Don’t Feed the Alligators

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

Archive for the 'frugal' Category

Ecto-2

Creative Commons License photo figure credit: AdamL212

When I was a kid my family had a Commodore 128 computer.  The vast majority of the time spent on this computer was in playing video games.  We had a game called Ghostbusters which, of course, was modeled after the hit movie of the same name.

The object of the game was to respond to calls of high paranormal activity in buildings all around New York City.  At the start of the game you are given an allowance of funds with which you can buy gear for catching ghosts.  The amount of money that you start with is enough to buy the cheapest car and a minimum of ghost catching gear — just 1 Slimer trap, and not even enough money to buy an Ecto-1.  When the trap is full, you have to return to Headquarters to empty the trap.  You get paid for each ghost that you catch.

As the game progresses, the Keymaster and the Gatekeeper arrive on the scene.  These two wander rather aimlessly around the city until they finally arrive at Zuul.  When they arrive at Zuul, if you have caught enough ghosts (it was never clear to me what metric was used to determine whether you had caught enough), you are given the opportunity to sneak through the legs of a dancing Stay Puft Marshmallow Man, take a trip to the roof of Spook Central, cross the streams and win the game.  If you manage to do all this, you get a code that you can use the next time that you play so that you can enter the game with more money.

What does all this have to do with personal finance and avoiding lifestyle inflation?  Well, it was my experience that no matter how much money I earned in the game, it never did me any good to buy more and better equipment.  Some of the options available were 4 different cars, each faster than the next, as well as the ability to buy several traps.  Having more than one trap allowed you to catch more than one ghost before having to return to headquarters to empty it, and having a better car allowed you to get from ghost call to ghost call and back to headquarters much faster.  It seemed, however, that the more money that you spent up front, the harder and faster you had to work to catch enough ghosts before the Keymaster and the Gatekeeper got together at Zuul. In fact, it was so hard to catch enough ghosts, that I was never able to beat the game by using anything more than the most minimal gear available.

I’ve been thinking of the parallels between this game and personal finance for a long time, and more lately as I read the popular personal finance book Your Money or Your Life by Vicki Robin and Joe Dominguez (more on that later…).  I’m finding it less and less useful to want to make more and more money if one of the big problems that it’s going to create for me is to need to keep making more and more money to support our lifestyle.  I would much rather be happy with what we’ve got and use any money that we happen to make above and beyond what we need to boost our retirement savings and lower our retirement age.  Coming to realize that we don’t need more stuff or a bigger house to make us happy has been a very freeing realization, and one that will allow us to maintain our lifestyle more easily over time.

Killington

Creative Commons License photo figure credit: Derek Purdy

This past Friday I used some comp time at work to take advantage of some non-weekend skiing at Killington Mountain in Vermont.  My host for the day was an old friend who sold a company during the Dot-Com boom and has been, for the most part, living off of the interest and dividends provided by his investment of the proceeds of the sale.  We talked about a lot of things while riding the ski lift, from parenting philosophy to Wall Street bailouts to the whereabouts of our mutual friends.

My friend challenged me in many ways, not the least of which was in trying to keep up with him on the slopes.  But as the memories of freshly groomed courderoy fade away, I’ve been chewing on a number of the things I learned or relearned in our ski lift discussions.  Please excuse the fact that some of these are broad, and some are narrow, but that’s how the conversation went.

