Where does the money go?

The Atlantic.com created an interesting chart based upon a story by Planet Money. It shows what % of income is spent on different categories by different wage brackets.

How does this compare with your family budget?

Quilts

When I hear the word quilt, my mind pictures elaborately stitched creations like those made by the Amish. My wife & I love quilts and occasionally frequent quilt shows and exhibitions to see new patterns and cleverness of design. But I was reminded by a post at SurvivalBlog.com of the humble origins and true nature of quilts. My mental image of quilts was equivalent to thinking of hybridized orchids as the only "true" flowers or a gourmet meal as "food".

Quilts were meant to be practical. I have two "camping quilts" that my grandmother made that we still use in the winter. They are made with a simple design of large squares of old scraps. As the fabric gets old and brittle we've replaced some of the squares. In centuries past, quilts were highly valued, often being listed in the inventory of homes for inheritance settlements. 

A quilt is not the fabric design but the construction method of building a blanket sandwich with two outer sheets and an warm insulating center . "Quilting" is the stitching that keeps the insulation in place so it does not bunch up or slide to one end of the quilt. There are "whole-cloth" quilts with no cut pieces at all, just two white sheets and bunting in the middle and yet these can be amazingly beautiful with elaborate stitching patterns used to sew the layers together.

The elaborate stitching patterns are optional. My wife made a denim quilt a few years ago; she bought old jeans at tag sales, removed the seam stitching, ironed them flat, cut squares, and connected the squares on a sewing machine.  For the final "quilting" step we used a thick needle and yarn to tie the layers together with a knot every 6 inches or so apart.

I also learned from the SurvivalBlog.com post that denim is not the best choice for a quilt. It's heavy. (I'll say, you can feel the quilt pressing down as you sleep).

"when you want to stay warm, heavy is not what you want.  To properly insulate yourself from the cold, you need trapped air, and if the top layer of the quilt is of a heavy fabric, it squishes down the insulation and just doesn't keep you as warm."

Care for Old Cars

My parents are buying a new car and discovering the sticker shock of what new cars cost. They spent thousands of dollars to keep their 10+ year-old-car in good shape but it was recently totalled in a fatal car accident while driven by a friend who was house sitting while my parents were on vacation.

The car I drive every day is ten years-old and given the economy it's not unusually for families to keep their cars running longer and longer. PopularMechanics offers advice for maintaining old cars:

1. Love Thy Cooling System:
   one sure way to kill a car is overheat the engine and run it without coolant. Hoses get old and need to be replaced  - check your service manual. My car just passed the 100K mile mark and got new hoses and a new water pump
2. Brake Time:
   
   "Flush (completely replace) the brake fluid every two years. [...] check on the smaller pieces while you're in there. If your car is more than seven years old, replace the rubber brake lines when major brake work is required. If the rotors or brake drums must be removed, check the wheel bearings.
3. Black Gold:
   
   Your oil should be a "not-too-dark amber fluid. If the fluid that flows from your crankcase is jet black and contains bits of silvery flakes, you've got problems."
4. Don't Do Everything Yourself:
   
   "Periodically have an independent repair shop check critical steering and suspension components"

Money Tips for All Ages

The FDIC (Federal Deposit Insurance Corporation), the government corporation that insures bank accounts, has published a booklet with Money Tips for All Ages
http://www.fdic.gov/consumers/consumer/news/cnspr08/spring_08_color.pdf

Topics include:

• Practical Advice for Everyone
• For Teens: How to Ace your First Test Managing Read Money
• Young Adults: What to Know Before Declaring Your Financial Independence
• Newlyweds: Staring a Household on Solid Ground Financially
• Midlife: Multi-Tasking
• Parents: Teaching Children
• Before Your Retire: Getting Ready for the Golden Years
• After Your Retire: Living on Reduced Income
• Caregivers: Helping Disabled or Elderly Relatives
• Life Events: Ways to Cope with Big Changes

http://www.fdic.gov/consumers/consumer/news/cnspr08/spring_08_color.pdf

Comsumer Psychology

Here are a few more items from the Atlantic's The 11 Ways That Consumers Are Hopeless at Math.

