Monthly Archives: March 2010

The Secret to Falling In Love With Your Home All Over Again

Posted on by  at  5:00 am
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Home ownership has long been described as the American Dream. Some in the media have questioned that statement recently, and for good reason. For many, their dream has turned into a nightmare with underwater mortgage balances, mortgage rates adjusting, and ever-increasing property taxes. Still, most of us take great pride in our homes, whatever that home looks like.

time fun by Divine in the Daily on Flickr

Remember the first time you saw your current home? Did you fall in love? Remember the excitement the day you closed, or signed that lease, or did whatever you had to do to get you and your family in that home? It was a proud moment.

Over the weekend, we planted a tree in our backyard in memory of my mom (she passed away last September). When the digging was done, and the tree and flowers were in place, I sat on a bench we placed next to the tree. Time to reflect.

I took off my muddy shoes and could feel the warm grass under my bare feet. I watched my kids play on the other side of the yard. I watched our dog roll around in the grass, tired from chasing birds, squirrels and other furry intruders. With storm clouds approaching, I knew we would soon seek shelter inside our home. Safe, warm, dry. I thought, “This is what it is all about. This is the American Dream.”

3 Things to Remember About Your Home

We tend to take things for granted. But experiences come along that remind us all that we have to be grateful for. My kids questioning why there are people sleeping under a bridge. Seeing a neighbor’s home destroyed by fire. Learning of a family close to us struggling to avoid foreclosure. All of these things reminded us how fortunate we are to have a roof over our heads.

Home is Where You Make It

For most of us, our homes are a great source of pride. For others, they may feel shame because of the size of the house, or its condition. Get over it. Your home is your own, whether it be a mansion, a trailer, an apartment, or a tiny house. It provides a warm, safe shelter to those you love, and considering the number of those losing their homes, we should be grateful.

Your Home is Not an Investment

This lesson has been reinforced for us over the last couple years, but it is worth repeating in the context of loving your home. It is unfortunate that so many homeowners have seen value wiped out, but what someone else is willing to pay shouldn’t change the value you assign to your home.

A house is filled with memories, and love, and no tax assessor or appraiser can put a price on that. Over time, I suspect values will again appreciate. After all, land is the one thing they cannot generate more of. In time, the laws of supply and demand will take over. In the mean time, enjoy your home for what it is, not just an investment.

Houses are Meant to Be Lived In

Have you ever been to a home with plastic on the sofa, a “No Shoes” policy on all carpeted areas, and an environment pristine enough to perform surgery? These homes often look quite nice, but they don’t feel comfortable to me. In our house, we recognize that homes are to be lived in, which means over time they’ll get a few dings.

A quick look around our house reveals the spot on the front door where I scraped it moving in our refrigerator. The crayon mark on the wall from my son. The muddy spot on the back door where our dog scratches to let us know she’s ready to come inside.

Some would consider these blemishes unsightly. To me, it adds character to our home, and I’m no rush to put a Magic Eraser to those memories.

So the next time you are grumbling about the rent, or upset over that new tax bill, remember why you allocate your hard-earned dollars towards your home. Is it an investment – some abstract vehicle to park your money and expect a return in twenty years? No. It is your home. Now love it.

*This article appeared in the Carnival of Personal Finance: Unanswered Questions Edition

Are You a Dinosaur for Not Investing in ETFs?

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The following guest post is from Neal Frankle of Wealth Pilgrim. Wealth Pilgrim is on my short list of daily reads. After reading the post, head over to Neal’s site and sign up to receive his posts.

ETF’s (Exchange Traded Funds) are pretty darn popular these days.  The total dollars invested in these buggers grew 45% last year to $242 billion.

You probably read about ETF’s where ever you go and you might feel like a relic for not owning any.  I’d like to explain what they are, how they can be used and why you might be just fine not worrying about them at all.

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First, what are ETF’s?

Think of these as mutual funds.  They both have a lot in common.  Like funds, an ETF owns a basket of stocks. When you buy into an ETF you own a small portion of each stock – just like you do when you buy a fund.

