The iPad3 comes out today, the 3rd release of an ipad in two years. Thousands will buy it, many of whom bought the Ipad2 last year and the original ipad in 2010. So, people may be spending more than $1500 dollars in two years on a tablet computer, and its newer models. http://www.apple.com/ipad/
In this post, I'd like to advise readers to be more discerning about buying Apple products. I remember reading an op-ed a while back about how Apple is more like a religion than a company http://www.washingtonpost.com/opinions/apple-is-a-new-religion-and-steve-jobs-was-its-high-priest/2011/10/07/gIQAjYlgTL_story.html, and i think it is true. Many Apple adherents have a tendency to be fanatics, and will not consider other similar products from other companies. Samsung recently mocked these qualities in advertisements http://mashable.com/2012/01/20/samsung-apple-super-bowl-ad/.
I would suggest looking to another frame of reference when determining whether or not to make an Apple purchase. Baseball has a statistic known as VORP, or Value Over Replacement Player http://en.wikipedia.org/wiki/Value_over_replacement_player. In short, is what you have worth more than the average, and how much more? Apple's primary product lines include tablet computing, personal computing, mobile telephones, mobile music players, digital music, and a variety of other revenue streams. It is necessary to apply VORP to Apple purchases. How much more is it worth it to buy from Apple than a replacement?
In digital music, there is very little value. The itunes store has many popular songs available for $1.29, and are write-protected so they are not transferable between accounts. Meanwhile, Amazon mp3 has the same songs available for 99 cents, and they are not write protected. http://www.amazon.com/MP3-Music-Download/b?ie=UTF8&node=163856011. Further, they are saved to a cloud drive, and can be downloaded to a player or accessed from the cloud. The VORP of the itunes store is zero.
In the interest of brevity, I am not going to go through this analysis for each of Apple's product lines. Generally, when I make technology purchases, I try to compare the specifications and attributes of the products on websites like cnet.com, to determine what is best for me. In my opinion, Apple's VORP in digital music, personal computers, tablets, and mobile phones is very low. Apple's products are more expensive than their competition, and often do not carry all of the features, such as the problems viewing flash video on Apple products (Apple has since provided workarounds http://www.macobserver.com/tmo/article/adobe_delivers_flash_video_to_iphone_ipad/, but this still presents a consumer frustration).
In the interest of comprehensiveness, if you have not read the article on the conditions of the factories supplying Apple, you should. http://www.nytimes.com/2012/01/26/business/ieconomy-apples-ipad-and-the-human-costs-for-workers-in-china.html?_r=1&pagewanted=all. Things like this affected product lines from Kathy Lee Gifford and Nike, and Apple shouldn't be treated differently.
Additionally, in an effort to be even-handed, there isn't a very strong competitor or "replacement player" for the ipod. Microsoft attempted to create one with Zune, but that was ultimately unsuccessful. http://www.time.com/time/specials/packages/article/0,28804,1898610_1898625_1898633,00.html. Unless you download all of your music to a cloud and can play from that cloud remotely, the ipod is probably the best option.
Don't just go out and buy from apple. Do a VORP analysis, looking at an Apple product's attributes and drawbacks, and whether or not it is worth the price over its competitors. You may find yourself getting an excellent alternative product and saving money at the same time.
Showing posts with label Cash. Show all posts
Showing posts with label Cash. Show all posts
Friday, March 16, 2012
Sunday, March 4, 2012
Another Piece on Home Buying
A great peice in The Atlantic on buying a home. Thank you to Jed, for bringing it to my attention.
http://www.theatlantic.com/business/archive/2012/03/getting-ready-to-buy-a-house/253927/
http://www.theatlantic.com/business/archive/2012/03/getting-ready-to-buy-a-house/253927/
Wednesday, February 15, 2012
Investing, a.k.a. You're Not Smart
With the stock market up around 8 or 9% recently, a number of friends of mine have gotten more active in trading. This is something which can end up losing you money unless you're careful. A few tips:
1) Ask yourself why you are investing. Is it to get a better return than a bank? That would be a good reason, because generally, the stock market has outperformed the interest rate you will get at banks. However, it may not be a good reason if you need money in the short term. The stock market is quite volatile, and many analysts tie recent volatility to the uptick in Exchange Traded Funds (ETFs). http://money.usnews.com/money/personal-finance/mutual-funds/articles/2011/09/08/are-etfs-to-blame-for-the-rise-in-volatility. You need to make sure you have the money you need, when you need it. In other words, don't invest money you need quite soon.
