Applying eBay Profit Models to Personal Finance

Why do we shop on eBay? Oftentimes it’s because the price is right. A common business model on eBay is to sell a large amount of products at a low price. This low margin, high volume business model can also be applied to our personal finances.

The Pennies Add Up
Think about how many financial transactions you’ll take part in over the course of the next week, month, or year. If you can save a little money on each of those transactions the cost savings will add up over time.

High Margins, Low Volume
Walter Updegrave argued in a recent article in Money Magazine that reducing spending on big ticket items was a more efficient way to save than cutting out the little expenses. I’m a lazy person; I like to do the least amount of work for the largest amount of gain. That being said, I tend to agree with Flexo and Jim that focusing on the biggest savings will get you the biggest bang for the buck. My sales approach on eBay reflects this; I typically sell fewer items for higher margins. From a personal finance point of view, I like to put more effort into reducing my biggest costs, than I do saving a little on all items.

Low Margins, High Volume
However, a simple eBay search will turn up many people that opt for the low margin, high volume approach that are making decent money. I think you’ll find the same with personal finances. Clipping coupons, scouring for deals, and pinching pennies can save you significant amounts of money over time. Different approaches work better for different people and the financial circumstances they find themselves in.

Never Enough Time
I guess the main question in our busy lives is how much time you have. I find it hard enough to arrange my family, friends, job, and sufficient sleep all into my schedule. If you have enough room in your schedule to focus on cutting the big costs, all the little costs, and still have time for “living” then you may have found the best of both worlds.

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Lazy, Forgetful, and Careless Ways to Lose Money

We work hard to earn our money and grow our net worth. Watch out for the silly mistakes listed below to help avoid losing your money. In each case, a simple act can save you lots of cash:

Mistake: Leaving your curling iron or iron plugged in.
Cost: Bye-bye house.

Mistake: Backing up without looking behind you for cars, garage doors, or people.
Cost: Expensive bodywork, new garage door, or lawsuit.

Mistake: Not checking your blind spot before switching lanes.
Cost: Big insurance bill. Big hospital bill.

Mistake: Not updating your anti-virus software.
Cost: Potential identity theft. Hours or days of lost productivity.

Mistake: Ignoring check engine light.
Cost: You think parts are expensive, wait until you see the labor bill.

Mistake: Not backing up your data.
Cost: Family memories and financial records lost forever.

Mistake: Locking your keys in your apartment.
Cost: Large locksmith bill.

Mistake: Paying your credit card bill late.
Cost: Outrageous late fee.

Mistake: Running with scissors.
Cost: Bodily Harm. Didn’t your mother teach you better 🙂

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How To Lower Your Homeowners Insurance Premiums Without Even Trying

I just received the best letter from my insurance company that I’ve ever seen. Here’s what they said:

“In a few days, you’ll receive your homeowners policy renewal packet. We recently changed the way we price homeowners insurance to ensure your premium reflects the risk your policy presents to us. As a result, your policy premium has decreased.”

No calling and haggling was required. I typically think of insurance companies as looking to collect the highest premiums they can and then deny as many claims as they can. This action proves that not all insurance companies fit that description.

What’s the Secret?
So how can you convince your insurance company to lower your home insurance premiums? Below are the reasons they listed for the drop in price.

• Previous property insurance claims.
• The age, location and construction features of your home.
• Your coverage selections, such as limits, deductibles and special endorsements.
• The fire protection of your property.
• The length of time we’ve insured you.

Of course, the closing paragraph of the letter made me wonder if I have sufficient coverage.

“Know your coverage and make sure you’re adequately insured. As a policyholder, it is critical that you periodically review your policy to make sure you have enough coverage to rebuild your home if a loss occurs. Without adequate coverage, damage to your home could mean significant financial hardship.”

This could just be a marketing ploy in disguise. Lower the rates a little to make customers happy, and then make them worry they’re under insured so they increase their coverage. I’ll assume I’ve just been reading a lot of cynical stuff lately, that this move is on the up and up, and enjoy the lower premiums!

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RecycleBank Pays You To Recycle! Save Money While Saving The Environment!

A company called RecycleBank will give you credit (RecycleBank Dollars) at participating vendor stores when you recycle paper, plastic, glass, tin, and aluminum.

Once you sign up with RecycleBank you place your recyclable items in a bar-coded recycling container that is read when the truck picks up the “trash”. Each item earns a certain number of RecycleBank Dollars that accumulate in your web-accessible account. You can use the RecycleBank Dollars to save money at participating stores, the ones below caught my eye:

• Starbucks
• ProFlowers
• Staples
• PETCO
• Target
• Bed Bath & Beyond
• Dicks Sporting Goods
• RiteAid
• Whole Foods
• Timberland

I called to sign up but discovered it’s only offered in the Northeast part of the country. Apparently landfills are a big problem in that area because there is just no space left to store the junk! The customer service lady said that the farther you go west, the more available space there is for landfills so the cost of disposal goes down and along with it the financial incentive for business and governemnt to participate.

