consumer

Should Rising Gas Prices Make You Buy a New Car?

April 28, 2008 By Jennifer Derrick 11 Comments

Unless you’ve been living under a rock, you know that gas prices are soaring sky high. As a result, many people are rushing out to trade in their older, larger, inefficient cars for newer smaller, more efficient models. But is this rush to trade really necessary, or even a good thing?

Certainly if you’re driving a Hummer (or other large or extra large SUV/truck) that gets, at best, 13 MPG on the highway, you would be better served financially by switching to something smaller and more efficient. It’s not difficult to find a car that can double that MPG. However, what if you own a smaller SUV or a mini-van? Can you really do a lot better financially by switching?

Looking at many of the major mini-vans and mid-size SUV’s on the road today, the average highway MPG is around 25 MPG. The average MPG for many of the major mid-size cars is around 30 MPG. As with anything, some are better and some are worse, but these are the averages. So if you’re driving a mid-size van or SUV and switch to a mid-sized car, you’ll save some fuel, but only an average of 5 MPG. Even switching to a much smaller, compact or economy car will only get you an average of 32 MPG on the highway, not much different than the mid-sized car. To reap significant savings you’d need to move to a hybrid of some sort, where the highway MPG can jump as high as 45 MPG.

The problem in the U.S. is that we have some of the worst fuel economy standards of any major nation. We simply don’t require that our cars and trucks get the gas mileage that they could. If we adopted the same standards as some European nations, our cars could easily be getting 40 MPG on average, with many pushing fifty miles per gallon. But because we won’t adopt such standards, we’re stuck with lower MPG’s that make switching to smaller cars almost no better than driving larger cars.

Other factors may eat into any potential savings, as well. How much you can sell your current vehicle for will have a big impact on your savings. If you can’t sell your current car for more than or as much as you owe, you’ll have to foot the bill for the difference on your old loan in addition to paying for the newer car. With the market for SUV’s, vans and trucks shrinking, it can be difficult to get the price you need for your current car. This can lead to larger monthly payments (paying for a newer car, as well as paying off the loan on the old car) that eat into any money you might save at the pump.

If you own your car outright, what you can sell it for is less of a factor, although the amount you can get may dictate what you can afford in terms of a newer car. If you don’t have a lot of cash lying around, a low resale on your current car could mean that you have less to spend on a new car, or that you now have a car payment where before you had none. If you’re not currently making payments, make certain to take any new payment into account when calculating potential savings at the gas pump. You may be trading one savings for another expense.

Also remember that any newer vehicle is likely to cost you more in taxes and insurance. Newer vehicles are almost always more expensive to insure because the cost to replace them is greater. And, because they are newer and worth more, the taxes are going to be higher. How much higher, of course, depends on what you get and what you’ve been driving, but do your research to make certain that your fuel savings won’t be eaten up by higher insurance and tax payments.

In most cases, switching just to save a few bucks on gasoline isn’t worth it. Unless you are moving down from a giant SUV, the move from van to car or mid-sized SUV to car won’t save you that much. It may end up costing you more once you factor in new payments, insurance, and taxes. Obviously, if you need a new car because your old one has given up or has become too expensive to maintain you want to shop for the best MPG you can get so that, moving forward, you can save as much as possible. But if you’re simply looking to trade a perfectly good car to save on gas, you might be better off holding on to your old car for a while longer until you really need a newer vehicle.

In the meantime, look for other ways to save on fuel. Some tried and true ideas:

Slowing down is a great fuel saver. Most cars get their best MPG around 60 MPH on the highway. As you go above that, your fuel economy drops rapidly.
Make certain your car is well maintained. Proper air pressure in the tires, clean oil and filters, and proper fluid levels all contribute to help a car get its best MPG.
Don’t carry everything you own in the car because the extra load is a drag on your fuel economy. Similarly, try to avoid using a “snail” or other cargo carrier on your roof as it creates more drag which lowers fuel economy.
Combine your errands and do as much as possible in one trip to save on repeat trips.
Plan your route to do the least amount of backtracking.
Try to avoid sitting in rush hour traffic. Leave for work and home earlier or later to avoid the worst traffic. Similarly, if you don’t work outside the home, time your errands to avoid rush hours.
Don’t go out for lunch every day. Not only does it cost more for the food, but also in the travel cost of getting to the restaurant. Bring your lunch and eat in.
If you can find someone to share a ride with, even if only once per week, do it. Carpooling is a big fuel saver for both parties.
Don’t idle at the drive thru. Turn off the engine while you wait for your food or money. Better yet, go inside and conduct your business.