  1. Citigroup is not going back to $45 - Throughout most of the 2000s, Citigroup’s stock price was in the $40 to $50 range.  It closed at $1.03 on Friday.  There are two important lessons here: A. You should not own individual stocks unless you own enough and varied stock to be able to weather problems in one particular market segment, like banking or energy — in other words you should be diversified enough to mitigate non-systemic losses.  B. Even if you believe that the market will bounce back, it will have to do so without Citigroup, GM, and any number of other well established, large companies whose stock is now all but worthless.  Money invested in Citi at $45 is gone.
  2. Koreans make bad pilots – There’s a book out now by Malcolm Gladwell called Outliers.  In it, there is a story about the problems that Korea Air had keeping their planes in the sky in the 80s and 90s.  Apparently the problem stemmed from a cultural requirement for co-pilots and other crew members to respect their elders by not questioning their authority and decisions in the cockpit.  It seems to me that a lot of the financial mess we’re in today stems from people not asking enough questions when they didn’t understand the terms of a deal, be it a mortgage or a credit default swap.
  3. This is not the first time the government has bailed out a “too big to fail” company – Do you remember a company called Long-Term Capital Management?  I didn’t either.  But I learned that this was a hedge fund that failed “spectacularly” in 1998 and was bailed out by a consortium of banks.  This fund was “too big to fail” in that its quick liquidation would have led to a collapse of financial markets.  You can’t sell large stock positions all at once since it causes the price to fall sharply, and you certainly can’t do so for many stocks all at once since it causes entire markets to fall sharply.  My ski buddy wonders why we put ourselves into a position again in which unregulated entities were allowed to become too big to fail.
  4. When you can’t find value in something that you need, you can always go for cheap – I was eyeing the sushi bar at lunch time, but a $15+ dollar lunch was not worth it to me.  Instead I went with a $4 hot dog.  This is similar to why I choose index funds instead of managed mutual funds.
  5. Giving up a little can be worth a lot – A season pass at Killington cost $999.  A season pass with 14 blackout days costs $650.  By giving up less than 10% of the available days during the ski season — which also happen to be the days with the longest lift lines — you save 35% on the pass.  This works the opposite way as well.  I’m reminded of the fact that most of the gains in the stock market happen on VERY few days.  If you had invested $10,000 in 1996 in an S&P 500 Index Fund, you’d have $17,280 in 2008.  If you had missed the 10 best days during that period, you would have just $10,748.  If you had missed the 20 best days, you’d have lost money and be left with just $7,360.  (Source)
  6. The government should not have let Lehman Brothers fail – It was distasteful to the American people that the government bailed out Bear Sterns, so it let Lehman Brothers fail to appease the taxpayer rather than do what was right with respect to fiscal policy.  In all likelyhood this has cost the taxpayers far more than it would have otherwise in the form of bailout after bailout.  The failure of Lehman Brothers began a downward spiral which seemingly has not yet found it’s floor.
  7. Don’t take the experts at their word without doing your due diligence – The weather.com “ski index” for Killington on Friday was a 1 out of 10, with 1 being the worst.  I decided to make the 3+ hour drive and see for myself.  At the very worst case it would be a long way to go for a couple of beers.  My friend says that he would have given the day a 4.5 overall (5 in the morning, 4 in the afternoon).  I would give it a 7, since my bias is towards smaller, less challenging mountains with generally worse conditions.  Check out this clip from The Daily Show which features a great quote from Jon Stewart: “If I’d only followed CNBC’s advice I’d have a million dollars today…provided I’d started with $100 million.” (Thanks to David at My Two Dollars for posting the link earlier this week.)

I had a great time skiing, and a great time chatting on Friday.  I like to think they were both somehow good for my soul.  I like to hear your opinion on any of these points.  Leave a Comment below.

02.01.2009
Stereo

photo figure credit: MITBeta

In the spring of 1998 as I prepared to graduate from college, I made a classic personal finance blunder: I bought a $1500 surround sound receiver on my credit card.  At the time I was earning about $240/week before taxes, which means that I really could not afford this stereo.  It took me many years to pay off that credit card since there were obviously many other charges on this card, though no single item this expensive.

Fast forward to 2004: Having at least partially learned my lesson about buying things I could not afford (the receiver wasn’t the last…), I still owned the receiver and it still had a prominent position in our home theater setup.  Imagine our disappointment when the volume control started to go south.  When pushing the volume up or down buttons on the remote control, the receiver would display the corresponding message, such as “Volume Up”, but the volume knob would not turn as it once had.

Bravely, I disassembled enough of the receiver to get a good look at the volume control, hoping that an obvious loose connection was apparent.  I didn’t find anything obvious, and after reassembling, the control started working again.  For a while.  When the knob stopped working again, I discovered that if I gave it a couple of quick raps, the control would start working again.

The “knock on knob” solution worked for another 5 years until last December.  No matter how much knocking I did, the volume control would not come back to life.  I started to think about having to replace the receiver, which prompted this post: Replacing Items That Put You in Debt.  Then ScrapperMom asked a simple, but brilliant question: “Can it be fixed?”

“Duh,” I thought, “why didn’t I think of that?”

