No Debt Plan

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(Photo by ToastyKen)

I got my first Walgreens EasySaver gift card in the mail last week. I decided to try the EasySaver plan a try after reading about the program at BeingFrugal.

My first purchase was a 6 oz. tube of Aquafresh toothpaste. The transaction ended up where my toothpaste paid me 17 cents to buy it even after tax. Not bad, right?

The giftcard with the 10% bonus came in the mail, full of $3.84 worth of spending goodness. The new month kicked in with a new list of items that you can get for free after rebate. Most of them were not of any interest to me, but there was an Oral-B toothbrush for free after rebate at a cost of $4.49.

Here’s how the transaction will play out:

• Toothbrush cost: $4.49
• Tax (5%): $0.22
• Total: $4.71
• Use Gift Card ($3.84): $0.87 paid with AMEX card
• Rebate w/10% bonus to gift card: $4.49 x 1.10 = $4.94
• Rebate minus cost: $4.94 - 4.71 = $0.23

Again, it doesn’t seem like much and I did have to invest an additional 87 cents to get the toothbrush. This brings my total investment to the cost of the toothpaste and toothbrush, or $3.66 plus 0.87. Total investment thus far is $4.53, and for that money I’ve gotten a toothbrush and toothpaste. On top of that, I’ll end up with $4.94 in money to spend at Walgreens on the next item.

It’s only one item a month that I am currently buying. Next month there may be nothing of interest to me to buy, and that’s fine. As I mentioned last time, this isn’t going to make me rich. But the mentality to go out and find a deal on simple every day items will add up over time.

(Photo by MShades)

The pet industry is a multi-billion dollar industry in the United States. We really like to take care of our pets.

Of course, we got a puppy two Saturdays ago. We have incurred expenses as you might expect — adoption fee, collar, leash, food and water bowls, food, toys… the list goes on and on.

We were in PetSmart the other day looking at dog food. The Humane Society gave us a 5 lb. bag of Science Diet for Puppies, which they recommended. We found the location of the Science Diet and did some investigation. Just like you might check the per ounce cost at the grocery store, we did the same thing with the dog food.

The per pound cost of dog food

This is what we found:

Small bag, 5 lbs.: $11

Big bag, 40 lbs.: $40

Woah… wait a second. Do the math. The small bag is $2.20 per pound. That’s practically chuck round ground beef! The big bag is only $1 per pound.

There is a significant bulk discount to buying the bigger bag. If you buy the smaller bag you pay a 120% premium. I could understand charging a little bit more for the smaller bag, but 120% seems a bit over the top.

Long story short, if you have a pet make sure you’re checking the per pound or per ounce cost of the food. Compare it to other bags from the same brand. I would imagine that generally the more you buy, the cheaper the food is.

When our free small bag runs out, we’ll definitely be getting a big bag of the dog food.

(Photo by Refracted Moments)

Yesterday we discussed why the government thinks giving you and I “free money” is a good idea. Today, I’ll show you three superior alternatives to spending that money on a flat-screen TV.

Pay down your debt

This is by far the absolute best thing you can do if you currently have debt. Spending this money is good for the economy, but you going bankrupt isn’t helping anyone. The faster you pay down debt, the faster you will be free to do as you please with your finances (to a point, of course).

Let’s say you have credit card debt at an interest rate of 14.9%. Your principle amount is $10,000 and you pay $200 per month towards your principle and interest. If you just paid $200 each month, it would take 78 months (six and a half years) to fully pay it down. You will also pay $5,717.39 in interest, or 57% of the original value of whatever you charged on your credit card.

If you pay down the principle with your $600, you will finish payments in 70 months and only pay $4,798.60 in interest. Interest saved? $918.79.

Start or Continue Saving

You need to have an emergency fund for those rainy days where you go to bed thinking “What else could go wrong?” Having money saved up for those days when everything goes wrong — your transmission dies, the cat needs surgery, and your washer started leaking heavily.

