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February | 2008 | The Grumpy Pundit

Monthly Archives: February 2008

Investing Starts At Home

Posted by on February 3, 2008 No comments

If you have read many of my past entries, you may have gotten the impression that I am in favor of living in a hovel, huddling in the dark around a bare lightbulb for light and warmth, and eating only room-temperature ramen noodles, while saving every penny for a possible future emergency.

Even my wife would admit — reluctantly — that that’s an exaggeration. The fact is, that just wouldn’t be any fun. I am a strong believer in saving money now so you’ll have it later, and I have been since I was very small. (I remember loaning my mother money when I was nine years old, and insisting on getting interest on it. Not enough — my mother was a very poor risk — but I was young.) I also believe, however, that there is enough misery in this life without inflicting more of it on ourselves than we have to.

As it happens, we live in a nice house in a quiet suburb, have numerous computers, TVs, and other personal electronics, drive good cars, and dine out as often as is practical with a two-year old in the house. It’s not a fancy life, but it’s a comfortable one.

There are, of course, qualifiers to the above. The nice house is in a good neighborhood, but not one of the local ‘prestige’ suburbs. A similar house a few miles to the east would have cost us another $30,000. It wouldn’t have been a better house, just one with a more prestigious address.

I bought a good home theater system ten years ago and it still works great. Someday we’ll upgrade to a big flat-panel TV, but there’s no hurry.

We tend to buy new cars and keep them for a long time. Mine is ten years old now and due for replacement (As I’ve talked about before.) but my wife’s is only a few years old and good for many more. She wanted an SUV, but instead of looking at one of the big, fancy gas-guzzling ones that would have been too big for her to be comfortable driving anyway, we got a modest little Honda CR-V. It runs great, does everything we need it to, and she likes it. All for half the cost of a fancier truck.

Our biggest luxury is probably that we have someone come in every couple weeks to clean, and a crew of guys who come every couple weeks to mow the lawn. No excuses there; that’s pure laziness, paying other people to do things we don’t have time, or don’t want, to do ourselves.

If you are above the poverty line it’s almost certainly possible for you to live a comfortable lifestyle within your means. Simply don’t spend more than you make, and judge the merits of the things you purchase based on how they will serve you, not on what other people will think of them. Bragging rights are expensive and if every month finds you a little deeper in debt, you can’t afford them.

Don’t be stupid in what you spend your money on. My wife was at our bank a while back and one of the bank officers pounced on her, trying to get her to take out a home equity loan. “You own your own home? Why don’t you take out a home equity loan and go on a vacation?”

A vacation? THAT is the sort of thing people are taking out second mortgages on their houses for? No wonder foreclosures are at their highest rate since the Great Depression.

Just to be absolutely clear, borrowing to purchase necessary durable goods, like a house or a car, can be a good idea. Borrowing to finance something as transitory as a vacation is just plain stupid.

People do it, though. I heard a news story the other day claiming that in the past ten years the American consumer has spent $3 TRILLION dollars more than he has earned. The amount of debt that some people have accumulated in order to finance a lifestyle they can’t afford is staggering. Don’t be one of those people. You can only write bad checks for so long before they start coming due, and for a lot of families across the country they are coming due right now.

But, there is no need to suffer either. In THE MILLIONAIRE NEXT DOOR the authors talk about the research they did into the lifestyle of the average millionaire. They go on at great length about how these millionaires are typically working-folks who have simply accumulated a lot of money by the simple method of not spending much. They live very simply and save a great deal of their income.

What the authors don’t talk about, though, but what jumped out at me was why these people are saving. Almost all of them said that they were saving all that money so that their kids could live a more affluent lifestyle. In other words, these millionaires did not see their own frugal lifestyle as something to aspire to, but rather something to suffer through.