When I disassembled the receiver in 2004 I made sure to take a number of pictures of the parts that appeared to be broken (one of which appears above).  So I went back to those pictures and found the part number for the board.  Then I visited the manufacturer’s website and found a place to search for parts.  I put in the information I had and quickly received an email back with a couple of possibilities.  Hmm.  I called the phone number at the bottom of the email and asked if I could speak to technical support.  The tech who came on the line (almost immediately, by the way) knew the troubleshooting for this product, which hadn’t been manufactured in almost 10 years, cold.  Within 5 minutes I was armed with enough info to diagnose the root cause of the problem.  After testing out the receiver, I found that the motor that drives the knob was bad, and I ordered a new assembly for about $43.

Yesterday, a friend who has lots of experience with soldering delicate electronic parts to circuit boards came by and had the old part off and the new one on in about 45 minutes.  We checked out the receiver and the volume control works fine now.  Lest you think to yourself that that’s all fine and good if you have a friend who can solder, my initial research for this volume control problem indicated that the part and the repair would have cost about $100 at a qualified service center.

By doing a little research, getting my hands dirty, being resourceful (i.e. calling Bryan), and being reminded not to Pitch, but Fix, we have saved ourselves at least several hundred dollars on not having to buy a new receiver.  Yes, we could have survived getting up to turn the volume knob for quite a while (if you can imagine that horror!), but modern society has made the remote control ubiquitous, and having quick access to volume control with a newborn and a toddler in the house will save our sanity for sure.

Do you have a story about fixing instead of pitching? Let’s hear about in the Comments below.

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12.19.2008
Days 'til Christmas

Creative Commons License photo figure credit: aussiegall

Despite our best efforts we still didn’t sit down to do our shopping until about a week later than I would have liked. Unfortunately, with a work trip for MITBeta, a new baby on the way, and an apartment to be rented, we were preoccupied earlier this month. Because of my frugality and my past experience with Amazon I still choose to use Free Super Saver Shipping, even though they warned things may not reach us by Christmas. I will have to wait and see if this was a prudent choice. We are buying multiple gifts for most of the kids so my hope is that at least some of the gifts arrive on time and in a perfect world Amazon is managing expectations and everything will be in on time anyway. I haven’t had problems in the past and everything usually arrives in the nick of time. As of this post a lot of items have already shipped despite the late estimates. Amazon does a really good job of managing expectations.

One regret I have is not using the click thru option for shopping with Amazon. MITBeta and I are big fans of public radio and like to support it when we can. I obtain almost all my news from this source and feel like it’s nice to give a little back. Our local station has an option to click thru from their site to do your Amazon shopping. Although I remembered this fact while we were shopping for gifts, when I actually placed the order I forgot to click thru. I will try to remember this for next year.

I have decided it would also be a good idea to add Christmas cards to the budget for next year. It may not change the overall total since we came in under budget but it is an anticipated cost that can add up. I ended up buying 75 photo cards from Costco which had the best prices around for around $20. I think I typically spend about $40 for a similar amount of cards. In order to mail these cards I bought stamps, 100 for $42. So I think a safe budget number for cards would be around $60 and it pays to look around for the best deal.

Another thing that no one probably thinks about is swaps and charitable giving. Swaps are a great way to cut down on the amount of gifts purchased, while still sharing in the tradition of giving. If you are involved in a few different swaps each year it is probably a good idea to add those to your budget. If you have a couple of swaps with friends and work this could account for up to an additional $100.  It’s also nice to donate to charity at this time of year and MITBeta’s work has organized giving for Toys for Tots.

We do not want to forget our readers who may celebrate other holidays this season. I’m sure budgeting for Hannakuh gifts would be no different. Both holidays have anticipated expenses and are something to add to your yearly budget in order to avoid the holiday shopping crunch and credit card run up in January! But let us not forget that the most important thing this holiday season is spending quality time with friends and family.

We like to extend our warmest wishes to all our readers this holiday season!

Editor’s Note: All of the gifts that we ordered from Amazon.com last week have arrived and are wrapped. Hooray for Amazon and free shipping.

Furnace Flame 

Creative Commons License photo figure credit: Unhindered by Talent

By day, I am a mild-mannered employee of a company that manufactures heating appliances.  One of the ongoing challenges that we face is helping people understand how to compare the cost of heating with one fuel versus another.  After all, natural gas is sold by the therm, heating oil and propane are sold in gallons, and electricity is sold by the kilowatt-hour.  What people really want to know is: If I spend $1 on heating fuel, how much heat does that give me?

