Author: Mike Holman

Money saving tips are something you run across quite frequently if you are browsing in the blogosphere (or talking to my parents).  Whether it’s big savings like negotiation tactics for buying a new car, buying a used baby stroller or small stuff like making your lunch and creative uses for used dryer sheets – everyone has a suggestion for saving money.

Alternative income ideas are also a popular topic on many blogs – starting an online business, filling in surveys for money, freelancing, doing odd jobs around the neighbourhood are some of the suggestions I’ve seen.

The problem with a lot of these ideas for saving money and generating income is that they often involve a fair bit of work for a seemingly small return.  There is no question that you should take a good look at any activities for saving money/generating income with a critical eye and make sure they are worthwhile – you should also try to concentrate on the ones that are likely to be more successful (if you can figure that out).

I wanted to share my ideas on 2 concepts which I think should be utilized when evaluating income or saving opportunities.  These might help motivate you to start doing some of these opportunites if they are more beneficial than initially thought – on the other hand it might get you to reconsider some of the activities you are already doing.

Compare the savings/income with your disposable cash flow – not your gross income

Whenever I hear something like “lowering the temperature of your home by 1 degree in the winter will save you up to $400 per year in heating costs” I always have the same reaction…who cares?  $400 is not a small amount of money but it’s not enough to get me to want to freeze my butt all winter.  Same thing on the income side – if you could spend 20 hours setting up a website that earns 50 cents a day – does that sound like a good deal?  Initially it seems to be a big waste of time.

One of the problems with that reaction is that I’m typically comparing the dollar amount I can save (or earn) with a much larger number like annual family income which might not tell the whole picture.  I think a better approach is to try to estimate your disposable income and compare to that.

If you think about it – gross income is just a theoretical number – once you remove taxes and other contributions you only get paid a portion of your gross income.  Once you then remove all your basic living expenses ie mortgage, insurance, food, gas etc then you might not have much money left over (if any).  For some people the left over money might even be negative (this is not good).

In my opinion you should base your decision on whether to put some effort to save money/earn money on how much impact that money will have on your disposable income because that is the money that you notice.  Someone who has high income and low expenses will have a high level of disposable income and therefore will probably not benefit from spending time on small savings and small income streams.  Many people however, high or low income, often have very little disposable income and any increases will result in a significant improvement in cash flow.

So step 1 is to calculate disposable income – there are different definitions but I’m loosely just trying to calculate how much money you have at the end of the day after all your costs are met.  The amount you save each paycheck plus all completely discretionary expenses (ie nice restaurant dinners) could be assumed to be disposable income because you have a choice about whether it gets spent or not.

Let’s look at an example:

Joe makes $65,000 per year.
Here are some of his costs:

• taxes – $17,500
• mortage – $17,000
• insurance – $2,500
• car payment – $6,000
• bills (heating, phone) – $7600
• property taxes – $3,000
• food  – $4,000
• other  -$5,000

The total expenses for Joe are $62,600 which leaves him with a grand total of $2,400 of disposable income each year.  While this isn’t bad – it sounds a lot less impressive than his $65,000 salary.

So if Joe has the opportunity to save $400 on his heating bill – rather than dismiss the idea because $400 is only a small fraction of his annual salary of $65,000, he should consider that $400 will increase his annual disposable income ($2,400) by almost 17% which might change his thinking on turning down the thermostat.  He might still choose not to change the temperature but at least now he has a better feel for how much effect it will have on his financial situation.

When evaluating the potential savings or income make sure you use the same time periods

In a previous paragraph I mentioned spending 20 hours of effort to build a website which will yield 50 cents per day (after expenses and income tax) without any further effort.  One mistake which I’ve made in the past is to assume that 50 cents is an insignificant amount of money (which it is) and then incorrectly assume that many piles of insignificant sums of money will also add up to an insignificant amount of money.  In some cases that will be true but not always.

In this case the 50 cents per day will add up to $15 per month which sounds a bit better and $180 per year which sounds a lot better.  If we assume this income stream lasts for 5 years the current value of this income stream (assuming 3% inflation) is $824!

So now that we have done that calculation the question is would you put 20 hours effort to earn $824 over the next 5 years?  Depending on your disposable income, available time, your interest in that task and other factors – your answer might be no or it might be yes – but at least now you are analyzing with the right numbers (which look a lot better than the inital numbers).

This also applies to savings – What if Joe has the opportunity to bring his lunch 3 times a week for a saving of $3 per lunch?  $3 isn’t that much when you consider the effort involved in grocery shopping and making the lunch –  but if he calculates an annual saving ($3 each lunch x 3 lunches per week x 50 weeks per year) = $450 per year and compare that to his current disposable income of $2400 – it might not be a bad deal, especially if he combines his lunch making efforts with turning down the heat a bit.  🙂

Alternatively, rather than convert all your alternative income stream and saving amounts to annual figures – you could reduce your annual disposable income figure to monthly, weekly or even daily amounts if that works for you.

Joe might calculate that his disposable income is $6.57 per day so in that context – adding 50 cents per day of income or savings is far more significant than at first glance.

