Dawn of the Geeks

When it comes to phones you have a number of options. You can go with a landline, a cellphone or internet phone. If you have a high speed internet connection you can go with a company like Vonage and pay only $24.99 per month for unlimited local and long distance. Because it’s VoIP you don’t get billed all sorts of taxes and fees that you find on a traditional land line phone. If a phone company advertises $24.99 the final bill will be closer to $40. When Vonage says $24.99 the finall bill will be close to $24.99. There may be sales tax but that’s about it. Also, Vonage lets you keep your same phone number.

The only problem with a VoIP phone like Vonage provides is that it may not be an option if you have a home security system. Home security systems can sometimes require a traditional landline. We ran into that issue and ended up getting the barebones phone plan from Qwest which starts at $14.99 and after all the fees and taxes is more like $25. It has far fewer features than Vonage such as no long distance but costs the same.

Another option is the cell phone. With plans typically started at $40 a month you can see that you’re quickly paying far more than any type of home phone you could get. We used to be paying $80 a month for two cell phones. That works out to nearly $1000 a year. Once the contracts were up we ditched the monthly plan and went with a prepaid Tracfone. Other companies have pay as you go plans but they’re all far more expensive than Tracfone. With Tracfone you can get a phone for $15-20 and you only pay for minutes. There are no connection fees or daily fees that companies like AT&T charge.

The fact of the matter is that you are near a phone almost all the time. I remember years ago when all I had was a pager. It cost something like $8 a month. I’d get a page and somehow I managed to always be somewhere where I could use a phone. I don’t remember ever having to use a payphone. Many places of business will let you use their phone as long as it’s local and you keep it short.

With a prepaid cell phone you can use the phone anywhere and you just keep it short.

The issue is that people think they need a cellphone. They think they need to be available 100% of the time. You don’t. If your friends want to hang out they can call you at work and let you know. Or they can leave a message on your answering machine at home. Instead of talking to people in person now people substitute face to face interaction with cellphones. It’s so much easier to have unlimited talk time on a cell than to take time out to meet in person or wait until the evening when you’re at home to sit down and talk to your friends.

The only things that are so important you must tell someone now are emergencies. Prepaid cell phones are sufficient for that. If it’s not worth 20 cents a minute to tell someone then it can wait until you can call them on a land line or send an e-mail.

Believe it or not, cellphones have only been a “must have” item for about 10 years. Before then people managed to survive using beepers and home phones. People have forgotten that cell phones are a convienence not a necessity.

So next time your cell phone contract is up, let it expire. Get a prepaid Tracfone and see how it works out. Use it for 2 months and see if you really need that subscription based cellphone. It’s amazing how much money people throw away on cellphones because they think they need it.

And once you finally cure yourself of your cellphone addiction, take the $100 a month you’re saving on cellphone bills and do something useful with it like save it. Or invest it. Or save it for Christmas presents instead of using credit cards.

Census.gov has a PDF with all the average and median home values from 1963 to October of 2008.

There’s news coming out that home prices are dropping rather quickly. Well, if you look at the chart you can see that the drop is a market correction. Much like what happened in the 80’s. The house prices shot up unreasonably high and now they’re dropping back down. Current prices are looking more like they should had the bubble not happened.

I’m providing the Excel workbook with all the numbers from the PDF and the chart.

house-prices

Infoworld has an article debunking some PC power myths.

The article claims that the average PC uses 89 watts per hour. Divide 89 by 1000 to get the number of kilowatts. If the PC were left on for 24 hours it would consume about 2.1 kilowatts. For my power plan it costs about 5 cents per kw off peak and 17 cents per kw on peak. On peak is 8 hours in the day. So the total cost per day is about 21 cents. At that rate the cost per month is about $6.30.

In my case electricity is so cheap that there’s little financial incentive to turn my computer off when not in use. And since it’s a server, that’s not really an option anyway. You should do your own calculations to see what it costs to have your PC on 24 hours a day. If your computer isn’t being used 24 hours a day then it shouldn’t be on 24 hours a day anyway. Turn it on when you get home from work or school and turn it off when you go to bed.

Monitors, printers, scanners, etc are what start to add to that bill. Screen savers prevent burn in. They don’t save electricity. As such you should have your monitor go into power saving mode automatically when not in use. I have my screen saver set so that it goes on after 10 minutes of inactivity and after about 20 minutes the monitors go into power saving mode.

The reason screen savers can actually cost you more money is because some of them require your graphics card to do some work which requires more power. The best screen saver is just a blank black screen or a simple static image moving around.

The biggest obstacle to powering off a computer is the boot up time. I have a dual core 2.4ghz system that runs Windows XP Pro and boots in under 30 seconds. If your computer takes a very long time to boot you may want to review the software that is installed on your system and remove some of it.