2) You're probably not that smart. You may think you know a lot, and have done your research, but then again, a lot of people felt that way right before the market crashed in 2008. And the tech market crashed in 2000. And in 1987. A strong way to invest money and rely less on your inflated sense of financial intelligence is to invest in low-cost index funds. http://www.ehow.com/list_5852407_list-low-cost-index-funds.html. Personally, I'm a fan of Vanguard, as the management fees for their investment funds are very small, and the cost to invest in most of their funds is 0 (meaning that you don't have to pay a service fee to invest). As you can see, Vanguard's expense ratio (how much they make off managing your money) is less than 20% of the industry average. https://personal.vanguard.com/us/funds. Take a look at their options, or those at other brokerages, and see what may work for you.
3) Use a discount brokerage. Most of the information you want to research on investing is available for free and online. Discount Brokerages like Charles Schwab, Fidelity, and Etrade Financial are all great bets because they charge less, meaning you keep more. Many of these brokerages also offer ETFs, which can be another way to get a diversified investment portfolio, so that your risk is spread across a broad spectrum of stocks as opposed to a single stock. UPDATE: I've been told to include TD Ameritrade and Sharebuilder from ING as well. Thanks for the tips...
4) Get in it for the long haul. Try to find a group of funds, stocks, and ETFs which work for you and invest what you can each month. Trying to game the market may means you miss the highs and instead, catch a disproportionate amount of the lows. Continually putting money into your accounts and reinvesting the dividends will likely yield a stronger return. http://money.cnn.com/2010/01/05/pf/funds/market_timing.moneymag/index.htm
5) Ask lots of questions. Ask your friends who work in finance, or the financial advisers at the brokerage you use. They are there to help, and a lot of their information is free of charge. Take the free workshops they offer. Find out how you should analyze a stock on your own. But ask lots of questions. Far better than losing lots of money.
1) Ask yourself why you are investing. Is it to get a better return than a bank? That would be a good reason, because generally, the stock market has outperformed the interest rate you will get at banks. However, it may not be a good reason if you need money in the short term. The stock market is quite volatile, and many analysts tie recent volatility to the uptick in Exchange Traded Funds (ETFs). http://money.usnews.com/money/personal-finance/mutual-funds/articles/2011/09/08/are-etfs-to-blame-for-the-rise-in-volatility. You need to make sure you have the money you need, when you need it. In other words, don't invest money you need quite soon.
2) You're probably not that smart. You may think you know a lot, and have done your research, but then again, a lot of people felt that way right before the market crashed in 2008. And the tech market crashed in 2000. And in 1987. A strong way to invest money and rely less on your inflated sense of financial intelligence is to invest in low-cost index funds. http://www.ehow.com/list_5852407_list-low-cost-index-funds.html. Personally, I'm a fan of Vanguard, as the management fees for their investment funds are very small, and the cost to invest in most of their funds is 0 (meaning that you don't have to pay a service fee to invest). As you can see, Vanguard's expense ratio (how much they make off managing your money) is less than 20% of the industry average. https://personal.vanguard.com/us/funds. Take a look at their options, or those at other brokerages, and see what may work for you.
3) Use a discount brokerage. Most of the information you want to research on investing is available for free and online. Discount Brokerages like Charles Schwab, Fidelity, and Etrade Financial are all great bets because they charge less, meaning you keep more. Many of these brokerages also offer ETFs, which can be another way to get a diversified investment portfolio, so that your risk is spread across a broad spectrum of stocks as opposed to a single stock. UPDATE: I've been told to include TD Ameritrade and Sharebuilder from ING as well. Thanks for the tips...
4) Get in it for the long haul. Try to find a group of funds, stocks, and ETFs which work for you and invest what you can each month. Trying to game the market may means you miss the highs and instead, catch a disproportionate amount of the lows. Continually putting money into your accounts and reinvesting the dividends will likely yield a stronger return. http://money.cnn.com/2010/01/05/pf/funds/market_timing.moneymag/index.htm
5) Ask lots of questions. Ask your friends who work in finance, or the financial advisers at the brokerage you use. They are there to help, and a lot of their information is free of charge. Take the free workshops they offer. Find out how you should analyze a stock on your own. But ask lots of questions. Far better than losing lots of money.
