decile (within the small cap group) returned 11.4% annualized.

Clearly, when you take the 4 deciles listed above, it’s evident that average return increases as company size decreases.

That said, on the flipside, these smaller stocks are clearly volatile compared to larger cap stocks.  The range of returns for the top decile vs smallest decile have been as follows:

  • Top Decile: between -10% and +29%
  • Bottom Decile: between -32% and +58%

The small stock volatility gap is quite broad, and a buy-and-hold strategy with such funds would likely be a wild roller coaster ride, to be sure. Nevertheless,  based on the data, it might to be a good move over the long run to allocate at least some percentage of your total portfolio to small company stocks – particularly if you have many more years to retirement. For large investing decisions, you can consult with a professional.

What do you think? Do you have the stomach to invest in the smallest of the small-cap stocks, knowing that the nice returns come with extraordinary volatility?

Updates and Favorites

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Hello everyone! I hope we are all enjoying the weekend.  I would like to share with you some of the articles that caught my eye this week, from the personal finance blogosphere:

  • Buying a House with Cash, at First Gen American
  • Economists Blame ME for the Slow Recovery, at Watson Inc
  • The Importance of Failing Fast, at The Writer’s Coin
  • Healthy School Lunch: Not a Pipe Dream, at The Saved Quarter
  • The Reasons I Like Money Over Gift Cards, at Money Reasons
  • How Mutual Funds Rip You Off With Extra Fees and Charges, at Invest It Wisely
  • Economic Trends Affecting Americans, at Hope to Prosper

Also, Squirrelers was included in the following carnivals this past week:

Thanks for visiting, and happy reading!

Shameless Frugality or Just Plain Weird?

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I have encountered a number of penny pinchers throughout my days. Most of us have known at least a few, if we think about it. In fact, if you’re reading a personal finance blog, you just might be one yourself….or at least close to being one:)

Of the people I have known that practice something approaching “extreme frugality”, most are great but just a very small few have done some things that I just can’t respect. Even then, at least I can have a good laugh at how crazy they really are.

Here’s a story I came across from The Washington Post with unfortunate, not at all funny news about of how a dog died in a parked car on an overheated day. These happen a lot, and it’s really too bad these dogs’ owners don’t care for their pets properly, with the result being a sad ending. Like I said, not funny but unfortunate.

Per the article, in this situation the pet owner – who had obtained “custody” of the dog after separating from her husband of 38 years – left her dog in the car while she was shopping at Costco. The weather was hot that day, with temperatures reaching as high as 104 degrees. She apparently bought the dog some food, treats, and bedding while in the store. When she returned to the car, the dog was dead.

What makes this a story related to money, however, is what she did after finding out that the pet died.

According to the story, after finding out that her dog died after sitting in a 104 degree car while she shopped, she then went back in the store and tried to ask for a refund for the items she just purchased for her dog.

Again, this is right after she found out the dog was dead. She left the dead dog in the car while going back in to get her money back.

I have to admit, the first thing I thought of (besides feeling bad for the dog, of course), was how bad this woman might have felt to see her dog dead.

After thinking about it, however, I came to another conclusion: how can anybody be so callous as to return those items immediately after seeing one’s pet dead? Really remarkable.

I see these reported actions as being shamelessly frugal. There are times to return unused items, but a time like that is one where you would think that shock and sadness would be the dominant feelings, not the need to recoup some small expenditures.

Maybe she was just sad, felt bad and didn’t know what to do. I like to give people the benefit of the doubt. But this one…..I’m not sure.

What do you think?

  1. Do you see it the way I do, that it’s an extremely shameless attempt to save a few bucks; or
  2. Do you think that the lady probably felt bad and didn’t know what to do about it, so it’s harsh to call her actions poor?

Making $400,000 yet living with Mom and Dad

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For many young people, the life of a professional athlete seems like it would be amazing. You get money, fame, and the ability to play a game for living while also have a lot of fun away from the playing field.

Speaking for myself, the mindset I had at 24 would have steered me toward having a nice condo in a trendy area, a great car, and substantial expenditures on food, travel, and fun, had I been a professional athlete making $400,000 annually. I think I would have been fairly responsible overall – after all, at 24 one is a fully-grown adult. Additionally, I would have remained true to my values and continued to be very close to my parents, but wouldn’t have lived with them on a day-to-day basis.

That’s what makes this story I found on Fox Sports to be interesting. A 24 year old athlete who pitches for the Oakland Athletics organization, is a guy who lives at home with his parents. Now, these days that’s not so unusual; plenty of people, 24 years and older, live with their parents. Many families find this to be a way to pool resources and save money.

The difference is that this guy makes $400,000 annually! While it’s on the extreme low end of major league salaries, it’s still a substantial income by most accounts. How many 24 year olds making that kind of money, with plenty of fame, would live at home – when they clearly have many other more exciting options?