Use this rebate for that purpose. Open up an online savings account — we used to call them high yield until all of the rate cuts slashed interest rates down to pitiful levels — and don’t touch the money until you absolutely have to. I recommend ING Direct. If you already have an emergency fund saved up, start saving for that next big purchase like your next used car or the down payment on a house.

Even though the fed is going to cut the rate today and online savings account isn’t a bad place to have the money. I prefer savings accounts to CDs because if you are just getting started with saving it makes the money accessible for when you do have an emergency. You don’t sacrifice interest with a savings account. If your funds were in a CD — well, most CDs anyways — you have to give up 30, 60, or 90 days of interest if you pull the money out before the maturity date. Savings account general accrue interest daily, and there is no penalty for withdrawing some or all of the funds.

Start or Continue Investing

If you’re to this option, congratulations. You should be living debt-free and you’ve saved up an emergency fund. Maybe you’re just getting to this stage. Maybe you’ve been investing for the past ten years. Either way $600 may not seem like much.

However, invested in a broad diversified portfolio that earns just 8% for 30 years that $600 turns into $6,037. Earn 12% annually and you end up with almost $18,000.

Stick that money into a Roth IRA and see what happens when you retire.

Long Story Short

The government wants you to blow the rebate check on things that will boost the economy. They want you to spend, spend, spend. Don’t buy that. Use this “free money” as an opportunity to get speed up your No Debt Plan. If you’re still in debt, pay it off. If you have no debt, build an emergency fund or save for something else. If you’ve done all of the above, then consider investing it.

It’s all about the mentality where any extra money that comes in — tax rebates, bonus checks, or raises — doesn’t lead to lifestyle inflation. It isn’t easy, but it is worthwhile.

(Photo by Fleur-Design)

Starting this week, millions of Americans will be receiving tax rebate checks ranging from $600 to over $1,800 depending on how many kids are in your household. The government is hoping that you and I will take those ‘free’ checks, run out to Best Buy, and buy a LCD flat screen television. Today I’ll discuss why the government thinks that is a good idea. Tomorrow I’ll tell you what we’re doing with our check, and show you options of what you can do with yours.

Why does the government want me to spend $1,200?

I’m currently enrolled in an economics class in my MBA program. We discussed the rebate checks during the macro economics portion of the class. I will try not to get too technical and leave things easy to understand. For you economists out there, cut me some slack as this isn’t a lecture!

In an economic sense, any economy’s output runs off of these three things: consumer spending, investment, and government spending. Consumer spending is where you and I spend our hard earned dollars. It is affected by taxes and income (higher taxes or lower income = less spending = less output, and vise versa). Investment isn’t the type of investment you and I discuss regularly. This investment is capital investment. In a business sense, building factories, buying equipment, etc. Government spending is… where the government spends money.

Increasing spending in any way induces varying levels of a multiplier effect, dependent on what the increase was based off of.

For example, imagine the government decides to repave every single interstate in the country. They borrow (or tax) money, and jobs are created. Perhaps a new department is formed, which employs people. Workers are brought in to do the repaving. They earn money, and spend it in the grocery, video game, and hardware store. Those stores employee people, who get to keep their jobs and earn money because of the spending of the repaving workers. They go to the grocery store… etc.

As I mentioned earlier, consumer spending is affected by income and taxes. The rebate checks are essentially a form of lowering taxes by giving money back to the population.

All of this hinges on the marginal propensity to consume…

What is the marginal propensity to consume (mpc)? Essentially it is how much of every discretionary dollar you will go out and spend. If I gave you $100 and you would normally spend $95 of it, your mpc is 0.95. So mpc is on a scale of 0 to 1.

Right now America’s mpc is very high. We are spending more than we are earning and end up with a negative saving rate. Our mpc is very close to 1.

So, the government is trying to boost the economy by giving you and I some extra money. An equal amount of boost could be given by increasing government spending, but tax breaks are far more politically popular. Because our mpc is so high as a country, if most people spend the money then the economy will be given a boost.

