Outgrowing the home — seriously?

I recently lost a second neighbor from my cul-de-sac to the utterly silly mythical belief that they had “outgrown the house.”  It kind of shakes me up because both of these homeowners were persons whom I considered fellow followers of the frugal lifestyle.  They drove old cars, performed their own home and yard maintenance, and, at times, seemed downright cheap in their lifestyles.  But one after the other, these families of four people each somehow convinced themselves that they just had to up and leave a neighborhood that they loved because “we’ve just outgrown the house.”

Let’s take a careful look at this nonsense with the goal of preventing you from taking this massive step backwards in your quest for financial independence.  As noted, each of these families had a total of four people living under their respective roofs.  Both lived in two story houses, and the last family had four – that’s right, four – bedrooms.  So that comes to one bedroom for each person, including the eleven and seven year old children.  Assuming the parents shared a bedroom (I’ve never asked), that actually leaves one unused bedroom to boot.  But regardless, there’s really no way anyone can say with a straight face that a family has “outgrown” a house when the ratio of bedrooms to residents is one to one.  Does anyone remember the good old days when kids actually shared a room?

To make matters worse, the most recent family to leave actually moved out before they had sold – or even listed – their house.   The home then sat vacant while they poured money into a variety of repairs and renovations that they had avoided investing in while they actually lived in the place.  They then got lucky and sold the house to a buyer, at a fire sale price, after six months of paying to maintain, insure, and own two dwellings.  It was enough to make any reasonably frugal person shake the head.

The problem, though, is far deeper.  When you really delve into the root cause of this foolish rationale for selling a home in a bad market, taking on a fresh, new, larger mortgage, incurring higher tax and insurance liabilities, and all of the other financial blows that this family incurred, you realize that the “we’ve outgrown the house” excuse is nothing more than the result of overconsumption and failure to maintain a disciplined, simple lifestyle.  Apparently, you see, these neighbors had simply acquired too much stuff to hold in their 2,300 square foot house with double door garage.

Wouldn’t a simpler solution have been to simply sell off some of those clothes that are busting out of the drawers and closets?  Or to toss some of those well-worn shoes that haven’t been worn in years?  Perhaps they could sell or donate the hundreds of books that line the walls, none of which have been read in a decade?  I bet those dinosaur computer monitors sitting in the garage could be dumped without notice.  And, after all of that, if they still found a lack of sufficient space, wouldn’t a storage shed in the backyard be a better step to take than to sell your home under bad financial circumstances and take on a bigger long-term loan?

The bottom line is that most families with no more than two children, and especially those with children within five to seven years of adulthood, should be looking forward to downsizing the house.  Think about it, and you will see that those kids will leave home before you know it, leaving you with a couple of vacant rooms.  At the same time, you will be drawing closer to retirement.  Wouldn’t it make more sense to sell the house in a good market, completely without pressure to sell at a loss, and then invest the capital gains while moving to a cheaper house with less space to heat and insure?  As an added bonus, downsizing forces a homeowner to purge the home, and the lifestyle, of those needless box loads of utter junk that do little more than add to the stress of life.

In the end, this is all another illustration of the need to think it through before you buy.  Please, adhere to this simple rule of frugal living.

 

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American Pickers and How Not to Negotiate

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If you followed Practical Frugal Living during the blog’s early days, you know my take on the popular History Channel program American Pickers.  It’s an entertaining show, mostly because of the likeable co-stars, Mike Wolfe and Frank Fritz; however, it is no place to master the true tenets of practical frugal living.  While the notion of buying rusted junk and turning it over for a profitable re-sale is appealing, the thought of traveling across the country in a full size van to scoop up junk that might or might not sell again at some unknown future point for $50 – $100 profit is no way to financial independence.

As I’ve mentioned before, from a practical frugal living standpoint, the real value of the show is in illustrating what we should not do.  In addition to the mind-boggling amount of carefree travel and fuel consumption that the show seems to glamorize, it also models some horrible negotiation skills every week.  (The same is true, by the way, for the History Channel’s other popular program, Pawn Stars.)  Time and again, we watch as people, on both sides of a given transaction, make terrible moves in negotiating prices.

Surprisingly, the all-time worst example came from Mike Wolfe himself during his first visit to “Hobo Jack,” a skinny, old, bearded man who lives out in the woods of southern Illinois amidst acres of tarp-covered, rotting junk.  During the show, Mike came upon a pre-1920 motorcycle chassis that was broken, rusted, pitted, and filthy.  Mike, taken by its age and rarity, made his interest in the rusted scrap metal crystal clear to the old fellow and invited a “crazy number” for which Hobo Jack would let it go.  Jack responded that he would “probably take $3,000,” to which Mike agreed.  Surprisingly, Hobo Jack then responded, “No, I can’t do that.”