One of the easiest ways to save money is to keep your car properly tuned up. The EPA estimate that every car has is about the best MPG you can expect out of your car driving like a normal person. Hypermiling is a variety of driving methods that can boost your MPG above the EPA estimate. But, most people can’t safetly use those methods. So instead, focus on the EPA estimate.

Let’s say you car’s EPA estimate is 28 miles per gallon. You can reasonably expect to get around 24. If you’re getting between 24 and 28 miles per gallon then inflating your tires, putting additives in your gas, changing your oil, changing your air filter, etc aren’t going to do much for you. You might be able to get an extra MPG out of your engine.

But, let’s say you notice that you’re getting 22 MPG or less. Well that’s an indication you need an oil change, a new air filter and you should check your tires. The idea is to not have unrealistic expectations of your car and waste a lot of money “maintaining” it by giving it new oil every week. It’s to figure out what a realistic expectation is and maintaining it.

All shops will suggest an oil change every 3000 miles. Read your manual. Newer cars may only need an oil change every 5000 or 7500 miles. You can ignore the sticker. But pay attention to the mileage your car is getting. Calculate the MPG you’re getting and reset the trip counter every fill up. It’s an easy way to track the performance of your car so not only can you save money on gas but also save money on major repairs that can result from not doing the routine maintenance.

When you don’t have credit all you can get is a low limit, high interest credit card. This is fine. Get the credit card, use it and pay it off every month. This process is called “credit building.” You need credit. Some people make the mistake of avoiding credit cards in their youth because they worry about mismanaging them. Then they become adults and want a car or a house and they find that the bank thinks they same thing about them and denies them a loan. If you think you can’t handle having access to a few thousand what makes you think the banks are going to have any more confidence in you?

Get a credit card. Be responsible with it. After you’ve used your card enough to get higher limits and lower interest rates and have a real job making a good salary you can start considering making bigger purchases like a new(er) car and a home. Interestingly enough by the time you have a real job you should have a real credit history. You should be in a salaried position by your mid twenties which means you should also have 7-10 years of credit history built up. Perfect history. No missed payments. No maxing out cards. Always paying more than the minimum to pay them off quickly. It’s okay to take a month or few to pay off a larger amount of credit card debt.

And now that you have a real job and real credit it’s time to stop playing the credit card game. You should have your car and your house. Those are enough to float your credit boat. Congratulations, you got your house you won the credit game. Now STOP PLAYING. I have over $50,000 in available credit with credit cards. That’s 1/3 of my mortgage. It’s time to start getting all the credit cards down to a zero balance and never using them again.

And think about this, if you need credit cards then you’re living outside your means. That means you need to cut back spending. If you don’t need your credit cards then why are you using them? Statistically people who use credit cards spend more money. That’s why every store is trying to get you one. If you want to go shopping take out cash and leave the plastic at home. You’ll spend less and also be more aware of deals allowing you to save more. If you only have $100 to spend and you want a new outfit you’re going to shop around. With credit you know you can fudge. You can ignore tax. You can go over by “just a little bit.” Because you know that your credit card will flex to cover it. Cash doesn’t flex. You only can spend what is in your hand.

You don’t have to work to make it fit on credit. You have to work to make it fit within your cash budget.

A liability is something that costs you money. An investment is something that makes you money and an asset is something that helps you.

If you believe your car is a liability, a money pit, then you’re probably going to buy the cheapest car you can find that runs. You assume that the $3000 piece of junk you found is going to be cheaper than paying for a new car even after all the repairs you end up doing. That may end up being true if you happen to find a used car that isn’t a lemon. The biggest monthly savings on a cheap used car are paying it off and not having comprehensive coverage on your insurance. When you’re a teenager that may force your hand to go with a cheap car. When you’re an adult, you have other options.

If you believe a car is an investment then you’re going to look for a classic car that’s not in particularly good shape and fix it up. In the end you’re hoping that the cost to purchase the car plus the cost of repairs is less than the amount you will be able to sell it for. If you have a good eye for cars and the time for that sort of thing it may be worth the effort.

However, if you see a car as an asset; Something to make your life easier, then you should probably go with a new car. By new I mean less than 5 years old with 0 to 20,000 miles. You’re paying $200 a month to know that every morning you will be able to go to work so you can bring home $150 - $300 a work day. A car does not directly make you money. It indirectly makes you money by getting you to work and making it possible for you to work any hours the job requires. In that sense, your car is actually an investment. As long as your job pays more than the cost of owning and maintaining the car then you’re ahead.

So when it comes to cars it’s more about minimizing costs. Not about eliminating them. You could go with a used car and eliminate a monthly payment (at least temporarily) at the expense of piece of mind and possibly safety. How much are those things worth to you?