Tuesday, February 7, 2012
Buying a Home
I bought a home two years ago, and it was a great experience. I learned a lot, both about the home buying process, and about what levels of frustration and confusion it can cause. Through the process, and watching a number of my close friends buy homes, here's a couple of ideas for what to think about when buying a home.
1. Forget what you think you want. Price Per Square Foot (PPSF) is what is important. My friend recently showed me some homes he was looking at on Redfin http://www.redfin.com. I asked him why he cared about having two full bathrooms when he would be living there alone with his wife, why he wanted two parking spots when he had only one car, or why he would want to live far away from his friends, public transportation, or where he or his wife work. He was thinking of amenities to the homes, but not the bottom line. What is most important is PPSF, along with location. If you buy at a higher PPSF than other comparable homes in your neighborhood, then you have done the seller a favor. It may be ok to have a higher PPSF than your neighbors, but you better be able to rationalize it with big ticket items, like modern kitchens or bathrooms, new HVAC systems, or other amenities which clearly set your home apart.
2. Location. It takes me six minutes to bike to work in the morning. It takes my wife 11 minutes. So, we get to spend a whole lot of extra time with our son. If there is an emergency, like the freak earthquake that occurred in DC, we can be home very quickly. We love our location, and are a little puzzled by our friends who moved out to the suburbs. It's ok for those people who work out in the exurbs, or people that moved for the school districts. But location is crucial. Location quality can be determined by a number of factors. Use these as they apply to you: Supermarket, School District, Public Transportation, Public Park, Crime Statistics, Travel Time to Work/School, Major Thoroughfares, Public Library. If you don't live close to these location factors which you want/need, or the crime statistics aren't good, you should pay less for where you live.
3. Down Payment. Many many friends of mine have put down less than 5% on their homes. While this may be beneficial for tax purposes (it means you pay more in interest, which you can deduct on your federal return), it generally increases your monthly burden. If you keep money in a rainy day fund, and your mortgage is high, you will be limited in case an emergency comes up or you need enhanced cash flow. Personal Finance Personality Dave Ramsey recommends a 20% down payment http://www.daveramsey.com/article/how-much-house-can-you-afford/100362/, and some bills in Congress will penalize you on your interest rate for putting less than 20% down. http://www.washingtonpost.com/business/economy/housing-regulators-propose-20percent-down-payment-for-best-rates/2011/03/29/AFIRw5vB_story.html. Save your cash, and make a strong down payment. Remember, you can tap your IRA for up to 10k in earnings to buttress your down payment if it is your first home. Failing make a strong down payment could leave you in a potentially dangerous situation.
4. Do Your Research. Find out about the neighborhood. This is likely the biggest purchase of your life and you should make sure you're not getting into anything unexpected. Redfin can show you prices, and local blogs or websites can give you a neighborhood feel. Discount your first impression at your first open house because part of what you're feeling is pure excitement. Don't go live in a neighborhood which doesn't suit your interests or passions, because you will be spending an inordinate amount of time there, and why would you want to spend that time disappointed.
Buying a home should not be something which occurs in a state of passion. It is a very serious, analytical decision, which requires years of preparation and research, personal reflection and analysis, and questioning the knowledge you think you have gleaned. If for one second you question your own knowledge on the subject, seek out a friend who has bought before, and find out what they did and what they hate about their current home so you can add it to your checklist of what you are looking for in yours. Talk to your parents about what they would change as well. Through careful research, saving, and investigation, you'll be able to find a home you love and save a ton of time and money.
1. Forget what you think you want. Price Per Square Foot (PPSF) is what is important. My friend recently showed me some homes he was looking at on Redfin http://www.redfin.com. I asked him why he cared about having two full bathrooms when he would be living there alone with his wife, why he wanted two parking spots when he had only one car, or why he would want to live far away from his friends, public transportation, or where he or his wife work. He was thinking of amenities to the homes, but not the bottom line. What is most important is PPSF, along with location. If you buy at a higher PPSF than other comparable homes in your neighborhood, then you have done the seller a favor. It may be ok to have a higher PPSF than your neighbors, but you better be able to rationalize it with big ticket items, like modern kitchens or bathrooms, new HVAC systems, or other amenities which clearly set your home apart.
