Don’t Feed the Alligators

A Personal Finance Blog from a Small-Scale Landlord’s Perspective

Archive for April, 2008

04.28.2008
Tiger Feeding

Creative Commons License photo figure credit: david.nikonvscanon

It was an unexciting week in the personal finance blogosphere, but I did manage to find a few interesting articles:

  • Lynnae at BeingFrugal.net posted the next installment of her (Not) Keeping Up with the Middle Class review. I still agree that personal responsibility is priority one, but many comments continue to argue that government and big corporations have little influence on the squeezing of the middle class. I disagree — I think these two elements play a large roll.
  • The Freakonomics blog had a post on an opportunity for Obesity research using New York City’s new law requiring restaurants chains of 15 or greater to post calorie content in the food. Interesting stuff…
  • PaidTwice had a post titled Don’t Wait Until Mortality Stares You Down to Write a Will. What struck me about this was the realization that PaidTwice had a greater chance of dying while riding to and from the hospital than he did while being tested. It is only the fact that the chance of death was outlined in black and white and he had to sign off on his acknowledgment of it. It’s amazing what a difference framing a statistic in one form or another has on perception. Incidentally, one of the last things on our path to financial wellbeing for ScrapperMom and I is to write a will…

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04.26.2008
Expensive Cars

Creative Commons License photo figure credit: dennis and aimee jonez

Do you find that you’re pretty comfortable spending a certain amount on discretionary items? How about dinner out? Tickets to a show, concert, or sporting event? Houses? Do you find anything over this amount to be “expensive”?

I think everyone must have thresholds for certain kinds of purchases. These thresholds are based on many different factors: income, geographical region, habit, family situation, upbringing, debt load, etc…

Here’s what I tend to think is expensive:

  • Any “thing” over $200 - $300
  • Dinner for two that’s more than $75
  • A single family home that’s more than $400k
  • A car that’s more than $30k
  • A ticket that’s over $100
  • A movie ticket that’s over $10

I am very unlikely to consider spending more than these amounts on these things. Some of you are going to look at this list and think: Wow! That’s expensive! Others are going to look at this and think: Boy, are you cheap! But that’s my whole point — everything is relative. I may seem like a spendthrift to some or look frugal to others.

But what’s interesting is that there are a number of “things” over $300 that I would like to have. The problem with this is that something that costs, say, $2600 is completely unattainable, even though over the course of a year I will certainly spend greater than this amount on a large number of discretionary purchases. There are two obvious solutions to this dilemma: credit cards and budgeting. We should all know by now that credit cards should not be used to buy things in lieu of saving up for them.

Budgeting to buy an item like this is not an easy matter either. I only very rarely buy something that is $200 - $300 dollars, so I’m much more likely to spend in the ~$50 range. So let’s say that I put $50 per month aside for a $2600 purchase. If I start doing that this month, I’ll have saved the money for this by August of 2012. That’s A LONG TIME from now. In the mean time, I will certainly be foregoing something. Since my discretionary budget is already pretty low, it seems as though I just can’t afford something as expensive as this.

Do you have pre-conceived spending thresholds? Do you fall into predictable spending habits? How do you save for big ticket items?

Author’s note: Since I began working on this post last week, I did more research into one of the bigger ticket items that I’ve had my eye on and found that I could get a version of it for much cheaper than I had originally expected. It should be much easier to save for this purchase.

scallop and risotto

Creative Commons License photo figure credit: kweezy mcG

ScrapperMom and I eat out together at “expensive” restaurants only a few times a year: once on our anniversary, and once on each of our birthdays. The last few times that we have been to expensive restaurants I have had the following experiences:

  • I got into an argument with our waiter who refused to run my credit card to pay the balance of a ~$109 bill after I had already given him a $100 bill (a gift from my in-laws) to cover the better part of the bill.
  • I got a dish at a very nice restaurant near our house that was way overcooked (seafood…). I am the suffer-in-silence type (ask me about not seeing a doctor for 3 days after I broke my thumb) and didn’t mention anything to the waitress until dinner was nearly over. She rightly pointed out that I should have said something earlier so that she could bring me something more to my liking.
  • We were given the bum’s rush through a meal at a restaurant in Vegas at which the cost was over $100 per meal.

After these experiences, I am inclined to believe that I can have just as bad of a time for much less money somewhere else. And yet, I don’t have that many bad experiences at less expensive restaurants. Perhaps my expectations are simply that much lower when dining at a local brew pub than at Chez Moolah. Conversely, when dining at a nice place, my expectations are much higher and maybe I set myself up for failure.

