Consumer Savvy | Frugal, Wealthy and Wise

A Million Bucks Ain’t What It Used to Be

Sadly, times have changed; a million dollars isn’t what it was.

Photo credit: voxeros via Foter.com / CC BY-NC

Once upon a time, one million dollars represented the hallmark of rarified wealth. But due to inflation, the value of a million dollars has been greatly diminished. Today, one million dollars might provide a comfortable, middle class retirement, assuming it’s supplemented by Social Security and one does not retire in a high-cost region of the country. Indeed, a million-dollar fortune 100 years ago would amount to $21 million dollars today!

Facts about Inflation

Inflation is a reality that must be factored into your long-term financial planning
Excessive inflation can be devastating but moderate inflation is a sign of a healthy economy. And inflation is definitely better than its alternative: deflation. Why? Think Great Depression.
Over the past 60 years, inflation has averaged 3.80% annually. At that rate, prices double (and the value of a dollar is cut in half) every 19 years. (Here is a link to an Inflation Calculator. Also, recall the Rule of 72 for estimating when money doubles.)
The effects of inflation are quite uneven. For example: healthcare and college education have far outpaced the general rate of inflation. (see chart below)
On the other hand, prices for many items, particularly electronics, have sharply declined. In 1965, RCA announced the first color television set for under $400 ($399.95); that would be the equivalent of 3,100 dollars today. The IBM PC introduced in 1981 sold for $1565; this would be roughly $4400 now. Today a vastly more powerful desktop computer – or a flat screen high definition TV — can be had for under $500.

Here is a chart that tracks inflation on various goods over a twenty year period. The average or composite rate of inflation 1996-2016 is 55%

Take Aways and Recommendations

Be warned: just as investments can grow exponentially, thanks to the power of compounding, the impact of inflation also grows. Over time, the buying power of a dollar will erode. (For the power of compounding, refer back to Pennies a Day)
Inflation is a major threat to retirement – particularly for those depending upon fixed-dollar payouts such as pensions and annuities. One advantage of Social Security is that its payments are indexed for inflation. However Social Security income by itself is not sufficient for most folks in retirement.
Plan for inflation in retirement by keeping a portion of your retirement funds in investments that potentially outpace inflation, such as stocks.
The Frugal and Wise are not early adopters of new technologies. They are cheap adopters of technology. There is a huge premium to be paid for being the first with the latest gee-whiz gizmo. Wait a couple of years and watch prices plummet. (Being a cheap adoptor of technology will be the topic of a future FW&W posting.)
Don’t despair that a million bucks ain’t what it used to be. Or that you are nowhere near accumulating such a sum of money. No matter what your income or stage of life, beginning today, diligently save, invest and patiently watch your nest egg grow over time.

Photo credit: Howard County Library System via Foter.com / CC BY-NC-ND

I hope provides some perspective on inflation.

Cheers, Paul

I Just Trash Picked Another Weber Grill!

It does needs a bit of work (the right hood casting (where the thermometer is) needs to be replaced. It’s heavy and was tough to drag home. Luckily, it was just on the other side of our block!

It’s actually a nicer model than the our current Weber which I trash picked 3 years ago (see below) — It’s a Genesis Gold vs our Genesis Silver; it has 3 burners instead of 2, a stainless steel hood and an extra work shelf.

I promise you an article on trash picking real soon. And Trash Pick of the Day postings, once the Proverb of the Day postings conclude. Meanwhile: keep a lookout. You never know what might be out lurking by the curb…

Cheers, Paul

Kiplinger’s 70 Ways to Build Wealth

The April 2017 issue of Kiplinger’s Personal Finance magazine recently arrived. It is a special one indeed: celebrating the 70^th anniversary of a venerable publication. To commemorate this occasion, the lead article is 70 Ways to Build Wealth. Definitely a worthwhile read for the Frugal and Wise. (Check for the issue at your local library.)

I am pleased to note that, of the 70 actions listed in the magazine, I have, to date, mentioned at least 19 of them on Frugal, Wealthy and Wise. Refer back to Twenty-five to Thrive, 31 Essential, Frugal and Wise Actions and Take These Five Actions Before Year-End.