2. Location. It takes me six minutes to bike to work in the morning. It takes my wife 11 minutes. So, we get to spend a whole lot of extra time with our son. If there is an emergency, like the freak earthquake that occurred in DC, we can be home very quickly. We love our location, and are a little puzzled by our friends who moved out to the suburbs. It's ok for those people who work out in the exurbs, or people that moved for the school districts. But location is crucial. Location quality can be determined by a number of factors. Use these as they apply to you: Supermarket, School District, Public Transportation, Public Park, Crime Statistics, Travel Time to Work/School, Major Thoroughfares, Public Library. If you don't live close to these location factors which you want/need, or the crime statistics aren't good, you should pay less for where you live.
3. Down Payment. Many many friends of mine have put down less than 5% on their homes. While this may be beneficial for tax purposes (it means you pay more in interest, which you can deduct on your federal return), it generally increases your monthly burden. If you keep money in a rainy day fund, and your mortgage is high, you will be limited in case an emergency comes up or you need enhanced cash flow. Personal Finance Personality Dave Ramsey recommends a 20% down payment http://www.daveramsey.com/article/how-much-house-can-you-afford/100362/, and some bills in Congress will penalize you on your interest rate for putting less than 20% down. http://www.washingtonpost.com/business/economy/housing-regulators-propose-20percent-down-payment-for-best-rates/2011/03/29/AFIRw5vB_story.html. Save your cash, and make a strong down payment. Remember, you can tap your IRA for up to 10k in earnings to buttress your down payment if it is your first home. Failing make a strong down payment could leave you in a potentially dangerous situation.
4. Do Your Research. Find out about the neighborhood. This is likely the biggest purchase of your life and you should make sure you're not getting into anything unexpected. Redfin can show you prices, and local blogs or websites can give you a neighborhood feel. Discount your first impression at your first open house because part of what you're feeling is pure excitement. Don't go live in a neighborhood which doesn't suit your interests or passions, because you will be spending an inordinate amount of time there, and why would you want to spend that time disappointed.
Buying a home should not be something which occurs in a state of passion. It is a very serious, analytical decision, which requires years of preparation and research, personal reflection and analysis, and questioning the knowledge you think you have gleaned. If for one second you question your own knowledge on the subject, seek out a friend who has bought before, and find out what they did and what they hate about their current home so you can add it to your checklist of what you are looking for in yours. Talk to your parents about what they would change as well. Through careful research, saving, and investigation, you'll be able to find a home you love and save a ton of time and money.
Monday, January 23, 2012
Automatic Withdrawal Budgeting
Idle hands may be the devil's plaything, but idle funds are what gets us into trouble. Unappropriated money is what leads to splurges, debt, and purchases which are later regretted. I have generally found that creating a budget which allowed for the least amount of idle funds is the best way to ensure that your money is going to where it belongs. But how can you properly appropriate funds. Automatic Withdrawals and payroll deductions.
There are some general payroll deductions which many employers offer which are smart for almost everyone. These include health insurance, 401(k), and a flexible spending account for medical expenses. All of these are deducted from your adjusted gross income, and should be utilized to some extent by everyone.
Then there are some personal initiatives you should take in order to secure yourself financially. Automatically paying off 100% of your credit cards, utility bills, mortgage, and insurance each month. Don't put yourself in a position where you need to think about it. Not only do most banks have online bill pay, but some provide incentives for signing up for it. http://online.wsj.com/article/SB110246841042693926.html Think about it. All of your bills get paid, you don't need to think about it, and you get an incentive.
Lastly, you can create ongoing disbursements for your personal priorities. Automatic withdrawals for your IRA http://helpcenter.ingdirect.com/ingd/Topic.aspx?category=DIST1, 529 Account http://www.529.com/content/how_aippayroll.html, Debt Payments http://www.moneyunder30.com/debt-payments, or just moving 10% of your take home salary to a high interest savings account on a monthly basis. http://www.gobankingrates.com/savings-account/easy-ways-to-build-your-savings-account-automatically/ This will keep your checking account pretty lean, and you will not be tempted by higher balances to purchase things you don't need.
