Everybody Loves Your Money

For the last couple months I’ve been dealing with indecision on whether I should buy a small chest freezer for the garage. The only freezer that we have is the small space that our main fridge in the kitchen has devoted to freezing our food. We’ve been able to get by with this amount of freezer space for the last 6 years that we’ve lived in our house but have had to avoid buying all the freezer goods we would have liked since there was no place to put the stuff.

Since I’m such a big fan of Costco, I checked there a couple months ago to see what kind of freezers they have. They have one chest freezer that is $229. I was actually pleased with the price for a 7.0 cubic foot freezer but I just haven’t been able to pull the trigger on the purchase. Here are just a few of things that have gone through my mind each time I consider buying it:

-Is this really a necessity?
-Will the value I get out of it be worth the purchase price?
-Will the added energy costs be worth the benefit of having extra freezer space?
-Do I really want to devote garage space to yet another “thing”?
-Will food sit there only to be consumed by the “freezer burn” Gods?

It’s really kind of silly to put this much thought in to such a simple purchase. I mean, do I need a freezer or not? Seems pretty cut and dried. I tend to put much more thought in to purchases like this. It’s probably up for negotiation whether this is smart, or I’m just a bit odd. Unfortunately for me, this is how I live my life.

So, here we are. Going on 3 months trying to decide whether I really need the freezer or not. Somehow we are getting by and living our life without it. The big question is: Will our lives be complete and angels appear from the clouds if we buy this freezer? I doubt it. I suppose I’ll ultimately buy the damn freezer but who knows. I would like to have the extra space for meat, and other things that we just don’t buy in very large quantities because there is nowhere to put them. One of these days I’ll have $229 burning a hole in my pocket and I’ll do it. Until then, I guess we’ll make do.

There is an interesting article in the New York Times this morning about the recent moves to control the exorbitant fees that credit card companies charge their customers. While this is probably the right thing to do it does have some ramifications for someone like me. I’m what’s termed a Deadbeat. I use my credit card but I ALWAYS pay the balance off at the end of the month to avoid interest charges. I have never paid interest on a credit card in all the years I’ve owned them. Needless to say, I’m not a credit card company’s favorite type of customer. They’d prefer that I pay the minimum due on my balance each month and it would be just fine with them if I was late making a payment once in awhile so that they can hit me with crazy fees.

Well, now that their ability to tax their favorite customers is coming under significant scrutiny, it appears that people like me are in the credit card company’s sights. A couple of the changes I might expect are reduced grace periods for purchases, or no grace period at all. I can tell you that if they start charging me interest from the date of purchase, I’ll cease using the card and stick to a debit card. Another potential change is for the credit card companies and banks to start charging annual fees. That’s another thing that I have always refused to pay and if they institute that, I’ll most likely cancel the card and explore other options.

Anyway, it looks like changes are in the works. When you receive any new mailings from your bank or credit card companies, I’d highly recommend you get out the magnifying glass and look over any term changes.

Pfizer will be offering approximately 70 of their prescription drugs for free to people who have recently lost their jobs and have been taking Pfizer drugs for at least 3 months. The program will provide the drugs for up to 1 year or until you get new health insurance.

For more information about the program you can read this article at ABC News or visit http://www.PfizerHelpfulAnswers.com for more information.

Seems like a decent gesture from a major drug company. I wonder if others will follow their lead. Providing much needed prescription drugs to people who have recently lost their jobs is a very good PR move for a drug company to make.

Interesting article that highlights the risks that many of the credit card companies are facing. Their default rate is skyrocketing and they are having to retrench and stop lending additional money to try to preserve capital.

People have been talking about the next wave of defaults being in credit cards. Apparently Advanta is one of the first to start drastic measures. Other companies have been lowering limits and canceling some customers but I think Advanta might be the first to quit lending to all their cardholders.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_FhoI2A4ZsM

Over the last couple of years we’ve developed a friendship with an older man that owns a number of homes out near our lake house. He is retired and lives off of rental income from approximately 15-20 rental homes he owns. Fred still owns every house he’s ever purchased. The majority of these rentals are in Seattle and most are in lower income neighborhoods where he charges low rents but also does the minimum to keep the houses in rentable condition. Recently “Fred” has started picking up very small, old, dingy cabins in the neighborhood out at the lake which has caused a number of our neighbors to get angry that he is going to “slum” out the neighborhood. We have mixed feelings about him buying the little cabins. On one hand, we’d love to see someone buy the cabins and knock them down to build nicer, new homes to help improve the neighborhood. On the other hand, if he has the money to buy them, he should be able to do whatever he wants with them.