My wife and I have a tradition, going back about twenty years now, of going out to eat on Friday night. Sometimes we go out to a nice restaurant, sometimes we order in Chinese or pizza. Sometimes, if we’re sick or the weather is bad enough, we’ll go out for breakfast on Saturday instead. Since our son was born we’ve done more fast food than fancy dining out, but the point is we do something. It’s an expense that the truly cheap would avoid, but I consider it money well spent. Guys, your wives will put up with a lot if they know they’re going to get that night out at the end of the week. Trust me on this.

Small luxuries like our maid service and the weekly night out are important. Having some nice things in your house will make living there more enjoyable, and watching your child play with his new toys is its own reward.

Keeping your family happy is more important than adding a few dollars to the savings account. It’s not an expense; it’s an investment. The most important investment there is.

Decisive Action

Posted by on February 11, 2008 No comments

My son has what many people would consider a surprising, and probably inappropriate, amount of decision-making power. He is, as likely as not, the one to pick what we’re going to eat on Friday night. He picks out nearly all of his own toy, and always has. He has some say in where we go for family activities.

It’s not a lot, and we phrase the questions simply when asking for his input, but then he is only 25 months old.

From the very start of his life, I have done my best to involve him in what was going on, rather than simply doing things to him or making him do things. When he was only a few weeks old I would explain the diaper change process to him while putting him up on the changing table. “OK boy, what we’ve got here is a toxic waste spill in your diaper area. We’re going to have to open up your onesie, remove the befouled diaper, and send in a specially trained HAZMAT team to clean up the area. Then we’ll get a fresh diaper on you…oh, and a fresh onesie too, looks like. OK? Good, let’s get started.”

He would stare up at me, giving every indication that he was listening intently. I don’t know if he understood a word I was saying, but it helped him stay calm (he hated laying on the changing table).

When he was about six months old, and we started introducing those little containers of vile mushed vegetables into his diet, he picked out his high-chair. We narrowed our selection down to two possibilities and then asked him which one he liked better. He made his selection by grabbing one of the trays and trying to eat it.

That was about the age when we let him starting picking out his toys, too. Or perhaps he was a month or two younger then. (That first year is a blur, a blur probably familiar to any parent. My mother asked once at that time, “What did you used to do before Nathaniel was born?” I replied, “Sleep.”) At any rate, we would carry him over to the shelves of toys and he would grab at the ones that caught his eye. Some he’d put back down again, some would hold his attention. Those, we bought.

Hardly any of his toys sat idle. He played with them all.

Now that he is talking fairly well — well enough to get his opinions across — he dictates most of the TV viewing during the day and is quick to veto any unfortunate music selections while in the car.

He doesn’t have completely free rein, of course. We will most likely ask him what he wants for breakfast, but his choices are limited. If he asks for ice cream or pizza, we present him with an array of options. “No, I’m sorry, we can’t have ice cream for breakfast. How about some toast? Or cereal? Eggs?” And he’ll — usually — pick something from the approved list. If he picks the place for our Friday night-out dinner, we give him a list of places we’d pick from anyway, so what’s the harm in letting him pick? If nothing else, it serves as a tie-breaker between my wife and me.

In short, he gets to make a lot of decisions that are important to him, but which have very small stakes from my and my wife’s perspective. If we’re going to buy a high-chair or toy anyway, why not let him pick which one we get? If he wants to watch DIEGO or SUPERWHY, why not let him? If we have other plans, well, his decision gets overridden, but there’s generally no harm in letting him have his way on these small matters.

(Not that they are small to him, of course. Which cartoon he watches, or which toy cars he takes upstairs at bedtime, for example, is utterly trivial to us, but of tremendous significance to him.)

The point of all this isn’t just to spoil the boy. Keeping him happy is important, of course, but there is a more important issue at stake, a matter of deliberate policy.

I want him to absorb at the earliest possible age, to have rooted deep in the fabric of his personality, the habit of making decisions, and the idea that he has input and influence over the course of his life. To most people, that probably does not seems like something that would have to be specifically cultivated. Perhaps for most people it isn’t. Perhaps my own background is causing me to overcompensate with my son.