That’s a big if…

If America becomes fearful of a recession and instead saves a majority of the tax rebate, it will be a lot less effective. This would bring down mpc (at least for this transaction); the lower it falls, the less boost the economy gets.

So if you want to be a proud American, play along with the government and go spend that check. If that just doesn’t seem right to you, stick around.

Tomorrow I’ll show you how to be a smart American.

I think most people buy more clothes than they can possibly use. So you wore the same shirt to work two weeks ago… who cares?

Then again, some people push the limits of frugality and let clothes become worn down and tattered. That is pushing it too far, looks unprofessional, and can seriously damage your career.

We all need to buy additional clothes at some point. With a little forethought and planning, you can get incredible deals online and in stores by simply waiting:

• In spring and summer, buy winter clothing.
• In autumn and winter, buy summer clothing.

It’s April 17th. If there are any sweaters or winter coats left at the store, now is a great time to buy.

It’s a simple idea, no doubt. Timing is critical for this strategy to work. If you wait too long into a new season, you may not be able to find things in your size or style. If you go too early, the heavy discounts may not be applied just yet. It may be too late to find a decent winter coat in stores these days. Maybe you can find something online instead.

Some things are discounted throughout the year at seemingly random times or simply don’t get put on a severe discount. Men’s dress shirts would be an example. There isn’t a typical “dress shirt season” as there is winter coats. For these items, just doing your research and buying when a deal comes around seems to be the best option.

What about you? Do you just buy clothes whenever you feel like it, or do you plan ahead?

This may not be finance related, but what the heck.

My office likes to do an office pool for various college sports. Last fall we did a Yahoo Pick ‘Em game all football season for $20. It was a lot of fun and lasted all season so the cost for entertainment all year long was fairly low. So of course with this being March, we’re doing a March Madness pool for $5.

Let me say that if you are in debt, you shouldn’t be wasting any money on anything ‘extra’. $5 towards debt is better than $5 down the drain. Thankfully, we are debt free other than our house and have a lot of extra cash flow at the end of every month. I can afford to choose to put $5 into an office bet.

This has been a really great tournament so far with several close games. Tennessee plays tomorrow so we’ll be anxious to see the result. For the record, I’m just happy they are in the tournament.

And that $5? It came out of my personal spendable money so it doesn’t affect our finances or my wife’s personal money. If I win, I’ll end up with $60 or so. Not a bad return on investment!

Debt Kid is giving up his Nintendo DS Lite to listen to some dumb purchase stories. I’ve seen it on several other PF blogs, so what the heck here’s mine. Also check out Debt Kid’s blog in general. An interesting story that is going to be an uphill climb. Best of luck, Debt Kid.

My first car was a 1995 BMW 318is with an automatic transmission and a sunroof. My parents originally told me to save up my money and buy my own car. I targeted a 1990-1992 Mitsubishi Eclipse. They were easy to work on, and could go fast. It turns out they are also death traps according to insurance companies. That idea was quickly shot down. My parents then decided they would rather have me in a safe vehicle that cost a bit more than have me die in a wreck. Fair enough. Long story short, I ended up with this BMW and purchased it with 127,800 miles on it.

Surprisingly enough, this is not my dumbest purchase ever. It was an expensive car, but it was fun and safe.

No, my dumbest purchase is something I bought for the car. Lowering shocks/struts/springs. I did a lot of research over at BimmerForums.com (cars = bimmer, motorcycle = beamer; get it right). I ended up purchasing a $1,200 lowering kit that included 4 Koni shocks/struts and H&R Sport Springs. I also threw in some reinforcement stuff for the rear shocks because the sheet metal around the shock housings can be weakened.

All in all, this wasn’t a terrible decision. I saved up my money, paid for it on a credit card, and paid the credit card off at the end of the month. Yet this was something I didn’t need. This was definitely a want.