So how are they different?

Well…the ETF usually holds on to the shares they buy.  There is very little buying and selling.  They simply buy the stocks that are held in an index and they only buy or sell when the people who run the index replace one company with another. A mutual fund on the other hand buys and sells shares much more often.  This is the core issue that separates ETF’s and funds.

Because ETF’s have little trading activity, they offer much lower costs and fewer tax problems.

You see, if a fund trades shares, they need someone to do the trading and other people to make the decisions.  These people are usually very highly paid and that’s one of the reasons why funds have higher expenses.

Are the high costs of trading and fancy managers worth it?  Do funds have a higher return than ETF’s?

Usually not.

Depending on the year, 70% to 80% of the actively managed funds fail to outperform the indexes – and ETF’s are just index funds.

So, should a reasonable person conclude that it’s silly to buy mutual funds.

Well….yes and no.

“”Yes – stick with ETF’s “ if you are a buy and hold investor.  ETF’s are less expensive and that’s the reason why they outperform 70% to 80% of the actively managed mutual funds.  That being the case, if you buy and hold your funds, get some broadly based ETF’s and hold on to them.

But that’s not the end of the conversation.

Let’s say you don’t believe in “buy and hold”.  Let’s say you use a strategy that reviews market strength and you update your portfolio often.

In that case, you shouldn’t restrict your investments to only ETF’s.

You should buy the fund (or ETF) that is performing best according to the strategy you use and the criteria you select.

That’s right.  Not everyone is a “buy and hold” investor and not everyone should be.

Some people try to reduce risk by using approaches like these and it’s not something you should dismiss out of hand.

Some investors try to buy funds in stronger areas of the market, stay away from areas that are weak, and possibly get out of the market all together when they see storm clouds ahead.

Do these people make more money than buy and hold investors?  Sometimes they do.  Sometimes they don’t.   Keep in mind that people who use strategies like these don’t always do so because they want to make more money.  They often use these types of approaches because they don’t want to suffer catastrophic losses.

Of course, no matter what approach you use or what investments you use, ETF’s or actively managed funds, you can still lose money.  No matter how you approach investing, there will be periods where you won’t do well. That sucks but it goes with the territory.

The bottom line is that, in reality, the debate between ETF’s and actively managed funds is all marketing and doesn’t mean squat to you.  Well…wait…I take it back….it might mean that you lose focus on the really important issues when it comes to investing and as a result you lose your shirt. So besides ETF’s, are there no other investment strategies that work?

So, should a reasonable person conclude that it’s silly to buy mutual funds?

Well….yes and no.

So what are the really important issues?

Your financial goals.  Your financial timeframe.  Your investment approach.  Your clarity on the first two and your willingness to stick to the third concept no matter what.

Do you only invest in ETF’s?  If so, why?

Photo by kevindooley

6 Ways to Save Money In the Kitchen

Posted on by  at  6:00 am
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This article is by Adam from Money Relationship. Subscribe to his site to get free updates on his journey out of debt.

I’ll admit it, the kitchen is my wife’s zone. I only enter it to get something to drink, empty the dishwasher or grab a snack. That’s about the only time I’m in there. I’m the guy who likes to sit around and think about ways to save money, not cook. So, while my wife has been hard at work cooking (which I LOVE honey!), I have been thinking about ways we can save money every month in that particular department. There are plenty of things in the kitchen that you can save money on. Some things could add up to hundreds of dollars per month while others may save you a few cents. Either way, you can save some money and may even help the environment in the process. Here are a few that I came up with and be sure to add yours in the comments!

1. Unplug the Vampires

Most of you have probably already heard this, but many small appliances continue to use power even when they are turned off (called vampire energy loss). For example, my wife and I have an amazing 4 slice toaster by Kenmore. It was a wedding gift and we are really glad we put it on our registry. However, it has these bright blue LED lights on them that constantly stay on when plugged in. I know LED lights are supposed to be really low on power consumption, but there is an even cheaper way of running it. Unplug it! There are other appliances that you could unplug after use such as mixers, coffee makers, radios and microwaves. By unplugging them, you can save a few bucks a month and maybe help out the world a little.