You can be influenced (we do what we're told):
When a restaurant highlights an item with a photo or outlined in a box or printed in bold, you can bet that the item is good for the restaurant's profit line. It may be a fine item but be aware of the subtle influence and make up your own mind.

It's not Fair!
There's a classic experiment that demonstrated that people are not the rational actors that Economists thought they were. Person A is shown $10. He/She must decide how much to share with person B in a take-it-or-leave-it deal. If Person B nixes the deal, no one gets any money; A and B get nothing unless B is pleased with the deal.
Under a rational model B should agree to any amount greater than zero. A free penny is still a free penny and B is ahead. But that is not what happened. Instead most B's voted with their feelings and vetoed the deal if they felt it was not a fair split like 50-50.

Our minds do funny things when it comes to fair value.

In another experiment a person was told, you have a ticket for a play worth $20 and a $20 bill in your pocket. When you arrive at the play you find the ticket is missing. Do you buy another ticket?  Many people said no. I guess they felt they had paid once and refused to pay again or didn't want to throw good money after bad? 
In a second experiments the subjects are told they have two $20's. When they arrive at a play they want to see, they find one of the 20's is missing. Would they still spend the remaining $20 to buy a ticket? Most people said yes. They felt that the missing $20 had nothing to do with the decision to buy a ticket or not. There was no correlation. And yet, financially the two test cases are exactly the same. An item worth $20 was lost.

The Atlantic tells this story,

[Economist Dan] Ariely pretended he was giving a poetry recital. He told one group of students that the tickets cost money and another group that they would be paid to attend. Then he revealed to both groups that the recital was free. The first group was anxious to attend, believing they were getting something of value for free. The second group mostly declined, believing they were being forced to volunteer for the same event without compensation.

It's all a matter of perception.

Item's with 9's sell better. We may think $19.99 is a silly price but our mind locks onto the first digit '1' and we know in our gut that '1' is less than the '2' in $20.00.

"In the number 9, the bargain-hunter/discount-gatherer corner of our brain spots a pluckable deal."

Rebates and Warranties are money makers for business

"The first buys the illusion of wealth ("I'm being paid money to spend money!"). The second buys peace of mind ("Now I can own this thing forever without worrying about it!"). Both are basically tricks."

Business is counting on you to forget to submit the rebate form or to forget to follow-up if the rebate never arrives. As for Warranties, they are rarely collected upon so it's just extra money for the company for doing nothing.

Consumer Math - Price Extremes

For the first half of the 20th century, Economists assumed that buyers were rational, i.e. that they would also do that made the most sense mathematically. But experiments showed that buyers are very irrational by influenced by things we are often not even aware of. TheAtlantic.com gives some examples in The 11 Ways That Consumers Are Hopeless at Math.

Anchor Bias

Most of us have no idea what a fair price is for a home so instead we have to build a mental model of price comparisons and determine if the price is reasonable. Salespersons take advantage of this by showing the highest priced items first. Suppose you want a pool table. The salesperson will first show you a $10,000 model with amazing features. Oh, that's way too much. Next a $5000 table that's on sale. Uh, still too high. How about this $3000 model for bargain hunters? You take it because it seems like such a deal in comparison and you're beginning to look cheap. In reality there are many fine pool tables for under $3000 but the salesperson has distorted your mental price model artificially high. Odds are that $10,000 pool table will never sell but it's used to distort your perception of a fair price range.

Some menus take advantage of price anchors by listing early and prominently a steak or lobster at a high cost. So anything you order seems a bargain in comparison.

The book Priceless give a real example, Williams-Sonoma doubled sales of a $279 bread maker by adding a $429 bread maker next to their $279 model. Nothing had changed in the old model but now it looked like a bargain in comparison.

Price Extremes & Goldilocks

Given a range of prices and product choices which do we pick? Most will shun the highest priced thinking it must be overpriced and shun the lowest priced because it must be somehow inferior to allow for the super low price. So we pick a price in the middle of the range that's not too high or too low but just right regardless of the actual merits of the products themselves.

Consumer Math - Unit Cost

The Atlantic has a great article titled The 11 Ways That Consumers Are Hopeless at Math which will be the basis of my blogs this week.