I want to make one more point about switching cars just to save fuel. Yes, saving fuel is good for the environment. I don’t dispute that. But it’s better for the environment to keep a well-maintained, functioning car on the road for longer, rather than buying new cars frequently. New cars require tremendous amounts of resources and energy to build. The longer you can keep your older car on the road and functioning well, the fewer resources that are gobbled up to make new cars. Additionally, fewer cars end up in landfills and junk yards. If everyone kept their cars for extended periods of time, we would save more resources and energy than if everyone switched to smaller cars.

When you have no other option, when your old car has truly taken its last breath, switching to a fuel efficient car is the way to go. I highly recommend that, when the time comes, you go for the best fuel economy you can get. But until the time comes when a newer car is needed (not wanted), I recommend keeping your old car for as long as possible and keeping it well maintained. That’s the best way to go, both for your wallet and for the environment.

Image courtesy of Cayusa

I stopped, I looked, I wanted – Fighting the Impulse to Blindly Consume

March 11, 2008 By Jennifer Derrick 12 Comments

I’m usually very good at shopping with a list, knowing exactly what I’m going to a store to get, and coming out with only those items. But every now and then, like this weekend, I’m assaulted by the “I want it now monster” and I’m forced to fight my way through the impulse. I have to fight the primitive “gimmie” portion of my mind and make the rational portion prevail. More often than not I succeed, but sometimes I fall and fall hard. So how did I do this weekend?

I went to Best Buy because I needed a new flash drive and they had the one I wanted on sale. Unfortunately, the computer stuff is in the back of the store, past all the fun DVD’s and CD’s. They know this, which is why the store is laid out like that. Anyway, as I’m sauntering past the DVD racks, there it is. My temptation. A certain set of DVD’s that I’ve been wanting forever is on the end cap and look — it’s on sale! The regular price is $180. It’s on sale for $100. I drool. I’ve wanted this set for quite some time. I’ve been looking for it, haunting the used dealers hoping for a deal. Today is my deal. Or is it?

I stop. It’s $100. That’s still a lot of money and more that I was hoping to pay. I was hoping to score a used copy for around $50:

“Yes, but it’s almost 1/2 price” screams the gimmie monster.

“It’s $100 that I could better use elsewhere, like on a trip,” says the smarter part of my brain.

“But you’re getting a tax refund that could cover it without tapping other funds,” says the gimmie monster.

This back and forth goes on for a while until I push on and go to the computer section. I pick up my flash drive and try to head for the cash register, but the gimmie monster and the frugal part of my brain are still duking it out. I figure it won’t hurt to go back to the DVD aisle and look at it some more. So back I go.

I pick it up and flip it over to read the back, even though I have it memorized. I’m stalling for time, trying to see which side of my brain will win this war. Secretly I’m hoping I can banish the frugal side and give the gimmie monster free reign for once. But it’s too ingrained. I wander around the store for a while, still clutching the DVD and looking at other things, still stalling for time. I start toward the cash register twice, before backing off to think some more. If anyone could hear the war inside my mind, they’d have me instantly committed.

I go back to the DVD shelf to put it down. It looks like the battle is won. But then, another customer comes up, sees the set, says, “Ooooh,” picks up a copy and goes immediately to the cash register. Why can’t I be like this person, I think? Why can’t I just pick up some expensive item and buy it without a second thought? Sometimes it would be nice to do so. I have the money. I could just go right up to the register and buy it, no problem. But I’m not built that way. I know when I get it home I’ll assault myself with guilt, thinking of what else that $100 could have (and should have) been used for.