On top of that, a friend and I installed them ourselves in my parents’ garage. Professional installation would have been around $400! That’s a lot of money. Aw heck, we can do it ourselves…

Needless to say about a year later the front shocks were completely blown out. We had installed something wrong and they were ruined. The car rode very rough, but how was I to know that it shouldn’t ride that rough? I had to buy replacements, another $600. I also ended up not getting an alignment after we installed them, a horrible rookie mistake. Also about a year later I discovered my rear tires had worn through to the metal underneath. When your tires look like that, it is serious business. I could have experienced a blowout on the interstate that could have killed me. Tires were of course another couple hundred dollars, plus the alignment.

Photo by Joe Pemberton - this is what a tire worn down to the metal looks like. Now imagine this on a car tire, and in a much larger area.

This was one of those things that I chalked up to experience. Live and learn. But it really cost me some serious money not just once, but a few times over with having to replace things.

I don’t regret it, but do wish I could go back and smack the younger me. I might even still buy the lowering equipment, but I would get it installed correctly!

I’m not above cutting coupons to save some money. I haven’t discovered many consistently good coupon sites. One I have enjoyed is Coupons.com. You have to install their special coupon printer software (no big deal), and off you go. I recently printed off 6 different coupons for things we use on a regular basis.

The only thing about all coupons is they are going to be for name brand items. Sometimes the retail price of the item minus the coupon is still more than an equivalent generic or house brand. If the house brand is just as good, why not use that?

Also, I know there are a ton of manufacturer’s coupons floating around out there. I haven’t found one site that works to print them all. Coupons.com usually has about 6-8 pages of coupons, each with probably 6-8 per page.

I did find GroceryCoupons.net the other day, but can’t get the site to work. I can view all of the coupons, but it says you have to login to checkout. Well, I’d love to login, but I can’t find how to register. I think I would have found it by now, but if you successfully use the site please let me know!

And if you know of any other large sites that don’t charge for sending you coupons, let me know.

MyPoints is a marketing website designed to encourage users to visit sponsoring retailers to buy stuff. If you buy stuff at Circuit City through MyPoints, you get 4 MyPoints for every dollar you spend. Later on you can swap out your MyPoints for gift cards to other retailers.

I can’t remember which personal finance blog I saw it on, but I was skeptical at first. Anything where I have to spend money to get money makes me nervous. However, this sounded a bit like FatWallet, which I have discussed in the past. If I am already planning on spending money on something, I have no problem in getting a little bit extra reward for doing so.

There is a slight difference with MyPoints. You don’t necessarily have to spend money to accrue points. Every day they send out at least one e-mail to you with an offer, survey, or reminder of some sort. Just by clicking the link within the offer you usually earn 5 points. Do this enough times and you’ll earn your gift card. It may take a while, but it is free nonetheless.

Here’s how I setup my MyPoints system:

1. Opened a new Gmail account specifically for offers. This way if I end up getting any spam, it doesn’t affect my normal e-mail.
2. Signed up for MyPoints. I can send you a referral e-mail if you want, but I’m not too worried about it.
3. Fill out your MP profile — adding more detail earns you more points. I think you can earn up to 60 points total just for doing this.
4. Fill out the little surveys on the MyPoints front page. These are worth 5 points each. I recommend if it asks you something along the lines of, “Would saving hundreds on your car insurance be nice?” you generally want to say “No”. Saying yes will send you to an advertisement.
5. Every few days check the e-mail you signed up with. Click on all of the links within the MyPoints e-mails.
6. Rinse and repeat.

I am currently up to 415 points. What will that get me? Not much. I put all of the sponsors, points amounts, and gift cards you can earn into a spreadsheet. I wanted to see where I could get the most bang for my point. Here’s what I found:

• Restaurant.com offers the best points per dollar ratio. 1,250 points will get you $25 at restaurant.com. That’s a ratio of only 50 points per dollar.
• Many of your big name retailers offer the worst points per dollar ratio. WalMart, Walgreens, Target, iTunes, KMart and several others are at 150 points per dollar. However, that is at the lowest points amount offered by those companies. Most of them give you a discount if you save up and use more points. For example, at KMart you can get:
  • $10 for 1,500 points (150 p/$)
  • $25 for 3,500 points (140 p/$)
  • $50 for 6,750 points (135 p/$)
• The average points per dollar ratio is 132.

