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Franco
Thursday, August 14, 2008
Wednesday, August 13, 2008
The Bigbucks Coffee Addiction
The fastest way to tighten the belt and fatten the wallet is to cut down on what I like to call "fringe spending." Fringe spending encompasses all the little pleasures in life we choose to spend our money on that go beyond meeting our basic needs and instead fulfill our wants and desires. One of the biggest contributors in this arena is the cup of coffee many people purchase on a daily basis. As an inconsistent (non-daily) coffee drinker, I'm not sure how qualified I am to weigh in on this topic, but with that disclaimer, here it goes.
Once upon a time, life was simple. TV shows were funny, phones were connected to the wall, Al Gore had yet to invent the Internet, and coffee could be purchased with the spare change in your pocket. Gone are the days. Enter the age of "reality" TV, the information superhighway, and premium coffee shops. No longer just a cheap morning pick-me-up, coffee has become a relatively expensive social staple. Unless we are talking about the guy who sounds like a piggy bank every time he takes a step or the gal who gets a shoulder work out carrying around a couple extra pounds of US currency in her purse, nowadays premium coffee will run you a bit more than the change in your pocket.
Depending on where you live, the average price of a coffee drink at places like Starbucks is between $3-$4. That is 5 to 6 times higher than the cost of a "cup of Joe" in the good old days (circa 1990). Now granted, we haven't taken into account the effects of inflation, but I would venture to say that most people's income and cost of living have not increased five fold since the days of New Kids on the Block (aren't they on a reunion tour...bizarre), mall bangs, and neon colored clothing. In short, the cost to feed one's daily caffeine fix has drastically increased over the past decade and a half.
What I'm about to outline here is nothing the daily coffee purchaser hasn't already heard before (at least for those that haven't been living under a rock the last year as home prices have crapped out, the stock market has plunged, and suddenly everyone feels a lot poorer). Cutting out the purchase of a daily cup of coffee can lead to significant savings in the long run. Let's assume that the average coffee drink costs $4.00 (with tax and tip) and that one purchases this drink 5 times a week (every work day). That's an annual cost of $1,040. That adds up to be over $41,000 (in today's dollars adjusted for inflation) in cost over the average 40 year working career. If instead, this money was invested in a diversified index fund (more to come on the specifics of such a fund in the future) that returns around 7% (inflation adjusted) on average a year, one would be sitting on a cool 200 grand after 40 years. These assumptions are all using today's dollars, so that 200,000 would have the same buying power in 40 years as it does today (in reality it would be much larger than 200k because of inflation)... a hefty ransom by most people's standards.
So what should be done to eliminate or at least reduce this drain on our savings? Again, I'm not a coffee expert so please take my opinions with a grain of salt, but I would suggest the following:
Ciao,
Franco
Once upon a time, life was simple. TV shows were funny, phones were connected to the wall, Al Gore had yet to invent the Internet, and coffee could be purchased with the spare change in your pocket. Gone are the days. Enter the age of "reality" TV, the information superhighway, and premium coffee shops. No longer just a cheap morning pick-me-up, coffee has become a relatively expensive social staple. Unless we are talking about the guy who sounds like a piggy bank every time he takes a step or the gal who gets a shoulder work out carrying around a couple extra pounds of US currency in her purse, nowadays premium coffee will run you a bit more than the change in your pocket.
Depending on where you live, the average price of a coffee drink at places like Starbucks is between $3-$4. That is 5 to 6 times higher than the cost of a "cup of Joe" in the good old days (circa 1990). Now granted, we haven't taken into account the effects of inflation, but I would venture to say that most people's income and cost of living have not increased five fold since the days of New Kids on the Block (aren't they on a reunion tour...bizarre), mall bangs, and neon colored clothing. In short, the cost to feed one's daily caffeine fix has drastically increased over the past decade and a half.
