Money Management


The last time I had a long decent holiday in Europe was a visit to France almost a decade ago.   The euro was coming into play and at parity with the US dollar.   I remember my flight cost about $600 and the hotels for my entire stay was fairly affordable.  I visited the wine country in Angers.    We decided to take a European holiday this year visiting France, Italy and Spain and the price tag so far is over $15,000.    The air flight alone were about $6,000 and the hotels are pretty pricey in euros with the current exchange rate about 1 euro per $1.30 but still it will be worth it to enjoy a nice time in Europe.

The biggest problem Europe has though is that most hotels only accommodate 3 people and then require you to book a second room if you have four or five people with you.  European hotels are the most anti-family friendly places on earth!    Given that problem, we opted to rent a house in one spot and other accommodations elsewhere.

I am really astonished at how much going to Europe costs and reminds me why we’ve largely stayed away.   Of course I recently had my roof replace for 13k then my son’s tuition for school came due with first payment of 10k and now another 15k for Europe.   So I’ve easily spent 38k in about 3 months and that doesn’t include any of the extras for the trip like new digital camera to take great photos, the tux, or my upcoming MBA tuition for the Fall or the 20k I plunked down  on my mortgage to get down to less than 10k.  I decided I would take surplus cash and eliminate all debt by the end of the year.  Even with interest rates at 3% it doesn’t make sense to carry debt even at this low interest rate when cash is sitting not earning any real interest.

If all my goals hold, by the end of the year I won’t have a single dime of debt except for a student loan that’s now at 1.85% interest due to some fancy debt arbitrage.   I guess this time next year I’ll go on a really nice Australian/South Pacific vacation!

So I walk into a retail place called “The Men’s Warehouse” looking for a tuxedo.  I wasn’t trying to rent one but rather buy one that was somewhat “disposable” for an upcoming event.   The sales woman quickly measured my size and grabbed a tux and asked me to try it on.  It was a Calvin Klein Tux and it fit nicely and looked great.    The moniker, “you’re going to like how you look” seemed to be a great fit for the store.   That was until I saw the price tag for the tux which came in at a whopping $649.   This was the cost for just the tux not the shirts, shoes, cufflinks or other items.

While I wouldn’t have thought twice about plunking down $649 for a tux, the fact that I needed a more “disposable” one weighed on me so I decided to do a quick price check on Amazon.com.   I typed “Calvin Klein Tux” on Amazon and lo and behold…..the exact same suit for $349!

After the sales clerk came back, she asked me how I liked the suit….I said I loved it but didn’t love the price and did a price check on Amazon and saw I could get the exact same suit for 1/2 off!    She said she couldn’t lower the price but offered me a two for one option.  Buy the tux and get another suit for $100.   I laughed and told her the exact same suit is on Amazon for $349 and another sales clerk overheard me and said, “yeah everything is cheaper on Amazon.”

So it became clear that I would be probably not be taking the tux and order it from Amazon, she went off and came back with a nearly identical clone of the tux with a different brand name for the low cost of $249.   I really couldn’t tell the difference except that the Calvin Klein tux had a brighter sheen to it than the clone but paying $400 extra for some sheen didn’t make too much sense to me so I told her I’d take it.    The price point was lower than Amazon and I could get the needed alterations there to ensure a perfect fit.

Next, the sales clerk took me to try on some shirts then began to pull out cummerbunds, cufflinks and other stuff.  I quickly looked at the prices of everything (usually $49.99) for just about every item and did a price check on Amazon.  Sure enough, Amazon had every single item for half of the cost.   I did feel bad for the clerk because she spent a great deal of time getting items for me to try on so I went ahead and ordered two overpriced shirts ($120 for two) where I could have purchased them at Amazon for about $30 a piece.   But spending $60 extra for whatever tiny commissions or kudos she might get from the store seemed fair to me.

So the lessons learned here is that the Men’s Warehouse is a great place to go get measured, try out some brands and pick the one that fits best then go to Amazon.com and order your merchandise at half the price!   I wonder how long it is going to take for retail stores to ban cell phones and instant price checks.