When deciding on what car to buy you need to consider many things:

1. This is what will get you to work
2. In the event of an accident, how important is it that you survive?
3. Are you willing to put the time, effort and money into fixing major problems?
4. What is the optimal miles per gallon the car gets?
5. How many miles can I reasonably expect it to last?
6. What’s the most car I can get for 10% of my income per year?

Your car is an investment no matter what it is. The key to minimizing the cost of paying for a car is recognizing needs vs wants. You may want to get to work in a Bentley but you could probably get away with a brand new $9,990 Nissan Versa and have just as much reliability and safety.

People who want to be smart go to college. Or at least educate themselves. Some people think that they can just read books and they’ll know something. That’s not actually true. You can’t just read books or just observe others doing things. You need to apply your knowledge to really learn things. You have to read the book and apply what’s in the book to really learn. Otherwise all you have is a bunch of theories about how things are but you don’t really know. Many times the theories are nice but they aren’t entirely accurate when it comes to practical application. Also, if you don’t apply your knowledge to practical applications you won’t learn when it is appropriate to apply certain ideas to various situations. Knowledge that cannot be properly applied is useless.

You also will never be smarter than a book if you only do strictly what the book tells you to do. You have to color outside the lines or you will stifle your ability to learn and grow. By applying the book to the real world you will see that how the book tells you to do it may not be entirely accurate. Now you know more than the book is telling you.

When it comes to finances there is probably a book that will tell you anything you want to hear. If you want to believe that you can get rich flipping houses, a book exists that will be more than happy to take your money in exchange for telling you that. If you want to believe you can get rid trading on the foreign exchange (aka forex) there are books and programs that will take your money in exchange for telling you how you can get rich doing just that.

There are also books that will explain why you can’t get rich on the Forex markets or by flipping houses.

The fact of the matter is; they’re both right. The forex market contains a huge amount of risk. You can get rich and you can fail. Same with flipping houses. The key factor is you. The amount of effort you put into doing those things. You can’t just throw money at a problem and expect more money to come back.

So you need to educate yourself. If you’re not willing to learn and educate yourself then you really should stick to just reducing spending and putting your money in safe places like high yield savings accounts and bonds.

Your biggest financial investment is you. Educating yourself. Spending the money to learn. Get the information and get the tools to apply it. Don’t be the idiot that risks their life savings on their first time out playing poker. Be the smart player that finds ways to play for free and then goes in with some beer money to see how they can do once real money is involved.

There’s not a day that goes by that there isn’t a great opportunity. Smart people don’t bet on the “once in a lifetime opportunity” they learn how to find opportunities every day. And once you realize that, you don’t mind taking your time to learn because you know you’re not missing out on anything you can’t get when you’re really ready.

http://www.savingsbonds.gov/indiv/products/prod_eebonds_glance.htm is the government web-site where you can learn all about Savings Bonds. Savings Bonds are a government backed investment with a reasonable guarenteed return on investment.

You can purchase a paper bond at half of the face value. So for a $1000 bond it will cost you $500. These bonds are guarenteed to be worth their face value in 20 years regardless of the interest rate. After the bond has reached its face value it will continue to earn interest at the fixed rate when it was purchased. Currently the rate is 1.3%. For those 20 years you will be earning 1.3% each year for $1000 compounded every 6 months.

So we earn $295.84 in interest over 20 years.

Let’s calculate the effective interest rate assuming that a $1000.00 bond matures (reaches face value) in 20 years. The interest on Treasury Bonds is compounded every 6 months so in 20 years there will be 40 periods.

We multiply the result by 2 since there are two periods per year making the effective interest rate about 4.8%. If we were to compound interest monthly it would be an effective interest rate of about 4.77%.

About a year ago ING was paying about 4.0% for their savings accounts. Now they are paying 2.75%. You can see that a Savings Bond provides a stable long term investment. However, because you can only purchase up to $5,000 per year (investment value) of these savings bonds you are limited in the amount you can invest.

An advantage of savings bonds is that the interest you earn is only taxed federally. They are also tax free if used to pay for an education. This makes them great gifts for babies. By the time they are ready to pay off student loans their bonds will have matured.

With a savings account the interest is counted as income and both the state and federal government take a piece of it.

A savings bond can allow you to make more and keep more of the return that you earn on your investment. The trade off is that it is very long term and you have very restricted access to the money until it matures.
href=”http://www.savingsbonds.gov/indiv/products/prod_eebonds_glance.htm”>http://www.savingsbonds.gov/indiv/products/prod_eebonds_glance.htm is the government web-site where you can learn all about Savings Bonds. Savings Bonds are a government backed investment with a reasonable guarenteed return on investment.