Instead, he directed Mike to a two cylinder motor, devoid of markings, that Jack believed to be from a cycle car.  Mike, thinking it “could possibly be a motorcycle engine,” got excited again.  Still not knowing what the engine actually was from, Mike promised to make it easy for Jack by offering up $2,000.  When Jack balked, Mike said, “I’ll do $2,500 cash and then I’m at a dead end.”  Hobo Jack fingered his beard and said let me think about it.  With still no counteroffer even made, Mike offered $3,000 for the motor, and also decided to throw $5,000 at the earlier seen bike, for a total of $8,000.  The old man then invited Mike to “sweeten it a little more,” to which Mike responded with yet another increase to $8,500.  He assured Hobo Jack that this would finally be his top offer by saying “I’m done, turn me over, I’m crispy.”

At this point, Frank Fritz said you could really feel the tension between the two, and actually compared them to two rams.  Hobo Jack, finally, said he would “think about $9,000.”  Mike, of course, agreed, saying, “Let’s do it, I’m standing tall on this thing.”  (Seriously, he really did make this comment.)

So where do we even begin?  Let’s set aside the wisdom of bidding thousands of dollars when you are not even sure of what exactly an old old junk item is and focus only on price negotiating gaffes.

First, Mike should have held the man to his initial “crazy offer” of $3,000.  Under basic principles of contract law, there was an offer and an acceptance, which made for a binding contract of sale.  I suppose Hobo Jack’s qualifier that the first offered number would “probably” do it was sufficient to provide him with an out, but I personally cannot imagine letting a person renege on an offer so easily.

Putting this aside, a fairly basic rule of negotiation is to never bid against oneself.  Mike, however, a man who supposedly negotiates all the time, did this no fewer than four times before the seller so much as gave a number that he would “think about.”  The problem with this approach was perfectly played out on the show: it completely bolsters the other party, giving him all of the negotiating leverage.  Why on earth Mike would not have told the guy early on to give him a basic counteroffer – and one that he would be held to – is beyond me.

I see this boneheaded approach to negotiations all of the time on Pawn Stars as well.  The scenario usually comes from a person who asks the shop to pay a certain item for an item.  The store owner simply says, “That’s not going to happen,” and the seller routinely drops the price several times before the first offer is actually made.  Again, this is no way to approach a negotiation.  No matter how desperate to sell something you may be, please, always require the other side to come forward with clear numbers in response to each move you make.  Otherwise, you have completely exposed your underside, and you might as well give the item away.

It is also imperative to maintain credibility when negotiating.  Do what you say and say what you mean.  Mike violated this rule by falsely stating that he was “at a dead in” and “crispy done” before going up each time again.  When you do this, you send the message to the seller that the sky is the limit and that there is no reason to believe that any number is truly too high.

The other poor negotiating technique that we frequently see from the stars of American Pickers is a tendency to let the seller know just how eager they are to buy.  A sales negotiation is a game of poker, and it is essential to maintain a calm poker face throughout.  Mike, however, often begins the process by gushing over how great a discovered item is.  It’s far better to act coolly indifferent about the find and casually request a price.  Proceed then with the negotiation process.

Price negotiation is a vital skill for practical frugal living.  But it has to be done correctly in order to have positive effect.

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Myth Busters: Toyota Prius as a Money Saver

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People often wonder just how much money they can save by purchasing a Toyota Prius.  With the Prius’ famed EPA fuel consumption estimates of 48 miles per gallon city and 51 highway, everyone believes it is not a question of whether, but how much, the Prius will save you.

Sadly, the notion of the Prius being a sound frugal living choice is another myth generated by shortsightedness and tremendous marketing.  The myth is easily exposed by following one of the basic rules of practical frugal living of thinking it through.  When we do that, we can easily see that any sensible, traditional gas powered compact or economy class car will match or beat the total cost of the Prius.

The problem lies in the Prius’ starting price tag, which is a good thirty to forty percent higher than comparably sized non-hybrid models.  The Prius, you see, relies on two engines, one of which is powered by a hugely expensive battery, for power.  When you put two engines in a vehicle, the price rockets upward pretty quickly.

Let’s see how that increased purchase price negates the eventual gas savings even before you drive the first mile.  Start by looking at some “base prices,” (i.e., those MSRPs that are always a few thousand dollars short of the actual price needed for a car with basic options.)  The Prius Two weighs in at a starting price of $24,200 for the basic 1.8L four cylinder engine.  The Chevrolet Cruze LS automatic starts at $18,225 with the same size engine (and still gets you 35 miles per gallon on the highway, by the way.)