Would you rather get a 33% discount off the price or 33% more product (more coffee, more cereal, etc)?

It turns out these are not the same. When you compare two products it's not enough just to say, product A is cheaper than B. What if B contains twice as much as A but only costs 50% more? Then B is the bargain. The trick to comparing different sizes of the same product is to use UNIT COST, that is dollars per quantity where quantity is some common unit of measurement like cups or pounds.

UNIT COST =  $cost / quantity

Now lets return to the original question. Which is better: a 33% discount or 33% more product?
The 33% discount reduces the top part of unit cost by 1/3 and new unit cost is 2/3 of the old.
The 33% more product  increases the bottom part of unit cost by 1 1/3,  or an increase of 4/3 in the denominator. We invert that number to find the new unit cost is 3/4.   And since fractions are difficult to compare let's convert everything back to percentages:
33% discount means a new unit cost 64% of the old
33% more product means a new unit cost that is 75% of the old
Discount wins!

"This is your brain on shopping, and it's not very smart" - The Atlantic

Saving Money on Gas

Finance.yahoo.com suggests many ways to counter the $4 per gallon price of gas...

1. Read your owner's manual
   It will tell you the best type of oil for your car, what level of gas to use, the best tire pressure, etc.
   Oil change companies suggest new oil every 3000 miles but your manual may tell you that every 7500 is sufficient.
2. Check your tire pressure every month
   You'll burn more fuel with under inflated tires
3. Lighten your car
   Take out anything you don't really need from your trunk &  back seat.  100 pounds can decrease fuel economy by 2%.
4. Aggressive driving burns fuels
   Avoid quick starts and stops. Fuel economy is worse at higher speeds.  "Every five miles over 60 mph is like paying another 20 cents per gallon for gas."
5. Use the Internet to find the lowest priced gas in your neighborhood
   But also keep in mind that at $4/gal it costs about 20 cents to drive 5 miles (at 25 mpg). To break even with a fill-up of 10 gallons of gas, that station 5 miles away needs to be 2 cents per gallon cheaper then the station a block away. If you drive 5 to save a penny per gallon, you've lost 10 cents.
6. Take advantage of loyalty and rewards programs at gas stations and credit cards

Common Mistakes with Retirement Planning

The biggest mistake in retirement planning is not planning at all. I know many families who cannot afford to retire because they failed to save money when younger.

So let's assume you are planning and are saving. Moneyland at Time.com has identified The 7 Biggest Retirement Planning Mistakes

1. Assuming you can work until age X
   Two in five retire before they had planned to due to illness or job loss. So start early!
2. Ignoring Taxes
   Take advantage of IRA's and 401(k) reduce the taxes you'll spend for access to your money
3. Not saving enough for Medical
   The average couple who retires at age 65 will spend $285,000 in health-care costs!!!
4. Failing to Establish a Lifetime Income
   Few now-a-days (other than union or government workers) will have a pension for life. The article suggests an "immediate fixed annuity" to supply cash flow.
5. Retiring too soon
   You get less from Social Security if you draw from it the first year you are eligible.
6. Underestimating how long you'll live
   Many will live to 95 or 100 and outlive the money they saved
7. Spending your retirement too quickly
   Spend no more than 4% of retirement savings each year.

A $5,500 Cat?

My wife & I love pets, both dogs and cats, and yet they can be very expensive at times. We once had a German Shepard who ate about 1/2 a cup of raw flour which became dough in his gut and blocked all passage of food/water. An emergency vet massaged the gut to release the dough ball. Another dog, very old, was taken to an animal hospital when ill. Because we did not say, "do not resuscitate", they charged us $1000 to revive her when she died (and then she died again while still at the hospital).

At the Consumerist there's a story of How My Stupid Cat Has Cost Me $5,500 Over Three Years.