We all have far too many things to think about, and setting up automatic withdrawal budgeting priorities from your checking account takes away the burden of remembering what needs to be done. It allows you to prioritize with a clear head and ensure that your money goes where it needs to be, and not where you may want it merely in the short term. Moving idle funds to your established personal priorities by setting up automatic payments and withdrawals will help you build the financial foundation you want without the revolving burden of keeping your priorities at the top of your to do list.
There are some general payroll deductions which many employers offer which are smart for almost everyone. These include health insurance, 401(k), and a flexible spending account for medical expenses. All of these are deducted from your adjusted gross income, and should be utilized to some extent by everyone.
Then there are some personal initiatives you should take in order to secure yourself financially. Automatically paying off 100% of your credit cards, utility bills, mortgage, and insurance each month. Don't put yourself in a position where you need to think about it. Not only do most banks have online bill pay, but some provide incentives for signing up for it. http://online.wsj.com/article/SB110246841042693926.html Think about it. All of your bills get paid, you don't need to think about it, and you get an incentive.
Lastly, you can create ongoing disbursements for your personal priorities. Automatic withdrawals for your IRA http://helpcenter.ingdirect.com/ingd/Topic.aspx?category=DIST1, 529 Account http://www.529.com/content/how_aippayroll.html, Debt Payments http://www.moneyunder30.com/debt-payments, or just moving 10% of your take home salary to a high interest savings account on a monthly basis. http://www.gobankingrates.com/savings-account/easy-ways-to-build-your-savings-account-automatically/ This will keep your checking account pretty lean, and you will not be tempted by higher balances to purchase things you don't need.
We all have far too many things to think about, and setting up automatic withdrawal budgeting priorities from your checking account takes away the burden of remembering what needs to be done. It allows you to prioritize with a clear head and ensure that your money goes where it needs to be, and not where you may want it merely in the short term. Moving idle funds to your established personal priorities by setting up automatic payments and withdrawals will help you build the financial foundation you want without the revolving burden of keeping your priorities at the top of your to do list.
Wednesday, January 18, 2012
401(k) Matching
How much do you put away for retirement? The answer, invariably, is not enough. Money put into your 401(k) or other pre-tax retirement program is exempt from Federal income taxes, so it benefits you later by having money saved, and benefits you now in terms of lowering your tax burden. It goes without saying that you should, at the very least, contribute as much as your employer will match. For instance, my employer matches dollar for dollar up to the first 3% of salary, and then 50 cents on the dollar up to 5%. Translation: 5% of my salary is contributed, and 9% of my salary goes to my 401(k) equivalent each month.
But I could do more. For 2012, the contribution limit is $17000. http://www.irs.gov/retirement/participant/article/0,,id=151786,00.html That's just under 654 dollars per paycheck, assuming you get paid on a bi-weekly basis. And because most millennials don't believe social security will be there for them when they get older, or at least, won't pay out what it pays now, http://iomechallenge.org/wp-content/uploads/NEW-iOme-Millennials-on-Social-Security.pdf, you should do whatever you can in your budget to get as close to this $17000 figure as possible. One thought could be this. Many people receive bonuses around Christmas or around the end of the year based on performance or other successes. Perhaps using that bonus to make a balloon contribution to your 401(k) would be a better use of the funds instead of consuming them on something unnecessary or trivial.
If your organization doesn't have a 401(k) program or equivalent with employer matching funds, check out my post on an IRA, and then you can at least get a benefit of $5000 a year (you don't get the tax benefit of the IRA if you also participate in a 401(k) or equivalent. If your organization does have a 401(k) or equivalent, start contributing at least to the point of full matching, BECAUSE IT IS FREE MONEY. Then, take a look at your budget and see if you can increase your contribution an extra 100 dollars per month. That's less taxable income, a more financial secure retirement, and intelligent budgeting for the future.
But I could do more. For 2012, the contribution limit is $17000. http://www.irs.gov/retirement/participant/article/0,,id=151786,00.html That's just under 654 dollars per paycheck, assuming you get paid on a bi-weekly basis. And because most millennials don't believe social security will be there for them when they get older, or at least, won't pay out what it pays now, http://iomechallenge.org/wp-content/uploads/NEW-iOme-Millennials-on-Social-Security.pdf, you should do whatever you can in your budget to get as close to this $17000 figure as possible. One thought could be this. Many people receive bonuses around Christmas or around the end of the year based on performance or other successes. Perhaps using that bonus to make a balloon contribution to your 401(k) would be a better use of the funds instead of consuming them on something unnecessary or trivial.
