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Frugal

Cross Border Shopping

I was down in Niagara Falls last weekend and decided to do a little cross border shopping. I’ve always been curious as to what the cost would be to exceed the exemption on alcohol. With this in mind I bought a 12 pack of beer and a 1.75 L bottle of bourbon.

The bourbon (my pal Jim Beam) was available in the U. S. of A. at an unbelievable price of $22. A similar bottle would be at least $40 or $50 at the LCBO. Coming back, I boldly declared to the custom guard that I’d bought a bottle of bourbon and a 12 pack of beer. My first hint that I was in trouble was when his eyes widened a bit and he asked for my receipts. The second hint was when he asked me what I thought the bottle would have cost me at the LCBO. The third hint (and at this point he was done hinting) was when he told me I’d be paying more than that in duty and instructed me to pull over to the left after exiting the custom booth.

All told, they wanted to charge me $36 in duty for the bottle, more than 150% of what it cost me. Part of this was an $18 “LCBO markup”. Outrageous! I decided in the end to abandon the bourbon and carry on with my trip (out of sympathy, the guy inside decided not to charge me for the beer). Truth be told, I think I would have been further ahead to pay the $36, since I this is still cheaper than what the bourbon would have cost at the LCBO. I certainly proved to myself is that the duty on hard liquor is VERY high. Apparently bringing across beer, even if you exceed the exemption, is reasonable, but you’ll lose money trying to bring across the hard stuff. Both customs guards asked me if I’d every paid duty on imported liquor before, and I think what they were implying was that I was a dumb-ass for trying to bring it across and it’s cheaper to just buy it at the local store.

Categories
Frugal

Dave Ramsey – My Thoughts

I’ve been reading a lot about Dave Ramsey in the personal finance blogosphere lately and I thought I would share a few thoughts about him.
For those who aren’t familiar with the name, Ramsey is an American personal finance “guru” who promotes a fairly simple approach to dealing with excessive spending and debt. Dave Ramsey’s methodology is outlined in his financial planning course, Financial Peace University.

Dave Ramsey’s Baby Steps

  1. Make a commitment to get out of debt
  2. Start a cash emergency fund
  3. Pay off debt using a debt snowball
  4. Save 3-6 months of expenses in savings
  5. Save 15% of household income into retirement savings accounts
  6. College funding for children
  7. Pay down mortgage quickly
  8. Build wealth and give

I disagree with Dave Ramsey

Anyone who has been reading this blog can probably figure out that the Ramsey method is not something I would ever use. I don’t have problems with excessive debt or spending, I like my credit card for convenience and never carry a balance. I don’t have a cash emergency fund and have no problem with moving unsecured debt to my home equity line of credit. I also use borrowed money to buy investments. The idea of paying off lower interest debts before higher interest debts makes my blood run cold – however as a certified financial geek who measures his MERs to the nearest thousandth of an inch, even I have to admit that not everyone in the world thinks the same way I do. 🙂

All of these things that I do go against the “Ramsey” way but that’s ok because I’m not in need of any kind of financial rescue. I haven’t always been financially responsible however – my “turn around” occurred about twelve years ago when I finally clued in that I had to spend less than I earn and needed to pay off my debts. Even though I don’t agree with Ramsey’s specific methods, I think that had I been exposed to him before my turnaround, he might have been able to help me, since his fairly basic methods were a huge improvement over how I had been dealing with my finances.

I believe that for a lot of people, Ramsey’s methods can be very beneficial. It doesn’t matter if not every detail is perfectly accurate or maybe doesn’t fit every situation exactly, for someone who is literally drowning in debt and can’t find the way to the surface, Ramsey might just be their saviour.

Here is a great series on Dave Ramsey and his financial methods by the M-Network:

More information

A plan to be debt free – Learn how to pay off your debts.

Categories
Frugal

Life Without Wheels

Quite a while ago I was planning a post on living without owning a car, and a bunch of posts on the subject hit the blogosphere. Enough time has passed that there might be interest in kicking the topic around again.

I’m in my early 30’s, have had my driver’s license since I was 16, and have never owned a car.

