Reader Question – Buy Me Now or Buy Me Later?
I was recently presented with this question from one of my readers:
Thought you might be interested in weighing in on the decision we are needing to make. We are nearly entirely on a fixed income now, so there is no cash from the working budget for any large purchase. Our clothes washer is at least 13 years old and has been making strange noises for some time. The repair man said not to put any more money into it if breaks down again. So here is the decision: do we gamble and wait for the thing to die and then possibly have to pay a larger amount (from savings) for a new one OR do we take the money (again from savings) and purchase a new one now, hopefully on sale and while we can get a little Energy Star appliance “clunker” rebate from the government? Which move is more financially prudent?
I think the key here is to not have to put the purchase on a credit card and pay a high interest rate on it thus making a difficult purchase even more so. In either case you describe, you are using your own money to purchase the washer. If you were saving up to be able to buy one later but had to use a credit card to buy one now, I would say wait and save. That is not the case for you.
Let’s look at the details a bit more. We’ve already established that you are using money from your savings. The question is should you wait or do it now. The advantages of buying now are that you can be proactive about finding a sale and use the appliance clunker rebate (of course, each state handles this differently). Another advantage of waiting would be to earn interest on the money in your savings account while it sits there. That is not going to amount to a significant amount of money even if you do get another year or two out of your washer. At $1000 with current rates maybe at 1%, that’s $10 a year – not very much. As long as we’re talking small sums of money, don’t forget to consider how much more energy efficient a new washer would be compared to one that is 13 years old. A new one will most likely save you some energy costs and the sooner you purchase one the sooner you’ll start realizing those savings.
On the flip-side, the pros for waiting are that your washer could in fact continue to work for a long time thus saving you that cash outlay for months or possibly years. I guess that’s all I can come up with as a pro for waiting (I’d have a better argument for waiting if you told me you were going to charge it and pay it off over the next 24 months!)
Again, I think the overarching key to this question is whether you can make the purchase now with your own money or if you have to use a credit card. If I were in your position with money in the bank to purchase a new washer, I would start looking for one. Do your research for price, effectiveness, and reliability, check out different stores, search for coupons and sales, etc. Basically, I’m suggesting that you prepare yourself ahead of time so you can take your time but still be ready to pounce when you find a great deal. Good luck!
I’d love to hear if any readers would like to chime in with some (possibly different) advice…
Guest Post: Remodeling in a Recession: Why You Shouldn’t Wait
With the economy still in a decided downturn and foreclosures reaching all-time highs, now might seem like the worst time in recent history to think about remodeling your home. It certainly won’t be easy to get a loan or a line of equity on your house with the real estate market slow to rebound and banks pulling the purse-strings tighter and tighter. However, if you can find a way to scrape together a little cash, or if you’ve been saving, now is a great time for the frugal shopper to do some home upgrades.
For starters, a little can go a long way in this economy. Retail spending is, simply put, not what it was. Vendors that were thriving a few years ago are now being forced to slash prices and even close their doors. The point is, they want your business! And you can use it to your advantage. Shop around to find the products you want and you will be amazed at the discounts you discover (shopping online may be even more fruitful). Then go to several stores and find out if they are willing to price match or give you a better deal to stop you from going to the competition. You can often get an outrageous bargain just by asking for it. Also, if you’re on a tight budget, consider a merchant that sells reclaimed items (like flooring, cabinets, hardware, etc.). Although it may not be the newest product on the market, and it might have a little wear and tear, you can often find merchandise that has a higher value (in terms of construction, quality, materials, etc.) than you could get for the same price if you bought something new.
And that’s just the parts. You can also save on labor. Of course, there is always the do it yourself method, which is great for handy people. For the rest of us, a contractor is necessary to get the job done. And while contract work has a bad reputation for getting very pricey, very quick, we are currently in a buyer’s market. Building of new structures has slowed significantly and as a result, the market is flooded with contractors looking for work. If you seek several bids (make sure to get recommendations) you stand to save a lot of money on labor. That said, don’t be afraid to do some of the work yourself. Almost anyone can learn to install a backsplash, replace a lighting fixture, or swap out a faucet, so get yourself a home improvement guide to save even more.
Why wait to build your dream home? Even if you plan to upgrade as a way to get more value out of your house, you don’t have to wait until you’re ready to sell. Remodel now, while you can get the best price, and you stand to appreciate an even better return on your investment in a few years when the housing market rebounds. Plus, you’ll get to enjoy a custom-made interior in the mean time.
Inexpensive Vacation Ideas
Summer in the US is typically the time for vacations, especially if you have kids (unless you homeschool but that’s a different topic). So with about a month before school starts up again, many people might be taking a vacation this month.