She did let me know that I could keep track of RecycleBank developments with their newsletter.

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Money Saving Pop Quiz. How Frugal Are You?

If you called into the Suze Orman show and she asked if you were frugal how would you answer? Below are some questions that can help you figure out how thrifty you really are.

Meals
Do you bring your lunch or go out to eat? Do you take home leftovers or leave them on the plate? Do you buy store brand or name brand at the grocery store? Do you buy food from vending machines?

Transportation
Do you take public transportation or drive your own vehicle? Do you combine multiple trips into one to save on gas? Does your vehicle get better than 24 MPG?

Entertainment
How big is your TV screen? How many channels do you have? When you go to the movies do you buy refreshments there or sneak in your own?

Shopping
Do you research your purchases for the best deal or do buy on impulse? Do you price items online at sites like froogle.com? Do you buy off-season?

Hygiene
Do you take baths or showers? Do you let the water run when you brush your teeth? Do you choose where to get your haircut based on the best coupon you have?

Clothing
Is there a name brand on your shirt? Do you pay the retail price for clothes? How many pairs of shoes do you own? How long do you wear your shoes before getting rid of them?

Scoring
This quiz will be graded on the honor system, common sense will tell you how you did. There are many more questions that could be asked but these should give you a general idea of how good you are at saving money. If you didn’t do so well, spend a few weeks or months making some changes then come back and take it again. Good luck!

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Lifecycle Funds – A Smart Way To Invest In Your Child’s Future

We often think of lifecycle or target date mutual funds in terms of investing for retirement. A recent article by Mapgirl reviews a Kiplinger magazine piece about why these funds aren’t for everyone. One demographic that they might be good for are people under the age of 5.

Generous Parents
Parents that want to put aside some money now to help their kids get started out in their adult life can make use of lifecycle funds. The concept is the same as saving for retirement with lifecycle funds. More aggressive investments focus on growth early in the child’s life then become more conservative as they approach their early to mid 20’s. The difference is that the money in a “launch fund” may be used for a college graduation gift or down payment on a new house instead of world travels or prescription medication.

Time Matters
This strategy is best used when the money is invested while the child is at a very young age. If you deposit a few thousand dollars into a 20 or 25 year target mutual fund before their first birthday the money has time to grow.

An Alternative
One thing you may be giving up by using this approach is a higher return. An alternative is to invest in a much more in an aggressive fund for the first 15 years then pull out the money and put it in an investment with less risk. As wise investors know, along with the growth comes risk.

My wife and I have experienced the disadvantages of this alternative first hand. Her grandparents put some money in American Century Giftrust (TWGTX) when she was a baby. After getting married we figured the money into our future financial plans. Of course when the time came to use the money in 2003, TWGTX was at it’s lowest point since June of 1991. We were very grateful for the gift. However, had the money been in a lifecycle fund the capital gains from the previous decade and a half would have likely been largely preserved in bond funds.

A Family Affair
This strategy can also be used by your family members wanting to build a “launch fund” for your little one. For grandparents that want to leave a legacy for the newborn or aunts and uncles that want Christmas or birthday ideas, contributing to a child’s lifecycle fund can offer big returns down the road. Check out the lifecycle funds offered by Vanguard, Fidelity, and T. Rowe Price to give your young child a leg up in the future.

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Get Out of Debt and Sink the Economy?

During a recent late night visit to the store I had a “deep thought” as I walked down aisles full of stuff and void of people. What would happen if the store was this empty all the time? If people stopped buying all this stuff what would happen to our economy?

No More Stuff!
In the personal finance arena we’re flush with the advice, stop buying crap. I happen to agree with this philosophy, I’m big on buying assets, not liabilities or “junk”. We’ve become a nation of debt because the need for this “stuff” has become ingrained into our society.

Looking For Growth
However, for every action there is an equal and opposite reaction. Consumers carried the economy on their back during the tough times after 9/11. What if everyone actually started listening to the advice and stopped overconsuming? What if the fuel of our hard-earned paychecks stopped flowing into the engine of economic growth?

You hear people talk of how they’re hoping for a “soft landing” for the economy. Corporate profits were great in 2006 but it’s thought they will be slowing in 2007. Economists may be looking to us consumers to mount up and saddle the weight of growth once again. Without our contributions to their profits the stocks of our country’s mighty merchandisers could take a plunge and set off an economic chain reaction.

How Will You Choose?
Who would you rather be? Are you going to be contributing to the net growth of our retailers while putting yourself into debt? Or are you going to resist the urge to buy and instead put the money you saved into the stocks of those same retailers through your S&P 500 index fund?

It’s sad you may be profiting from your neighbor’s loss but if they won’t listen what can you do? Maybe the government should create Debt Savings Plans, a kind of charitable contribution to help those in debt. You could contribute pre-tax dollars and the tax free capital gains from this investment account would go to fund the debt reduction of “the Joneses” next door when they hit rock bottom financially.