Apparently, he would. And frankly, I applaud that. Why not? While the 24-year old version of me wouldn’t have done that, the older version of me thinks that it’s not such a bad idea. At 24 years old, just getting started in life, it couldn’t hurt to live there for a short while. In his profession, there are ups and downs for young players (he was sent to the minor leagues this year), so it’s smart to be careful. He can pitch in at home and help defray some expenses for his folks, since he’s unmarried and not obligated to another person. Plus, it can help him save the rest of his money without doing anything crazy such as buying overpriced property, or having insanely expensive nights out on the town. Wouldn’t it be hard to do that with Mom and Dad right there?

Let’s assume, to make it easy, it comes out to $250,000 after taxes.  If he lives at home and helps out, what could his expenses be? Let’s say $4,000 per month? Annually, that’s $48,000 – leaving him with $200,000 after taxes.

Let’s say he takes that 1 year’s worth of savings from living with Mom and Dad, and invests it in the stock market, earning 5% annually after taxes for the next 30 years. In that scenario, that one year of savings by living at home would be worth about $864,000. Granted, this must be viewed in the context of inflation and decreased purchasing power. Nevertheless, that’s quite a benefit for just living at home for one year.

Regardless of what his actual motivations are for living at home, this guy is a good role model for smart financial moves.

Whether or not he is consciously doing it, he is demonstrating two important personal finance actions:

  1. The ability to differentiate between wants and needs.
  2. The importance of saving early in life, to open the possibility for compounding to perform its magic

What do you think of this? Do you think it’s smart for a 24-year old making a substantial income to be living at home, or should someone in that position live it up a bit more?

A Great, Refreshing Bargain in our Midst

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The summer here in the U.S. is often a time where people take to the road. Whether taking time off from work or enjoying a break from school, people drive to see family and friends or to reach vacation destinations.  It can be a fun time of year, and quite warm at times in many place.

It can also be a time for complaining about gas prices.

Being annoyed at the cost of gas is understandable, I suppose. I certainly don’t want to spend as much as I do on gas. The lower the price, the better it is for the average citizen.

That said, most of us pay up anyway. Sure, there is public transportation in some cases, but inevitably we will need to fork over the dough if we want to fuel up that car and get moving. Thus, we will pay since we are dependent on energy. But it doesn’t stop many of us from complaining about how the oil companies and some oil-producing nations are making money hand over fist while we keep paying more and more for gas.

Ok, so they have us over the barrel, so to speak. 

To view this “money gouging” in a different light, let’s revisit these summer driving trips. Aside from gasoline, and a working car, what else do you need for a long journey?

How about water?

Sure, it’s possible (though not altogether healthy) to guzzle soft drinks, coffee, tea, or other beverages instead of consuming any water on a long road trip. But water is needed to make those other beverages anyway, right?

Thinking about it more broadly, aside from road trips, we need drinking water every day. We need it to stay hydrated; we need it for our organs, brain, and overall health.

We simply need drinking water. It’s a must-have. Without it, we perish.

Is gas a must-have? Well one could argue that it’s a necessary resource for us to be able to function in today’s world. I would agree, though let’s ask ourselves which resource we would choose if we were only allowed one: gas or water? I would say water, as would each person reading this.

What’s interesting is that water is available to the general public at a very low cost. For just the price of a water bill at home, and a water bottle to carry around, one can have an ample supply of the resource that’s about as valuable any. That’s a pretty good deal, when you think about it.

So, when we complain about the cost of gas, or really any other item – be it a home, car, shoes, airfare or toothpaste – let’s not forget that we are getting the most valuable resource at an incredibly low price.

Who knows, maybe drinking water will be a commodity that’s traded more fervently than gold. Again, going back to the question asking which would you rather have, let’s substitute gold for gas. Would this change your answer? Probably not. You can have all the gold in Fort Knox, but if you don’t have water, you won’t make it.

There is a never-ending demand for clean drinking water, yet here in the U.S., prices are so low. As long as this continues to be the case, we have reason to be thankful.

Squirreling Gone Wild #12: Extreme Excitement over Finding Loose Change

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Every now and then, typically on a city sidewalk, I’ll find a penny. Occasionally, but much less frequently, I’ll find a nickel, dime, or quarter.   While finding one coin may not equate to winning a lottery, much less using a $1 off coupon, it’s still a nice surprise that makes me feel like a kid again, for a brief moment. It’s kind of neat.

Of course, we are all different, and there are some special folks that take particular pleasure in finding these small treasures. This 12th edition of Squirreling Gone Wild explores just how excited some people can get to find very small amounts of money.

First, as I mentioned up front, I do find loose change here and there and it puts a smile on my face. Lately, I have been finding a few coins per week, usually just pennies. When I do find a coin, I instantly think “YES!”. Not that a few pennies are a fortune; in reality, finding three pennies per week equals $1.56 over the course of the year. Additionally, I’ll just give this loose change away anyway. If I get small amounts of money unexpectedly, I figure I can donate it.

That said, it’s a very small thrill that reminds me of how fun it was to be a little kid finding coins. In particular, I recall jumping into a mall fountain with a friend as an 8-year old, trying to pick up pennies that people had thrown in. It seemed like free money to a kid. Our parents, who rightfully expected good behavior out of us, yanked us out in a hurry and told us that we shouldn’t do that!