Hooligan (the cat) medical-related expenses: August 2009 - Current

• First-year vet checkup and vaccination rounds: $200
• Ear mites: $50 for meds
• Intestinal worms: $50 for meds
• Vet visit to figure out why his hair was falling out in nasty clumps: $200
• Ringworm: $50 for meds
• Anti-fungal medication for my boyfriend, who got ringworm from the cat: $10
• Neutered: $250
• Emergency vet visit because my roommate thought he had eaten a couple of her Adderall pills (yes, true story, and no, he had not): $200
• Urinary blockage 1: $500 for catheterizing
• Urinary blockage 2: $500 for catheterizing
• Urinary blockage 3: $1500 for overnight stay and catheterizing
• Fancy dancy C/D or S/O prescription-only cat food to prevent future urinary blockages: $40/month x 16 months (and counting!) = $640 (and counting!)
• Vet visit because he was pooping blood: $200 for x-rays and TWO enemas
• Vet visit because he was pooping blood again:$150 to diagnose the problem as "stress"
• Pills for "stress": $50

Energy Hogs

This morning I heard a commercial about a tax rebate in NY state for buying a new energy efficient appliance. Many old appliances are energy hogs and one reason why domestic energy consumption has more than doubled between 1949 and 2010. WiseBread.com has identified 7 Deadly Energy Sinners.

1. Older refrigerators hold up better but they also use up to three times more energy.
2. An old freezer can cost $120 in energy
3. A clothes dryer literally burns energy. 200 hour-long drying cycles can cost $85. That's cheaper than a Laundromat but money that could be saved with a clothesline.
4. Space Heaters use the power of a hair blow dryer but stay on for much longer.
5. TV's can use up to 1 kilowatt of energy when left on when you're not in the room. This adds $30 to your energy bill.
6. PC's if left on 8 hours a day will consume $60 per years
7. A swimming pool pump costs $240 per year to operate

Bottom Line

Turn off appliances when not in use.

Spend Less Than You Earn

The fundamental principle of financial security can be said quite simply, "Spend Less Than You Earn". Or as Saturday Night Live put it many years ago, "Don't Buy Stuff You Cannot Afford". FreeMoneyFinance.com says, Becoming Wealthy May Be Simple, But It’s Not Easy

While simple in theory, there's a few gotchas to keep in mind.

1. You must spend less than your take-home pay which will be much less than your salary. Taxes and Social Security take a big bite out of the pay check.
2. You need to factor in emergencies. It's not enough to say I keep my expenses within budget but this month I had to visit the vet, the doctor, the mechanic, etc and that put me over budget. Emergencies are part of life and need to be part of the budget too.
3. You need to prepare for retirement. If you spend every penny you earn today, what will you live on when you stop working?

One way to address the issues above is the 50/30/20 budget described by Liz Weston at MSN Money.

1. Start with your after tax income.  "If your employer deducts other expenses from your paycheck, such as 401k contributions, health insurance premiums and union dues, add those back into your net pay to get your after-tax income."
2. Work hard to limit your "must-have" expenses to 50% of what you earn after taxes. The "must-haves" included insurance, rent/mortgage, utilities, essential food, and minimum loan payments. If you choose not to buy something (like clothing) then it is not a "must-have".
3. Limit your "wants" to 30% of after-tax pay. This includes gifts, clothes, dining out, extra features for your TV or phone, etc. Is the Internet a want or a must-have? Think about it.
4. Save 20% of your after-tax income for savings or early debt repayment. "Any loan payments you make above the minimum belong in this category, as do contributions to your retirement and emergency funds."

For many families this may sound impossible. But when you exceed the limits above you put yourself into an impossible situation of a debt that you cannot pay back.

 “Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation. … Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.” - J. Reuben Clark Jr., 1938

A wood burning car?

With rising gas prices ($6 in Florida tourist areas) the following story was too good to pass up. Pascal Prokop of Switzerland converted his Volvo to burn wood for fuel and got an operating permit from the Swiss technical inspection authority.

Bottom Line

There are alternatives to fuel (and not just electric which costs money to charge up). The owner of a local restaurant runs his car on used cooking oil. He says the car always smells like french fries.

Seven ways to warm a room

Toe-kick heater

Our house has many rooms and there's little point in trying to keep them all warm in the winter. And my wife likes the temperature colder than I so I've taken to using an electric space heater when I'm at the computer in my "office". Yet electricity is NOT cheap and space heaters have their drawbacks - they're hot to touch, a trip hazard, and perhaps even a fire hazard if left on unattended. Are there other options? Yes, theFamilyHandyman has seven ideas for warming a room safely.