What I'm about to outline here is nothing the daily coffee purchaser hasn't already heard before (at least for those that haven't been living under a rock the last year as home prices have crapped out, the stock market has plunged, and suddenly everyone feels a lot poorer). Cutting out the purchase of a daily cup of coffee can lead to significant savings in the long run. Let's assume that the average coffee drink costs $4.00 (with tax and tip) and that one purchases this drink 5 times a week (every work day). That's an annual cost of $1,040. That adds up to be over $41,000 (in today's dollars adjusted for inflation) in cost over the average 40 year working career. If instead, this money was invested in a diversified index fund (more to come on the specifics of such a fund in the future) that returns around 7% (inflation adjusted) on average a year, one would be sitting on a cool 200 grand after 40 years. These assumptions are all using today's dollars, so that 200,000 would have the same buying power in 40 years as it does today (in reality it would be much larger than 200k because of inflation)... a hefty ransom by most people's standards.
So what should be done to eliminate or at least reduce this drain on our savings? Again, I'm not a coffee expert so please take my opinions with a grain of salt, but I would suggest the following:
- Brew it at home. I know that it is impossible to replicate the same cup of coffee that one gets at a coffee house, but from what I hear, a coffee press is an excellent alternative for that coffee house flavor in the comfort of your own home. Assuming a pound of whole coffee beans cost between $10-$15 and makes around 30-40 cups, the cost of making your own coffee is only around $0.25 - $0.50 per cup (oddly enough, close to the pocket change number it use to cost "back in the day").
- Order the cheap stuff. If you work in an office it is impossible to avoid the occasional (if not frequent) trip to the local coffee house. When you do find yourself at such an establishment, consider the less expensive items on the menu to save some coin. This former Starbucks employee suggests a half coffee half steamed milk concoction know as a Misto (where do they come up with these names?) as a cheaper alternative to a latte, a vanilla iced coffee instead of an iced latte, and a hot chocolate with a shot of espresso instead of a mocha.
Ciao,
Franco
Tuesday, August 5, 2008
Cheap vs. Frugal
The most common misconception people have about being frugal is making it synonymous with being cheap. Being cheap is associated with being stingy, miserly, and generally not fun to be around. Think Scrooge McDuck meets George Castanza. Being frugal on the other hand does not necessarily (although it is a thin line) constitute these same characteristics. For further explanation, let's take a look at the definition of each (according to dictionary.com):
Frugal
1. economical in use or expenditure; prudently saving or sparing; not wasteful: a frugal manager.
2. entailing little expense; requiring few resources; meager; scanty: a frugal meal.
Cheap
1. costing very little; relatively low in price; inexpensive: a cheap dress.
2. charging low prices: a very cheap store.
3. of little account; of small value; mean; shoddy: cheap conduct; cheap workmanship.
4. stingy; miserly: He's too cheap to buy his own brother a cup of coffee.
For the sake of time, I left off a couple extraneous (to our discussion) definitions of "cheap," but the four listed above should suffice just fine. Notice the choice of words used in each definition. Words like economical, prudent, and meager are not nearly as caustic as shoddy, stingy, and miserly. In fact, with more and more emphasis being put on good stewardship of our resources (go green!), someone who is economical in the use of expenditures and not wasteful is highly praised by our society. Look no further than Hollywood to see how cool it is to be prudent and economical. And although Leonardo DiCaprio owning a Toyota Prius is not nearly as memorable as Will Ferrell driving a Dodge Stratus, the message is still clear...being frugal is cool.
Not only is being frugal cool, but it can also lead to satisfaction and happiness in life. The poster child for team frugal would have to be Warren Buffett, the richest man in the world. He lives in the same house he bought for $31,500 in 1958 even though his net worth exceeds the gross national product of many small countries. His favorite meal is just a cheeseburger and a Cherry Coke. In the biographical book on Warren Buffett's life entitled Buffett: The Making of An American Capitalist (highly recommended!), Buffett is quoted as saying the key to a happy life is contentment (a Frugal Franco paraphrase). Requiring few resources is part of finding contentment and being truly happy in life.
In my mind, the major difference between frugal and cheap is that the former emphasizes value per expenditure while the latter only looks at the absolute cost. For example, I've already written about how I love BMWs, golf, and tennis (not to mention skiing and vacationing in foreign countries), none of which are typically associated with frugality much less cheapness. But here is the difference, I would much rather pay $30 to play twilight golf at a nice course that charges $75 during prime time than $20 to play a rinky dink municipal course (as a side note, I grew up playing on the muni courses). Someone who is simply cheap would choose the muni course because it is $10 cheaper without any consideration of the value per dollar spent.