I certainly cannot claim such ideas as original but neither did I merely copy them from other sources. Any number of fundamental, financial actions can lead to building wealth and living better on less. But there is the satisfaction in knowing what I mention on Frugal, Wealthy and Wise is also being espoused by such a prominent source as Kiplinger’s.

I have been reading Kiplinger’s Personal Finance for at least two decades. It has been influential in my journey towards being a savvy consumer, a shrewd manager of family finances and a builder of wealth. (Kiplinger’s Personal Finance and The Economist are the only two magazines I read.) The introductory rate for a year’s subscription is $15 or less – worth checking out; see if it earns its keep for you.

Words from the Chief

The 70 Ways to Build Wealth article contains 10 saying from Knight Kiplinger, Editor in Chief (page 28). These sayings are comparable to words of wisdom from Warren Buffet, Jack Bogel – or even King Solomon in Proverbs.

1) Wealth creation isn’t a matter of what you earn. It’s how much you save.

2) Your biggest barrier to becoming rich is living like you’re rich before you are.

3) Pay yourself first.

4) No one ever got into trouble by borrowing too little.

5) Conspicuous consumption will make you inconspicuously poor.

6) The key to stock market success isn’t your timing in the market. It’s your time in the market – the longer the better.

7) Diversify, because every asset has its day in the sun – and its day in the doghouse.

8) Keep a cool head when others are losing theirs.

9) Money can’t buy happiness but it can make unhappiness easier to bear.

10) Sharing your wealth with others is more fun than spending it on yourself.

Cheers, Paul

The (not so) Ubiquitous Bed, Bath and Beyond Coupons

Getting those 20% discounts at Bed, Bath and Beyond may not last forever.

For as long as most of us can remember, retailer Bed, Bath and Beyond (BB&B) has been plying us with coupons. The most common is the 20% off a single item. But there are also ones for $5 off purchases of $15 or more and $10 off purchases of $30 or more.

Here are some facts and recommendations for utilizing those (formerly) ubiquitous coupons. And making the most of your dollars spent at BB&B:

Printed coupons (from newspapers and mailings) have expiration dates. But the expiration dates are largely ignored. I’ve had the local BB&B store accept coupons that expired 10 years ago! Don’t throw out BB&B coupons just because they expired!
More than one 20% off coupon can be used at a time; example: if you are purchasing 5 items and have 5 – 20% off coupons, you get 20% off each item, all in a single transaction.
Forgot your coupon(s)? You can return later with a receipt and get a refund for the difference.
Keep in mind that emailed coupons may be subject to the expiration date.
Select the coupon that gives you the most savings. The table below works for purchasing a single item. For multiple items, figure out which combination of coupons saves the most.

Under $15.00	20% Off
$15.00 – $18.75	$5.00 Off
$18.76 – $30.00	20% Off
$30.00 – $37.50	$10 Off
More than $37.50	20% Off

Some brands are not eligible for discounts: Wusthof knives and Waterford crystal, for instance.
Just because you’re getting 20% off doesn’t mean you’re getting the best deal. Price similar items at Target, Walmat, Boscov’s or Macy’s.
Don’t let a coupon ‘burn a hole in your pocket’. In other words, don’t feel compelled to buy something, anything just because you have a coupon.
If not using a coupon on some of the items you are purchasing, make sure the prices are in line with other retailers.
If you return an item purchased with a coupon, you will be refunded the net cost you paid but will not get to reuse the coupon.
Use your BB&B coupons judiciously, i.e. don’t use up your supply purchasing a bunch of $4.00 items. (see next point)
The last few years, the supply of BB&B coupons has been scaled WAY BACK. Traditionally they arrived via mail or in the Sunday newspaper. In late 2016, there was even talk that BB&B would eliminate coupons altogether! Apparently, the coupons have been too Keep track of the ones you’ve got!
Don’t have any BB&B coupons laying around? Sign up for email and get a one-time 20% off online or in-store.

