Cost Savings Techniques

Last week I referenced a New York Times article by Alina Tugend about finances and how many of us compare what we have to those around us and may even be bewildered by how others can afford things we can’t.  In this article, Tugend referenced a website I had never heard before called Mr. Money Mustache.  This website is a rabbit hole of mega proportions, throwing you into a world where every decision you make has financial repercussions.  It’s also a helluva lot of fun, with fantastic advice for people of all income levels, and I particularly love to read the forum where people chime in on various topics, ranging from the sensible to the absurd. 

Mr. Money Mustache is all about achieving financial independence by making smart decisions, and it’s just one website that’s proliferated the F.I.R.E. movement, which stands for “Financial Independence, Retire Early.”  There’s even a new documentary available on-line called “Playing With Fire,” which summarizes the trend of people eschewing mainstream habits in favor of gaining freedom from the spending treadmill. It’s great stuff, and even if you don’t go in whole-hog the way some disciples have, there’s plenty of advice to get you on your way to saving more, borrowing less, and giving yourself a better chance to pursue what you want in life rather than what you have to do due to your financial situation.

I’ve written before about my family’s philosophy when it comes to finances, but I’d like to highlight a few things we’ve done over the last twenty years or so that made an impact.  True, we still have spending weaknesses (for me: records, musical instruments, concert tickets and eating out), but by and large we’ve been able to put our family’s money where it matters most to us (namely, retirement, college savings, trips, and charity).  Here are a few things that have worked well for us:

1)     I cut my own hair.  Yes, I’m fairly bald, which makes this a lot more doable, but it’s an option for many of us.  Savings: about $250 a year over the past 15 years.  Total:  $3750.

2)     My family hasn’t had cable TV for 19 years now.  This is a much more doable proposition today than it was in the year 2000, and if you haven’t already done so, I urge you to cut the cord.  Savings: about $1200 a year for 19 years.  Total: $22,800.

3)     My wife and I have used Republic Wireless for our cell-phone service since 2014, spending on average about $250 per phone verses the iPhone or Samsung Galaxy that cost upwards of $1000.  Additionally, we spend about $25 a month each for phone service.  Today, that’s not a huge savings, but in 2014 it was.  All told, I figure we’ve saved about $3000 in phone costs and about $1200 in service costs since 2014.  Before then I didn’t even have a smart phone, so the total savings is even greater.  (NOTE: I’m ashamed to admit that some of this savings has been offset by my family still having a landline.  My wife won that battle, but family harmony is worth every penny!).

4)     We cut our own lawn, shovel/blow our own driveway, and don’t pay for any kind of landscaping except for tree removal.  At the low end, I figure I’ve saved about $60 per month for six months a year, and maybe another $150 a year for snow removal.  Let’s call it $500 a year, or $9500 savings since 2000.

5)     During my children’s school years, they were allowed to eat one hot lunch per week.  Every other lunch had to be made at home.  Cost savings: not much, really, as school lunch prices are very reasonable in Illinois.  But I feel like over the long haul this rule taught my kids to be more self-sufficient.  My now-adult daughters pack their own food most days and don’t go out to eat as often as they might otherwise.

6)     I save a lot on purchasing cheaper wine at my local liquor store, which often sells overstocked or older wines at huge discounts.  I often buy $15-$30 bottles of wine for $4 each.  Savings?  Well, let’s face it.  Wine isn’t a necessity, so the real savings would be giving up drinking altogether, so I’m not adding this in my calculation.  But it is another example of approaching purchases with a little more wisdom.

7)     My family hasn’t purchased a new car since 2007, and we still own it.  Our other car was purchased used, and that’s the only way we’ll go in the future.  If there are two rules to follow when it comes to spending: always, always pay off your credit card debt each month, and keep your car for as long as possible (and by slightly used cars).  Savings?  Hard to calculate, but let’s figure $100 a month for the past 12 years.  Total: $14,400.

8)     Keep your appliances and outdoor equipment for as long as possible.  I just broke down and purchased a new lawnmower after 17 years of using the old one.  And here’s the real miracle: our kitchen refrigerator is now older than our 22 year-old daughters.  How?  Well, for one, we’ve been lucky.  But also, we don’t particularly care what our refrigerator looks like (it’s not exactly pretty at this point), and I vacuum off the dust from the coils a few times a year.  Who knows if this was the difference, but it’s nice not to have to purchase another one!  Total savings: about $2000 minus the electricity we’re undoubtedly paying for a terribly inefficient appliance. 