1.; Electric toe-kick heaters. These are small heaters with a built in blower that are installed at toe level in the base board of cabinets where you stand frequently - the kitchen sink, the bathroom sink, and so on. It will warm your toes and since heat rises, your legs will be happy too.

2. Duct-booster fans. If you have forced-air heat like I do, then you have one fan trying to push heat to the entire house. If there's a room not getting its fair share of warmth, you can install a booster fan inside the air duct to increase the air flow to a given room or floor. The article suggests buying a "quality" fan and avoid the cheap but noisy models.

3. Cove Heaters. These install along the top of a wall and radiate heat downward.

4. Electric floor heat - you can install wires or mats underneath a floor warm it up. But watch out! A friend has this in her kitchen, set down a grocery bag full of chocolates, forget about them, and they all melted. :-)

5. Radiant Ceiling Panels - these inch thick panels mount on a ceiling and radiate heat downwards. Like cove heating you can target areas where family actually sit.

6. Ceiling fan heater - Very clever, a ceiling fan with a built in heater so the fan works great in summer or winter.

7. Room to room ventilators - or "through the wall fan". If you have one room that is always too warm, you can put a fan in a wall vent and blow the warm air to another room.

Bottom Line

Heat wisely. Apply heat to the places you work, eat, and play instead of trying to warm all the air in a house.

$500 in the bank

MSN Money has a great article titled, Why you need $500 in the bank, which is cited in another story worth reading, 3 money tips for every income.

In the money tip for households earning less than $20,000 (below the poverty line of $22,000 for a family of four), Liz Weston says, "Forget, for now, all the advice about saving three to six months' worth of expenses." Yes, that is a worthy goal, but out of reach for a family below poverty. But this does NOT mean a family in poverty is off the hook from saving anything. Liz sets a target of $500 in the bank for emergencies.

Begin with $100 left in the checking account - always. This cushion will help protect against the costly mistake of bouncing a check. One tip is writing a $100 check to yourself, then don't cash it. Record it in the checkbook but then rip up the check. [Personally this would drive me batty since I balance the checkbook every month to the penny, but it works to "trick" some people into not spending that last $100]

Next: month by month put away a little money, say $20 per month, more if you can, into a savings account to reach $400. This will cover many common emergencies like a car repair bill, doctor bill, and replacing a broken refrigerator.

Lastly don't touch this savings unless there is a real emergency. If you do spend it, you must restore it ASAP.

Bottom Line

What happens if you don't have $500 in the bank? You may be forced to use a credit card and pay high interest rates for an emergency bill over months or years. Or use a payday money lender who will charge an outrageous fee. Or fail to pay your rent and risk eviction. Etc.

Everyone, should have at least $500 set aside for emergencies.

Strategic Shopping: The best months to buy foods

"We used to build civilizations. Now we build shopping malls."
~Bill Bryson

The SurvivalistBlog.net has an excellent article entitled Strategic Shopping: A Month-by-Month Analysis by M.D. Creekmore.  Here's a summary of the best months for certain food specials and deals:

January

• After Christmas Sales (wrapping paper, tape, bows, winter clothes)
• National Oatmeal Month
• National Beef Month
• National Meat Month
• National Tea Month
• National Soup Month
• Super Bowl (excellent prices on chips, salsa, soda and snacks)

February

• National Canned Food Month
• National Hot Breakfast Month (pancake mix & maple syrup)
• National Snack Food Month
• National Cherry Month
• National Potato Lover’s Month
• Sweet Potato Month
• Celebration of Chocolate Month
• Valentines Day Sales (candy)
• Chinese New Year (soy sauce, teriyaki sauce, noodles, bamboo shoots and water chestnuts)

March

• St. Patrick’s Day (corned beef & cabbage)
• National Red Cross Month (CPR class & first aid items)
• National Noodle Month
• National Frozen Food Month
• National Peanut Month
• National Peanut Butter Lover’s Month
• National Celery Month
• National Flour Month
• Spring Cleaning (cleaning products)

