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Are Lower Prices Encouraging People to Spend?
It is time for savers to pay more attention to prices. That assumes savers are still interested in saving, but frustrated with ever lower interest rates.
In a depressed economy like we have in the United States, low interest rates should increase borrowing, spending and then jobs.
It should, but it may not. For example, low interest rates may encourage existing home owners to refinance at lower interest rates rather than encouraging those who are renting to buy a new house. In the case of refinancing, there will be few jobs created; in the case of a new house there will be construction jobs.
Those who refinance and save with lower monthly payments have more money to spend which might add to new spending. I say might because lower interest rates mean lower earnings for savers, which will cut their income and discourage spending as well as saving.
Right now, lower interest rates are not generating much spending, just lots of talking and proposing.
Low interest rates need to finance borrowing where something actually happens like building a new factory or a new house. Lending transactions that generates more schemes to buy low and sell high will not generate jobs.
Low interest rates are only one potential change that can help revive spending. Lower prices on goods and services can do that as well.
Just as lower interest rates can put people to work, lower prices get people to buy more, which means more work, more production of goods and services, followed by more jobs and more income.
Lower prices also translate into personal savings. Low gas prices help us save as individuals, but also generate mass savings that supports spending in other sectors.
There is other regular and discretionary buying that has potential for savings. Try the grocery store where savings on week-in and week-out buying can easily translate into four figure savings over a year. I never buy cereal, chips, crackers, or most prepared food unless it's on sale.
Yesterday, the local grocery had an end of aisle display announcing chips at 2 for $7. Chips on sale are supposed to be 2 for $5, but worse I took a bag down to check the size and found 10.5 ounces instead of 11.5.
I walked away, which we all realize is a tiny gesture in a mass market, but I still have my $7 bucks. In a computer age, the wholesalers back at the warehouse know exactly what the larger market thinks of their new price.
If others pay more attention to pricing and show more resistance, it will translate into price cuts and personal savings. We can also realistically hope it will work to revive our declining economy.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Instead of Spending, Sock That Cyber Money Away
One of the first things you should do after you get a raise at work or pay off a recurring debt is to continue to live at your existing levels.
Don't take that 'extra' money you now have and start to live larger. Instead, automatically transfer it to a savings account and watch your net worth grow.
Rather than accumulating extra stuff, you're increasing your savings without cutting back on your lifestyle. It's a win-win situation.
Today, on Cyber Monday, do the same thing. Instead of buying something you see online, take the price of the product and transfer that amount to your online savings account.
Spending money isn't bad. But wouldn't you rather spend money on yourself than on having more stuff?
The best gift you can give yourself is financial comfort. Today, make it happen.
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3 Ways to Avoid Black Friday Hype
This week, you'll be bombarded with commercials, blog posts and newspaper ads for Black Friday, the biggest day of the shopping year.
It's almost impossible to avoid hearing about the sales and specials and people who think it's a good idea to get up at 2 AM to go stand in line to buy stuff.
But you don't have to get caught up in the hype. Here are three ways to avoid it.
Remind Yourself: You Don't Need More Stuff
Have you ever found yourself buying something you really don't need? Black Friday is the day that will happen.
Avoiding more stuff is one of the central tenants of a frugal lifestyle. If you don't really need something, you shouldn't buy it. Even if it's such a great deal you can't pass it up, ask yourself this: are you just getting more stuff?
Disconnect From the Media
You can only be tempted into purchasing stuff if you allow yourself to be marketed to. Instead of sitting at the computer or watching TV, use the holiday for the right reason — to spend time with your family.
Unplug from the marketing and promotion machine. It's not worth it. For real.
If you don't let them talk to you, you won't be affected by them.
Consider the Alternative: Where Else Could Your Money Go?
It's almost the end of the month. If you're thinking about going shopping on Black Friday, consider how much you might spend. Wouldn't that be better placed in your savings onion?
When you've got money in your hand, take a second and think about what it's going to be doing for you. You want your money to work hard for you — is it better spent paying off your debt? How about saving for a house?
It's your decision to make.
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4 Tips for Shopping at Thrift Stores (Or How Not to Spend Like Sarah Palin)
The Washington Post ran an article on Vice Presidential candidate Sarah Palin titled After a $150,000 Makeover, Sarah Palin Has an Image Problem.
The article reports $75,000 bills at Neiman Marcus and $50,000 bills at Saks Fifth Avenue along with a $10,000 handbag among recent purchases, none of which goes well with her efforts to have an "Ah shucks," hockey mom image.
I think it's fair to assume savers on this blog share at least some of my annoyance, but I decided to curb that and let her excess be an opportunity to report a modest but pleasing savings I made just three days before on a pair of $175 Nunn-Bush shoes. I got them for $7.99 at a Goodwill thrift shop.
Better yet they were absolutely 100 percent new; not a scratch, not a scuff, on the tops, on the soles, anywhere.
Finding a brand new pair of shoes at Goodwill is lucky, but there is more to it than luck. Savings at thrift stores comes with strategy and patience. Never shop at a thrift store if you need something right away.
If it's Friday afternoon and you have to get new and respectable shoes for your sister's wedding, then it's not the time to go to Goodwill or any thrift.
Savings at thrift stores is a long-term process requiring regular, but short visits. At Goodwill stores and Salvation Army stores, especially in big metropolitan areas, the good stuff turns over very fast. That is important because infrequent visits mean lots of good stuff will come and go and you'll never see it.
- Frequent visits make it easier to spot the good stuff.
- Plan to stay twenty minutes to a half an hour, but never longer.
- Have a departmental route: pants, shirts, shoes, furniture, electronics, sporting goods, books and so on.