9)     We do a lot of home maintenance projects ourselves, outsourcing only when necessary.  And it’s important to understand that I didn’t grow up handy in any way, shape or form.  I’ve simply read, watched videos and asked lots and lots of questions from my friends who are better equipped for this sort of thing.  In the end, we’ve managed to do a few things well, including all interior painting, changing electrical outlets, installing a new circuit board for our boiler, installing our own ceiling fans, installing all of the toilets, sinks and faucets, repairing drywall, etc.  It all adds up.  Also, don’t forget to change/clean those filters on your air conditioners, humidifiers, etc. and stay on top of your auto maintenance.  Savings?  A helluva lot, but hard to measure.  I think conservatively at least $20,000

10)  We put our non-investment savings into an on-line account that earns (currently) around 1.8% interest and we locked our mortgage in at a really low rate (2.8% I believe).  Smarter still would be to not have a mortgage, though opinions vary on this. 

11)  We only pay for a fee-based financial planner, rather than asset-based.  I wrote about in-depth earlier this year. 

12) We clean our own home - not a given where my family lives. I have no idea how much a service costs, but let’s conservatively say $50 a month or $600 year. Total savings over the past 19 years: $9500.

13)  Here are a few examples of ways to save a bit, but more importantly, to reduce waste.  We do these more for the environmental impact than anything else.

a)      This is my favorite: instead of using Swiffer sheets to dust our hardwood floors, we use pieces of fleece leftover from family blankets we made some time ago.  Simply dust, shake the fleece outdoors, and wash.  We’ve been using some of these pieces for over a decade.

b)     We’ve used almost exclusively cloth napkins and real dishes, even when entertaining, for the past 20 years or so.  I abhor using paper and plastic products when avoidable, and cloth napkins look nice and are easy to throw in with the laundry.

c)      I’ve started to use my own utensils and napkins when going to eat at a fast-food restaurants.

d)     We’ve used cloth grocery bags for the past 25 years or so.

e)     We print on both sides of sheets of paper.

f)     For our cats’ litter boxes and our dog’s poop bags, we use the bags that come with products we already purchase: cereal boxes, toilet paper or paper towel packaging, insulated envelopes that come in the mail, etc.  Of course, not having cats and dogs to begin with would provide even more savings – both financially and environmentally – but how to you say no to this face?

There are undoubtedly a lot of other things I could mention.  If I add up all the above highlights, we’re looking at around $85,000 in savings plus the interest earnings and savings from a low mortgage rate.  Not bad, but these days, that can be wiped out awfully quickly just through a kids’ college education.  Crazy, isn’t it?  But it all adds up.  The website Mr. Money Mustache, along with the good counsel of people like Clark Howard and Dave Ramsey, can do a lot to get you on your way to cost-savings.  I hope some of my aforementioned examples speak to you as well.  Happy savings!

Finances, Budgeting and Keeping up with the Joneses

The New York Times recently posted an article on finances and how many of us compare our own lot with those around us.  Too often, we might be reminded of what we don’t have rather than what we do, perhaps leading to feelings of ineptitude or inadequacy.  It’s human nature, I suppose, and these feelings might be more acute in the United States, where the individual is mythologized so vehemently with tales of the self-made millionaire.  We want to believe that what we have is a result of what we’ve earned, and if we don’t have as much as our neighbor, it must surely be because they’re doing something right and we’re doing something wrong.  I generally don’t harbor strong jealousies, but I must admit to being bewildered by the sheer volume of opulence that surrounds me in the Chicago suburbs.   Surely, there can’t be that many investment bankers and surgeons, can there?

But as the Times article highlights, when it comes to finances, things may be a bit more complicated than they appear.  A successful friend of mine once touted that he was a self-made achiever, failing to mention that his parents had paid for his college education and his first car.  People can be very sanctimonious when it comes to finances.  Sure, some people are well-off and have earned every penny, but for others wealth might be – in part – due to a sizeable inheritance or familial assistance with a home purchase or college expense.  Hell, if my wife and I hadn’t saved money for our three kids to go to college, we might be living a fairly opulent lifestyle too!  For others, opulence might merely be a mirage paid for with massive amounts of debt.