April

• After Easter Sales (candy & ham)
• Daylight Savings Time (batteries, smoke detectors, and carbon monoxide monitors)

May

• Memorial Day Sales (condiments, picnic items, chips, soda)
• National Barbecue Month
• National Hamburger Month
• National Salsa Month
• National Strawberry Month
• National Salad Month

June

• National Dairy Month (butter)
• National Iced Tea Month
• National Seafood Month
• Adopt-a-Cat Month (buy one cat, get one free? :-)  (cat food)

July

• Fourth of July (picnic/party items)
• National Hot Dog Month
• National Baked Bean Month
• National July Belongs to Blueberries Month

August

• Back to School Sales
• National Peach Month
• National Coffee Month

"Summer items begin to go on clearance. Keep an eye out for charcoal, lighter fluid, paper plates and plastic utensils, sunscreen and insect repellent."

September

• Labor Day (last of the picnic/BBQ sales)
• National Chicken Month
• National Honey Month
• National Better Breakfast Month
• National Mushroom Month
• National Rice Month
• National Preparedness Month
• Summer Clearance Sales (clothes)

October

• Halloween
• National Apple Month
• National Tomato Month
• National Pasta Month
• National Dessert Month
• National Seafood Month
• National Pork Month
• National Eat Country Ham Month
• National Chili Month
• Adopt-a-Dog Month (dog food)

November

• Thanksgiving Sales ( Baking goods such as butter, sugar, flour, chocolate chips, etc.)

"The week of Thanksgiving is the best sales week of the year."
Expect cooling weather sales on canned soups, coffee, tea, and hot chocolate.

December

• Christmas Sales (hams)

Bottom Line

A food storage is not just a wise precaution for preparedness, it can also save you money if you buy and stockpile items when prices are low and use them later in the year.

When will House Prices Return to Normal?

“Home is where you can say anything you please, because nobody pays any attention to you anyway”
- Joe Moore

In 2008 a sharp drop in home prices ($9 trillion lost) resulted in a near total collapse of the financial markets. If you're lucky any stocks you owned may have recovered back to 2008 levels. If you're a home owner you may be wondering, when will my house price recover and start going up again?

If the Case-Shiller Index by Yale economist Robert Shiller is correct, the answer is not good. House prices ballooned by 87% starting in 1997 and the pricing decline won't cease until homes return to 1997 values (adjusted for inflation).

Steve Barry at Ritholtz.com/blog created a chart illustrating Shiller's housing price index from 1890 and updated it to Jan 2011 (adjusted for inflation). The index is for home resales, not new sales.

As you can see from the chart, the current "boom" still has some deflating to do.

Bottom Line

I've been thinking that this was a good time to buy and a bad time to sell a house. But if the prediction of the chart above is accurate, then house prices will fall even further and stay flat until the next boom. So do you sell now or wait? Tough call. The chart above is missing a few things that push prices upwards:

"One should also adjust home prices for size — homes square footage shot up tremendously from 1995 to 2007, for Inflation (we had a huge inflationary surge from 2001-07, as the dollar collapsed 41%) and for Quality (high end materials and appliances migrated from the most expensive homes through to the top 30%."

P.S.

If you use this chart, please credit Steve Barry and his website Ritholtz.com/blog

See also http://www.pewsocialtrends.org/2011/04/12/home-sweet-home-still/ for a PEW report on prices and public perception.

Things that are Worth the Money

“Money never made a man happy yet, nor will it. The more a man has, the more he wants. Instead of filling a vacuum, it makes one.”
-Benjamin Franklin

Typical financial advice tells you how NOT to spend money. But I like the list at wisebread.com of 11 Things That Are Worth the Money.