My advice, maximize your value in life by concentrating on being frugal and try not to be too cheap (I say "too" because some form of cheapness is inevitable). The next time the frugal tag is slapped on you, take it as a complement and know that somewhere Frugal Franco is smiling.
Ariva derche,
Franco
Frugal
1. economical in use or expenditure; prudently saving or sparing; not wasteful: a frugal manager.
2. entailing little expense; requiring few resources; meager; scanty: a frugal meal.
Cheap
1. costing very little; relatively low in price; inexpensive: a cheap dress.
2. charging low prices: a very cheap store.
3. of little account; of small value; mean; shoddy: cheap conduct; cheap workmanship.
4. stingy; miserly: He's too cheap to buy his own brother a cup of coffee.
For the sake of time, I left off a couple extraneous (to our discussion) definitions of "cheap," but the four listed above should suffice just fine. Notice the choice of words used in each definition. Words like economical, prudent, and meager are not nearly as caustic as shoddy, stingy, and miserly. In fact, with more and more emphasis being put on good stewardship of our resources (go green!), someone who is economical in the use of expenditures and not wasteful is highly praised by our society. Look no further than Hollywood to see how cool it is to be prudent and economical. And although Leonardo DiCaprio owning a Toyota Prius is not nearly as memorable as Will Ferrell driving a Dodge Stratus, the message is still clear...being frugal is cool.
Not only is being frugal cool, but it can also lead to satisfaction and happiness in life. The poster child for team frugal would have to be Warren Buffett, the richest man in the world. He lives in the same house he bought for $31,500 in 1958 even though his net worth exceeds the gross national product of many small countries. His favorite meal is just a cheeseburger and a Cherry Coke. In the biographical book on Warren Buffett's life entitled Buffett: The Making of An American Capitalist (highly recommended!), Buffett is quoted as saying the key to a happy life is contentment (a Frugal Franco paraphrase). Requiring few resources is part of finding contentment and being truly happy in life.
In my mind, the major difference between frugal and cheap is that the former emphasizes value per expenditure while the latter only looks at the absolute cost. For example, I've already written about how I love BMWs, golf, and tennis (not to mention skiing and vacationing in foreign countries), none of which are typically associated with frugality much less cheapness. But here is the difference, I would much rather pay $30 to play twilight golf at a nice course that charges $75 during prime time than $20 to play a rinky dink municipal course (as a side note, I grew up playing on the muni courses). Someone who is simply cheap would choose the muni course because it is $10 cheaper without any consideration of the value per dollar spent.
My advice, maximize your value in life by concentrating on being frugal and try not to be too cheap (I say "too" because some form of cheapness is inevitable). The next time the frugal tag is slapped on you, take it as a complement and know that somewhere Frugal Franco is smiling.
Ariva derche,
Franco
Sunday, July 20, 2008
Free Directory Assistance
The other day I was driving around with some friends and we were hungry and in a bit of a hurry. To save time, we decided to call in our sandwich order at one of my favorite local delis. Not having the number on hand, I called 800-GOOG411 which is a service Google provides for free directory assistance. The process is completely automated, does an excellent job finding the listing you want in the city you want, and connects you for free (they also will send you a text message of the requested phone number if you so desire). For those that like to text message, you can also use Goolge SMS.
Enjoy!
Franco
Enjoy!
Franco
Tuesday, July 15, 2008
Buying Used Cars
Hopefully, after digesting one of my previous posts, some readers have decided to explore the wonderful world of used cars. Congratulations on you big leap out of the man's propaganda campaign and into the more sensible Franco's Army...the frugal, non-football version (on a side note, I only joke about "the man" because I find it funny. I'm a true capitalist at heart). So what are the most important things to consider when buying a used car? I won't pretend that my list is exhaustive, but here a couple things that have done me well over the years.