Regardless of the circumstances, we all make financial decisions, and it’s important to align those choices with our values.  Far too many of us make short-sighted and boneheaded financial choices, as I’ve written about before, but if your choices are guided by your values, then it doesn’t matter what your neighbor has or doesn’t have: you’ll be putting your money where it matters most to you.

So as you drive past your neighbor’s house, keep in mind that they might not have saved for college tuition as you did, or that they don’t put away a large percentage of their income for retirement as you do, or they don’t give a sizeable amount of money to charity as you do.  Or maybe they do and still have enough leftover for a Tesla and a luxury vacation to Tahiti.  If so, good for them! 

And if you’re someone who hasn’t been able to do any of the above, who maybe has made poor decisions in the past, try making a financial plan according to your values, align your choices according to that plan, and stick to it as best you can without worrying about keeping up with the Joneses.  You might find that you have more money available than you realize to put towards what’s important to you. And consider reading my blog from three years ago about twenty pieces of financial advice that I wrote for my children.

The Times article mentioned a blog I had never heard of before: Mr. Money Mustache.  Next week I’ll write about this, the FIRE movement it espouses, and some personal money-saving strategies I’ve found useful.

Things to Watch, Read and Listen

Keeping track of TV shows, movies and books used to be a fairly easy task, but with today’s segmentation of markets and the sheer volume of media being produced (just looking at TV, there were approximately 495 scripted original series in 2018), relying on word-of-mouth has never been more important or more overwhelming.  Each time someone recommends a show or book or whatever to me, I text it to myself and compile a list that I keep near the TV, but I’ll never get to most the recommendations;  there’s simply too much out there to wrap one’s arms around.  I have a list of twenty shows to watch, fifty movies to view, fifteen books to read, twenty-five bands to listen to, and another half a dozen podcasts to explore.  This is in addition to the pile of unread books I already own and the podcasts I listen to regularly. 

In the spirit of offering more than you can handle, I thought I’d share just a few things I’ve come across lately that might be worth your time. 

WATCH

• The loss of romantic comedies from movie theaters has been lamented for some time, though apparently not enough for Hollywood studios to actually produce them.  But there is hope for the hopeless romantic.  Amazon has released Season 1 (8 episodes) of Modern Love, an anthology series based on a column in The New York Times, and has already renewed the series for another season.  I can’t vouch for all eight episodes, but the first two were excellent, with smart writing and directing, mostly by John Carney of Once and Sing Street.  The episodes clock in at under half an hour, which might almost be too snappy to tell compelling tales consistently, but so far so good.

• If you haven’t already checked out Ken Burns’s latest documentary Country Music on PBS, I urge you to do so.  Like all of his material, it requires a degree of dedication you might not be accustomed to – the series runs about sixteen hours – but it’s a rewarding ride.  I’m not much of a country fan, but I’ve learned a lot during the first four episodes, and with Spotify at my side, I’ve been able to explore many of the artists even further.  There’s something to be said for technology.

READ

• As if there weren’t enough music rabbit holes to fall into, Tom Breihan of Stereogum has embarked on the monumental task of listening to and writing about every #1 single on the Billboard Hot 100 track hit from 1958 to the present.  Word-of-mouth failed me with this endeavor, because I just found out about it a month ago as a fluke, and Breihan is already into 1977, but that’s not a band place to start, as 1977-1982 is my sweet spot for music.  The first song I clicked on was Manfred Mann’s “Blinded by the Light,” and I figured I’d read a few paragraphs about the track.  But no, Breihan writes extensively about each song, providing some history and context, offering links to other versions of the songs, and rating each song he covers, which makes this blog a little more thought-provoking than many.  When he mentioned how much he hates “Hotel California” the comments section went ballistic, but that to me is half the fun.  A great read.