 

My oldest child will begin high school in the fall.   He applied to various schools and was accepted to a few and rejected from a few.  These were all private schools obviously and the one he has selected has a tuition of about $22,000.  The other $3,000 are for extracurricular activities (i.e. sports) and field trips which aren’t included as part of the tuition.

Given that he’ll be in high school for four years, we’re looking at a total tab of about $100,000 for high school.  It could of been worse, he applied to a prep school in the northeast that would have cost twice that!   I’m sure we’ll face maybe another $200,000 for college depending on which school he’s admitted to but perhaps we’ll get lucky and he’ll  get a scholarship.

So why pay the high cost?  We live in the city and wouldn’t even consider sending him to one of the public schools around here and you’d be surprised to see how many parents are scrambling to put their kids into these private schools – it’s highly competitive!

As an alternative, we’ve contemplated moving out to the x-burbs and find a school there however when factoring in the lost time to traffic to get into the city, higher property taxes, and other expenses such as fuel, it ends up being a wash financially but worse off when it comes to free time so we stay put.    My mortgage is now down to $9,000 (yes nine thousand not a typo) so I’m living on 85% disposable income now and the 25k isn’t too big a deal but still I cringe at the thought of having to write a check for $22,000 in a few weeks.

My son, someday when you read this blog, I hope you will appreciate the amount of money we’ve spent on you to get you where you are today.

In just 6 months, we’ll be celebrating two years of Cable TV Free life.   We cut the cord when I gave my kids an ultimatum:  choose between your iPhone or Cable TV.  The kids choose their iPhone and we cut the cable TV cord.

To compensate for the elimination of Cable TV, I subscribed to NetFlix $8/mth, HuluPlus $8/mth, and had Amazon Prime $3/mth  at a student discount rate (still doing my MBA until December).   I purchased a couple of Roku boxes and off we were on the path to true IP TV.   For $20 per month, I get more content than I can ever watch and more is added daily!  In contrast, I was paying about $180 for 400 channels of which I only watched 3 to 4!

The family watches nearly all the TV shows off of our Roku now using HuluPlus or Netflix or Amazon and it’s a good thing because none of us could tell you which day of the night any particular show comes on anymore.    This was my largest pet peeve of broadcast TV, you watch a show on Friday nights and the broadcasters suddenly move it to Tuesday or Wednesday or some other date/time and it’s impossible to ever watch it again.

Now, I can miss three or four shows and simply get on my Roku and catch up on the shows I missed when I want, not when the broadcasters want.    Of course, this has now become a way of life for my kids.   They don’t watch TV with an antennae, they hook up their iPhone to the Apple TV wireless and stream shows to it or they watch TV right off their iphones or iPads.

Oddly enough, the kids have even stopped asking for TV’s in their room (something we’ve always denied) because their devices are now portable televisions.

I read today that Dish is trying to buy Sprint and that makes some sense since kids these days will more likely watch TV over cellular data network than satellite but I’m not sure it will make much difference.    I get weekly mailers now from Comcast, Dish, Direct TV, and AT&T to get service but why bother?

Just like VHS tapes and compact disc went the way of the dinosaur, I think Cable TV will be obsolete in about 10 years unless something changes such as a-la-carte programming that can compete for $20/month but I doubt the cable providers will come up with anything that compelling.    Of course, the final nail in the coffin of cable TV will be when google deploys their fast fiber everywhere.

So last night, I had to help a friend go pick up a trailer.  At first I didn’t think anything of it but once we kept driving for about 20 minutes I realized that this would now be at least a 40 minute trip and possibly more like an hour.     My vehicle only gets about 20 miles to the gallon and we were traveling at 70 mph so you can easily start doing the math or at least, I do in situations like this as I calculate the dollars in my head on a mile by mile basis.

40 mile trip @ 20 miles per gallon = 2 gallons.

2 gallons x $4.00/gallon = $8.00

Two tolls $2.50

SubTotal: $10.50

This is just scratching the surface too.  If I factor my hourly wage or what I value my time at, we are now into the $110.50 – $160.50 range but it gets worse!