The first thing I do when looking for a "new to me" car is check Consumer Guide for independent reviews on different makes and models. Make sure you know what you're getting into by researching and asking people who have owned the car (or at least a similar model) before you pull the trigger. I have a personal bias for German (excluding the JokesWagon) made automobiles because I like the way they handle and feel the engineering behind the car is superior to other automobile manufactures (I've definitely been drinking the Deutschland Kool-Aid). On the other hand, my extended family all (literally on my mom's side) drive Volvos, so it really is just a matter of personal preference. The one thing I would advise is to find a brand/model that has excellent resale value in the used market. For example, even if a BMW is 10 years old and has 130,000 miles on it, some kid going to college will think it is "cool" and will want it. It has been my experience that there is always a strong market for used BMWs selling around blue book value. This was not the case for Mrs. Frugal Franco's fancy-pants VW New Beetle, which had to be sold for 20% below blue book value last year.
The next thing I do is search for cars online. My favorite places to look for used cars are Craigslist, Autotrader, and Cars.com. I typically look for private seller listings because I'm always afraid that all the used cars at dealerships are lemons. I mean, why else would someone trade their car in at a dealership for the "trade in value" instead of selling it to another person? I'm sure there are a good number of people out there who aren't as frugal as me and turn the car in to avoid the hassle of having to sell it, but I still can't get past the lemon bias. Not to mention there are few things I can think of that are more unpleasant that haggling with a used a car dealer (okay, there a lot of things, but it's still not something I enjoy). I have only bought one car from a used car dealership and it is something I'm not likely to repeat. I have yet to try the "new" used car experience at places like Carmax where there is a set price based on the blue book value with no haggling. It sounds like a great concept so I would recommend this to people who just can't bring themselves to buy from a private party. For those that are willing to deal with a private party seller, I highly recommend the following:
The first thing I do when looking for a "new to me" car is check Consumer Guide for independent reviews on different makes and models. Make sure you know what you're getting into by researching and asking people who have owned the car (or at least a similar model) before you pull the trigger. I have a personal bias for German (excluding the JokesWagon) made automobiles because I like the way they handle and feel the engineering behind the car is superior to other automobile manufactures (I've definitely been drinking the Deutschland Kool-Aid). On the other hand, my extended family all (literally on my mom's side) drive Volvos, so it really is just a matter of personal preference. The one thing I would advise is to find a brand/model that has excellent resale value in the used market. For example, even if a BMW is 10 years old and has 130,000 miles on it, some kid going to college will think it is "cool" and will want it. It has been my experience that there is always a strong market for used BMWs selling around blue book value. This was not the case for Mrs. Frugal Franco's fancy-pants VW New Beetle, which had to be sold for 20% below blue book value last year.
The next thing I do is search for cars online. My favorite places to look for used cars are Craigslist, Autotrader, and Cars.com. I typically look for private seller listings because I'm always afraid that all the used cars at dealerships are lemons. I mean, why else would someone trade their car in at a dealership for the "trade in value" instead of selling it to another person? I'm sure there are a good number of people out there who aren't as frugal as me and turn the car in to avoid the hassle of having to sell it, but I still can't get past the lemon bias. Not to mention there are few things I can think of that are more unpleasant that haggling with a used a car dealer (okay, there a lot of things, but it's still not something I enjoy). I have only bought one car from a used car dealership and it is something I'm not likely to repeat. I have yet to try the "new" used car experience at places like Carmax where there is a set price based on the blue book value with no haggling. It sounds like a great concept so I would recommend this to people who just can't bring themselves to buy from a private party. For those that are willing to deal with a private party seller, I highly recommend the following:
- Look for single owner cars. This is the number one thing to look for when buying a used a car. The original owner remembers what that car looked and felt like when it was brand new. They also remember how much money they had to pay for it and therefore do everything possible to keep it looking and running like it did the first day they bought it. There are always exceptions to the rule, but you should be able to spot them as soon as you look at the car.
- Ask for maintenance records. If you are lucky enough to find a good deal on a single owner car, chances are they have all the maintenance records on the vehicle. Check to see if service was done at the dealership after the warranty expired (not a deal breaker but a good indication of how the owner treated the car) and if all the scheduled maintenance was done. On a side note, once I own the car, I hardly ever take it to the dealership and try to avoid the "routine maintenance" if everything is running smoothly, but when you are buying a car, these things are always nice to have (a double standard...I know).
- Push back the clock. A lot of people want to have the latest body style in whatever model car they end up choosing, but the truth of the matter is that manufacturers go years (usually 5-7) without making any major alterations to the way the car looks. I would target the earlier years of a model's 5-7 year lifespan and look for the "older" cars with low mileage and excellent maintenance.