Last weekend, Fred came by to talk to us and make sure that we weren’t mad at him for buying the dingy old cabins to rent out. My only comment to him was that we hoped he’d be careful who he rents to because when you are renting at the very bottom of the rental market, statistics say you are going to get some real winners and some real losers. The last thing we want out there is some shady character dealing drugs or creating a nuisance in the neighborhood. He promised to keep a watchful eye on the renters and he asked us to call him if we ever saw anything going on that shouldn’t be. That was good enough for me to feel “okay” with the situation.

Anyway, this post is more about Fred than it is about any specific rental properties he owns. Fred is a pretty wealthy guy. If I had to guess, I’d put his net worth at over $10M total. Fred didn’t go to college and worked hard over his lifetime to acquire what he has. If you were to see Fred on the street you’d never guess he was worth so much money. Sometimes you might even stop to consider offering him a dollar due to his appearance. Fred buys all of his clothes at second hand stores. He had me convinced that he moonlighted at a Wendy’s, a Taco Bell and a McDonalds because he always wears shirts with the logos on them. His story went something like this: “A friend of mine owns a number of fast food restaurants in the Seattle area. He asked me to open a couple of the restaurants each week and put the money in the cash registers etc. On Tuesdays I open the Taco Bell. On Wednesdays I open the Wendy’s and on Thursdays I open the McDonalds”. While I was skeptical, after weeks of him telling me all about these jobs, I finally figured he must be telling the truth. A month later a couple friends of mine out there started laughing and told me that he has never opened any of the restaurants. He made the whole story up. The reason he has the shirts is because he bought them at the second hand store. What’s comical about these shirts is that they are the nicest shirts I’ve ever seen him wear. He normally wears shirts and pants with multiple holes in them. At first I thought maybe he just wore those clothes when he was out at the lake, but he doesn’t think twice about going to one of the fancy Indian casinos near the lake wearing the same clothes.

When it comes to food, Fred isn’t picky. He gets all of his bread at the bakery thrift store and only buys the stuff that is about to be thrown out. All of his ketchup, mustard and mayonnaise are in the little packets that you get in restaurants. A few nights a week, when Fred is back at home, he stops by the small local grocery store near his home at just the right time in the evening when they are clearing out the deli case. There is always a plate of food prepared for him at 75% off the retail price because the food was going to have to be thrown out. I’m sure the people at the grocery store believe they are keeping a poor old man fed. Little do they know.

Fred loves stuff. To say he is a packrat is a serious understatement. Of the 5 houses he owns near the lake, only one is not filled with his stuff. (His renters have to tolerate all the storage areas of each house being full of his “stuff”.) Every time Fred shows up at the lake, he has more stuff with him. Over the years he has developed a reputation for being the guy that is always happy to receive free stuff. There are piles and piles of used lumber, multiple clothes washers, dryers, dishwashers, boat motors, boats, old dingy furniture, old tv’s and the list goes on and on. Fred spends a lot of his time trying to figure out where to put the additional items he shows up with. Apparently his regular homes and rentals in Seattle are equally full of stuff. When you talk to Fred about any of his stuff he lights up. He can tell you, with striking accuracy, where he got each item, what he paid for it, and what a great deal it was. As he’s telling you all about the item you can just feel the energy that talking about the item creates for him. Fred NEVER buys something new. In fact, Fred usually buys stuff that is very old and is probably going on it’s third or fourth owner. To him, if it works, it’s shameful to buy something newer to replace it. Fred still shakes his head when telling the story about how his daughter and her husband replaced all the old kitchen cabinets in their house. They were probably 20 years old and his daughter wanted to update the kitchen with newer cabinets and granite countertops. Needless to say, Fred brought all the old cabinets out to the lake and put them in one of his places there. When one of his rentals needs a new door or window, Fred has more than enough old doors and windows to cover it.