I still haven’t factored in maintenance, insurance or other vehicle expenses into the equation.   You may say that this is irrelevant because if I’m going to own a car I have to maintain and buy insurance but I believe in the very near future, insurance plans will charge by the mile as will the gas tax eventually be replaced by a mileage tax so those factors will need to play a role.

In any event, if I forgo my labor, maintenance, insurance and other expenses, it cost me $10.50 to help a friend.    If you’re not doing these calculations when you’re doing your charity work, going to the mall to shop, or helping out friends then you may begin to understand the unknown part of your money problems.    This is also a key reason why I purchase about 80% of my stuff online at places like Amazon, Newegg, Overstock and others to avoid taxes, tolls, fuel waste and time waste.

 

What would you do with $50,000 in cold hard cash?   I spent the day wondering that today because while I am still waiting on a few final documents to finish my 2012 tax return I can see the raw numbers now.   So 50k is about $4166 per month, what would you buy with an extra 4000/month?  Would you go on a nice vacation every month?   What about buy a new car?  Heck you can easily afford a BMW with 4k per month.    I did the math and 4,000 a month at 6% over 60 months (five years) is about $200,000 so you could actually afford a Bentley although I don’t own one myself.

Sadly, I think my 50,000 will probably only support a federal employee’s pension benefits for about 6 months or so given the ridiculous nature of their pay.   Oh well, now time to see what kind of tax loop holes I can find to get some of that money back….

 

So we’re getting ready to do our health insurance enrollment for the next year and my employer is pushing hard on a new health savings account and I’ll be honest…it’s a no-brainer to sign up at least for the first year.

So how does a health savings account work?   It’s essentially a “401k” for your health and there are so many levels of irony here that I don’t know where to begin but I think it does spell the end of health insurance as we know it just like 401k’s spelled the end of pensions as we knew them back when corporations offered them.    Corporations are adept at finding new ways to provide less so why should health insurance be any different?

Back in the day…many companies offered pension plans which was part of a “three-legged stool” whereby an employee would get a retirement pension supplemented by social security/medicaid and savings.   As corporations didn’t want to offer or could not afford pensions, they gave employees the old switcharoo by offering 401k plans as they transitioned pensions out.  To sweeten the deal the corporations offered incentives such as employer match of 6% or more.     Fast forward a few decades later and pensions are a thing of the past….it takes a generation or two to forget they were ever offered to begin with in the biz world.

So now, my employer is offering health savings account with some sweet incentives such as:

1. Your monthly premiums will be cut in half!  Yes, whatever your health insurance costs are today, imagine slashing them in half.

2. The employer will put in a few thousand dollars in money into your account (first year only!) to cover your deductible.

3.  Free preventive care visits (no copay).

4. It’s tax deductible!

So what’s the catch?  Does the above sound too good to be true?   Well there are a few catches.   First, the plan has a high deductible meaning that before the insurance plan pays out a single dime, you must incur the first $3,000 in medical expenses.    This means that if you take regular prescriptions then that’s all on you up to the first three thousand.     Of course, if your employer is going to put in a few thousand into the plan then your first year is free right?  This is the no-brainer part!

After the first year though, the employer isn’t offering a pool of money so the first 3k will be entirely on the employee the second year.   Sound familiar?  It’s the pension to 401k trick!

To be fair, the employees can still choose the old plans which include PPO and HMO at increased costs which doesn’t make them very appealing.  I can’t really complain and I’m taking advantage of the money and the tax deduction to lower my MAGI at the end of next tax year.

I have had a long standing theory about the stock market for quite some time:  baby boomers would suck the market dry to survive over the next 20 years.   Ironically, we seem to be on the same path that Japan was 30 years ago and Japan hasn’t really recovered in that period of time.   Is the U.S. going to be the same way?