Now I’m tired. I’m tired of thinking, tired of wandering around, tired of trying to make a decision I wasn’t prepared to make today. I have a headache. I’ve been in the store for forty minutes for a trip that should have taken five. I put the DVD down and go to the register, purchase my flash drive and leave. But even as I’m heading to the car, my gimmie monster is screaming at me that it’s not too late. I can still go back! Fortunately, I have somewhere else to be so I need to get a move on. But even as I’m driving away, there’s a tiny part of my brain that’s saying, “It’ll still be there tomorrow.”

I’ve temporarily won the battle, but I know I’ll be fighting the war all week. That’s how long the sale is good for. I’ve already checked the store’s website twice, checking store inventory and fantasizing about store pickup. Hopefully it will be a busy week and there will be much to distract me from this consumer mindlessness. I hate it when I feel this way, which is why I try to plan my purchases and avoid temptations. I hate feeling out of sorts, out of control and, frankly, obsessed by something that is just a thing. Yes, it’s a very nice thing and one I’d like to have, but it shouldn’t have this kind of power over me.

So why didn’t I just buy it? I had the money and it wouldn’t be a hardship. How did I talk myself out of it? Here’s what I told myself: First of all, $100 is a lot of money to me and well over my comfort level for impulse purchases. That $100 would buy quite a bit on my upcoming vacation so I really need to think about it. Second, I think I’ll be able to get it for less on the used market, I’ll just need to be patient. Third, if it comes down to it, there are special occasions like Christmas or my birthday for which it might make a nice gift. Fourth, if it’s on sale today at Best Buy, the chances are very good that someone else will have it on sale some other time. Besides, since DVD’s constantly go down in price as their popularity declines, this one will probably go down as well. I just have to wait it out. I’ve gone this long without it, I can go a while longer.

The mistake that almost cost me was allowing myself to think about it at all. I should have just gotten the flash drive and gotten out of the store. I could have thought about it at home, away from the store. But I stopped, I looked, I wanted. The longer I thought about it, the harder it became to put it down. So the next time you’re confronted with consumer temptation, what can you do to get past it?

1. Tell yourself all of the things I listed above. You don’t have to buy it today. It will be cheaper later. You can ask for it as a gift. Let your rational mind be heard.

2. Walk away. Don’t do what I did. Don’t carry it around the store and don’t keep looking at it. It only makes it harder. The longer you look and touch, the easier it is to see yourself owning it. Walk away and do your thinking outside of the store where you can do so with a clear head.

3. Consider what else that money can buy. If you have a vacation or other special event planned, think about what the money would buy. If you’re saving for a specific goal, think about delaying that goal because you spent this money today.

4. Ask yourself if this thing will be used or sit on a shelf — and be brutally honest with the answer. I know that I will enjoy watching those DVD’s. But after I’ve seen them once, I know it will be a while before I watch them again. In the meantime, they’ll gather dust. Yes, I’d like to own them, but $100 is still too much for something that won’t be used often. I need a lower price to make myself comfortable with that.

5. Find another way to satisfy the gimmie monster. If he just won’t shut up any other way, find something that satisfies the urge to possess and consume without breaking the bank. My solution was twofold. Fist, I put the entire set of DVD’s into my Netflix queue. The first should be here tomorrow. That will quiet some of the urge I’m having to own this set and, probably, convince me that I don’t really need to own it until it’s less expensive. Second, I went to the library and loaded up on books and DVD’s. No, I don’t own them, but I have a whole bunch of “new to me” stuff in the house to look at. It tames the monster a bit, knowing that I have some things I’ve never seen or read before to look forward to.

6. Write about your struggle. Writing this article has put the whole thing into perspective for me. It’s given me a chance to see how out of control I was (which is the way retailers like you to be) and given my rational mind a chance to be heard. If you don’t have a public forum to confess to, write in a journal or just write it on a piece of paper and throw it away.

It’s now two days after my shopping trip. How am I doing? So far so good. My urge is in check and I’ve stopped checking Best Buy’s website. I’m feeling more in control. To make the point, I took $100 out of my regular account and put it in the vacation account. It’s safe and I like the visual of seeing that account balance jump by $100, thanks to my control. I’ll probably make it through the week without buying that DVD set. Probably.