Do you have a Bed, Bath and Beyond shopping experience to share — please post or send me an email. Meanwhile: be frugal; be wise.

Cheers, Paul

P.S. I tallied our collection of BB&B coupons accumulated over the years: 34 – 20% off, 19 – $5 off, 4 – $10 off. We should be OK for a while.

To Pay Cash of Not to Pay Cash: That is the Question

Is it better to pay cash than use credit cards? It depends.

To pay cash or not to pay cash: that is the question.
Whether ‘tis nobler to charge everything, to gain rebates and frequent flyer points, but to suffer:
The demand of paying balances in full: each and every Month.

Or to take up Arms against a Sea of debts
And by opposing, end them: to pay them in full, to sleep soundly and worry-free
No more shall we carry balances on our credit cards
We shall end the heart-ache of indebtedness.
‘Tis our consumption that must decline
For who should bear the Whips and Scorns of outrageous Interest?

(with my apologies to the Bard)

If Hamlet were amoungst us today, would he contemplate out loud whether to use credit cards or cash? He probably had bigger worries. But the best choice for you, dear readers, depends upon a number of factors.

Personally, I despise cash and use it only when I absolutely have to. For me, paying with cash means forgoing – at a minimum – a 1 ½% rebate, or as much as a 6% rebate on purchases. It’s the hassle factor finding a (fee-free) ATM and dealing with handfuls of left-over pennies, nickels and dimes. But most of all, cash expenditures are difficult and tedious to track. I try to keep meticulous records of our spending. Yet, at year-end, there is usually around $100 cash that I cannot account for!

However, if you carry a month-to-month balances on your credit cards and/or make impulse purchases, cash may be the way to go. Here are pros and cons of each:

Cash Pros:

Paying cash is a great method to limit spending – studies prove that paying cash reduces impulse purchases and spending overall
Unlike credit cards, if your cash gets lost or stolen, there’s no risk of identity theft (assuming your driver’s license or other documents did not disappear with the cash)
Some restaurants and retailers only accept cash
Some gas stations offer a cash discount
Cash is the ‘universal gift card’ – for tips and presents

Cash Cons:

If you lose cash, it’s …. gone.
Carrying around lots of cash could make you a target
The time and effort required to physically withdraw cash from an ATM or bank. Possible ATM fees
If you have lots of cash in your pocket, you may be inclined to spend it all (‘burning a hole in your pocket’)
Travel can be much more challenging to arrange: from booking hotel rooms and flights, renting cars, to getting cash in a local currency
Cash expenditures are difficult to track. An essential element of being Frugal and Wise is knowing where your money goes

Credit Card Pros:

Convenience – a credit card is always in your wallet. It can be used for faster transactions at gas pumps, kiosks and the like
Security –a lost or stolen credit card can easily be deactivated and replaced, with no financial loss
Rewards, whether cash back rebates (generally a statement credit) or travel points
Protection and the ability to dispute charges when in disagreement with a merchant
Perks such as extended warranties and rental car insurance
Ease of use when traveling abroad (just be sure your card that does not assess foreign transaction fees)
Statements that are a record of your expenditures

Credit Card Cons:

Very easy to spend too much or buy impulsively. Using credit cards requires considerable self-control
If you don’t pay the full monthly balance, you will be subject to interest charges that could really sap your finances
‘Convenience fees’ are sometimes accessed for using a credit card. Example: property taxes, income taxes, vending machines. Be vigilant. A credit card is probably not worth using in these situations
The possibility of identity theft or unauthorized use. Regularly checking credit card activity and credit reports is a must do

Recommendations and Takeaways:

Although the role of cash is diminishing, it’s virtually impossible to use cash exclusively or credit cards exclusively. We all exist somewhere on a continuum (or blend) between the two
If you are faithful paying your credit card balances in full every month, go ahead and use credit cards for the advantages mentioned above. But be sure that you have credit cards that work hard for you. See recommendations in earlier FW&W postings: 31 Essential, Frugal and Wise Actions – 6, My Favorite Things Part I

If you currently carry credit card balances, cease using your credit cards until the debts are paid off. That should be one of your highest priorities.
Ditto if you are unhappy with your high spending levels and low saving rates.
If you do go with cash, utilize the ‘envelope’ method: split it your cash for the month into spending categories, both discretionary and necessary. Once all the cash in a given category – particularly a discretionary category — is spent, similar expenditures will just have to wait until next month

What are your experiences with cash or credit cards? Please let me know.