And yet when good, expensive restaurants are good, they’re really good. These places treat you like king for a day, serve up a wonderfully presented and flavorful meal, and attend to your every culinary need.

As a result of these bad experiences, I have become a bit gun shy about returning to some of these expensive restaurants. Some will never see us again, but my experiences have also shown that we can have good and bad experiences at the same restaurant, which by extension means that any restaurant on any night is a roll of the dice. The only question is: What are the chances that tonight is going to be a bad night, and am I willing to take that chance with my hard earned and closely guarded money? Or should we just stick to lower expectations and lower risk, even when celebrating a birthday or anniversary?

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Recently my wife’s boss proposed the following: If she could give up health benefits she would receive a 17% raise. Until now, our family had been receiving all of its health benefits through my wife’s employer. My employer, however, offers health insurance as well. So the math is pretty simply here: Do the health benefits through my job cost more or less than 17% of my wife’s salary?

The astute reader, however, will recognize that this equation is not so simple. The health insurance premium is quoted in a before-tax amount, which means the actual difference in my paycheck would be somewhat less than the premium amount. Additionally, my wife’s raise would mean that more taxes would have to be paid on her earnings. To figure out what the difference would be, exactly, I popped over to the NetPay calculator at Paycheckcity.com

Paycheck City

To use this calculator, you choose your state, enter your salary indicating how often you earn the amount you enter, fill in your deductions, and click calculate. In my case I already know the deductions that I’m claiming, and wanted to compare 4 different sets of incomes and deductions. But this tool can also be used when you start a new job and need to figure out what your actual check amounts will be, Additionally, if you over- or under- withheld on your taxes you can figure out how many more exemptions to take or how much extra to withhold. You can also figure out what the impact of increasing your 401k deduction will be.

The result of my calculations shows that my wife, who works half time as a structural engineer (and more than full time as a stay-at-home-mom) for good money, and I will net a whopping $136/month increase in salary. Now $136 is $136, but it’s a little surprising to me that a 17% raise can result in such a small net increase. This increase will go straight into our debt snowball extra payments.

I have used this Salary Paycheck Calculator a number of times and it’s great to have an analytical tool like this to see what the effects of payroll changes can have before you actually make them. So check out the tool and let me know if you find it useful.

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04.20.2008

Here are some interesting articles that I read this week:

  • Lynnae at BeingFrugal.net started a multi-part book review on (Not) Keeping Up with Our Parents by Nan Mooney. Lynnae was upset at the assertion that people don’t have choices, and I agree with her. However, I argued that the middle class is being squeezed by both corporations and the government and that “middle class” members should be able to take their kids to Disney World now and again. Yes, people make bad choices, but all too often these days many people are taken advantage of by greedy companies under the full knowledge of our government. See my review on Maxed Out for more thoughts on this.
  • The interview with the author’s of Nudge at the Freakonomics blog was very interesting. It’s amazing what a difference can be made simply but changing the framing of the question or the default choice for such things as organ donation and 401(k) contributions.
  • At MyTwoDollars.com guest poster Tisha Kulak discusses the pros and cons of co-signing a credit application for your children (or anyone else for that matter). Most of the comments conclude that one should not co-sign for one’s children. I tend to be less black and white about just about any issue. I suggested that co-signing for a credit application is acceptable as long as it’s not the first lesson your child is getting in money management and responsible use of credit.
  • Paidtwice at Paidtwice.com argues that All Funds are Emergency Funds until you have sufficient reserves. We have a fund into which we make monthly payments towards annual bills (insurance, taxes, etc.). This article reminds me that we don’t have to have a whole year worth of payments for each annual payment before paying out of the account. All we really need to have is enough money to cover the biggest bill.
  • Madison at MyDollarPlan.com writes about the lessons learned while filing her taxes this year. Madison and I both had issues with Roth IRA conversions this year that required recharacterizing contributions due to ineligible conversions or contributions. The recharacterization was easy, but I’m still struggling with how to fill out the necessary tax forms. I have not yet filed our taxes this year (we’re getting a refund, so we’re not late…). I’d like to thank Madison for her help to me on this sticky issue.

Off topic:

  • I enjoyed reading the article by Lenore Skenazy here and the follow-up here, as well as Ms. Skenazy’s NPR Talk of the Nation Interview which featured a great quote: “It’s not like we threw him into the East River…”. Her thoughts about Free Range Kids sure has generated a firestorm of comments. ScrapperMom and I find ourselves on opposite sides of the issue, though we are not radically left and right on it, but rather both closer to the center.

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