Image courtesy of evilnick

Sacrifice Without Deprivation

December 17, 2007 By Cortni Marrazzo 6 Comments

Everyone knows you have to sacrifice in order to spend less and save more. Just how much you are willing to sacrifice depends on how much you want to save or how quickly you want to pay off debt. It really depends on your situation and preferences in regards to how much you sacrifice in terms of financial spending. You can live on very minimal money if eliminate all extra stuff and live on cheap food like top ramen, but is it really worth giving up everything? To some it is and I commend those people. And there are some who aren’t willing to take it that far. As long as you are able to pay all your bills and pay them on time, then you should be able to choose just how much or how little you sacrifice (if you are behind in your bills then you shouldn’t really have a choice).

My husband and I have found ways to reduce our spending in certain areas, without cutting things entirely out. It’s kind of like dieting for me. I am currently on Weight Watchers and I get a certain number of points (based on food’s calorie, fat & fiber content) to eat each week. As long as I stay within my weekly points, I can eat whatever I want. I love sweets and fast food, but they are a lot of points and they quickly dwindle my weekly allotment if I eat them, so I have learned to still enjoy those things, but just eat less of them. I still eat fast food, but I get happy meals instead of super value meals. I still eat desserts, but I usually eat a half of a cookie instead of a full one or a small bowl of light ice cream instead of a huge bowl of regular. So what does this have to do with money? It’s the principle that you can still enjoy what you like in smaller quantities and still reach your goals. You can save money in your life without completing giving things up. Here are a few ways we have learned to do this over the past few years:

Cable/Satellite: This is often one of the first things I hear as advice on what to cut down on. However, if I tried to cancel our satellite subscription, my husband would have a fit. When we first started out we had basic cable (50+ channels beyond the main 4). We found an introductory rate that was about $20 a month. When the rate was up I called to cancel since I had just lost my job and they offered to extend our promotional period (which they almost always do if you call to cancel). So we continued at $20 a month. Then we moved and our rate increased (and we were sick of their horrible customer service) so we decided to get satellite TV. I searched around for the best rate and found one for about $40 with similar channels as we had before. We didn’t get 200, 300 or even 500 channels and I wouldn’t pay an extra $20 a month for HD channels to watch on our one HDTV (although I said if my husband wanted to make some extra money or use his own spending money for that, then that was his choice). We still have our basic channels and the main 4 in HD (as long as he gets to watch his football games in HD). And I could tell you, I never want to go back to our pre-DVR days.

High Speed Internet: I pretty much grew up online and am addicted to high speed Internet. I had dial up when I first got out of college and it worked for the time, but I don’t want to go back. I admit that high speed Internet, along with cable and satellite, are unnecessary conveniences, but they are worth it to me. Similar to cable we got an introductory rate for cable Internet for about $20 a month when we started out and now have DSL for only about $35 a month and I don’t notice a difference in the speed between cable and DSL. I do notice a difference between high speed and dial up though!

Home Phone: When we were paying off our credit cards, we went without a home phone line to save money. We were in an apartment and we had cell phones and decided to put our land line on hold until we moved. When we moved into our house, we needed a land line for DSL and satellite TV. Plus it enabled us to get a hold of each other at home when our cell phones were dead or on silent. We started out by getting a phone line with call waiting and caller id, but when we got our first bill with all the charges and taxes (and when we figured out that everyone called us on our cell phones anyway) we decided to strip away all the excess and just keep the basic line. So for $15 a month we have the convenience of the land line, without all the unneeded features.

Cell Phone: Giving up your cell phone may save you $50-$100 a month, but if you’re like me and haven’t been without a cell phone for the last 10 years, that’s a bit hard to swallow. My cell phone is a basic necessity in my purse. I feel lost without it. I know that people not too many years ago lived fine without cell phones and I bet I could too, but the point is I don’t want to. So we’ve decided to keep our cell phones. We have a basic plan where we share 500 minutes and don’t have a bunch of extra features that we don’t need or use. In addition, we have the benefit of rollover minutes so if we (mostly I) talk more than normal one month we’re not stuck with huge over-charges. In addition, we receive a military discount for our service so our bills don’t break the bank. You can also get a pre-paid phone and only use the minutes when needed. That way you have the convenience without the monthly charge whether you use it or not.