LISTEN

Measured by time, I listen to podcasts more than any other medium – even music.  I have my usual suspects – WTF with Marc Maron, Fresh Air with Terry Gross, Freakonomics, Radiolab – but here are two that I’ve added to my arsenal this year:

• Unspooled.  If you like movies, this is a fun podcast that covers one movie a week from the AFI list of Top 100 Films.  Hosted by actor Paul Scheer and critic Amy Nicholson, this weekly discussion has inspired me to fill in the gaps of some of my own viewing (my daughter Sarah has now watched 93 of the top 100 – I’m probably somewhere in the 60s). Paul and Amy are not the most eloquent speakers – I keep wanting them to live up to the standard that Siskel and Ebert set – but I like that they’re challenging the status quo and questioning whether the old boys club that supports mainly male-centric films from the 1970s needs to be upended (spoiler: it does).  They’ve also recommended some terrific books – most notably Making Movies by Sidney Lumet and Cameron Crowe’s Conversations with Wilder.  Both brilliant.

• My friend Michael Stoller has produced a podcast called My Blueprint, an exploration of various issues pertaining to growing as a human being.  These are snappy episodes of under ten minutes, and the few I’ve listened to so far are terrific.  Stoller doesn’t shy away from providing specific examples from his own life and touching on topics that affect all of us, and I walk away with just a little something to ponder as I go about my day.

So there you are!  Add them to the list so you can feel just as overwhelmed as I do!

Art, Preservation and the Universal Fire

In the finale of Ray Bradbury’s classic Fahrenheit 451, society is left to rebuild after a nuclear explosion, and each survivor is asked to recall a piece of literature so that it might live on.  I’ve thought about this often since Jody Rosen’s remarkable article “The Day the Music Burned” first appeared in the New York Times last June.  The story provides an in-depth summary of a 2008 warehouse fire at Universal Music which destroyed between 120,000 and 175,000 master tapes of some of the most important music ever recorded. (If you haven’t read it, I urge you to do so – it’s amazing, heartbreaking, and thought-provoking.  I also recommend listening to episode #709 of the music podcast Sound Opinions in which hosts Jim DeRogotis and Greg Kot interview Rosen). 

I won’t summarize much of the article, except to say that the treasure trove of lost recordings can hardly be overstated.  We’re talking about masters from Louis Armstrong, Duke Ellington, Billie Holiday, Ella Fitzgerald, Bing Crosby, Judy Garland, Count Basie, Patsy Cline, Chuck Berry, Bo Didley, John Lee Hooker, Etta James, Muddy Waters, John Coltrane, Buddy Holly, Ray Charles, Quincy Jones, Joni Mitchell, Elton John, Lynyrd Skynyrd, Patti Labelle, Tom Petty, The Police, Sting, REM, Janet Jackson, Guns N’ Roses, Nirvana, No Doubt, Nirvana, Soundgarden, Beck, Sheryl Crow, Tupac Shakur, Eminem, and on and on and on.  Rosen concludes, “…in historical terms, the dimension of the catastrophe is staggering” and that “it was the biggest disaster in the history of the music business.”

I certainly won’t argue that this was indeed a catastrophe, but I think it leads to some provocative questions about the transitory nature of human creations, whether preserving what we create is important, and exactly what preservation means.

Today, we humans leave behind records of our lives like no other generation in human history.  For most of man’s existence, lives were lived and then ended, leaving little behind except for offspring whose descendants now roam the Earth.  Just think of how many people have lived on our planet for whom no trace remains! But now we humans are often obsessed with making our mark and preserving that mark – no matter how meager it may be – for generations to come.  But the reality is this: 1) nothing lasts forever; 2) not everything we create deserves to be preserved; and 3) much can be preserved in a form that’s different from what we’d prefer.

1)      Although we work hard to archive our creations like documents, photographs, home movies and audio recordings, even going so far as to store originals in one location and keep digital copies in another, these are only delaying the inevitable. Not only are tapes, photographs, and documents mortal, but – as Rosen states – so are digital recordings.  As part of an effort to thwart future catastrophes like the Universal fire, many masters are now kept on hard drives, but they may no longer function properly after decades in a vault.  We humans can do our best to preserve our history, but when it comes to photos, video and audio, as of now we have no permanent way to do so.  All we can do is preserve things for as long as possible.  I’m all for doing this.  In fact, I’ve spent a great deal of time tracing my family history, digitizing photos and videos, copying artifacts, etc., so I am by no means immune to the idea of preservation or the potential value it holds, but I’m also not fooling myself into thinking that somehow these efforts make me immortal.