So, maybe you are still trying to plan a vacation (procrastinator!). Or maybe you’ve just realized you really need a vacation but don’t have one planned or don’t have enough money saved up for a blowout. Here are a few ideas to work in a vacation without blowing the bank.
1. Take a “Stay-cation”
Instead of going somewhere far away for vacation, why not stay close by….like in your house! There has to be numerous activities to do nearby your house. Take a hike, visit some museums, check out local parks or playgrounds (only if you have kids), take in a show, go to the movies, camp out (even if it’s only in your backyard), do stuff that you haven’t gotten a chance to do around your town – just experience your surroundings differently. There has to be a million ideas you can think of for your area!
Do all the stuff you would normally do while on vacation; just don’t pay tons of money for travel, lodging, and food. And if you live in or near a touristy place, even better! Heck, you can still go out to eat like you would on vacation. Your bed and pillow will be more comfortable than what you’d get in a hotel (but you will have to clean up after yourself). Just make sure that you make it like a real vacation and don’t spend the entire time cleaning, working, or doing non-vacation things.
2. Visit (and stay with) family or friends
As sort of a hybrid vacation/stay-cation, take off to a friend’s house or stay with family for your vacation (get their permission first, of course). While there, you’ll get to do all the normal vacation stuff and, different from the stay-cation, you’ll get to experience a new place. By staying with friends or family though, you’ll save a bunch on lodging costs and reduce your food bill (you won’t eliminate it since it will be really rude to stay at someone’s house and eat all their food without chipping in – unless maybe if it’s your parents house!). Throw on top of all this the fun of sharing your vacation with others and this could be a real winner.
It does help to know people that live in interesting places though. We actually did this twice in the past few years. Last summer we visited West Palm Beach, Florida for a vacation with my wife’s family (staying at her sister’s house) and currently we’re in Hershey, Pennsylvania staying with my parents. Just remember that you are not staying in a hotel so pitch in for food and other miscellany and, again, you’ll have to pick up after yourself. But you will still save money and eat better than being at a hotel and eating at restaurants every day (ok, can we at least say you’ll eat healthier?).
3. The Last Resort: The No-Vacation
If you really can’t afford it, this is your best bet (that’s what Dave Ramsey would say too). I don’t particularly recommend this option unless you really would have trouble doing even a stay-cation. I’ve said it before: you need to live life, have some fun, and make some memories. Before throwing in the proverbial towel on your vacation plans, explore the first two options and any others you can think of.
But be realistic and if you can’t afford a vacation without depleting your savings or going into debt, then skip it. If you do miss a vacation this year, then definitely sit down and make plans for a vacation and immediately start saving up for that (hopefully not-so-distant) future vacation.
Intelligently Frugal: Sweat the (Right) Small Stuff
I would venture to guess that most of the people reading this post are interested in being responsible with their money and planning intelligently for their future. And I’m sure we all understand the basics of how to save and plan for the future. The best way to increase the amount of money you have to save, of course, (real basic stuff here) is to either increase the amount of money you have coming in or decrease the amount you spend every month. Let’s focus on the latter for this post – what can we do to decrease the amount of money that is unnecessarily spent each month.
Keep more of your money…
So, you’ve decided to undertake the exercise of decreasing your monthly expenses. The first step is to keep track of all your expenses for a month or two or three and then analyze them to determine where to trim the fat. The entire budget (or as it must be named in our house: the spending plan) conversation is the topic of another post.
In this post, I want to focus on a single important facet of the overall strategy. After you have a listing of all your expenses, the most natural next step would be to find the ones that are the largest expense that can be eliminated or reduced. I mean, why bother eliminating a $2 expense when you can focus on a larger expense and make a much bigger dent in your spending plan? This matches up with the proverbial saying, “don’t sweat the small stuff.”
Do sweat the small stuff…
The problem here is that I am actually going to tell you to sweat the small stuff – well, with a caveat. I am going to suggest that you sweat the “right” small stuff. Sure, a $2 savings is not significant and won’t make a big difference….well, it won’t make a big difference, that is, unless you can cut out that $2 expense every day or even twice a day for most of the month. Making a large sacrifice to trim $20 from your monthly expenses is a good step, but if you can make a tiny sacrifice of $2 and repeat that sacrifice everyday, you’ve actually saved three times as much as the large sacrifice.
There are many, many ways that this can be accomplished and obviously the exact steps to take depend on your personal situation. Some examples include installing a programmable thermostat (and setting it!), installing CFLs, taking your lunch to work, eliminating your daily gourmet coffee, and so on and so forth.