Coffee: My husband and I are Starbucks fiends. I grew up in Seattle so that’s my excuse, but he just loves it too. Frequent trips to Starbucks can definitely be a budget buster so we limit our trips to once a week. That way we still get to go and enjoy, but it’s not costing us an arm and a leg. The only exception is at Christmas time when we get to go about twice a week and treat ourselves to eggnog lattes and frapuccinos.

Healthy Food: Eating healthy most often costs more, but it doesn’t have to break your grocery budget and you don’t have to live on Mac & Cheese in order to keep your grocery spending down. We simply shop the sales and buy our basics at either WalMart or the military Commissary at our local base. This helps keep our grocery bill down.

Vacations: Vacations can be quite expensive depending on where you go, but they can also be economical if you put some effort into them. We don’t want to spend a fortune on plane tickets, but we’re not willing to give up vacations altogether either. We’ve chosen more local places to vacation and drive instead of fly. I also research low cost lodging online and we often bring our own food and snacks.

Cars: You don’t have to drive a beater car with missing doors and windows to save money on a car. We drive an economical used car, but we didn’t skimp on the extras. I’m spoiled and I need to have a sunroof in my car – that’s just my preference. When you are buying used cars, the prices aren’t too much higher for a car with extra features (at least not compared to price difference when they are new). So I drive an older car with good gas mileage, but it’s still a pretty nice car with power options and a nice moonroof.

Houses/Apartments: You can save a lot of money by living in a rat-hole of an apartment or house in a bad neighborhood, but that’s not my idea of home sweet home. Consider going smaller, but still presentable inside and in a decent neighborhood where you don’t fear for your life. When we decided to rent an apartment while we paid off our credit card debt, we rented a nice one with an attached garage. We could have gotten something for cheaper, but we wouldn’t have enjoyed living in it.

Health Clubs/Gyms: Belonging to a gym helps me stay healthy and keeps me from being overweight, therefore it is important for me to have access to a gym. I’ve seen gyms that charge anywhere from $40-$100 a month for use of a pool, tanning, classes, and the ability to use other gyms in different areas. I recently signed up for a local gym that is 2 block from house that charges less than $20 a month and it has all the equipment I need.

Entertainment: You don’t have to cut out all entertainment when you are trying to save money – simply cut down. Instead of spending almost $20 for two people to go a movie (I can’t believe how expensive it’s getting) rent a DVD and watch it at home instead. My husband and I prefer to watch movies at home on our comfortable couch in our “comfy clothes” as he calls them. Plus we can invite anyone over to watch with us and it doesn’t cost more. We prefer DVD mail rentals like Netflix or Blockbuster Online. If you watch movies often, you can get multiple rentals a month for a low fee of $5-$20.

It’s a wonderful thing to be wise about your spending and aim to spend less, but there are still ways to enjoy yourself while doing so.

Image courtesy of Bright_Star

The Quality Trap – Items Where Quality Is Over-Rated

December 10, 2007 By Cortni Marrazzo 4 Comments

If I were to ask the average person what makes a Lexus better than a Kia, an outfit from Nordstrom better than one from WalMart or a Coach purse better than a Canyon River Blues one, the most common response I would probably get is “quality.” Now I’ve always been one to try to spend the minimal amount possible on the items I buy. If I can get a shirt for $2.99, I get excited. Friends of mine who spend more on the same item often justify it because their item is higher quality.

I can understand the draw of wanting an item that will last a while and hold up through wear and tear – nobody likes it when their stuff breaks. But at what cost is this “quality” worth it? It’s obvious that higher quality items cost more money than “average” quality items. The big draw for this is that the higher quality item will last a lot longer. The way I look at it, however, is that the money I can save and invest by spending less on an item (and multiple items) will most likely last a lot longer than that product (or my need to use or wear that product).

Here are a few things that I personally don’t think are worth paying more for “better quality” (at least at this point in my financial journey):

Automobiles: First of all, I admit that I’ve been known to drool over Lexus’s and BMW’s. They are nice cars with some very handy features. However, at this point in my life I would never consider paying $30,000+ for one of those vehicles (even if it came with a full time chauffeur!) Since our household income isn’t exactly in the 6 figures (or even close) it would be a misuse of our resources to spend a big chunk of money on a car like this, simply because it’s “better quality.” My Honda Civic is actually a great quality car for a MUCH lower price.