2)     We can’t preserve everything, and we should naturally focus on the most impactful creations.  You may choose to digitize a copy of your grandparents’ wedding photo, for example, but not the photo your baby sister took that only reveals that backs of their heads.  Similarly, with regard to music, one can imagine exerting more effort archiving the works of The Beatles than those of Pat Boone.  But Rosen makes a counterargument:  sometimes we don’t know what art is impactful for years to come.  An artist may not make resonate until his or her work is discovered years later (he gives examples of artists like The Velvet Underground or Nick Drake). 

True enough.  But goodness, choices to have to be made.  Can you imagine if libraries had to house every single book published in the past century in the hopes that someone somewhere will check out an obscure romance novel from 1965?  And maybe, just maybe, over time we’ll come to learn that this particular romance novel actual has merit?  At some point, institutions have to make decisions to let certain things go.  All of us do.  My father is currently making the difficult decision to discard much of his life’s work as a marketing researcher.  He’s got binder after binder stored in filing cabinets in his basement, and while it’s possible that within these hundreds of work assignments there might be something important to note for posterity or even for mankind, is he to die having kept all of his life’s work for his children to manage?  And as his child, is it incumbent upon me to keep it all for the remainder of my life?  I think not.  Some of what we create is going to get lost along the way.  And that’s okay.

 3)     It’s important to note that even without originals, art can survive.  This is easiest with literature, which is why I’ve been thinking of Ray Bradbury’s book recently.  We don’t have the original Torah, Koran or New Testament, but we still have the words, and that’s far more valuable than a first edition (as cool as that would be).  With literature, it isn’t so important if the originals are burned, as mildly tragic as that might be, because literature isn’t a performance.  Copies can easily be recreated.  I argued nine years ago that with the advent of on-line books and the ability to backup entire catalogs of writings onto a thumb drive, censorship is no longer a threat.  Every physical book in the world could be destroyed, and yet nearly every book in the world would remain accessible, a fact that provides a small bright flame of hope in a world that’s recently devolved in so many ways. 

But while one could argue that literature is safe from harm, art and music aren’t as secure, because performances can’t be copied easily (even a painting or sculpture is an example of a performance).  I just read the memoir of playwright Neil Simon, and he talks about many of the amazing stagings of his plays with performances from Walter Matthau, Art Carney, Robert Redford and Elizabeth Ashely.  None of these performances exist.  We can’t go back and relive the debut of Barefoot in the Park, because theater performances are ephemeral, just as they have been throughout most of humankind’s history.  But we still have the plays.  We can stage them at a local theater and enjoy them all over again, perhaps not exactly as they were originally intended, but viewed through our own lenses.

Similarly, while we may not have any recordings of Mozart playing the piano or of Beethoven’s works being performed live for the first time, their music still remains.  All you need is a score, and music can be recreated, perhaps not exactly as originally performed, but still providing a lasting legacy that can be reinterpreted by humankind for centuries to come.

Much of the recorded music that we’ve lost or will one day lose can be preserved in much the same way.  Even if recordings are ultimately eliminated, scores will remain, keeping some music alive.  Recordings for which studio gadgets were an important factor will have more difficultly being passed down than a piece of music that stands on its own merits of melody and harmony.  For example, it would be hard to argue that a song like “Yesterday” wouldn’t last even if the only remnant of it was a copy of sheet music (I haven’t seen the movie Yesterday, but I believe the movie indirectly makes this claim).  But a song like “I am the Walrus” or “A Day in the Life” would be harder for future generations to interpret because for these songs the studio was as important as the composition itself.  The recordings were, in effect, performances, and while all performances are subject to decay, those that rely on something other than melody, harmony and lyrics are especially subject to the dustbin of history.

Similarly, a reading of the screenplay to The Godfather might be very fulfilling in the hands of a gifted actor, and one could imagine a revised version of Fahrenheit 451 in which various survivors are asked to retell a movie that they’ve seen for which no known copies remain, but it certainly wouldn’t be the same as watching the original movie.

But that’s the reality we live with.  Our lives are fleeting, and while some of our creations will last longer than others, ultimately all of them are subject to the words of Ecclesiastes, the book that the character Montag is earmarked to preserve in Fahrenheit 451:

There is no remembrance of former things,
nor will there be any remembrance
of later things yet to be
among those who come after.

