Archive for October, 2008

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Rough and ready reckoning

October 31, 2008

I’ve started to realise that applying a little elementary calculation is very important to my frugality practise. Over time, I’ve got in the habit of using some simple rules to decide whether something is a good deal.

Annual Savings

When I look at a saving, if it’s near weekly I multiply by 50 to figure out what I would save over a year. If monthly, by 12. And so on. I always try and think about what something is worth over time. One long black every weekday? $3.50 x 5 is 18.50, call it $20 a week; so that’s about $1000 on coffee a year. Which (are you reading this Morgue?) I would like to find down the back of the sofa. Wouldn’t you?

Interest

Do you know the rule of 72? If a sum of money earns umpty % interest, just divide 72 by that number to find out how many years it will take to double. When I do this in my head I cheat and make it 70, which isn’t quite as accurate but is close enough.

So if you have a 100 bucks at 10%, it will take a bit over 7 years to turn into 200 bucks. I always find that quite encouraging. I think to myself, well, Stephen, if you could save $500 this year (see previous rule) and invest it at 7%, then it will double in 10 years, so that $500 will be worth $1000 before you’re 50.

Hours I would have to work

I have done the maths to figure out my hourly rate after tax and expenses. So I can look at something chunky and say “gosh! I would have to work for a week to pay for that!” and then ask myself whether it’s really worth a week’s work to me.

Notice I said “after tax and expenses.” I reckon that just using your raw hourly rate doesn’t reflect the reality that tax and essential spending reduce the amount available for you to dispose of (“discretionary spending”). I got this idea from the marvellous book Your Money Or Your Life. There are copies in the Wellington Public Library.

Multiply by 25

This is a bit complicated to explain in detail—the idea comes from here—but the guts is, if you make some conservative guess about returns on savings, then multiplying by your yearly spending on something by 25 tells you how much you’d have to save to pay for something out of savings interest without running your savings down.

For example, if you spend $240 on takeaway pizza a year, because it’s your monthly treat, and you could save $6000, you could pay for all your pizza needs out of the earnings on that $6000 and still not run it down.

Help me out

Do you have rough reckoning rules that help you make money decisions quickly? What are they?

Fingerwagging Postscript

When I was at school, and we asked why we had to learn maths, we were told it would be useful in later life. (This is true even for higher maths, actually, but not many people I went to school with became programmers). However, we didn’t get very concrete explanations. I would now say if I were a maths teacher: because if you don’t learn basic arithmetic, and fractions, and percentages, and algebra, people who have learned those things will cheat you blind.

I never really cared about the answer because I liked maths and was good at it. But I do think that if you hated maths, and were not good at it, it would be really worthwhile to get a little remedial tuition now. I can’t imagine how you can make good money decisions without it, and it must be very stressful worrying about whether you’re coming out ahead or not.

One thing I did turn my nose up at was spreadsheets. A few years ago I worked with people who would model every little decision in a spreadsheet, and I used to think that was pretty naff. But now I cannot stop making them, and damned handy they are. If you have a PC (and how else are you reading this?) you can get OpenOffice for free. Learning to drive its spreadsheet component is a valuable investment of your time.

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Lateral thinking frugality

October 26, 2008

For some time I’ve been looking for panniers for my bike. When you get a bit warm, if you’re wearing a backpack your back gets all sweaty and yuk. The commuting cyclist needs panniers.

Unfortunately, I have yet to find any that aren’t expensive (starting around $150) and over-engineered, or part of a proprietary “system” that requires you to buy a special carrier to mount them. I am not touring the Andes by bike, all I want is something that’ll take a lunchbox and a change of clothes, for crying out loud.

So today I went to the army surplus store on lower Cuba St, and bought two very cheap canvas knapsacks ($32 the pair). I’m doing a bit of surgery on the straps, and shortly they are going to become my new panniers. I’m thinking I might not even bother stitching them – riveters are really cheap, and I’d quite like to own one.

Write your own moral below.

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Segmentation, supermarket strategy, and being a cheap bastard

October 24, 2008

Do you have a supermarket strategy? We do.

Before I go on, I want to talk about market segmentation by price.

This kind of segmentation is one way that companies try to maximise their profits. Here’s how it works.

Imagine that we sell eggs. They cost us $3 per dozen wholesale.

We’ve figured out that we get the most profit by selling eggs at $5 per dozen.

At $6 per dozen enough people are put off that even though we make more per egg, our total profit is lower.