Fred was recently in a car accident and his car was totaled. The car he was driving was a Mercury Cougar that was given to him buy a little old lady after she died. The car was, by far, the nicest thing he’s driven in years. It was an early 1990’s car and probably felt like a Cadillac compared to his old Ford truck that he had been driving for years before that. Unfortunately the old Ford truck’s engine died so now he’s driving an early 1970’s Dodge Aspen. The Dodge had been sitting in his yard at the lake for at least 7-8 years. I was surprised that it ran but he has diligently started it every few months since he parked it there so it was quick to put it back in to service.

Fred is an interesting guy. With the amount of money that he receives in rental income (he owns all the houses) and investment income (he has an accountant and attorney that help manage his estate) he could drive whatever he wants to, live wherever he wants to, wear whatever he wants to and go wherever he wants to. The thing is, Fred doesn’t care about any of those things. He simply loves to find new bargains, or find a new use for an old item that he’s had sitting around for years.

As we were sitting down by the lake one night having drinks (He only drinks “Milwaukees Best” beer) I asked Fred, “Are you ever going to sell any of your houses, or spend any of your money?” “Nope”, he replied. “I’m leaving everything to my kids. They can do whatever they want with all of it.”

A friend of mine saw this site and sent me the link. I’m guessing he might have seen it on Lifehacker and sent me the link. TrueCar lets you see what people are actually paying for cars. You can see invoice, MSRP and then actual dealer cost. (Invoice cost is usually not the true dealer cost. In some cases the cost can be significantly lower to the dealer than invoice.)

I did a search for Honda Accords by entering my zip code and then choosing “Honda” over on the left hand side. This brought up a list, with pictures, of all the current Honda models. I chose the Honda Accord sedan and then chose the style that I was interested in. I even chose the interior and exterior colors. Once I had finished with all the various choices, TrueCar spit out a nice graph that shows what they consider to be a great price and what’s a good price. Here is the breakdown:

Good price: $22,186 ($612 below invoice)
Great price: $21,836 ($962 below invoice)

Actual dealer cost: $21,046
Average paid: $22,273
Factory Invoice: $22,798
Sticker price: $25,075

That’s quite a spread of prices for the exact same car. This data told me a few interesting things. The most important thing is to realize that “invoice” doesn’t necessarily equal dealer cost. I think most people assume that invoice does equal dealer cost and expect to pay a bit more than that. At one time, I’d guess that invoice did mean dealer cost but as the Internet made real pricing available, most of the manufacturers created pricing schemes that basically manipulate pricing so that dealers still make money even when they sell at what customers perceive to be the dealer’s cost (invoice). I know at least one way they do this is by using dealer holdbacks. Basically this pays the dealer a kickback for each car they move. It’s not part of the invoice price but does help the dealer make money on what a customer might perceive as a break even deal for the dealer. I’m sure there are other aspects to this and since I haven’t been involved in the car business for a long time, I’d guess that there are other ways that profit is factored in to the sales price of a car.

Both the “good” and “great” prices that TrueCar list are below the factory invoice price. It’s not uncommon to see dealers advertising sales that say, “All cars offered at $300 over invoice!” This creates the illusion to the average consumer that the dealer has decided they’ll sell their inventory and only make $300 on each car. As the data above shows, that’s really not the case. If a dealer was to offer the Honda above for $300 over invoice they’d actually be making $2052 on the deal. Hardly a screaming deal. Don’t get me wrong, I think dealers should be able to make money on each car sale because they obviously have to keep the doors open and the lights on but I think it’s really important to be armed with the best information you can get in order to negotiate the best deal. TrueCar gives you that information and should help you negotiate a much better deal than paying the factory sticker price. As hard as it is to believe, there are still plenty of people that walk in the door of a car dealership and pay the price that’s on the window. In the case of the car above, that’s about $3000 more than they really needed to.