Cheers, Paul

A Tale of Two Jackets

The Brooks Brothers sport coat was fabulous but, I ended up with a splendid jacket from Macy’s, at a tenth the cost.

I left Brooks Brothers empty handed but scored this jacket for $120.

It was the best of bargains. Or it was paying full price. It was a wonderful article of clothing. Or one that’s more than ‘nice enough’. It was a wise purchase. Or one made foolishly and impulsively. It was the hope of replenishing my wardrobe for a modest sum. Or sinking into despair when the credit card comes due. In either case, it was for the season of winter rather than the season of spring. (Apologies to Charles Dickens)

I was in need of a replacement navy sport coat (an essential component of any man’s wardrobe.) On a recent Saturday evening, my wife and I journeyed to the King of Prussia Mall. First stop was Brooks Brothers. Having never shopped at Brooks Brothers, I’ve always been curious whether the quality of their offerings justified the prices.

Well, one of the navy jackets I tried on was 100% cashmere. It fit me well. It looked great! It felt great! For a few moments, I seriously considered purchasing it. It was not on sale but I could get a %15 discount if I just opened a Brooks Brothers charge account…

Then a thought popped into my head: a thought that jarred me back to my proper senses. At $1198, this jacket, a mere article of clothing, cost more than a stainless steel deluxe Weber grill with a built-in searing station! Wow, that just really brought everything back into perspective!

(Full disclosure, I do own a Brooks Brothers jacket, a tweed. My wife bought it for me years ago, at a thrift store for $15. It’s getting a bit ratty now but I still like to wear it for the comfort. And bragging rights.)

Next stop: Macy’s and the men’s winter clearance rack. My wife zeroed in on a Ralph Lauren jacket that’s 75% wool, 20% silk and 5% cashmere. ‘List price’ was $450 before a %60 markdown and an additional 25% off Macy’s purchases that weekend. Final price: $135. But wait, it gets even better. The store did not have the navy color in my size, so we ordered the jacket online. The price online after discounts: $118.49!!! It’s quite nice, but certainly not as spectacular as the Brooks Brothers cashmere. But is the Brooks Brothers jacket ten times better? Probably not, at least for me. Granted the Brooks Brothers jacket does contain 20 times more cashmere.

It can be said: A Tale of Two Jackets concluded with a happy ending.

Takeaways and Lessons Learned:

For many items – clothing, audio gear, bicycles, autos – there is a ‘sweet spot’ of quality and price. Spend less and you give up more quality or features than you save in the lower price. Spend more and there is a rapidly diminishing return on money spent vs. incremental quality and features.
Avoid impulse purchases. For major purchases, sleep on it overnight. What’s a major purchase? That all depends on your current financial circumstances: $20, $50, $100, $250…
To put things into perspective, it’s often helpful to compare the cost of one item to another totally unrelated. Example: the cashmere jacket and a Weber Grill.
The Frugal and Wise are not enamored by status of the retailer or the brand. OK I did end up with a Ralph Lauren jacket. But the brand in no way influenced my purchase (if anything a designer brand is a negative factor, IMO.) Besides, you can buy Ralph Lauren stuff at Kohl’s. (Note there’s nothing wrong with buying certain clothing items at Kohl’s.)

Do you have a tale to tell about fantastic bargains? Please share with other readers.

Cheers, Paul

P.S. Not to worry. I will not be acquiring a stainless-steel Weber Grill anytime soon. The one I trash picked is working just fine.

P.P.S. If you are curious about the $1200 Brooks Brother jacket, here’s the link.

P.P.P.S To refresh your memory, here’s the opening to A Tale of Two Cities:

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us…