My parents took the opposite approach, you see. Any idea that my opinion mattered, that I had any say at all in what happened in my life, was beaten out of me at an early age. I was simply dragged from one place to another and told what I was to do. I didn’t want to be an astronaut when I grew up, or a fireman, or doctor, or President. None of the usual childhood ambitions. The highest pinnacle of accomplishment that I could imagine was simply to be left alone.

I remember the moment, in 7th Grade, when I realized that at some point in the future no one would be dictating my schedule, requiring me to be in school for X number of hours five days a week. Yes; I was about twelve years old before I realized that I would ever have any say in what happened in my life. It would be years more before I really absorbed and internalized that concept. Even now, thirty years later, I tend to drift, pushed by events rather than taking charge of them, unless I concentrate on taking control.

Parents, involve your children in the decisions that affect them, no matter how small they are. Let them decide. Let them learn from the earliest possible age that they can act on the world around them, and not only be acted on by it. Teach them that they have choices. You may be doing them a tremendous amount of good. Order their lives for them, and you may never know how much harm you have done.

Freedom is choice. Teach your children to be free.

Freedom Begins With ‘No.’

Posted by on February 18, 2008 No comments

If you want to have any time to yourself, it helps to be an asshole.

You know how it is. Everyone wants a little piece of you. The boss wants you to work late, your co-workers want you to help with their projects, and your spouse wants you to run errands and do chores around the house. Telemarketers and survey outfits call and request ‘just a few minutes’ of your time. Teenagers knock on your door and try to sell you magazine subscriptions so they can win a trip to Paris. (“Can I go with you?” I asked on young lady. Ah, no.) Friends and relatives suck you into the drama of their lives, so you somehow find yourself hustling some blind guy you’ve never met before, and his guide dog, to the airport so they can leave town before some petty criminal exacts revenge on them.

OK, maybe that last one doesn’t happen to everyone.

The point is, many of the people you come into contact with will want some of your time and if you get a reputation as a soft touch, someone who is always willing to help out, they’ll be on you like buzzards on a rotting cow-carcass. With similar intent and outcome. Just about everyone wants to be liked, though, so it is hard to say ‘no.’ It feels good to help someone, to make them happy. It only takes a few minutes — or a few hours — of your time, so what’s the harm?

When you get right down to it, though, hours are our most precious resource. There are only 24 of them in a day, and only so many days in your life, and you don’t know just how many. The limit is strict, but unknown, like a checking account with an unknown balance and no way to make new deposits. Keep writing checks and eventually you’re going to find the hard way that there’s nothing left.

The more you let people absorb your time and effort in things that are important to them, the less time you have for things that are important to you. Those minutes and hours, once spent, can never be regained.

Certainly, unless you are completely asocial, there are people with legitimate claims on your time that you don’t begrudge at all. If you don’t enjoy spending time with your spouse, or your children, you have obviously made some poor decisions somewhere and need to seriously re-evaluate certain aspects of your life. But wouldn’t you rather be spending time with your family than helping the friend of a friend move? You have to go to work to make a living, but do you really need to take your work home with you every night?

If you are self-employed, the decisions become even harder. You don’t just have one boss, you have a dozen, or two dozen, or many many, clients and most likely every one of them thinks you are available every hour of the day or night. Does it fill you with joy when some stranger calls you a 8am on a Sunday morning with some trivial problem? (“My computer is acting funny.”) You will get calls and emails from people who expect you to drop everything and help them, right now.

These aren’t just random stranger, though. They’re paying customers. Whatever their sense of timing, you need their money to pay the mortgage and put food on the table. You force a smile into your voice and say, “Sure I’ve got a few minutes for a conference call. Our Valentine’s Day dinner reservations aren’t for another hour yet.”

Between the people you want to give your time to, and the people who are paying for some of it, and the irreducible minimum of time you have to have for yourself (even if it’s just three or four hours of sleep with your head down on your desk), there isn’t much left over for the real leeches. That’s when the magic word comes in.