2. Don’t Heat Your Kitchen With Your Oven

Obviously, your oven is a big energy consumer when on. Therefore, it’s best to keep its use to a minimum. When you are using it, only open and close it when starting and finishing the meal. There is no need to keep opening and closing the door. That just makes it have to work harder, thus using more energy. It’s also not necessary to pre-heat for most items. It just makes you have to keep the oven on longer.

3. Turn Up the Temperature in the Chill Box

A lot of people love to turn down the temperature in their refrigerator. I’ll never forget the day I went to visit a friend and got some milk out of the fridge. It had ice in it! Talk about a waste of energy. Your fridge is probably the biggest energy consumer in the kitchen. Turn up the temperature just a little. Experts say that between 38 and 42 degrees is an optimal setting to keep your items fresh and save energy in the meantime.

4. Skip the Pre-Rinse and Dry the Dishes By Hand

I used to use the pre-rinse cycle on the dishwasher every so often. I always thought I was doing more good than harm because I was getting some of the grime off  before the “final” wash. After thinking about it, I was just wasting a TON of water and using up electricity to heat it up.

Most people now use a dishwasher to wash their dirty dishes. I know we do. I’m not really sure what the savings (or added costs?) are when compared to washing by hand but if you do use the dishwasher, skip the dry cycle. The heated dry cycle uses a lot of energy and it’s better to dry them by hand or let them air dry.

5. Buy In Bulk

My wife and I bit the bullet last week and joined Sam’s Club. We live in an apartment so space is limited but we feel that we can make up the cost of the membership in about two months of shopping. We mostly joined for the produce, meat and lunch items (for packing) so it shouldn’t take us long. Heck, on our first trip we saved about $15 compared to the prices right next door at Wal-Mart.

One of our favorite gifts from the past few years was a Foodsaver vacuum sealer. My wife and I don’t eat a whole heck of a lot so we often found ourselves wasting meat or having it get freezer burnt after throwing it in a ziploc bag. As many of you know, freezer burnt meat isn’t that appetizing. The vacuum sealer helps us keep the food fresh and taste like it just came from the market.

6. Shop Smart

Another great tip is to shop smart. When grocery shopping, look for great deals and always be looking out for coupons on the items you purchase frequently. My wife and I don’t coupon but would like to try it out (maybe?). We just don’t know where to get started or if it would benefit us since we don’t spend a fortune on groceries like a family of 6 would.

What other tips do you have? Share them in the comments!

Spring Home Improvement Projects

Posted on by  at  6:00 am
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Anyone have plans to do a little home improvement this spring? We have a couple projects we’re looking to accomplish before those April showers set it, but nothing too elaborate. First, we’d like to install rain gutters on our house as planting near our home is nearly impossible thanks to heavy rain runoff. I’m also looking into ways to collect the rain water in some sort of rain barrel (more to come on that project) to irrigate our expanding square foot garden.

Once we get the gutters installed we would like to pour a patio or build a deck on the back of our house. Our home has a very small back porch area that is barely big enough to house my grill and the kids’ outdoor toys. We’re leaning towards pouring a larger patio off the porch to put some outdoor furniture, and to have a place to enjoy backyard campfires in the chiminea.

For now, we are focusing on saving up the cash to pay for our home improvement projects. So what are you up to this spring?