- Take it to the mechanic. This one is really a last resort that I sometimes employ. If you find a car that meets the first two criteria, this step may be unnecessary. If something just doesn't fell right about the car or the person selling the car, then definitely take it to a mechanic or just walk away all together. The $100 you spend having a mechanic look the car over can be recouped in the negotiation phase if anything wrong is found on the car. Running a Carfax report is no substitute for having a professional mechanic look over the car. Not to long ago, I was helping my younger brother buy a car. We found a sweet deal on a convertible BMW that had a clean carfax report. Something didn't feel right about the seller, so I made him take it to a mechanic for an inspection. When the mechanic punched in the VIN number it came back that the car had been salvaged and was "reconditioned." Needless to say, the deal was off and Carfax dropped out of Frugal Franco's favor.
- Always ask why the person is selling the car. While we are on the subject of sketchy used car sellers, depending on where you live there is a growing contingent of semi-professional used car flippers. Typically, this person finds cars at auctions or that have been salvaged, does a shoddy job "fixing" them up, and then prices the car slightly below the market to attract some buyers (a Frugal Franco trap if ever I saw one). When you ask this person why they are selling the car, some will be honest and tell you they flip cars while others may tell you they are moving out of the country or some bogus story along those lines. I would highly recommend NOT purchasing a car from these types of people as the risk definitely outweighs the reward.
Remember, a car is not a good investment, so the more one can separate the need (a mode of transportation) of a car with the desire (I sure would look cool in that new car) to own one, the better off that person will be. For those that still can't get past the new car high or driving without a warranty, may I suggest looking for certified pre-owned vehicles or purchasing a used-car warranty (I'm unfamiliar with these, but think car insurance companies offer them). A certified pre-owned vehicle allows one to skip the worst part of the deprecation curve, while still enjoying a new(er) car with a manufacturer warranty. This is still a spendy option if you have to finace it, but it's the next best thing.
Ciao,
Franco
Sunday, July 13, 2008
eCoupons
A quick note for those that like to shop online (and for those that don’t, you are not fit to wear the “frugal” name). Always remember to do a quick search for online coupons before you checkout. I was shopping at Sports Authority today after I found out that my local Sport Authority would still string my tennis racket for free if I bought my strings off the website. Normally, I purchase the strings at the store, but the website had a closeout deal on $18 strings marked down to $5 (needless to say, I bought a couple). I also found some fancy new Adidas golf shoes (on sale…of course) and an inflatable pool for the Frugal Family to escape the summer heat. Before you knew it, I had run up a triple digit bill. As I was getting ready to checkout, I noticed the little box for coupon codes. A quick search for “sports authority coupons” directed me to Coupon Cabin where I found a 15% off coupon. A mouse click later, I was back at the Sports Authority checkout with a slightly fatter wallet for my troubles.
Ciao,
Franco
Ciao,
Franco
Cost of a new car
Buying a car is a difficult process and one that most people do not take lightly. There are so many variables and tradeoffs to consider…foreign vs. domestic, flashy vs. practical, new vs. used, cup holders vs. a car that parks itself (or something like that). Let’s explore the most important part (or at least it should be) of the decision making process…cost.
A car is the single most coveted pleasure that defines one’s status in life…at least that’s what one would believe if they spent any time watching TV, reading magazines, listening to the radio, or glancing at the occasional billboard. Billions of dollars are spent every year to enforce this message and burn it into our collective psyche. To sweeten the deal, car manufacturers even make this piece of the “American dream” available for no money down and an easy monthly payment. How nice of them.
But after the new car high has worn off, what is left? The answer is a huge old liability. Notice that I said “liability” and not “asset.” It’s not an asset because…well…you don’t really own it yet. But even if a car is owned outright, I would still argue that it is a liability and not an asset because A) it doesn’t produce a cash flow (unless you are running a fly-by-night taxi service in your new whip) and B) it can’t be sold for more than what it was purchased for (unless you are buying a rare classic or something of the shorts).