Just to give Prius the benefit of every doubt, let’s liberally assume that you will do all of your driving in the city, where the Prius’ fuel efficiency advantage is the greatest.  By comparing only city fuel efficiencies, you will average a full 26 more miles per gallon of gas with your Prius.  Let’s also assume gas prices of $4.00 per gallon.  That $6,180 in additional sales price and sales tax that the Prius will cost you equals 1,545 gallons of gasoline.  That’s how much you are in the hole the day you put the first mile on the odometer.  That means that you’ll need to drive your Prius for about 65,000 miles, entirely within the city, before you break even on the cost.  Yes, I realize that if gas prices soar above $4.00 per gallon, the breakeven point would come sooner.  But I think we also all realize that most of a car’s miles are driven on the highway, where the Prius’s fuel efficiency advantage shrinks to 16 miles per gallon.

Now let’s compare Prius to another Toyota, one with a well-earned, decades-old reputation for reliability, the Corolla.  The Corolla’s starting MSRP is $16,230, making for a roughly $8,240 difference in sales prices and additional sales tax.  Meanwhile, the Corolla boasts fuel efficiency numbers of 27 city and 34 highway.  With this comparison, you have a wider price difference gap and a smaller fuel efficiency advantage to work with.  The end result is that, even if you do all of your driving in the city, after 100,000 miles of driving, you will still be about $1,700 in the red with the Prius.  If you check the numbers on other sensible cars, such as the Hyundai Accent and Elantra or the Kia Forte, you will quickly notice that there are plenty of other opportunities to beat the Prius in savings.  Then there is the Nissan Sentra, which starts at $15,990 and brings you fuel efficiency numbers of 30/39.

So why would you do that?  Why pay over eight thousand dollars more for an uglier car?  And don’t get me wrong, I’m all for green living.  I recycle and reuse religiously, and I’m conservative with my consumption habits.  But, I’m sorry, I don’t believe in putting myself in the red for the sake of being environmentally friendly.

Some will respond that the Prius is cheaper when purchased used, and that’s absolutely correct.  So is the Corolla, the Sentra, and every car made, by the way.  The price gap between the Prius and a non-hybrid model might narrow a bit the older they are, but so will the opportunity to recoup the difference through gas savings.  In other words, if you buy your car with 80,000 miles on it, it becomes much harder to go another 100,000 without incurring substantial mechanical expenses.  The expenses that arise after 100,000 miles, by the way, are likely to be much higher with the Prius, as those expensive batteries and computer systems begin to fail.

I’m not sure why people are so quick to overlook the financially losing proposition of the Prius.  Some folks, I suppose, are just so ecstatic at the thought of 51 miles a gallon that they don’t even think of comparing prices.  Others will say that it is worth paying more in order to “save the planet.”  To me, it’s not.  And until hybrid technology reaches the point where comparably sized cars are comparably priced, the practical choice is a traditional model with better looks, better rear view visibility, and a forty percent cheaper price.

 

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On Deck: the Toyota Prius – frugal or no?

prius[1]Hello everyone, and apologies for the lack of discussion recently.  The posts I wrote about the myths of motorcycles saving  money generated some good questions about my views on hybrid cars.  I’m putting together a post that looks at the Toyota Prius, which is generally recognized as the gold standard in hybrid technology.  With estimated fuel efficiency numbers of 48 miles per gallon city and 51 highway, the prevailing wisdom is that a Prius belongs in the driveway of every frugal consumer.

Well, leave it to your truly to see things differently.  I know this forthcoming post is sure to generate some controversy, so bear with me while I put the finishing touches on it.  Thanks.

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Tools of Frugality: The Rain Check

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So yesterday I was lured into my local grocery store in large part by electronic notification of my frequent shopper card specials.  As is customary for this particular grocer, a few of my best “E-VIC” specials were one day deals, good only on Saturday.  I stopped by the store, while passing by on other business anyway, and went straight to the breakfast foods aisle where I expected to scoop up two twelve pack boxes of Pop-Tarts for $1.97 each.

To my annoyance, the shelf was empty, as apparently many other customers chose to take advantage of this particular deal.  Granted, the word annoyance is a bit mild for the feeling that arises when this not uncommon scenario unfolds, but annoyance need not give way to despair.   Instead, I simply paused at the customer service desk after paying and requested a rain check, a wonderfully simple piece of paper that entitles me to purchase the sold out item at the promised price any time I wish in the future.