People who have been drivers for a while can’t comprehend the possibility of life without continuous access to their own vehicle. Even in big cities where there are a number of options to get around, it just doesn’t seem like living if you can’t be like R. Kelly and say “I’m about to take my key ‘n’ Stick it in da ignition” (although I suspect their may be a subtext involving more then driving an automobile in this song).

I get around by:

  • Taking the subway / buses – I get a monthly pass when I’m going somewhere every day, and use tokens when I’m working from home for an extend period – $2.75 / trip here in the GTA is an excellent value
  • I fly if I travel long distances, and rent a car if I’m travelling a shorter distance
  • I take a cab when / if I want to go somewhere that isn’t easily reached by public transit (which is VERY rare)

When I consider taking a new job or moving somewhere new, I make sure I can get to the place I need to go by walking or public transit. Paying $50 or $100 more for a place near work or campus is MUCH cheaper then getting a car.

When calculating the cost of owning a car, don’t forget issues such as:

  • finance charges
  • maintenance
  • gas
  • insurance
  • parking
  • having to give rides to deadbeat friends like Mr. Cheap

These can add SUBSTANTIALLY to the sticker price of a vehicle.

Some time ago on Wooly Woman’s blog I answered a question a woman had about cutting her expenses by suggesting that her and her husband’s financial problems would disappear if they got rid of their two cars. I never got a response from her.

During my Masters most of my friends were grad students from China, and they were often able to live very frugal lives in Canada. The one thing most of them were willing to splurge on was to get a car (which they told me would be VERY expensive back home).

Ultimately, as much as getting rid of a car would probably make drivers’ financial lives easier, it’s the sort of thing you just can’t give up. Kind of like asking someone to not have sex: it may work for virgins, but good luck getting someone to stop after they’ve started.

I’m hoping to stay a car owner virgin for life.

Categories
Frugal

The High Cost of Low Prices

NOTE: This is not a post about Wal-Mart. I like Wal-Mart and will preferentially shop there.

Obviously with a name like Mr. Cheap, I like to get a good deal. I understand other people who want to get a good deal. What I don’t totally get is people who want a cut-rate on a top-rate product or service. Champagne on a beer budget just isn’t possible.

Airlines get quite a bit of abuse about the low quality of service they offer. The seats are small, the service is surly, and the food is bad (and more recently, non-existent). The joke of this complaint is if you want top-notch service in the sky, you can get it. Just buy a first-class ticket.

Myself (and everyone I know) pick their ticket for a trip based on the lowest cost. Potentially I’ll pay a few bucks more for a direct flight, but I wouldn’t pay more for a “higher quality” airline. How can people blame the airlines when they rationally respond to this by doing everything they can to lower costs (and therefore price)?

I like to complain about phone service, Internet service and long distance. All of these could certainly be improved by enhancing their quality, but we all choose them based on price (and again, force companies to do everything they can to lower their price).

It would be reasonably straightforward to start a “high class” version of any of these services. Double the price and spend the extra enhancing the service. The fact that no such services exist makes me suspicious there just aren’t enough customers who are willing to support them (with their dollars).

Categories
Frugal

You Deserve It

I’m often perplexed when, to comfort someone else, friends suggest to do something “because you deserve it” or reassure them that “good things are coming your way, you deserve it!”. I understand in situations where someone gets to make choices for us where deserving may come into play. Apparently when Apple was taking off, Steve Wozniak felt that the programmers who had been there deserved more money so he gave them a share of his stock options. He looked at the reward system in place, sacrificed some of his personal property in order to compensate people he felt were entitled to more. I understand this.

When someone encourages us to buy an expensive new coat saying “you deserve it!” what does this mean? We all have finite funds to make purchasing decisions with, so what is it that could possibly entitle us to the coat? We can either afford it or we can’t, right? Is it just saying “You’ve had a rough time recently, so you should increase the proportion of your entertainment spending to make yourself feel better”?

With random events, this is even more perplexing. I’m always hearing women say they’re holding out for a first rate man “because I deserve it”. What does this mean? I usually move on to greener pastures at this point since, as Mike’s wife assures me, I’m at best a third or fourth rate man ;-).