$ per hour – one common approach when evaluating savings or income is to calculate a $ per hour figure for said activity and compare it to your gross hourly wage at your job or some other figure that you deem appropriate.  This isn’t a bad approach but at a minimum you should consider taxes etc ie compare to your net hourly wage in the case of savings.  This is actually the initial approach I use but I combine it with the disposable cash idea.

The way I usually think of the $ per hour analysis is to calculate how much money I can save by doing a task myself (vs hiring someone) divide by the number of hours of my labour which give a dollar amount which I’m basically paying myself.  Since the gross numbers aren’t necessarily all that meaningfull, I find this analysis most useful when comparing to other tasks ie changing my own oil might only pay me $6 per hour whereas replacing a sink faucet might pay me $18 so it’s not hard to see which activity I should do first.

Ok, I admit that watching slide shows of your Mother-in-law’s old vacations from 50 years ago isn’t for everyone, however recently my wife and I spent a couple of evenings doing exactly that with my mother-in-law.  This frugal tip might be one of the lamest I’ve heard in a while so I will be offended if it doesn’t make the frugal Friday roundup which features posts such as this one.

How did we get into this predicament?

My mother-in-law used to do a lot of traveling in her younger days and took quite a few slides on her trips.  She still has all her slide shows and also owns a pretty cool slide projector and screen.  I have to admit that I really like setting up the screen because I was never one of the lucky kids in grade school who got to help the teacher set the screen up for a movie.

A couple of the slide shows were focused on my wife as a baby and a little girl which was pretty neat to see.  Some other shows had a lot of my wife’s older relatives in Europe – most of whom I had only met in the last 3 or 4 years).Most of them are quite old – 65-85 years old so seeing pictures of them from 40-50 years ago was very interesting.  My mother-in-law will be 80 this year and she had quite a few shots of herself in her 20s.

How do I get in on this exciting new hobby?

Personally I really enjoy watching old fashioned slides but you can accomplish the same effect by hooking your computer up to your digital tv – I don’t have a digital tv myself but I don’t think it is very hard.  Obviously most people don’t have access to slides and projectors so the tv option might be more realistic.  You can also buy digital projectors but they are pretty expensive at $600+.

I think the slide show idea only works if there are slides worth looking at – my MIL took some pretty interesting trips in her youth and took her pictures sparingly so we didn’t have to look at the same photo from 15 different angles.  The other great thing was that my MIL did have a few comments on some slides and trips but she didn’t go on and on about each photo.  It helps if you wait 50 years before doing a slide show of someone’s trip – that way they won’t remember as many details.  🙂

Getting slides digitized.

This isn’t exactly on topic but I got a couple of slides digitized for this post and thought I would share the experience.  Basically I took the slides to a photo stores (Blacks) and they said it would cost $1.99 per slide or $2.99 to make a print.   This seemed a bit odd since it’s far cheaper to order the $1.99 digitizing and then pay the normal $0.30 rate for printing – but it didn’t matter since I wasn’t getting them printed.

I only had a few slides to digitize so I didn’t bother shopping around – however I’m sure if you have more slides to do then it is worthwhile to find a better price.  Another option is to buy a scanner than can handle slides – that option is fairly expensive but if you have enough slides then you will save money.  You can also buy an attachment for your slr camera.  Both options are discussed here.

Similar trips

One of the more interesting slide shows we saw was a trip through Germany that my MIL took in the early 60s.  Germany is a beautiful country and it’s hard not to take some great photos if you are visiting there.  On that trip she went to a lot of the same places that we went to when visiting Germany last year.  One of the great things about Germany and I’m sure this is true of most of Europe and Asia is that there are a lot of old buildings and cities to look at – the churches in particular are very impressive to look at and are quite old – even though some of them were rebuilt after the war.  The Cologne Cathedral is Germany’s best known church but there are at least a half a dozen other churches in the country (and maybe a lot more) that are almost as good (and with less crowds).

Here are two of the destinations on my mother-in-law’s trip in 1961 that we also went to in 2008 – I’ve included photos from her trip as well as ours.

The Rhine

Yes, the famous Rhine River is in Germany and there is a very scenic drive which we loved because the road was right beside the river so there was great scenery all the time plus a plethora of old castles along the river which has historically been one of the more prosperous areas in Europe.  Some of the castles were just ruins and others are very well preserved and some are even hotels.  Here are two photos of the Rhine – one from 2008 and the other from 1961.  Not the same view unfortunately.

Rothenburg Ob Der Tauber

Rothenburg is a fascinating place and very well preserved.  There are lots of little towns in Germany with old buildings and parts of walls remaining that once surrounded the town.  Rothenburg is all old buildings and has its complete fortress wall – parts of which date back to the Roman empire.  If you ever get a chance to see this town then do it – accomodation is a bit more expensive than most small cities but it’s not too bad.  You could easily spend a couple of days there checking out the wall and various buildings.  Here are a couple of photos from the town square.

In the 1961 photo – the building on the left is the City Hall.  In the 2008 photo it’s the building on the right.

This is one of the gates to the city – the only photos we have of exactly the same scene from both trips.

And last, but certainly not least – one last photo of my Mother-in-law – she used to be a nurse in the Canadian Air Force. For some reason I’ve always assumed that everyone in the airforce flies on airplanes all the time but apparently that is not the case. She did however get to go up in a fighter plane and I thought this photo was pretty cool.