1. Insurance - spend a little to avoid having to pay a lot
2. Culture - I'm all for culture, my wife & I love museums and visited one just a few days ago. But it's also easy to overspend here. We don't do Broadway Plays - I'd love to but the cost is ridiculous. We also save money by renting CDs instead of going to movie theaters.
3. Doctor Visits - your health is worth spending a co-pay for
4. Education - maybe. There is much talk of a "higher-education bubble" where the cost of college now exceeds the benefits. Education is great - but look for cheaper ways to get a college degree.
5. A Haircut - it is important to look nice, people do judge by looks. Just don't overspend at post hair salons.
6. Health - buy healthy food and do what is necessary to get some exercise
7. Home Maintenance & Repair  - a home is the most expensive thing you own - treat it well.
8. A Sharp Interview Outfit - see #5
9. Well-Made Shoes - Not sure if the list is thinking of dress shoes for looking good, like #5 and #8, or well-made shoes that won't hurt your feet.
10. Travel - Don't go into debt but travel is a great form of education. And fun too.
11. Visiting Family & Friends - "maintaining those relationships is something you can't afford to not do"

Bottom Line

What items do you think are worth the money?

12 Things Bought in a Bad Economy

“An avowal of poverty is no disgrace to any man; to make no effort to escape it is indeed disgraceful”
-Thucydides (Greek historian, 460-404 BC)

Moneyland at Time.com lists 12 items that are selling quite well at present. They call them "recession-proof" products but keep in mind that with some items (like #1) sales were flat before the recession so these might not be "good-times-proof" products.

1. Romance Novels - sales are up 7% at Harlequin
2. Junk food - doughnut sales are up, as are chips and other snacks
3. Nail polish - sales are up 68%. Traditionally lipstick has been the recession-proof cosmetic as a cheap way to look and feel better.
4. Halloween Costumes - yet another form of escapism from dreary reality
5. Fast Food - McDonalds is up 5% from last year. Sad in a way because fast food is not so cheap anymore.
6. Lottery tickets - wishful thinking
7. Generic Drugs - that makes sense
8. Chocolate - Hershey up 20%
9. Vegetable seeds?  - I guess people are hoping to save money by growing their own food. It didn't work for us - we grew two peppers.
10. Condoms - cheap entertainment yet reluctance to beget children in troubled times?
11. Yoga??? - inexpensive stress relief?

Bottom Line

When times are tough people find ways to distract themselves with cheap thrills and escapism. Can money buy happiness?

Is Layaway a good idea?

“The man who never has money enough to pay his debts has too much of something else.”
-James Lendall Basford

This year Sears, Kmart, Toys “R” Us, Babies “R” Us, TJ Maxx, Marshall’s, and Burlington Coat Factory are offering layaway plans. What exactly is layaway?

If you can not afford the full price for an item but don't want to see it sold out and unavailable closer to Christmas you pay the store part of the price and agree to pay in installments. There is an initial deposit based on a percentage of the purchase price (perhaps 10-20%) and a service fee (say $5-10) to administer the plan and keep the item in storage for you to pickup later. There are no interest payments but you don’t get to take the merchandise home until you’ve paid for it in full.

Most stores offer 30 to 90 days for you to make all payments. Some require payments every week or two to keep the item in storage. If you miss a payment the item might be put back on the shelf; some stores will give a refund of partial payments (minus cancellation fee) but others will only give you a gift card of money paid. Some stores will honor a sale price after an item has been put on layaway - others have limited time windows for honoring sale prices (eg 7-30 days).

Bottom Line

It's important to ask for and read the complete terms and conditions of a store's layaway plan before using layaway. You might be in for a nasty surprise if you change your mind or the item goes to 1/2 off two weeks later.

Unless the item is really expensive you're better off using a credit card than layaway. Consider the Rock n' Roll Elmo doll for $25 at Toys "R" Us. The layaway fee is $5. Say you have 90 days to pay in full. The $5 can be thought of as a loan with 20% interest for 90-days. (5/25 = 20%).  This is equivalent to an annual loan rate of 107% APR. By law credit cards are maxed at 30% APR. If you used a credit card for Elmo and paid it one year later, the interest would be 25 * .3 = $7.50 which is higher than $5 but you also had 4 times as long to pay it.

Better yet, don't buy a toy if you cannot afford it. An estimated 13.5 million Americans are carrying debt leftover from last Christmas. Go simple. Give a gift with love instead of a gift with batteries. Make something or give a gift of time like a free message or painting a room.