The only explanation I can make for this is that people feel like God or karma is going to “compensate” them for their good deeds or recent suffering. I’ve heard people who aren’t religious or spiritual make the same assurances and I can never quite figure it out. Unless there’s an all-powerful Woz to reward us for our life choices, where does this expectation come from?

If you’re not religious or spiritual, and you feel like people “deserve” things, where does this belief come from? Are you surprised when people don’t get what they “deserve”?

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Frugal

Travelling Cheap

After my second year of university I did the cliche “tour of Europe”. I managed to spend 4 months on the continent for $5K, including airfare (and saw 23 countries or so in a whirlwind tour). The cost of travel always seems to be dropping, and it seems to be one of those things that, if you don’t keep up with it, it’s really easy to overpay on.

A little over a year ago I went down to Cuba with my then girlfriend. We went in November (not high season) and we got a return flight from Toronto, a shuttle to the resort, all inclusive meals and booze for $600 each for a week. I still have no idea how they can provide this for that price. My only theory is that they have spare capacity during low season, and its best for them to “get what they can” on it.

If you’re thinking about a get-away and are willing to go at non-high-time, I’d suggest having a look at Escapes.ca, www.redtag.ca/vacations.php, http://www.flightcentre.ca/, and old faithfuls expedia and travelocity. Note: We don’t have any relationship with any of these sites, I just list them as they’re where I’d look if I was thinking about taking a trip.

One thing to beware of, they separate out the taxes and the price, so expect the quoted price to jump 50% or so (who do they think they’re fooling?). Flight Center had a trip offered at $94.05. When you clicked on it, it turned in to $94.05 + $298.00 taxes & fees = $392.05. Who do they think they’re fooling? Three times the price in “taxes and fees”? If a budget travel site DIDN’T do this (and just listed the actual prices of the trips), they’d get all my business. When I see a few “deals” jump like this, I often just leave the site in disgust.

I’m not sure the best “lead time” to book before your trip. One school of thought is you get the best deal booking well in advance, the other is that you get the best deal last minute (when they’re afraid the room and seat on the airplane will go empty).

What has everyone’s experience been (good or bad) with budget travel? Any suggestions on other places to find good deals?

Categories
Frugal

Becoming Cheap

As a reward for reading me all these long months (and following me when I upscaled and moved into Mike’s crib), I’m finally going to pull back the veil and provide 3 mind tricks to become cheap. I love little ideas that can give you a totally new way to evaluate the world (things like “Sunk Cost” blow my mind).

Keep in mind, knowledge can be dangerous if incorrectly applied. Luke Skywalker didn’t start trying to take over people’s minds until the *THIRD* movie (and even then, it got him thrown to the Rancor). If you apply these and your girlfriend / boyfriend / husband / wife dumps your ass (or if they turn into a Rancor) you’re not going to get any sympathy from me!

Mind Trick #1

Any time you’re going to make a sizable purchase (not a cup of coffee, we’re talking Canoe size purchase plus here), take 10-15 minutes (maybe in the store, maybe in your living room when searching on E*Bay) and imagine your life with that item. Imagine going out canoeing, or wearing the cardigan around campus (do kids where cardigans around campus these days? Did they ever? Does anyone know what a cardigan is?). Some times you’ll decide you can’t see yourself using the item much in the future, sometimes you’ll enjoy the idea of the item enough that you don’t need to actually purchase it.

Mind Trick #2

When you’re about to buy something (big or small), compare its purchase price to something you really enjoy. Say you like going to Mexico once a year to an all-inclusive for $2000. When you’re buying an extra-large double-double at Tim’s, ask yourself “Would I rather have the trip or 1300 cups of coffee? Say you like going to the movie on a weekly basis, ask yourself “Is dinner at a fancy restaurant really worth 4 movies to me?”

Mind Trick #3

Somewhat related to #2 (but different enough to justify being another point 😉 ), when you’re about to buy something, consider it in terms of your hourly salary (to take a trick from Ramit, if you’re paid an annual salary, your hourly rate is 1/2 it, so if you make $40K / year, your hourly rate is about $20). If you want to get really depressed, consider the price after sales tax AND AFTER INCOME TAX (e.g. reduce your salary by the tax rate you pay).