You can purchase a paper bond at half of the face value. So for a $1000 bond it will cost you $500. These bonds are guarenteed to be worth their face value in 20 years regardless of the interest rate. After the bond has reached its face value it will continue to earn interest at the fixed rate when it was purchased. Currently the rate is 1.3%. For those 20 years you will be earning 1.3% each year for $1000 compounded every 6 months.

So we earn $295.84 in interest over 20 years.

Let’s calculate the effective interest rate assuming that a $1000.00 bond matures (reaches face value) in 20 years. The interest on Treasury Bonds is compounded every 6 months so in 20 years there will be 40 periods.

We multiply the result by 2 since there are two periods per year making the effective interest rate about 4.8%. If we were to compound interest monthly it would be an effective interest rate of about 4.77%.

About a year ago ING was paying about 4.0% for their savings accounts. Now they are paying 2.75%. You can see that a Savings Bond provides a stable long term investment. However, because you can only purchase up to $5,000 per year (investment value) of these savings bonds you are limited in the amount you can invest.

An advantage of savings bonds is that the interest you earn is only taxed federally. They are also tax free if used to pay for an education. This makes them great gifts for babies. By the time they are ready to pay off student loans their bonds will have matured.

With a savings account the interest is counted as income and both the state and federal government take a piece of it.

A savings bond can allow you to make more and keep more of the return that you earn on your investment. The trade off is that it is very long term and you have very restricted access to the money until it matures.

The Sunday Paper is one of the most valuable papers you will find. In it are contained dozens of coupons for products you already buy. The Arizona Republic costs $2 a week for Sunday only. The East Valley Tribune is $240.24 for 52 weeks or about $4.62 per week. The East Valley Tribune doesn’t have a Sunday only subscription like the Arizona Republic does. Research major papers in your area to find the cheapest way to get the Sunday paper. You may even save money by just walking down to the local convienence store and paying the newstand price.

In addition to the Sunday paper there are a number of sources to find coupons on-line including http://www.coupons.com. The selection of on-line coupons tends to be very small compared to what you can find in the Sunday paper.

Often grocery stores will multiply coupons up to a certain amount so for example a 50 cent coupon could end up saving you a dollar or two dollars. Lose any concept you may have of store loyalty. When prices are comparable, fine, go to the store you like most. But don’t pass up savings just because it’s not the store you usually go to. Stores don’t have customer loyalty. There’s no point in being loyal to stores.

With only a few coupons a week you can easily pay for the paper and then some. One of the tricks with coupons is that coupons tend to come out when the item is not on sale but do not expire until after the item goes on sale. Unless you need an item now, keep the coupon until the item goes on sale or use the coupon on the last possible day. And if the last possible day rolls around and you decide you don’t need the item, throw the coupon away.

Part of the purpose of coupons (from the marketing standpoint) is to get you to muddy your view of wants and needs. Buying items you wouldn’t normally buy just because you have a coupon is a good way to lose money. Buying an item that isn’t on sale just because eyou have a coupon is a good way to spend more money than you need to.

Buy only things you need and try to minimize the price you pay by waiting for sales and coupons.

You will find that the Sunday paper will save you hundreds of dollars per year for a very small investment.

A Certificate of Deposit or CD is a product a bank offers that allows you to earn a larger interest rate. A CD uses Simple Interest to calculate how much you will earn over a certain period of time. In exchange for the higher interest rate the bank typically requires that you leave the money in the account for the entire duration that you agreed upon when signing up for the CD. Taking your money out early could result in penalties.

Currently ING is offering a CD with a yield of 4.00% over 12 months. So if you deposit $1000.00 into this CD you will make $40.00 in interest at the end of 12 months.

Since a CD is simple interest, let’s determine what the equivalent compound interest rate would be assuming that the interest is compounded monthly.

PV is the present value which is the amount you start with. In this case we started with $1000.00. FV is the future value or the amount you will have at the end. In this case we will have $1040.00. N is the number of periods that we are compounding the interest. Since we’re compounding monthly for a year N would be 12.

However, “i” is the periodic rate. We multiply by 12 to get the annual rate which is about 3.9%.

So you would need to put your money into a savings account with a 3.9% rate in order to match the return of a 4.00% CD.

Currently ING is offering a savings account with a 2.75% APY. So you can see that in exchange for keeping your money in one place banks are willing to offer a higher interest rate. When deciding whether or not to put your money into a CD you need to consider the return compared to a regular savings account and the potential need to have access to the money.

So with compound interest over 12 months at 2.75% you would end up with $27.85 in interest; $12.15 less than the CD.

So in effect it costs you $1 per month to have unrestricted access to your money.

The potential money you make in a CD over what you would earn in a high yield savings account may not justify locking your money away. If you think you may need the money prior to the end of the period required by the CD then you should not put it into the CD.