At $4 per dozen, the decreased margin means we don’t make as much money per egg.

$5 per dozen it is then. Most people will buy at that price. Those people are normal.

But wait. We know that there are some people who would pay $6 per dozen. The hungry, the tired, the careless, and the people who are bad at maths. It would be neat to identify them and give them a separate price, and pocket the extra $1 per dozen. If only we could cull them out from the herd so they don’t perceive the deal that others see. Hmmm. Let’s sell them premium branded eggs in delightful bijou boxes and capture the increased margin! Let’s put those eggs in a colourful display with maximum visual impact at eye level! Let’s call those people… suckers.

There are other people who are going to hold out, and not buy until we hit $4 per dozen. If we could find a way to offer them that price without tipping off the others in the market, we could sell even more eggs, and still make at least something on them. We’ll have to make it off-putting so that only the hold-outs take advantage. Unwieldy poo-tinted boxes at floor level it is. Those hold-outs? They are cheap bastards.

You can see this pattern a lot. There are only two supermarket companies of note in New Zealand, but they have multiple supermarket chains between them, with different images, branding and pricing to attract those different segments of the market. Within each supermarket, most product categories have different lines that are equivalent in quality but marketed differently so that the normal people buy the obvious choice, the suckers are fleeced, and the cheap bastards have something to reward their effort.

Our mission as cheap bastards is to accept the challenge marketers set us. Treat it like a game with a prize. They want to confuse us or at least make us work for the best deal. That’s why they put the items they want to sell the most at eye level, that’s why the essential toilet paper is right across the from the non-essential chocolate, that’s why the bulk package is inexplicably more expensive per kilo than the small one.

We accept that challenge. This is how we play the game.

(I got the idea for this part of the post from Joel Spolsky, who wrote a neat article about segmentation in a rather different kind of market).

Have a list

In our house, we have a template that we print off with all our usual items on it. We cross off the things we don’t need before we set out. That way we don’t forget anything. If an item gets added by hand a few weeks running, it goes on the template.

Work out the unit price on everything

We always do this when comparing different brands of packaged goods, going so far as to check ingredient lists on food packets to ensure there’s no cheap filler. We have good mental arithmetic, but there is no shame in using a calculator. (Doesn’t your expensive mobile phone have a calculator?)

Stockpile

Buy in bulk to stockpile if:

  • It is something you usually buy.
  • The expiry dates show that you can consume it all while it is still good.
  • You can store it somewhere where it won’t go off.
  • The discount is more than you would obtain by investing the money over the period it would take to consume (eg, if you could save 5% off a year’s supply of toilet paper, but could get 6% in the bank, you would be better off putting the money in the bank and paying the normal price for toilet paper).

Example: our local supermarket was selling peanut butter, the brand we like that’s still not made in China, at about 40% off a couple of months ago, expiry date middle of next year. We bought four jars. We’ve just finished the last one, and I regret not having got a dozen.

Avoid temptation

Don’t use a basket if you can carry all the items; don’t use a trolley if they’ll fit in a basket.

There is no reason to go through aisles that don’t have something on your list.

Never take things from tempting display until you’ve checked the usual shelf for cheaper options.

Eat before you go lest your hunger makes you buy something stupid.

So, what did I miss?

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Clothing choices

October 20, 2008

Beloved commenter (for we love you all) artandmylife asked when we would do a clothing post.

I confess this is an area where I feel inadequate. I oscillate between dandyism and novelty t-shirts, my vanity conflicting with my laziness. And I do have a sense of style—the problem is, I have a sense of several styles, and none of them go. In short, I am not a credible authority on how to dress. Neither do I have much to say about the process of clothes shopping. Like many men, my motto is get in, make your mind up and get out.

So this post is written very much in the hope that you will remedy its deficiencies. Maybe artandmylife will volunteer for a guest post…

Anyway, as a starting point, here are the ways I personally know of save money with clothes.

New and cheap

Thanks to globalisation, clothes have never been cheaper in my lifetime. So it is that I can pop down to the Warehouse, and buy things that look modern for very little, and weird clothes that don’t look like anything for even less. If they don’t last more than a year, what of it?

However, my ancestral tailor genes revolt at the quality. Also, I have nagging feelings about the exploited labour that must be responsible for the cheap prices. So I don’t often buy my clothes there.