Index Funds and Financial Planners

There’s been a lot of hubbub in recent financial publications about index funds, and not surprisingly financial planners have had the most to say about it, since index funds in many cases make financial planning largely unnecessary.  When something starts to encroach on your turf, you do what you can to protect your turf. 

This appears to be the case for Robert C. Lawton, who wrote an article for Forbes last month, making the claim that index funds are often not the way to go because they absorb 100% of market downturns and by definition ensure only average returns. His advice?  To use index funds for asset classes that are “widely covered and researched,” but to use actively managed funds for all other asset classes.

But Rick Ferri – also for Forbes – wrote a sort of rebuttal to the aforementioned article, summarizing research done by Jason Zweig of the Wall Street Journal that shows how Lawson’s conclusions were based on a Fidelity report that excluded “high fee active funds and poor performing active funds.”   Fidelity has since removed public access to the study.

Oops.

If all of this is gobbledygook to you, I highly recommend reading about index funds, asset allocation, asset growth and financial planners’ abilities to beat the market.  I’m not a financial genius, but here’s what I’ve learned:

1)     Financial planners typically charge you 1% of your assets to manage your money.  Sometimes even more.  So if you have $1 million in assets, you’ll pay your financial planner $10,000 a year.

2)     This means that a financial planner will have to beat the market by at least 1% in order to justify the expense.

3)     This also means that financial planners don’t have an incentive to recommend index funds because that will ensure you lose to the market.  Instead, you’ll earn exactly what the markets dictate MINUS the financial planner fee of 1%.  (I HIGHLY recommend that you read this article, especially if you don’t know how losing 1% of earnings year after year affects your portfolio.)

4)     Financial planners therefore have an incentive to invest your money in actively managed funds to try to beat the market.  The result?  Again, READ or LISTEN to this excellent Freakonomics episode from 2017 called “The Stupidest Thing You Can Do With Your Money,” in which Kenneth French, professor of finance at Dartmouth discusses a study that concluded that only 2-3% of actively managed funds cover their cost.  That’s ON TOP of the 1% you might pay a financial planner to manage your portfolio.

Allow me to reiterate: if you allow a financial planner to manage your portfolio for 1% and invest in index funds, you automatically earn 1% less than the market.  If your financial planner invests in actively managed funds, you not only lost 1% to the market, but 98% of the funds you invest in won’t even cover their costs.  It’s a lose-lose situation. Here are a few more articles you might want to consider reading.

So what to do?  Well, I would suggest reading a lot, figuring out an asset allocation model that makes sense for you, and investing in four or five index funds that cover different asset categories.

But what if you really don’t know anything about finance and you find it terribly intimidating?  Heck, I remember working at a credit union for teachers back in the early 90s, and these were educated people who often had $50,000 in loans for things like boats, RVs, credit cards, etc. and who were only making $40,000 a year!  I get it.  Some people truly aren’t educated when it come to finance.  So what to do?  Well, again I suggest reading.  If you can read you can learn.  I highly recommend a book I purchased for my daughters called The Index Card. It’s an easy read.  It’s concise.  And it includes very specific rules you should follow.

In addition, there is another way to benefit from a financial planner without breaking the bank.

Even though I’m somewhat literate in finance (but only somewhat), I pay a financial planner a fixed fee every five years or so to review my portfolio, my tax strategies, my insurance, etc.  I couldn’t be happier with this arrangement.  Just last month I spent $500 to my planner – so only $100 a year – and in return he offered some suggestions about where to tweak my portfolio, adjustments I should consider making in insurance, and a few tax-savings strategies I might want to employ.  I’ll spend the next few months following up on his advice, and in five years I’ll pay him again to review my portfolio.  I can tell you that one simple tax strategy he suggested five years ago has saved me $1000 a year for the past five years and will continue to do so for the next two or three.  So for $500 I saved about $8000.  So I’m not saying financial planners don’t have something to offer.  They do.  I just don’t know if managing portfolios is one of them.

I’ve met several financial planners over the years.  Some nice, some absolute tools.  Some smart, some no smarter than you and me.  To me, it’s just too much of a crapshoot to trust someone enough to manage your portfolio and pay him/her 1% to do it.  It makes no sense to me.

For me, reading a lot and investing in index funds are the way to go.