You should always request a rain check when faced with this circumstance.  Some people are bashful about doing so because they prefer not to request favors unless truly necessary.  If you are one of those persons, you should realize that a rain check does not constitute a favor by the store at all.  To the contrary, in most jurisdictions, it is something the store must do.  Why?  Because it is generally considered an unfair business practice to advertise a sale price while stocking inadequate quantities of the product to meet expected demand.  If stores violate this prohibition, they can be sued for the unfair business practice.  And, sure, not many people will sue over a store’s failure to have adequate supply of Pop-Tarts on hand, but the possibility of a consumer class action exists.  That possibility is itself more than adequate incentive for stores to happily provide the rain check on request.  If, for some reason, a store refuses to do so, you might even want to let the manager know that you are troubled by the store’s failure to stand behind its advertised price and the resulting unfair business practice.  That phrase alone will many times help the store to see your point.

The rain check itself is a great thing to have.  In fact, they are actually better than the originally advertised deal inasmuch as they suddenly convert that one day special into one available for perpetuity.  Particularly with perishable items, this is a great tool to have.  Think how many times you have purchased a leader item at a time when you really did not need it and you feared it would go bad before you used it.  With the rain check in hand, you can go about your normal routine, and purchase the item at the discounted price at a time when it is truly needed.  No need to fret about looming expiration dates or other moldy details.

With this thought in mind, you will want to take it all one step further by keeping a keen out for great special offers on perishable items even if you do not need them at the time.  (And this is easy enough to do with your frequent shopper card and related e-notifications, right?)  No, you don’t want to buy an item under these circumstances, lest you end up tossing the item unused.  Instead, simply inspect the store’s shelf for that item – while you are there anyway, of course – and notice if the item is sold out.  If so, demand that rain check, and you will be good to go whenever the item runs out at home.

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Busting the Myths of Motorcycle Savings (Part II)

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As I mentioned in the last post, motorcycles, for all their glory, are pretty disappointing when it comes to fuel economy and savings.  When you consider their small size relative to cars and trucks, motorcycles, by and large, stink at fuel efficiency.  Add to this their apparent ability to tempt riders to drive like jerks, and their already meager fuel savings pretty much evaporate.  While disappointing gas mileage is reason enough to exclude them as frugal transportation options, there are several other considerations that take them completely out of the realm of practical frugal living.

Consider, for example, maintenance costs.  When I bought my 450cc cycle back in 1986, I just assumed it would also save money on maintenance.  It seemed to reason that a 400 pound bike would wear through tires less quickly than a vehicle carrying ten times the weight.  Likewise, I figured brake pads would last longer with less weight to stop.  I was wrong on both counts.  Instead, it turns out that motorcycles go through tires and brakes much faster.  You’ll find yourself replacing them after 8,000 – 10,000 miles.  The tires, by the way, aren’t much, if any, cheaper than the 50,000 mile tires you put on an economy car.  Ditto for the brake pads and service charges.

Motorcycles also, for some reason, go through other parts at an annoyingly fast clip.  I had a clutch cable break on me after 17,000 miles.  (This little wear and tear occurrence leaves you stranded, by the way.)  I still don’t know what that was all about, but apparently it’s not uncommon.  Motorcycle batteries are awful.  Although they cost as much as a small car’s battery, they are more similar to lawnmower batteries in terms of longevity.  Because their engines are high revving by nature, motorcycles also have a substantially short life expectancy when compared to a car.   That’s why a bike with 20,000 – 25,000 miles is considered a high mileage machine.

If that weren’t enough, let’s go back to our basic definition of practical frugal living: an approach to economy that the average person can follow without disproportionate negative consequences.  In my opinion, the costs factors alone exclude motorcycles from the definition, but so much more makes motorcycles anything but practical.  It’s pretty obvious that they suck in the cold and in the rain.  Depending on where you live, that can rule them out for over half the year.  What people don’t realize is that they also suck in the heat.  Believe me, it’s no fun sitting on top of a hot engine, while stopped at a light on steaming hot asphalt with a fiberglass helmet on your head.  Yes, you get some relief when you are moving at highway speeds, but you had better be wearing long sleeves or copious amounts of suntan lotion.

You’ll also find that a motorcycle gives you virtually no hauling capacity.  You are pretty much limited to whatever you can squeeze into saddlebags, (which will cost you another couple hundred bucks, by the way).  You can only carry one passenger with you, and only if you have a second helmet – at a cost of another couple hundred dollars.