New and expensive

Well, why not? Provided you only ever buy posh stuff when it’s heavily reduced, and it’s really quality, it will probably take years to wear out. This is the “Vimes’ boots” theory. Sam Vimes is a recurring character in Terry Pratchett’s Discworld novels.

Early in his career, while he is still a nearly-impoverished Watchman, Vimes reflects that he can only afford ten-dollar boots with thin soles which don’t keep out the damp and wear out in a season or two. A pair of good boots, which cost fifty dollars, would last for years and years – which means that over the long run, the man with cheap boots has spent much more money and still has wet feet. This thought leads to the general realization that one of the reasons rich people remain rich is because they don’t actually have to spend as much money as poor people; in many situations, they buy high-quality items (such as clothing, housing, and other necessities) which are made to last. In the long run, they actually use much less of their disposable income. He describes this as The Samuel Vimes ‘Boots’ Theory Of Socio-Economic Injustice.

This phrase has led to the use of the phrase “Vimes’ Boots,” or the description of a set of circumstances as a “Vimes’ Boots situation.” The phrase has widespread applicability. For instance, people who eat healthy food and get good regular medical care are generally healthier than people who do not. Although in the short run it costs more to provide medical checkups, wellness programs, and so forth, in the long run, those rich enough to afford them will not only spend less overall on medical care, they will have a higher quality of life. Thus those who cannot afford regular health care are said to be in a Vimes’ Boots situation.

The irony of the situation, coupled with the character’s own distaste for the wealthy and general cynicism, make the phrase a particularly effective and vivid evocation of the concept for those familiar with the Discworld novels, hence its becoming part of the vernacular in that subculture.

To economists and urban sociologists this phenomenon is known as the “ghetto tax“.

(From Wikipedia).

This is a strategy that works best with clothes that are merely stylish as opposed to fashionable. I particularly favour it for shoes, jackets and trousers.

For example, I was happy to pay about $180 for some trousers from Duncan and Prudence. That’s pricey for me, but the fabric was heavy, the cut was conservative, and the construction was solid. They were made locally and I expect them to last far longer than their cheaper Hallensteins equivalents.

Second hand

This is where we hope other people have been following Vimes boots theory too, casting off stuff with another year or two in it.

The problem I find here is that now “vintage” clothing shops hoover stuff up before I can get to it, the kind of thing I might like to buy isn’t cheap any more. Only anonymous crap like business shirts escapes without a hefty markup.

Oddly, there’s a few things lurking in Dad’s wardrobe that appear to fit quite well…

Hand made

My late mum used to make all our clothes when I was little. She was an excellent seamstress, and of course in the 70s sales tax and import duties made this a very worthwhile saving. I know sewing machines have got a lot cheaper, but are they cheap enough for this to be a frugal expenditure? I don’t know.

Mail order

I notice that catalogue clothes are often cheaper.

My issues here are that I am oddly proportioned enough that I really need to try things on and I can’t alter them myself.  And there’s something a bit tempting about catalogues. Dad used to joke, with respect my mother, that “Ezi-buy” should have been renamed “Ezi-sell.”

Our weakness in this household is novelty t-shirts off the internet. Up until a couple of weeks ago, the exchange rate meant that they were competitively priced with the local product, even taking shipping into account. No more, alas.

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Clippers save money

October 19, 2008

If you are a bloke with thinning hair, you can:

  • plaster it down into a combover (undignified);
  • take some dubious pharmaceuticals (expensive and uncertain);
  • get implants (ditto, also they look obvious);
  • cut it short and learn to love your scalp.

I have chosen the last option. I still have most of my hair, but the widow’s peak is evaporating and it’s clear that the “M” is going to be a “U” soon.

So anyway, I got clippers from the Warehouse for $12 a couple of years ago, and so I get a regular number 2 at home for free. You can’t get a number 2 from a barber for $12, so I’m well ahead. Some mugs may be spending hundreds on haircuts per year, but not me, mate.

(Life gives you lemons, you make lemonade, right?)

Apropos the number 2: when I was a teenager, and contemplating getting around punk/skinhead style, my mother disparaged such cuts as making one look “like a fur-bearing doorknob”. I grew a mullet instead, which I felt displayed my chestnut curls to advantage.

Apropos the combover: I was once privileged to be walking along Broadway in Newmarket behind a man whose scalp only grew hair in a small patch at the back. By means of some sort of super fixative and great deal of dedication, he had managed to tease those few strands into a kind of bouffant helmet which looked most convincing at a reasonable distance. Alas, it did not stand up to a strong head wind—or rather, in a manner of speaking, it did.