The math for figuring this out is relatively straightforward:

(Heating Value of Fuel per Unit) X (Heating System Efficiency) / (Cost per Unit of Fuel) = Heat per Dollar

Let’s use a real example to see how this works.  In my part of the world, the average price for a gallon of home heating oil is currently $2.41.  A quick Google Search reveals that there are approximately 140,000 BTUs per gallon of fuel oil.  A typical oil fired heating system is probably going to have an efficiency in the low 80s, and to be generous, the most efficient fuel oil heating systems are about 86% efficient.  So:

(140,000 BTU/gal) X (.86) / ($2.45/gal) = 49,959 BTU/dollar

The two factors that can change in this calculation are system efficiency and cost per unit.  The system efficiency can be determined in a number of ways:

  • Many service companies, especially those servicing oil equipment, will run a combustion analysis during the annual service.  Often, the results of this analysis will be left on a printout or written on a service tag that’s attached to the heating appliance.  This is a very good number to use.
  • Newer equipment is required by law to have a label indicating either the cost to operate the equipment or the efficiency and its relation to similar equipment.  You’ve have more than likely seen these yellow labels on new refrigerators, air conditioners, washing machines, heating appliances, etc.  If an efficiency is given here, this is also a good number to use.  With heating equipment in particular, this label shows the results of a specific test used to determine the Annualized Fuel Utilization Efficiency (AFUE).  This number is not necessarily the same as the actual combustion efficiency of the appliance, as it takes into account factors such as standby losses, and is closer to the real world efficiency.
  • If neither of these are available the next best thing to do is to use a rule of thumb.  If your heating system:
    • uses PVC pipe to carry the exhaust gases away, use 92% for the efficiency
    • has a fan that comes on before the burner lights, use 85% for the efficiency
    • has a standing pilot light that has to be lit periodically, use 75% for the efficiency
    • is between 25 and 40 years old, use 70% for the efficiency
    • is greater than 40 years old, use 60% for the efficiency
    • is oil fired and tuned up every year but no service tag is available, use 80% for the efficiency

If you are comparing your current system to a new system, then you’ll have to decide what efficiency system you will compare to.  A new natural gas or propane fired system can range from 80% to as much as 95% efficient, but an oil fired system can only achieve a maximum of 86%.  Electric resistance heaters are 98% efficient, but any kind of wood fired systems generally don’t get much better than in the high 70% efficiency range.

The other variable is the pricing of fuel.  I’ve found that I can pretty much find the cost of all major fuel types with some Googling.  Natural Gas prices can be a little tough to find if you’re not already a customer, but with a little digging I was able to come up with a unit cost.  With Natural Gas and Electricity, you have to be a bit careful in making comparisons if you are already a customer since there are often different rates for different types of service.  Residential Heating is often the lowest rate available.  When all else fails, a quick phone call to a local utility or service provider will be enough to turn up the going rate for the fuel you are comparing.

Let’s look at the best cases for some other fuels at the highest available efficiencies for each:

Natural Gas:

(103,000 BTU/therm) X (.95) / ($1.70/therm) = 57,558 BTU/dollar

Propane

(91,200 BTU/gal) X (.95) / ($2.54/gal) = 34,110 BTU/dollar

Electricity

(3,413 BTU/kWh) X (.98) / ($0.20/kWh) = 16,724 BTU/dollar

Cord Wood

(20,000,000 BTU/cord) X (.77) / ($225/cord) = 68,444 BTU/dollar

Wood Pellets

(16,400,000 BTU/ton) X (.83) / ($300/ton) = 45,373 BTU/dollar

So if I was in the market to replace my heating system, based on the present fuel prices in my area, the cheapest to the most expensive fuels would be:

  1. Cord Wood
  2. Natural Gas
  3. Fuel Oil
  4. Wood Pellets
  5. Propane
  6. Electricity

The clear winner here is natural gas, since I have no desire to stoke a wood fired boiler, furnace, or fireplace. 

What are your thoughts?  Have you considered switching fuels lately?  How do prices in your area compare to these?  Let’s hear your thoughts on this in the Comments Section below.

 

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