Every day, 10,000 baby boomers hits retirement age which means they go on government health care, stop contributing to their 401k’s and start pulling money out.  If you want to know how bad seniors will have it Japan has a preview here.  I think the major depletion of the market has largely been masked by the Federal Reserve’s QE-Infinity where the government keeps printing money and this won’t end well for either seniors who live on fixed incomes or the general population which will end up paying $10/gallon of gas in a few years.

Interestingly, as I peruse financial blogs, there isn’t much to read.  Gone are the days of young, hungry and enthusiastic finance bloggers wanting to make money or share some interesting financial advise.   Personally, I had expected the economy to improve quite a bit by now but I can tell it’s still a struggle for many people out there.  I know a few families that live in nice homes but supposedly don’t eat red meat because it’s too expensive.   Until someone mentioned this to me, I had never paid attention to the price of meat and when I did, it did occur to me that it has gotten a bit expensive.    Various cuts of beef now go for $8 to $12 per pound while my favorite kobe beef steaks have remained steady at $30/lb.

I’m taking a gamble on the market this year and betting on some improvement but to lock in some gains, I have largely sold covered calls all the way through 2014 to at least lock in a 12% return for the year on some accounts.

So as my kids get older, they are seeking more and more independence and that often leads to requests for money.   My son has stockpiled about $1500 in cash and while it sits in his own bank account with a debit card, I don’t feel too comfortable with the potential loss of that debit card or misuse where he ends up losing the money.

It seems to me that banks have designed their banking system with a huge gap.   The banking world and the associated banking fraud has moved beyond the same basic checking/saving account where a single tier account system is largely useless in today’s world.  Who the hell puts all their money in one bank account and has one debit card tied to it anymore?

What is truly needed is a primary account that is secure and holds large amounts of money and subaccounts that are isolated and can hold smaller amounts of money.    The large account can hold say $10,000+ and then feed down a  few hundred bucks at a time to subaccounts.     A debit or credit account can then be tied to the subaccount and only that amount at money is at risk.

Honestly, I don’t know why banks haven’t already done this for consumers, particularly the affluent customer.   For now, I have my own ecosystem of banking accounts to do what I just described which is why I have multiple bank accounts and various financial institutions – largely to keep large amounts of money isolated that feed other accounts where I can access cash – about $1,000 to $2,000 at a time.

Obviously, it would be too difficult and time consuming to create this ecosystem for each of my kids so the next best alternative I have found so far is the Bluebird American Express Card.  You can find these at Walmart money centers.   I just got one and will follow up with a post later on the use but so far so good.   You can setup a primary account and four sub accounts (must be age 13 or older) and then funnel money between accounts and pull money from a primary bank account.  The goal here is to keep the primary amount of money my son has ($1500) in his main account then siphon money from there to his bluebird account as he needs it $50 to $100 at a time.

The only HUGE fail of the BlueBird American Express card is that funds are not FDIC insured.  Repeat…FUNDS are NOT FDIC insured.   I don’t know the solvency of the agency backing the cards but it’s a HUGE gap in protecting account holders funds.   Ultimately, it’s not a really big deal  for me because I will only transfer small amounts of money to the Bluebird cards but if Bluebird ever expects for people to use these as their primary banking platform (which the literature suggests) then they need to fix the FDIC  insurance gap!  YOUR MONEY IS NOT INSURED when it float inside the Bluebird card!

So I’m wondering why people would wait 5 days in front of a store to save $200 on a television.   At least that’s what the last news report I saw stated as they interviewed people (stupid people) about how long they were waiting and what they expected to get out of it.

Let’s do the math.  If you have FIVE whole days to kill meaning 80 hours (120 hours – 40 for sleeping) then why not just go get a freaking temporary job working somewhere for $10 an hour?   That would be 80 hours x $10 = $800.    In case you are too stupid to do the math, $800 is greater than $200 so waiting in line for 5 days is a fairly stupid thing to do sitting around and doing nothing!

Of course, if the monetary equation weren’t bad enough, dealing with the crowds, lack of parking, being trampled to death, and other mayhem isn’t worth saving $200 but stupid people can’t figure that out.

« Previous PageNext Page »