Apropos the hair implants: I once worked with someone who’d had them, but they didn’t take. So he had a neat pattern of dark scarred dots on his shiny forehead, which reminded me of the keys on a concertina.

Bonus baldness facts! It isn’t true that you get it from your mother’s side. At least, it’s more complicated than that. I love the breathless tone of the article: 1 in 3 men over 45 is at risk!

There’s a lot of money in dealing with baldness:

About a third of all men are affected by male pattern baldness by age 45. The condition’s social and economic impact is considerable: expenditures for hair transplantation in the United States alone exceeded $115 million (U.S.) in 2007, while global revenues for medical therapy for male-pattern baldness recently surpassed $405 million.

Don’t let anyone tell you men aren’t vain.

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The cost of getting around

October 15, 2008

“Dad, you’ll be so proud of me, I saved a pound by running behind the bus all the way home!”
“Oy! You could have run behind a taxi and saved £10.”

Like most people, I don’t live in the middle of the CBD, but I work in town. So I have to put some thought into how I get around.

Walking

Walking is free, but staying dry in the rain is a pain. Umbrellas are NOT an option in Wellington!

Walking also quite slow; about 40 minutes into town and close to an hour uphill back. That’s nice on a leisurely weekend, but a bit slow on a working morning. A full load of groceries is also problematic unless we do it together and don’t carry anything squishy.

Cycling

Cycling is kinda sorta free, but there are some minimal overheads in riding a bike: tyres, batteries for lights, wear and tear. You also need somewhere to keep the bike safe and a change of clothes once the weather heats up. And again, the groceries are a problem, although I’m keeping an eye out for cheap panniers.

I have expensive kevlar tires that rarely if ever get punctures. My lights are LEDs that use very little battery power. I think I spend less than $100 a year on maintenance, probably a lot less, but I don’t actually have records going back far enough to be sure.

Public transport

The bus is the only option for me. It’s $2.25 for two stages with a Snapper card, so $4.50 on a typical day. I have numerous objections to Snapper, as many people do, but if you want to ride at a discount it’s the only game in town.

I must have had a rush of blood to the head or something, but I worked out that since it costs 25 cents to put money on a Snapper card, and given I can get almost 8% pa in a high interest savings account, and that in winter I bus most days of the week, I should put $81 on the card at a time. That is the optimal point where reducing the transaction fee crosses over with forgone interest.

Possibly that’s taking it too far…

Private Car

Yeah, I own one. I have a 1993 Legacy which has proved to be extremely reliable. I think I’ll be able to drive it until it rusts away, so it might have another five or even ten years in it. Given that the depreciation curve is pretty flat now, it makes sense to do that.

I’m beginning to wonder if I would buy another car once this one dies. Petrol is going to be more expensive in the future, I think, and reliable cars lose their value quite fast. If I was accounting for depreciation properly for the current vehicle, I’d have to have charged quite a lot to losses for the first few years.

Anyway, it turns out that a weekly supermarket trip, plus one or two weekly outings around town, and a long drive every few months, costs $1100 per year. That includes petrol, parking (although I haven’t counted all the coins I put in the meter), insurance, maintenance, WOF and registration. I guess you could add on a couple of hundred for depreciation, but the curve is pretty much flattened out now.

That really surprises me. I kind of thought having a car was a luxury we could look at doing away with, but at that rate, it’s competitive with if not cheaper than using cabs all the time. Unless and until we move closer to a supermarket or the CBD, it actually seems worth it. I’m glad I did the maths on this, because my intuition is quite different — and wrong.

But anyway, I never drive to work: parking’s too expensive. And if I’m out drinking, I prefer to walk or bus into town and cab back. So driving really doesn’t cost much more than the petrol.

In summary, finding the sweet spot between convenience and expense requires a continuous assessment of the balance between the weather, the destination and my energy levels. But at least I know what everything costs.

What is your transport strategy?

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A Spice Rack – what all kitchens need

October 14, 2008

What all kitchens need is a spice rack. You can leave your herbs and spices all over a shelf, but it’s a waste of space. A handy spice rack however, perhaps divided into different types of spice and herb, can make everything a lot easier.

So how much do you think this stainless steel beauty set me back?

It’s a good one. Just high enough to fit the small jars most spices from Masterfoods, and can stack other types of jars you might find too (we’re planning on recycling babyfood jars; but more of that later).

Guesses on cost?