And that brings us to safety, a critical consideration when assessing practicality.  Here too, motorcycles strike out for obvious reasons.  While you can lower your chances of accidents by driving with great care and attention, there is basically no margin for error on a motorcycle because every accident is serious and life threatening.  There are also certain risks unique to motorcycles that you really can’t eliminate.  They are much harder for other drivers to see.  Those highway hazards that pop up out of nowhere, like blown out truck tires and animal carcasses, can easily spill you on a cycle.  A deer darting into your path at night will take you out.   Even small things like loose gravel in intersections can take you down on two wheels.

So there you have it: a candid overview of the many considerations that make motorcycles anything but practical from a frugal living standpoint.  They are just another example of the need to think things through before making lifestyle decisions and purchases.

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Busting the Myth that Motorcycles Save Gas (and Money)

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With each new surge in gas prices, a frequently asked question is whether motorcycles offer substantial savings in fuel consumption.  The related question is whether motorcycles have a place in practical frugal living.

The questions make sense enough.  After all, what could possibly be more fuel efficient than a two-wheeler that weighs 1/8 the weight of a car?  What better idea for saving gas than losing the unused seating capacity, the empty trunk space, the metal frame and siding, and otherwise reducing your means of transportation to the absolute bare minimum?  Surely, 100 miles per gallon is something any frugalist would die for.   If that weren’t enough, the thrill of the open road, soaking up the sun on those beautiful spring and fall days, and the rugged, independent image make it a no brainer, right?

Wrong.

As someone who owned a motorcycle and used it as my primary means of transportation for seven years, I can say with complete confidence that the notion that motorcycles save money is a myth.  Let me walk you through some of the reasons why a motorcycle has no place in the practical frugal lifestyle.

We can start by dispelling the myth of motorcycles conserving gas.  First, I don’t know where this bit about “100 miles a gallon” came from.  Maybe the first small machines made decades ago approached this figure.  But the best fuel efficiency offered by any major manufacturer’s make these days is the Honda Rebel, at 84 mpg.  While that is nothing to sneeze about, it requires you to entrust your well-being to a 234 cc engine, which Honda somehow liberally rounds up to 250.  That provides you with just enough horsepower to travel at highway speeds, at a noisy, high revving engine speed and with precious little room for passing acceleration.

After the Rebel, the choices for high fuel efficiency cycles are few.  Yamaha Star offers a 250 of its own, which advertises 78 mpg, and the options just get worse from there.

In fact, if you want to put yourself on a motorcycle with more reasonable horsepower, you unfortunately have to jump up in engine size dramatically.  In the old days, the major manufacturers offered midsize engines in the 450 – 500cc range.  Mine, a Honda Nighthawk 450, belonged to that category.  For some reason that I will never get, the major makers now offer no such lines.  Instead, you pretty much have to jump all the way up to something in the 750cc range, although Yamaha does at least offer a 650cc Star model these days.

The first problem with these bikes is that their fuel efficiency is terrible – worse, in fact, than a Toyota Prius.  They are also tremendously overpriced.  The Yamaha Star 650 that I mentioned, for example, lists for $6,990.  That’s right –  one-half the price of a reasonably priced fuel efficient car like the Hyundai Accent.  By the way, the Yamaha Star 250 that I mentioned earlier?  Be prepared to spend $4,290 for that small machine.

But let’s go back to the disappointing fuel efficiency for a moment.  The Yamaha V Star 650 advertises 49 mpg.  Keep in mind, too, that the quoted efficiency is the EPA estimate, which is almost always overly optimistic.  I learned all too well the accuracy of that qualifying phrase, “Your mileage may vary,” during my cycling days.

I bought my Nighthawk during my college days, in part because of the fuel efficiency, which was supposed to go over 40 miles per gallon in the city and over 60 highway.  Instead, I found myself routinely filling up the 2.7 gallon tank every 90 -100 miles.   Admittedly, this was at a time when most of my miles were logged in on a college campus, with very frequent stopping, starting, speed bumps, etc.  Even in more traditional city travels, however, it was never the fuel sipper that I was led to believe it would be.  This was a major disappointment for me, in part because I rode it responsibly, rarely peeling out or torturing neighbors with senseless revving at every stop.

That takes me to the last point on motorcycle fuel efficiency.  If you operate a motorcycle in the irresponsible and downright foolish manner that so many bikers model, your fuel efficiency will drop even further.  Jack rabbit starts, weaving around traffic at sharply varying speeds, and gunning the throttle for no reason other than to make noise will do nothing more than waste gas.

So that’s a pretty good overview of why motorcycles are way overrated when it comes to their supposed fuel savings.  I’ll write separately on several other considerations that easily eliminate motorcycles as a tool of frugal living, using our earlier definition of practical frugal living.  In the meantime, I’m certainly open to comments from riders whose experiences have been different.

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