No.

The most fundamental form of freedom any of us has is the ability to refuse. If you cannot say ‘no’ and make it stick, you are not free. You belong to anyone who asks you for something, whether it be money, time, or the clothes off your back.

My wife is a very nice person and hates to hurt anyone’s feelings. She has a terrible time with telemarketers. They make their spiel and she tells them that she’s not interested. They’re expecting that, of course, and launch into the second act. She refuses again. This can go on for some time before she finally extracts herself or I come along, take the phone gently from her hand, and hang up. (My own method is to let them go through their spiel, say ‘no,’ and hang up before they can respond.)

I, of course, am an asshole. I’m willing to be rude. I hate telemarketers of all varieties and would like to see every one of them die a painful death. Yeah, yeah, I know; they’re just trying to make a living. Well, screw them; they don’t deserve to make a living by stealing precious minutes from my life. Letting them steal more minutes just to avoid hurting their feelings is just foolish.

Of course, some of the people who impose on you will be human beings, not telemarketers, and deserve more consideration. At some point, though, you have to set boundaries and stick to them. Pare your time commitments down to the things that matter to you, not to the people asking. They’ll keep taking as long as you’ll keep giving. Be polite, but firm. “No. I’m sorry, but I can’t do that.”

You may even have to rein in the people who want to give you money.

I’ve had to do that. Not that the volume of time was overwhelming as such, but the fact that the interruptions could come at any time, day or night or holiday was oppressive. I was on-call 24/7/365 to a couple of dozen people and as the strain of it began to affect my health. My son grew from a baby to a toddler and his demands on my time — which, frankly, meant a lot more to me than someone being unable to check their email on a Saturday night — increased every day.

I began to say ‘no.’

It was not easy turning down money, saying to a client, “I’m sorry, but I can’t do that for you anymore. I just don’t have the time.” But something had to give and I decided it wasn’t going to be me. I lost clients last year, companies and individuals who I had worked with for years. Nice people, most of them, but they were the clients whose claim on my time was out of proportion to the compensation I got for it. They, in other words, weren’t worth the stress they brought me.

Fortunately, it worked out for me. My business with other clients, more reasonable to work with (and more prompt about paying their bills), increased and made up the shortfall. With fewer things to focus on, I can do a better job on what is in front of me. And, most importantly, I sometimes get to spend extra time with my family.

Technology has put a tether on many workers now, chaining them to the office with email and cell phone, so there’s no such thing as time off. The average American worked a 45-hour work week in 2007 and vacations are almost non-existent (only 14% of workers get to take their two weeks). A long weekend — and checking the Blackberry a few times an hour — is the best most people can hope for.

Is your paycheck worth the time you put into it? Does your stomach hurt when the boss comes looking for you on a Friday afternoon and you know your weekend is about to disappear?

Is it time to draw the line?

That one little syllable of negation has tremendous power. It’s magic. It can let you reclaim your life, if you’re willing.

Sometimes you have to be rude. Not a team player. Anti-social. Selfish. An asshole.

But free.

For Just A Little Bit More

Posted by on February 25, 2008 No comments

I am finally preparing to make the new-car purchase that I talked about nearly a year ago. (What have I been doing for the past year? Saving money to buy the car with.) As I review the options, I have found myself falling into a common trap, one that the manufacturers of many consumer goods set deliberately.

I began by looking at the Civic and Mazda3, which are both very capable cars for about $18,000. Relatively easy on the wallet, as such things go (which is to say, not very). Then I felt a sudden and quite irrational urge for an SUV. Possibly because it finally sank in that I was going to be hauling my son around in this thing, possibly because the city has removed a section of the road from near my house, requiring me to drive over the rubble to make a left turn. Even at their best the streets here in Lane Closed Ahead, Texas make a 4×4 SUV seem more reasonable than you might think for the suburbs.