Now, aside from our exploits as kids, the only other time I had (until recently) seen someone get fired up about finding a small amount of money was a college buddy of mine who found $10 in a parking lot. He spotted it, picked up the bill, then held it up admiring it while quickly saying “YES!”.  He was truly excited to pick up that $10.

Recently, however, I noticed someone getting just a bit more excited to find a coin on the pavement.

In this situtaion, there was a heavy downpour occurring which could almost be characterized as monsoon-type rains. I was at a bus stop shelter, barely protected from the rain as it was, when I saw a lady drop something that fell on to the street in front of the bus stop shelter. That part of the street in front of the shelter had collected quite a bit of rain water, and was a dirty puddle at that point.

During a rainstorm like that, when most people are scrambling to get indoors or under shelter, if I drop a coin into a deep and muddy puddle I’m probably not going to worry too much about it.

This lady clearly didn’t see it that way.

She lunged out toward the street, out of the covered bus stop shelter. She bent down to look in the puddle, and then started wading her hand through the water, looking for the coin. The water was dirty, as it collected in a sunken part of the road. Getting soaked by rain, she spent what seemed to be 20 seconds fishing for the coin.

Then, she found the coin she dropped, which appared to be a quarter. She held it up as she turned back toward the shelter, and yelled “YESSSS!”.

Once I heard the “YESSSS!”, I just froze a little bit. My instant reaction was: “Wow, that was a little weird how excited she got and how she said ‘YES!”

It was funny to the point of wanting to laugh right there, but I didn’t. I did, however, keep my head fairly still as I quickly glanced out of the corner of my eye at the other bystanders who were also waiting. Most kept a straight face, but one person made eye contact with me as he smirked. That confirmed to me that it wasn’t just me who noticed how funny this was.

httpv://www.youtube.com/watch?v=F-bsf2x-aeE&feature=search

The way she exclaimed her joy reminded me of a scene (below, from YouTube) in the classic romantic movie “When Harry Met Sally”, where Meg Ryan’s excitement caused another diner to say “I’ll have what she’s having”.

I’m guessing she must have really needed that quarter for the bus ride!

This brings me to the question: Just how much happiness does it bring you to find loose change on the ground? If you get as excited as Meg Ryan. I’m not sure I want to know:)

But more seriously, I’m curious if it brings you a bit of child-like excitement,  or do you just not care much about finding a coin?

Home Equity Vanishes, Dead Fish Appear

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Don’t put all your eggs in one basket.

This, of course, is another way to say “DIVERSIFY”, which I often recommend here. In personal finance terms, this means don’t tie your financial future to just one investment or source of income. This story from CBS News, about a dam bursting due to heavy rains, shows how this concept can also apply to a single, important investment.

Apparently, heavy rain in Iowa caused a dam on a nine-mile long lake in that state to burst. The result: what was a beautiful lake is now nothing but a small stream with a lot of mud and dead fish strewn about. Homeowners no longer have lakeside homes; rather, they have mud homes with a view of a muddy mess.

According to one an individual quoted in the article, the lake area had about $100 million in property value. Additionally, what would have been a $500,000 home would now be worth about 25% of that.  Losing $375,000 in the blink of an eye – or the quick bursting of a dam – would be painful for most people, no question about it.

I feel for these people, and hope they get help rebuilding this dam. This totally stinks, and not just due to the dead fish. Can you imagine losing that much equity in a home that fast – in a matter of minutes?  I mean, the real estate market in some places has been really bad, and it has caused a lot of problems, but it doesn’t help when Mother Nature takes a sledgehammer to your home equity.

What jumps out at me is the driver of home values on the lake. Yes, of course, it was the lake. I assume this, having never been to Lake Delhi, but if home valued drop once the lake is drained it’s clear to see that people paid a huge premium to live on water. That alone isn’t surprising, as people have been known to pay astronomical sums for great views, including locations on or near water. But what’s interesting to me is that the lake’s existence was apparently dependent of this dam functioning properly.

Thus, connecting the dots, the home values were actually dependent on the dam functioning properly. These homeowners in Iowa, in effect, had their financial lives tied to a dam built in 1927.

Now, people do regularly buy homes that are at the mercy of Mother Nature. Theoretically, this could be the case anywhere. Tornadoes, lightning, earthquakes, tropical storms, flooding, and other weather-related factors can harshly impact people’s lives. That said, there are probabilities and risks to consider related to these factors when buying a home.

For example:  if you buy a home right on the ocean, you can have the thrill of living a beach life right on the water – but you’re at higher risk for high waves crashing through your property. Buying a home on higher ground a mile away won’t give you the beach life, but won’t subject you to the same risks either. You’re taking a chance by living on the beach.

Bottom line:  it’s important to fully think through the risks associated with any purchase – including nature-related risks when buying a home. And remember not to put all your eggs in one basket.

Have you considered such factors when buying a home or choosing a place to live? As you think about it further, are you subject to risks that you might not have originally considered?