In addition, the initial high price of these cars, they also tend to be more expensive to fix. Luxury car parts tend to cost more than your average Honda or Toyota parts (probably because they are “higher quality”) Because they are more expensive to fix and replace, that means they are also more expensive to insure. And since car buyers in the market for a luxury car don’t tend to be worried about high prices and costs, less effort is given to making the car more economical and fuel efficient, while more effort is given to add extra features, like the ability to parallel park itself. The prices add up on these “higher quality” cars. Personally, I’d rather save the money and parallel park myself.

Clothes: It’s commonly thought that a $3 shirt will probably last you a month or two, while a $100 shirt will most likely last almost your entire lifetime. Even if that’s true, I’d still rather have the $3 shirt. For one thing, I personally can’t wear the same clothes over and over and over without getting sick of them. I like to change things up and wear new things. I don’t like my wardrobe to get stale. So for me to buy a $100 shirt that I will eventually get sick of and want to get rid of anyhow is pretty silly. Even if I didn’t get sick of the $100 shirt, chances are it will go out of style in a few years anyway and it will find its home in the back of my closet with all the clothes I never wear. Then I would get sad every time I see it because I’d think of all the money I wasted on it.

On the flip side, there are those pieces of clothing that are timeless and will never go out of style and can be worn year after year. Like the long black wool button coat I recently bought to wear to work on those cold winter days. The nice thing about this coat is that it can be worn with jeans or dress clothes, it’s black so it matches almost anything, and it keeps me nice and warm. A coat like that can easily go for $100+ (most likely a lot more). The best thing about my new coat? It only cost me $40. Instead of shopping at a department store and spending hundreds of dollars, I went to a store similar to Ross and got the same coat for a lot cheaper. Now I’m so happy that I have a nice “quality” coat that I didn’t spend a fortune on.

Electronics: It’s always nice to have the highest quality newest electronic item on the market, but that comes at a high price. Believe me, I’ve paid that price in the past. About 5 years ago I was in the market for a new cell phone. Camera phones had just come out and I found the coolest one for around $400. I love taking pictures so the idea of having a camera on my cell phone was really a draw for me. Plus, no one I know had one at the time. So I forked over the $400 and was the only person I knew that had a camera phone. Until a week later. About a year later it seemed that everyone had camera phones and they paid a lot less than I did. Plus they had extra features like a video camera and their phones were smaller than mine.

If I could go back in time I would not have bought that phone and invested the extra money instead. Had I not learned my lesson from that experience, I probably would have been first in line to buy an iphone a few months ago. But I have stayed away from that ridiculously expensive phone and stuck with my basic camera phone that works just fine. I now see it’s silly to spend so much on such a “quality” item the second it comes out.

Eating Out: Somebody really enjoy the high quality of an expensive meal. I suppose once in a while it isn’t bad, but personally I don’t want to literally eat away my money. Granted, Red Lobster tastes a lot better than McDonalds, but eating at Red Lobster all the time will really set you back financially. If you really want to eat some better quality food, considering sharing a meal at a nice restaurant or perhaps order one of the least expensive items on the menu. You can also buy quality seafood/meats on sale at the grocery store or meat market and make your own high quality meal at home for a lot less.

Then there is Starbucks – said to be the highest quality coffee there is. Granted, I’m from Seattle so I share this opinion myself. If I could go to Starbucks everyday for free I would. Unfortunately it’s not free so I don’t give myself the luxury of going there everyday or every other day. I do however brew it at home. I use Starbucks coffee at home in my Barista Espresso Machine and make my own lattes at home for a lot cheaper. And I’m not giving all my extra money to Starbucks’ bank account.

Now most of this is more directed to those younger people who are early on in their financial journeys. I belive those who are older and have been wise with their finances and have built up a nice net worth should be able to enjoy quality items. And I understand that some people may need to spend more in a certain area for quality (such as a nice car for someone who drives high end clients or nicer appliances for someone who cooks for a living, but if spending that extra money doesn’t help you make more money, is it really worth hindering the building of your financial foundation for a little extra “quality”?

Image courtesy of KB35