I received a comment from “Clear Minded” yesterday on my post about what smart phone I should consider purchasing that is well worth pointing out and discussing further. Here is the comment:

“Your blog is confusing to me. You’re thinking about purchasing an extra home, getting an ATV, you’d rather take your car to the expensive dealership for service, and now you’ve decided to get a suped-up cell phone?

What gives? Are you joking? It may seem like each decision is seperate and distinct with well thought out, lucid, and sensible reasoning but aren’t you really just spending? Consuming without *justifiable* cause? Isn’t that exactly what you started this blog to eradicate as much as possible?

Take a look back and see what you’re blog centers around . . . (hint: it’s spending).

Sheese . . .”

Clear Minded makes a great point that has been in the back of my mind lately. I’ve been spending money and not just pocket change. I’ve tried to make the point when discussing each of these purchases that I recognized them as “wants” and also realized I didn’t “need” any of these things. What I probably haven’t done a good enough job of is pointing out that I’ve considered these purchases only after meeting my financial goals for today and the future. The reality is that we are maxing out both my wife’s and my 401K’s, contributing to ROTH ira’s and also investing monthly in a 529 plan for our daughter, who is in kindergarten this year. We have also amassed a comfortable emergency fund (although we continue to increase it each month because I’m not sure it ever feels like you can max out an emergency fund). The only debt that we carry in our household is our primary home’s mortage. We have no car payments, no credit card debt, no home equity lines of credit etc. What I’m saying here is that we are living well within our means at this point. Another data point worth mentioning is that we keep our total monthly expenditures for recurring bills (food, heat, house payment, gas, etc) at less than 50% of our take home pay. So, even after reducing our take home pay by our large 401K contributions each month, we still only live on less than 50% of our income.

I guess the big question is, could we spend even less and save even more? Yep. Should we? Clear Minded makes the point that: “Consuming without *justifiable* cause? Isn’t that exactly what you started this blog to eradicate as much as possible?” My question is, what does justifiable cause really mean? I would estimate that justifiable cause is different for each person. What I’ve learned over the years is that it’s more about balance for me. While I don’t want to spend all the money we make each month (which we don’t), I also don’t want to save every penny we make either because I want to find that balance.

This whole subject of how much to save and how much to spend is probably the single biggest thing I struggle with in the personal finance arena. There just isn’t a good answer. I think the fundamental principals that my wife and I try to live by are: Spend less than you earn, save for the future, carry no debt other than a home mortgage and pay cash for everything, including vehicles. Overall, this has worked pretty well for us.

Bottom line is that, Clear Minded is right that I’ve been spending more money lately. Each of the purchases I’ve made have been after months of evaluating what I want, looking far and wide for the best value and ultimately paying cash for each item. I would have never made any of these purchases if they derailed us from our short and long term goals, or impacted our ability to follow our fundamental personal finance rules.

I really appreciate the comment that Clear Minded left. It caused me to pause and think hard about what I’ve been spending. I’d be interested to hear more people’s points of views on this. If you have any input, please leave a comment!

I must be the luckiest guy in the world. I just received yet another opportunity to receive millions of dollars in free money. You can bet I’ll be following up to find out how much of my own money I need to transfer in order to get access to these funds! (Why are people still falling for these? This is getting ridiculous.) I’m sure Nissan is thrilled that their name is being used as part of this latest scheme. Here is the letter I received:

Hello,
My name is John Mac, marketing manager Nissan automobile company London, United Kingdom. May I use this medium to invite you into this very life time business opportunity, I discovered 20 million Great British pounds sterling some months after I was nominated as the marketing manager Nissan automobile company London, United Kingdom. This very funds was deposited by our formal marketing Manager late Mr. David Smith with Nationwide ICH. London. I write for your assistance in getting the funds transfered into your Bank account, you are required to stand as the inheritor of the funds. Nationwide ICH is one of the UK leading Financial management/clearing house, I will furnish you with details breakdown of this very business transaction. Our sharing ratio will be 12 million pounds for me while 8 million pounds for you at the end of the business.
This very business transaction is 100% risk free and legitimate if you can follow my instructions promptly.
NB:Very confidential.

Looking forward doing business with you.

Kind Regards,

John Mac