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Writer’s Constipation – Personal Finance Blockage

When you have so much to say but just can’t get it out!

That’s how I describe my personal finance writing over the last several months. Around one hundred documents representing unrealized articles are languishing in the ideas folder, eagerly waiting to jump onto the web.

Fortunately not everyone has this problem. Some people are blessed with writer’s diarrhea, and I mean this as a compliment. I would love to have the gift of ever flowing content, to be a Robo Blogger.

Perfectionism to a Fault
I blame my high school and college English teachers. I feel the need to write, re-write, read, re-read a post to get it just right, and then maybe tweak it some more.

We have something similar in the software industry known as analysis paralysis. You never complete the project because you spend your time over-analyzing or reworking every aspect of the system.

It’s also found in personal finance. Fearful of doing the “wrong thing” we do nothing at all, which over time is usually more costly than losing some money, learning from it, and trying again.

Free Flow of Ideas
Writing, software, and personal finance are different areas but the problems described can end up having a negative effect in all. The software industry came up with a solution to the lengthy waterfall methodology with shorter iterative processes such as “extreme programming”.

I don’t know what the answer is to inactivity due to fear in personal finance, perhaps personal finance bloggers!

My answer to Writer’s Constipation is going to be a concerted effort to “loosen up” a little with my writing and allow more of those ideas to flow out onto the Web. If you reduce quality control, you may get more junk but as long as I can keep the junk to insight ratio pretty low hopefully it will be less frustrating for me and more beneficial for readers. If you’re looking forward to the free flow of ideas signup for daily updates!

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Personal Finance Advice and Politics

Checkout the latest edition of the eFIPO podcast over at “Finance and Politics for the new generation”. Jeremie from eFIPO and I got together last night to talk about money and the new government in Washington.

Setting An Example
I applaud Jeremie for his hard work in keeping the younger generation engaged and informed on two topics that often don’t make the top of our list, politics and personal finance. I imagine his advocacy and passion will inspire many a student to think twice before whipping out the credit card or skipping the polls on voting day.

Questions, Questions
Jeremie had two big questions for me. What’s the best piece of financial advice I’ve received in my life and what’s the one change I’d like to see from the new Congress. Things don’t always come out exactly as you have them in your head so after listening to my responses I have some follow up to add.

Why should people listen to what I have to say about money?
I think a key point here is that I’m a good example of how you can get on track to financial success by simply sticking to the basics. Money doesn’t have to be complicated. If you follow the core principles of personal finance, over time you’ll build wealth and learn more about the ins and outs of money in your life. That’s what I’ve done and so far it’s worked out for my family. Of course another part of this is getting started early, the importance of which I discuss in the podcast.

Money Smart Life
Towards the end of the conversation, Jeremie asked to talk a little about this site. I think botched the opportunity to communicate the key components of Money Smart Life. I rambled on without much direction; I guess I need to work on my elevator speech for the site. I may have been better off just referring people to my About page. All in all, my first podcast was a fun experience and I thank Jeremie for letting me participate!

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Our Personal Finance State of the Union Address

My wife and I enter into 2007 with great “hope and opportunity”. We recently added a new member to our family and our lives have been redefined thanks to his amazing entry into this world.

Our purpose is now to provide a wonderful home for our growing young son. Our thoughts have turned to parenthood and making the world a better place for him. In light of this recent blessing, I take of stock of our ability to provide a place for him to learn, laugh, and grow.

Will & Trust
We had this prepared several years ago before we had a child. It was drafted to handle kids in our future; however, we will have it reviewed again in 2007 to be sure.

College Funding
We are making monthly contributions to a 529 plan that was established in my name while earning my Masters degree several years ago. This plan will be converted into his name in 2007.

Emergency Fund
We are $3,000 away from fully funding our emergency fund. This will be accomplished in 2007.

Insurance
Our well being and property are insured with health, life, homeowners, and auto insurance policies.

Income / Expenses
My wife completes her current job in May and will become a full time mother. As we move to a single income family we’ll look to both reduce our expenses and increase our alternative income streams.

Investing
We are currently contributing the maximum allowable amounts to our 401k and Roth IRAs. Some of this money will be shifted to cover expenses once we move to a single income; however, I will continue to contribute to both.

Debt
The bad news is that we are $100,000 in debt. The good news is the debt is all from a 30 year mortgage, that we’re 5 years into. Although it is our largest liability, it provides a
roof over our head and a place our boy will learn to call home.

Executive Overview
Our personal finances seem to be in a healthy state. The growth of our net worth will slow considerably in 2007 and we’ll face new financial challenges but we’ll get through them as a family. I hope to learn as much over the next year as my son will. A tall order considering crawling, walking, and talking are among the things he’ll hopefully figure out. Stay tuned for updates on the state of our personal finances. Thanks for reading and good night!

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