The Frugal Roundup

38 Random Acts of Robyn. Wow, what an amazing post. (@Mix Mingle Glow)

9 Timeless Nutrition Tips For Any Age. Here are some brief but very beneficial tips on nutrition. I really like the tip on eating at a table as it just makes sense. (@Marc and Angel)

8 Stupid Fees Consumers Hate to Pay (But Often Do Anyways). Hey, I know I’ve paid some of them!  (@Len Penzo dot Com)

10 Financial Mistakes I’ve Made in the Past Year. Hey, no one is perfect when it comes to finances. (@The Simple Dollar)

Best of the Rest

Tricks Stores Use To Get Us To Overpay

Posted on by  at  5:00 am
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While recently catching up on my offline reading, I ran across a small piece in the April 2010 edition of Money magazine. The column features William Poundstone, the author of Priceless: The Myth of Fair Value (and How to Take Advantage of It). The article points out ways to combat stores sometimes gimmicky pricing techniques aimed at getting us to pay more than we normally would for a particular item.

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Photo by auntjojo

In the article, Poundstone makes the point,

“When you have to estimate the value of something, you use a mental process called anchoring: You decide what’s fair based on what you know.”

That’s exactly what most of us do when we march into stores to pick up a particular item, like a new portable air compressor (a recent item I decided to pick up to inflate tires at home and on the road). In my head, I had an idea of how much a portable air compressor should cost – somewhere in the $30-$50 range. My estimate was loosely based on similarly-sized gadgets I’ve seen, and bought, in home improvement stores, such as mini shop-vacs, cordless tools, etc.

I also took some time to scout around online to determine which model and features I was interested in, and to get an average price from online retailers. Since I was buying the air compressor just before an upcoming trip, purchasing online wasn’t really an option, unless the cost savings were significant enough that I could still pay for expedited shipping and come out ahead (not likely).

Back to my trip to the home improvement big box store. Armed with my Amazon.com print out reflecting the model and price of the Black and Decker Air Station (a safe choice in my price range), I went straight to the hardware area and located the item. It was $39.99, just a dollar more expensive than the online price. After sales tax, the final price was comparable to what I would have paid with online shipping, so I was happy to just buy it in the store and have it for our upcoming trip.

Beware of the 10/$10 Deals

Unfortunately, not all purchasing decisions are created equal. Neither are store sales and signage. Our local Kroger frequently runs 1o-for-$10 deals on particular items throughout the store. In theory, these are great deals. However, they have a way of skewing that anchor Poundstone refers to. Shoppers automatically want to buy more of the item simply because it is marked 10/$10.

I’ve even caught myself falling for this trap with things like spaghetti noodles, condiments, and other 10/$10 goodies Kroger often puts on “sale.” Normally, their store brand ketchup runs between $1.29 and $1.39. We pick one up every couple months when we open the backup from the pantry.

But when those babies go on the 10/$10 deal I feel compelled to clear the store shelves. After all, five bottles of ketchup at $0.29 off is over a dollar in savings! Recognizing I don’t have to buy more than one item doesn’t seem to help either. The 10/$10 offer often compels us to buy more than we would if they were simply price $1.00 each, just as Poundstone mentions in the article.

My shopping trip invariably winds up with me returning home and asking, “What the heck am I going to do with five bottles of ketchup?” Stockpiling is a good idea, but there is only so much room to store this stuff.

A more recent example involves Kroger’s “Buy 8, Get $4.00 Off” promotional. I don’t mean to pick on Kroger; we actually like the store and do nearly all our shopping there. During this promotion various items around the store are tagged with a special sticker. If you buy eight of them, you get $4.00 off of your bill instantly. What a deal! That’s a family-size bag of Doritos!

So what do we do? We run all over the store buying things we don’t need to get up to that magic number of eight “specially marked items.”

How to Avoid Overpaying

When you enter the store, it’s a good idea to take along both a physical list and a mental list. The physical list is an easy one – it’s a list of items you need for meals and snacks over the next week or two. But the mental list is where you’ve anchored some idea of how much these things cost, and how many items you really need.

Armed with both lists, you’ll be able to resist the temptation to pay more, or buy more quantity, than you were willing to before entering the store. And no store promotion can move that anchor.

What other strategies do you use to avoid paying more? Do any of you keep a price book to track the cost of items over time, or from different stores?

*This article appeared in the Carnival of Money Stories: Final Four Edition