Optimize your frugality…
My goal in this post is not to tell you exactly how to save the money. Instead it is to inspire you to think about your frugal choices in a different light. Maybe eliminating small, repeated expenses will create a bigger savings at the end of the month compared to focusing on one large expense that might be harder to completely eliminate.
Warning: I’m wandering off-topic again…
I would suggest that this technique also works for time efficiency as well. If you want to become more efficient with your time, don’t necessarily focus first on the biggest consumers of time, but rather on the repeated activities. Again, reducing only 2 minutes from an activity that is repeated 20 times a day will save you 40 minutes!
My lovely wife and I talk about this concept often. She is a physician who sometimes sees 25 or more patients in a day. If she can cut out even a few minutes of non-productive work from each encounter, she can spend more time actually interacting with patients and still complete her day sooner.
Life Lessons from Software Engineering…
This is a basic software development concept, actually. When you are tasked with writing or optimizing some software, you are careful to consider what you put into the loops that are repeated over and over again. You’ll want to move all non-essential steps out of those loops. In that way, you’ll do certain steps only once instead of over and over again and you’ll increase the efficiency of your program.
For those of you who do tasks repeatedly during your day, optimizing the time it takes to complete the task could end up saving you a bundle of time!
Eight and a Half Effective but Somewhat Less than Practical Ways to Save Money
Saving money is obviously a key component to any successful personal finance plan. You simply must avoid wasteful spending (or some of it at least) if you want to be able to spend less money than you earn. Well, I’ve been brainstorming…and I’ve come up with some methods to save a lot of money. Have a look…
- Live in your office – Why bother with expensive housing that is a distance from your workplace? If you do that, then you just have to drive to and from your office each day (or whenever you choose to go to work). Instead, just live in your office…you can cut down on housing and transportation expenses and love the environment at the same time – A win-win-win!! (well, I guess it is a lose for the cleaning person who has to step over your sleeping body while cleaning the office). Note – this works best if you don’t have a family and are in grad school. And it works really well if you actually have an office.
- Build a big shed, then sell your house – Our house has a generously sized shed out back. I’m sure I could live in it if I put in some electricity and maybe some running water. If you do this, make sure you build the shed close enough to your house so you can continue to get wifi from your (old) house. If living in a shed and selling your house sounds sounds too drastic, then try just renting your house out.
- Optimize your bathing schedule – Bathing is expensive and probably bad for the environment as well. You waste a bunch of water and loads of soap and shampoo and conditioner rinse down the drain each day. Instead of that tired and outdated routine, start off each day with a quick dip in the local pool. Your wallet and the environment will thank you (Note, it is unlikely that your office mates will thank you)
- Only drive downhill – It seems like your car has to work much harder when driving uphill. So, be smart about your route and only drive downhill. This will reduce the wear and tear on your car while saving you lots of money and reducing America’s dependence on foreign oil (and think of all the interesting places you’ll see that you haven’t explored before!).
- Institute no-heat Wednesdays or no A/C Mondays – Pick the day of the week you hate the most (it’s already the worst day, so it can’t get much worse) and turn off your heat or A/C all day long. Sure, you might get a little toasty or chilly, but think of the cost savings! Doing this each week will add up to big savings while simultaneously strengthening your self-discipline. As an added bonus, you just might find yourself spending more time with friends on these days (at their house, of course)
- No Electricity Tuesdays – While you’re at it, why not go all the way and shut off all your electricity wasters for the day. Turn them all off and reap some serious cost savings. When it gets dark at night, just go to bed. (You might want to try a battery powered alarm clock on these days)
- Cheap entertainment: Eavesdropping on the neighbors – Why bother with expensive movies or cable TV, just walk around (very closely to) your neighbors’ houses and peek in a few windows. I can almost guarantee you that this will be more entertaining that watching narcissistic overpaid actors pretend that they’re real people. (Note-check local laws before actually doing this)
- Walk everywhere – You’ll be doing this once you get to the lowest point in your city anyway, since you’re only driving downhill now, so why not just skip straight to it. Walking is great exercise and though it may take you a long time to get anywhere, think of how great you body will be feeling (except for the extreme ankle and knee pain)! And since you’re living in your office anyway, if you’ve chosen your job wisely you’ll already be at work and in close proximity of all your necessities like restaurants and a local pool!
Well, there you have it. Some ways you can save a lot of money! Implement some or all of these and you’ll be increasing that gap between your income and expenses by leaps and bounds (until they lock you away and you lose your job…but hey, look at that – that’s another way to get free housing!!)
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