The Bottom Line

The bottom line is the more points you acquire, and thus the longer you wait, the more value you can get for those points. We’ll give it a shot and I’ll probably end up getting a gift card to Old Navy or Cracker Barrel.

You can check out the Excel spreadsheet I used as well.

Update:

• MyDollarPlan and Paid Twice use MyPoints, too!

Thanks to Five Cent Nickle I am considering a change in cell phone providers. Apparently Sprint is hemorrhaging customers like there is no tomorrow. You may have read recently they are laying off thousands of employees in Kansas City where they are headquartered. I’m not sure if this is the cause for a new program that are running, but I like it.

The program is the employee referral program. You can find it at Sprint.com/sero. Five Cent Nickle (linked above) goes into details of how to use the program, but long story short:

• 500 minutes, unlimited web/data transfer, unlimited picture mail, free nights and weekends starting at 7pm, for $30.
• 1,250 minutes, everything else the same for $49.99.
• 2,500 minutes, everything else the same for $99.99.

In short, this is an incredibly good deal. We currently use Verizon on a Family share plan. Two lines, 700 shared minutes, no messaging, no data, no web… for $69.99. I get a discount through work that leaves our cost around $69 after all of the fees and taxes. Now I am a simple guy. I’ve always said unless my work was paying for any extras, then I just wanted a phone. I don’t need text messaging. Just give me the ability to call someone. Pretty simple.

However, I have secretly pined for a Blackberry or PDA phone. I’m a technology geek at heart. Being able to keep up with e-mail from my phone would be awesome. Overkill? Yes. Awesome? Yes. I wouldn’t be getting on the program solely for the geek inside me. I use e-mail extensively for business so it would have a benefit there.

I could never justify the cost. Verizon’s plans start at $79.99 for 450 minutes, and you can’t share the line with a regular phone (at least, I don’t think you can). If you get Blackberry service it is usually $20-40 more per month on any provider (including this Sprint SERO deal). I can’t justify that cost.

Now Sprint comes along with this deal and I am tempted. Since I would get a non-Blackberry phone, I avoid the $40/month charge for Blackberry service. I’m never one to just jump at the next opportunity, gadget, or “thing”. I’m not an impulse buyer. I am going to start doing my research and hope that this deal doesn’t go away in the mean time. Issues I need to think about:

• How many total minutes we use per month, including “in-network” to each other and our parents. This will help identify how many minutes we would each need per month.
• We would need to get out of our Verizon contract without the Early Termination Fee ($175). Luckily, there is a way to do this until early March (have I mentioned I love Consumerist.com?)
• My parents are on Verizon, her parents are on Sprint. Should we both get new Sprint plans? Should I jump to Sprint and she stay with a Verizon plan? We love Verizon and have used them for years, but as I mentioned the cost for their plans is too high for this sort of thing. Sprint’s coverage is definitely worse than Verizon’s. This is a big issue for us.
• Final cost of two individual plans, regardless of provider. I’m guessing the Sprint plan after taxes and fees would be close to $36-4 per line. If she got a Sprint plan that was similar, we’re looking at $72-80 per month. More than we have paid in the past, but with a lot more bells and whistles.
• What we could sell our two phones for on eBay or other phone selling websites. I discussed selling phones on my last website.

What would you do if you were in my shoes? Keep in mind we are debt-free other than our mortgage and my MBA loans in deferral. We have a healthy cash flow at the end of every month, too. I wouldn’t recommend buying a new plan to someone that was trying to get out of debt. That isn’t us, so I am considering it.