If your organization doesn't have a 401(k) program or equivalent with employer matching funds, check out my post on an IRA, and then you can at least get a benefit of $5000 a year (you don't get the tax benefit of the IRA if you also participate in a 401(k) or equivalent. If your organization does have a 401(k) or equivalent, start contributing at least to the point of full matching, BECAUSE IT IS FREE MONEY. Then, take a look at your budget and see if you can increase your contribution an extra 100 dollars per month. That's less taxable income, a more financial secure retirement, and intelligent budgeting for the future.
Wednesday, January 11, 2012
Online Shopping
I like online shopping, for a number of reasons. I'm a little lazy, it's hard to go to stores when you have a kid, and generally, I know what I want and I buy enough in one order to qualify for free shipping. But I am always looking for some sort of incentive when I shop, and I believe I have found it in click through websites. The two which I use most often are http://www.ebates.com/, and http://www.upromise.com/.
Here's how it works. You know you want to buy something. You go through these websites to find the store you want to buy from, and these websites rebate you 1%-20% of the purchase. Upromise is a method of saving for higher education, and the money goes into high interest savings accounts, destined eventually for a 529 Account. Ebates refunds the money to you quarterly, through a check.
Past incarnations of this concept have provided less than stellar rewards (gift cards at undesirable stores) or sites where people didn't want to shop at. Ebates and Upromise both have a very large selection of stores. I have yet to meet someone who I have spoken with informally about these programs that could not benefit from them. My favorite stores on Ebates are Target.com (3% back), Groupon (3% back), Diapers.com (up to 4% back). Friends of mine have commented on their preference for Drugstore.com (12% back), J.Crew (1.5% back) ,and J.C. Penney (3% back). Take a look for yourself and see how much you could be rebated simply by clicking through a website when doing your online shopping. Plus, you get a ten dollar gift card just for signing up. Further, check out sites like http://www.retailmenot.com/ to make sure you are not missing out on any promotional codes for sales and free shipping. I've gotten about 50 bucks rebated to me in the last six months.
Upromise carries with it a few added benefits. There is a Upromise credit card which increases your deposit into the high interest account, and Upromise also has deals with a number of restaurants which will deposit a percentage of your purchase, provided you pay with a credit card registered on Upromise.com. They also provide rebates on gas and grocery purchases.
All in all, there are a number of benefits to doing your online shopping through these click-through websites. Also, both of these sites also can provide discount codes and coupons. All of these options should be considered to make sure that your money goes farthest when making your purchases.
Here's how it works. You know you want to buy something. You go through these websites to find the store you want to buy from, and these websites rebate you 1%-20% of the purchase. Upromise is a method of saving for higher education, and the money goes into high interest savings accounts, destined eventually for a 529 Account. Ebates refunds the money to you quarterly, through a check.
Past incarnations of this concept have provided less than stellar rewards (gift cards at undesirable stores) or sites where people didn't want to shop at. Ebates and Upromise both have a very large selection of stores. I have yet to meet someone who I have spoken with informally about these programs that could not benefit from them. My favorite stores on Ebates are Target.com (3% back), Groupon (3% back), Diapers.com (up to 4% back). Friends of mine have commented on their preference for Drugstore.com (12% back), J.Crew (1.5% back) ,and J.C. Penney (3% back). Take a look for yourself and see how much you could be rebated simply by clicking through a website when doing your online shopping. Plus, you get a ten dollar gift card just for signing up. Further, check out sites like http://www.retailmenot.com/ to make sure you are not missing out on any promotional codes for sales and free shipping. I've gotten about 50 bucks rebated to me in the last six months.
Upromise carries with it a few added benefits. There is a Upromise credit card which increases your deposit into the high interest account, and Upromise also has deals with a number of restaurants which will deposit a percentage of your purchase, provided you pay with a credit card registered on Upromise.com. They also provide rebates on gas and grocery purchases.
All in all, there are a number of benefits to doing your online shopping through these click-through websites. Also, both of these sites also can provide discount codes and coupons. All of these options should be considered to make sure that your money goes farthest when making your purchases.
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