Kirby on Finance

Can you afford to be so frugal?

As you can tell from some of my previous posts, I’ve been on a contrarian personal finance kick. The advice most often given on personal finance websites, blogs, and the like are what conventional wisdom says. Often that’s the best advice, but the problem with it is that it’s too tailored for the “general” person, not you. As I talked about before, everyone’s telling you to save, save, save. Honestly, that’s good advice, but what if you don’t need to save so much? In terms of happiness, can you afford to save as much as you do? Today I’m asking you, can you afford to be so frugal?

A couple days ago FMF (of Free Money Finance fame) posted the article, “Why I Pay More to go to a Car Dealership For Service Work.” To make a long story short, he’s willing to pay more for the time saving and enjoyable amenities that his car dealership has to offer. We’re not talking chump change either - $20 bucks more for oil change service. The “catch” is that his dealership offers free food, drinks, wireless internet and private work cubicles.

Still, $20 is $20 right? How could a frugal personal finance blogger justify this? By spending the extra $20 bucks, he’s not only gaining the free food, but he’s regaining the productive time that would have been lost.

Have you ever made the effort to think about how much time (and money) you’ve wasted trying to be frugal? So often we talk about the time value of money in terms of saving, but we rarely think about money value of time in spending!

How much time do you waste searching for the cheapest gas? How much time do you waste deal surfing on the internet? How much time do you waste getting your oil changed at a place that leaves you sitting on a chair watching Jerry Springer on TV when you could be sitting in a cubicle with free food, drinks, while your surf the internet doing work? Well, that one was tailored to FMF’s situation, but you get the point!

I challenge you to look at your activities and determine the value of the time lost in that activity as opposed to other alternatives. You may find that you’ve made the best decision, but chances are you might find that you’ve chosen the expensive frugal option!

The “Are you saving too much?” Debate!

My post, “Are you saving too much?” generated a lot of feedback! Most of you agreed with the general principles of the post, but a few people had differing opinions.

Flexo of Consumerism Commentary said, “It’s up to the individual to find the right balance that’s right for him or her, but they’ve got to be a aware of all the choices to make an informed decision…” I couldn’t agree more! The point isn’t that you shouldn’t save because you could die any day, but you should find a balance between your present and future interests and happiness.

However, not every one agreed with me! Tony commented, “If you die tomorrow does it matter if you went on a lot of vacations, spent money etc or lived frugally? You’re dead, it’s not like you’re sitting there saying oh man, I wish I went to Tahiti when I was alive.” That’s a good point Tony - if you’re dead you probably won’t care. This may be a bit “philosophical,” but isn’t it nice to know that you’ve experienced that trip to Tahiti? Also, think about another undesirable situation, you could develop some condition as you age that caused you to have a rather homebound retirement. That trip to Tahiti is sounding pretty good right now, isn’t it?

There’s absolutely a balance that needs to be met. You’ve got to experience life, but you’ve got to understand that some sacrifice is necessary today for you to have a solid and enjoyable future. As Derek put it, “As somebody mentioned, savings does not mean “no fun” (unless you’re talking super-austere budgets). Saving means things like watching TV on an old 17″ tube TV instead of buying a flat screen HDTV, wearing clothes from college instead of that new season’s design, etc. This is hardly great sacrifice.” Well said!

Carnival Time: Thank God it wasn’t bird flu edition!

I spent the last few days under the weather and thankfully I’m feeling better! This means two things: first off it probably wasn’t the bird flu and secondly, I’m back to blogging! Just to catch up on things, here are some of the carnivals I’m in for this week:

Carnival of the Capitalists hosted by Free Money Finance.

Carnival of Personal Finance hosted by Canadian Capitalist.

Carnival of Investing hosted by Personal Finance Advice.

Are you saving too much?

Lately I’ve seen a lot of news reports saying that Americans aren’t saving enough. I’m not here to argue whether or not those reports are correct, but there are some suggestions out there that they incorrectly value America’s true savings rate. Either way, they’ve caused me to do a little thinking.

I read a lot of other finance blogs and I certainly get a lot of e-mail from readers of this blog who tell me terrific stories about how they’re saving 10%, 15%, and even 40% of their income each year. I can’t help but be amazed at the dedication that these readers must have. To save 40% of your income is something that very, very few can achieve.

My fear is that some of us may be saving too much. There’s nothing more important than saving for your future – except maybe for actually enjoying the life that you have now. Of course, all of this assumes that you’re not in expansive debt, are fairly young and in a situation where saving 10-15% is rather easy for you to do. If that’s the case, I’m wondering if maybe we’re putting too much emphasis on saving and less on enjoyment of the life you have.

I’m not trying to discourage saving, but what if you don’t live to retirement? What if you don’t live past this year, next week, or even tomorrow? I know that’s a weak argument against saving, but I think it’s a strong one for putting your saving and even your spending in perspective.

It seems like to me, the best plan is one that strikes a good balance between enjoyment of today and a enjoyment for the future. I’m not advocating a life of shopping sprees and wasteful spending, but only a life that keeps in mind that your happiness now is just as important as your happiness in the future.

Of course this argument doesn’t address the systemic saving problem in America, but I think it’s safe to assume that if you’re reading this you’re not just an average American.

Debunking Dividend Myths!

Lately I’ve become a big fan of owning stocks that offer a solid dividend back to their investors. I love it when I can pair a strong company with a great dividend. This certainly was the case with Ameritrade (AMTD) recently.

I purchased AMTD three weeks before it had it’s special $6 dividend in January. I caught a roughly 2% gain before the dividend, and since then I’ve had a 10% gain! Not too bad for a nice short term investment. I also must add that I’ve recently put in a $21 stop loss order on the stock to help lock in some of my gains.

Anyway, this article isn’t about my AMTD purchase, it’s about debunking a few dividend myths. I found an article over at the Motley Fool that tackles a few of these myths. I’d recommend the article even if you feel like you’ve got a grasp of how dividends work.

(Here’s a few links to help you understand what ex-dividend and shorting a stock mean.)

Myth one: Stock prices do not adjust downward when dividends are paid.
“Run for the hills — Ameritrade opened 25% down from the previous close! Oh, wait — they only went ex-div on a special dividend. Come back!”

It’s amazing how many people posted this on a message board that I frequent the day that Ameritrade went ex-dividend. It’s understandable to not know that a stock price drops when the company goes ex-dividend, but many of the people didn’t even know that Ameritrade was paying the dividend in the first place. Personally, this is inexcusable. You need to keep abreast of at least the basics of your holdings. In my opinion, you ought to sell positions that you lack the time or inclination to monitor.

Myth two: Only the stock price is adjusted.
“Nope. Limit orders (buy or sell) are also adjusted downward. Options are another beast entirely, but they are also revalued.”

Again this causes a lot of confusion for people. On that same message board I mentioned above, people were claiming they could short AMTD and the cover it after it dropped $6 on the ex-dividend date. Nice idea folks, but no dice!

Myth three: All dividends are taxed at the special lower rate.
“Wouldn’t that be nice? In truth, you have to hold the stock for a certain amount of time surrounding the ex-div date to benefit. The IRS requires you to hold the stock for at least 60 consecutive days within a 121-day larger window, spanning 60 days before and after the ex-dividend date. “

I’m guilty of this one as I thought that it was 30 days. This means for me, my AMTD dividend will be taxes at my regular rate. Either way, it was a solid move for me – I’m not being taxed at a high rate right now anyway!