Depreciation is no one’s friend when it comes to being an automobile owner. Take a quick look at this website (granted it’s a British website, but I’m sure the Queen won’t mind us dropping in for a visit) to get an idea of how quickly the value of that “new” (for a working definition of “new” vs. “used” please refer back to my previous post) car evaporates. In the case of my car (or the new equivalent of my car), over 30% of the car’s value is lost after the first year. The cost of owning a new car is not just the monthly payment, but also the value lost by the newly acquired liability as it is used. A bit of a double whammy if you ask me, but wait…it’s gets worse. :)
At the fear of being called a Debbie Downer, I’ll throw a third whammy out there for consideration. That “easy” payment that you are making every month is incurring an opportunity cost. The money that is going to pay down the debt on the car could be used for other purposes. At the very least, it could be sitting in an online savings account making 3%-5% interest. The income and appreciation that is not being earned on an investment opportunity to make room for that shinny, four wheeled liability is the opportunity cost. Not to pour salt in the wound, but it gets even worse for those who forgo paying down their high interest rate credit cards in order to make the monthly car payment. In that case, the opportunity cost is the interest paid on the credit card debt, which we all know is extremely high.
There are definite advantages to owning a new car, the largest of which is the warranty. I’d love to never have to pay the mechanic every time my car broke down, but how much is this peace of mind worth and how much does it really cost (i.e. the triple whammy). The real question to ask onself when considering a new car purchase is "how much am I willing to pay for the perks (warranty) and the new car high (giving into the man's propaganda)?". Too often people spend beyond their means to purchase (or worse yet finance) a car. This needs to stop! There are plenty of reliable, nice (enough) cars to be purchased for a fraction of their new sticker price.
I use the next post to discuss some these options and a list of do’s and don’ts for the used car buyer.
Until next time…ariva derche.
Franco
A car is the single most coveted pleasure that defines one’s status in life…at least that’s what one would believe if they spent any time watching TV, reading magazines, listening to the radio, or glancing at the occasional billboard. Billions of dollars are spent every year to enforce this message and burn it into our collective psyche. To sweeten the deal, car manufacturers even make this piece of the “American dream” available for no money down and an easy monthly payment. How nice of them.
But after the new car high has worn off, what is left? The answer is a huge old liability. Notice that I said “liability” and not “asset.” It’s not an asset because…well…you don’t really own it yet. But even if a car is owned outright, I would still argue that it is a liability and not an asset because A) it doesn’t produce a cash flow (unless you are running a fly-by-night taxi service in your new whip) and B) it can’t be sold for more than what it was purchased for (unless you are buying a rare classic or something of the shorts).
Depreciation is no one’s friend when it comes to being an automobile owner. Take a quick look at this website (granted it’s a British website, but I’m sure the Queen won’t mind us dropping in for a visit) to get an idea of how quickly the value of that “new” (for a working definition of “new” vs. “used” please refer back to my previous post) car evaporates. In the case of my car (or the new equivalent of my car), over 30% of the car’s value is lost after the first year. The cost of owning a new car is not just the monthly payment, but also the value lost by the newly acquired liability as it is used. A bit of a double whammy if you ask me, but wait…it’s gets worse. :)
At the fear of being called a Debbie Downer, I’ll throw a third whammy out there for consideration. That “easy” payment that you are making every month is incurring an opportunity cost. The money that is going to pay down the debt on the car could be used for other purposes. At the very least, it could be sitting in an online savings account making 3%-5% interest. The income and appreciation that is not being earned on an investment opportunity to make room for that shinny, four wheeled liability is the opportunity cost. Not to pour salt in the wound, but it gets even worse for those who forgo paying down their high interest rate credit cards in order to make the monthly car payment. In that case, the opportunity cost is the interest paid on the credit card debt, which we all know is extremely high.
There are definite advantages to owning a new car, the largest of which is the warranty. I’d love to never have to pay the mechanic every time my car broke down, but how much is this peace of mind worth and how much does it really cost (i.e. the triple whammy). The real question to ask onself when considering a new car purchase is "how much am I willing to pay for the perks (warranty) and the new car high (giving into the man's propaganda)?". Too often people spend beyond their means to purchase (or worse yet finance) a car. This needs to stop! There are plenty of reliable, nice (enough) cars to be purchased for a fraction of their new sticker price.
I use the next post to discuss some these options and a list of do’s and don’ts for the used car buyer.
Until next time…ariva derche.
Franco
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