I saw a woman in a McDonald’s uniform coming out of Starbuck’s one day. She totally deserves a bit of a treat on her way to work (who doesn’t love a Mocha), and maybe its just the occassional indulgence (I doubt it though), but that drink would probably cost her the first hour of her shift. Who would ever trade an hour of labour for a bloody cup of coffee?!?!? Or even a cup without any blood in it???? 😉

Does anyone have other “mind tricks” they like for saving money or just getting more out of life?

Categories
Business Ideas Frugal Investing

Recession Investing

Apparently Alan Greenspan has gone on record saying a recession may be coming.  He doesn’t think its likely (less then 50% chance), but its a possibility.  Others (also mentioned in the article) think a recession is far more likely to hit other economies/markets.  This got me thinking, if a recession is coming or has hit, what are the best places to put your money in such an environment?

A recession, according to the first line in Wikipedia, “is a decline in any country’s Gross Domestic Product (GDP), or negative real economic growth, for two or more successive quarters of a year.”

Following some Googling, it seems that stock prices are hit just about immediately at the beginning of a recession, so having cash on hand to buy would seem to be a prudent move.  Also, since unemployment often skyrockets, having some sort of emergency, easily accessed funds for living would be worthwhile (either in a high yield savings account or with a unsecured LOC set up if you live in Canada).  Supposedly 3-6 months is the recommended level of funds.  This assumes you’re a wage-slave, if you’re not, congrats – no worries on this front.

Clearly if we’re buying stocks at a discount, we want companies that are going to weather the down-turn, so “blue chips” are probably even more appealing in this environment.

Luxury spending will decrease, so focusing on businesses that supply the necessities of life would probably be preferably to companies that supply luxury or optional goods (Loblaws might be a better buy then Leons).

Moving beyond stocks, with everyone afraid to spend money, what might be some other opportunities for good deals?  Real estate will probably be offering good prices (since anyone who needs to sell will have trouble finding buyers).  Connected to this, REITs might be on sale (since their inventory will be undervalued, but their future prospects should be good after the recession ends – they provide a necessity, shelter, so they’d probably be worth considering).

As much as interest rates sometimes go up during a recession, I don’t think GICs or bonds are the best purchase (as you’ll be heavily taxed on these high rates while inflation will be rampant if the rates skyrocket).  These *MIGHT* do ok in a RRSP account, but I still wouldn’t like the bite inflation always seems to take out of them.

While buying companies that supply luxury goods is a bad idea, it might actually be a good time to buy luxury goods if you’re able to accurately appraise them, since there won’t be many buyers.  If you know how to value artwork, comic books or vintage cars, a recession *may* be a good time to hunt for bargains.  Liquidation sales from failing businesses might be another lucrative (if depressing) strategy.

As counter-intuitive as it may sound, a recession MIGHT actually be a good time to start a business (assuming you had lots of capital and could keep costs low).  You should be able to get a cheap lease at a good location (no competition and lots of sites available), easily hire skilled, motivated employees (high unemployement), cheap supplies (again, low demand), etc, etc.  This could be a bit of a dangerous gambit (you’re counting on the recession ending before you run out of money).  If you’re *already* a business owner and you have a pair of steel ones, this could be a great time to expand on the cheap.

Investing in education, while always a good idea, is even more appealing when the job market is tight.  I said to myself that I’d go get my Masters when it became hard to find a job, and that’s exactly what I did when the dot-com boom went bust.  16 months later, when I was coming out of the program, things were starting to pick up again.

Some people talk about gold being a great inflation hedge (and maybe its good during recessions too, I don’t know).  I don’t like gold.  I’m too worried about a cheap method of converting lead to gold being developed and immediately devaluing it.

Travel (and other luxury goods for your own consumption – not investments) are also bargain priced during recessions and “states of emergency”.  Supposedly you could go to Thailand super cheap during the SARS epidemic.  You’re worried about catching SARS if you go?  During the height of the “crisis”, people were three times more likely to die of pneumonia than SARS, and even the people who contracted it had an 80% survival rate. SARS was devastating for Toronto tourism, but was basically a non-issue from a health standpoint (far more people died from car accidents than SARS during the “epidemic”).  You could have had a very nice trip here during that time (short lines and cheap rates).