At any rate, the SUV I mentally latched onto (the Nissan XTerra; reliable, inexpensive — as such things go — and well-mannered both on and off the road) costs more than the above small sedans. About $2,500 more. Not all that much, really, when I’m already looking at spending eighteen or nineteen grand. Just a little bit more.

Then, not able to get past the inherent absurdity of driving a four-wheel drive truck around the city (despite the terrible roads), it occurred to me that about the same money would buy me a Civic Si, the zippy sport-sedan version. Nearly all the virtues of the standard Civic Sedan (though not frugal at the gas pump), but with gobs more horsepower available and much-improved handling. Just the thing for carving a bloody swatch through the LORD OF THE FLIES traffic environment in the DFW metromess.

Reading reviews on the Civic Si, though, shows surprisingly low performance numbers. The handling is indeed razor-sharp, but the accelerator punch is somewhat lacking (probably because Honda’s VTECH engines require you to, in technical terms, rev the shit out of them to get the best results). Well, I thought, I’m up over twenty-one grand; I think the Mazdaspeed Mazda3 is about at that price. It has more power on tap than the Civic Si, the handling is about as good, and the interior looks even nicer. It only comes in that ugly hatchback style, but let me see how much it is.

About $22,500. Just a little bit more….

Hmm. But the crash-test ratings on the Mazda3 still suck. Maybe the Honda Accord? The version with the V6 engine performs pretty well. It’s almost $26,000, though.

And that’s when I realized what I was doing.

I had run myself up more than $4,000 and climbing over my original target price with “It’s just a little bit more.”

Consumer products, whether cars, refrigerators, or MP3 players, all have their pricing structure set with modest intervals between the available options specifically to move you up the ladder to a higher-end product. Say, for example, that you’re looking for an iPod MP3 player. The iPod Shuffle holds 1GB of songs and costs $50. Not bad. A gigabyte is quite a bit of music and fifty bucks is pretty cheap. But wait; the Nano, which holds 4GB of songs, sells for $110. Four times the storage, for about twice the money. That’s a pretty good deal.

But wait, there’s more. The 8GB version of the Nano sells for $180. You can double your storage again — eight times the music of the Shuffle that you were first looking at — for about 65% more money. Spending just a little bit more gets you a lot more capacity.

Oh, but what’s this? The iPod Classic sells for $235 and it holds a whopping 80GB of music. That’s eighty times the capacity of the humble Shuffle that you first looked at. What a deal!

You’ve also talked yourself into spending nearly five times as much money. That may really be a good deal (I happen to own an iPod Classic), but if you went into the purchase only intending to spend fifty bucks you might find yourself looking at your credit card bill a few weeks later and wondering why it’s so high.

This is just an example (and the exact prices may have changed by the time you read this), but it illustrates the selling technique. The idea is to ease you up the price-ladder, teasing you along with enticing features that you can get for just a little bit more money.

Now, sometimes spending just a little bit more is worthwhile. If you can get a significantly better product for a small bump in price, and can afford the small bump in price, give it serious thought. But know when to stop. Bumping again from your new price threshold will almost certainly not get you the same kind of return on your investment. It’s not such a big deal when you’re talking about a hundred dollar music player, but it can be quite significant when you’re talking about a car or a house (when ‘just a little bit more’ can be tens of thousands of dollars).

Stick to your original budget if you can (you picked that number for a good reason, right?) but if you simply must bump it up ‘just a little bit more’ only bump once. As a rule of thumb, if the amount is significant stick to within 10-15% of your original budget. Go over that and you’re quite likely to go a LOT over. Grit your teeth, focus, and concentrate on moving the price down if at all possible, not up. Your bank balance will thank you.

Don’t take more than one step up the ladder. It’s a long one and you probably won’t like where it leads.

Now, if you will excuse me, I have to locate a four-door sedan with absolute reliability, impeccable crash-test results, excellent gas mileage, and thrilling performance, all for under $20,000.

Perhaps while I am at it I will cure cancer and bring about peace in the Middle East.