- Don't linger. If the bargain is there, you will see it. If you stay too long you'll get depressed looking at worn out stuff and begin thinking thrift shops are hopeless when they are not.
Thrift shops are a special preserve for those who like a challenge, but they pay off, especially when you find something you might not buy otherwise. The above mentioned shoes are only one of many fun buys.
Include new to nearly new Ralph Lauren, Tommy Hilfiger, Bill Blass and Brooks Brothers shirts, Jos. A Banks pants, 3 all leather belts, New & Lingwood sweaters, a Harris Tweed sports coat, all bought for a song. Take that Sarah Palin.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Price Fixing is Legal: Why It Matters
Savers should beware that the U.S. Supreme Court recently reversed earlier Anti-Trust rulings preventing price fixing.
Under new rules established a year ago, manufacturers are now allowed to fix minimum prices for resale of their products and coerce retailers to stop discounts by cutting off supplies and refusing to sell to them. The practice is called Resale Price Maintenance and can be expensive for savers.
A recent Wall Street Journal article, Price-Fixing Makes Comeback After Supreme Court Ruling, quotes from the Court's ruling that Resale Price Maintenance "could foster competition by giving retailers enough profit to promote a brand or offer better service." In the ruling the phrase "giving retailers enough profit" suggests that retailers should be happy with the decision.
The article quotes many retailers and all of them detest resale price maintenance because it hurts their business. Higher prices definitely hurt consumers.
A discount retailer of baby products was quoted as saying that it "prices a baby car seat made by Britax, the Boulevard Convertible, at $309.99, the manufacturer's minimum. If he didn't, Britax would cut off the supply of a popular product." The retailer is also quoted as saying he could sell the seat of $229 and still make a $50 profit.
However, there is previous experience with Retail Price Maintenance because Congress passed a Fair Trade Act in the 1930s that permitted states to craft their own Resale Price Maintenance. Experience shows it goes with branded products, especially apparel, shoes, consumer electronics and home furnishings and it will raise prices for brand name products.
Savers can save by avoiding brand loyalty and concentrating on price and finding store brands or generic labels.
If the practice catches on, experience shows that retail outlets that go along with resale price maintenance for branded products have a drop in sales at the higher price. Their drop in sales gives them incentive to resell their surplus supplies in the wholesale market to other retailers, especially discount retailers.
Some years back, reselling took place in the designer jeans market where designers were trying to maintain their image with a high price. Jeans were resold as "bootlegged" products to discount retailers. Since the only way for manufacturers to enforce their restrictions is to cut off supplies, it was hard for them to know where the "bootlegged" supplies were coming from and therefore who to cut off.
The courts' ruling is anti-competitive despite the suggestion it could "foster competition." Free enterprise includes the freedom to set price at all levels of the marketing chain. Competition includes price cutting and allows for new entrants who attract customers with a lower price. We suspect that the court has underestimated the power of competition.
In the meantime, take care before you buy and ask yourself if a brand name is really worth it.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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How Savers and Consumers Differ On Gas Prices
The price of gasoline divides America into savers and consumers like no other issue.
The biggest differences between savers and consumers come in their attitudes toward energy policy. In his book the Age of Turbulence, Alan Greenspan wrote at the end of the energy chapter: "I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil."
If it is true, it is a policy: war for oil. I have never had anyone say that to me, nor have I heard any politician or major news service advocate, or try to justify, war as an oil policy.
It does illustrate the contrasts of savers and consumers on policy because it is the ultimate consumer policy: plentiful oil must be available no matter what.
Expanding Energy Supply is a Priority
American policy has been mostly consumption policy because it emphasizes production. Drilling for oil is a production policy, but so are wind energy and solar energy.
Those who advocate off shore oil drilling want to expand supply, but those who want to expand wind energy or solar power also want to expand energy supply.
The oil drillers often argue with the advocates of wind and solar energy, but the argument is over environmental policy and relative cost.
Both sides are saying technology will allow us to have the energy we need or want at reasonable prices.
Savers Limit Gas Usage No Matter the Price
Alan Greenspan suggests a policy of "… significantly higher gasoline prices to wean us off gasoline-powered motor vehicles."
That pressures people to save fuel, but unless savers have some way to cut their consumption by as much as the percentage increase in price, it will cost them much more. That is why savers want to limit the gallons they use no matter the price.
Savers know gas mileage for cars can be much higher and they want to mandate automobile mileage standards so that everyone has the choice to use less energy and save money. They want to expand rail service and have less air travel because rail uses less energy per passenger mile.
Savers look for ways to reorganize physical space so that people can live closer to work and shopping. They look for ways to make it cheaper to move closer to work: a tax deduction for all moving costs, for example.
Notice that Congress has many ways to compromise on policy. A little more off shore drilling can be traded for higher automobile mileage standards.
America needs policies that save energy and money.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Should You Sell Your Gas Guzzler to Save Cash?
I just heard a story on the TV about a guy who wants to sell his gas guzzler and get a high mileage car to cut his gas bill. Trouble is he owes $8,500 on his car loan and all he can get for his guzzler is $3,000.
He loses $5,500.
As all good savers know, he should only sell if he can save a minimum of $5,500 plus interest. According to the United States Department of Transportation, the average passenger car travels 12,400 miles a year and gets 22.4 miles per gallon for gas. That works out to 46 gallons of gas a month with a monthly fuel bill of $184 if we use $4.00 a gallon for the gas.
I regret to say that is probably low, but we will go with it.
Double his gas mileage and he saves $92 a month. Figure a savings of $92 a month for 5 years at 4 percent interest, and the savings is $6,119.84. Sad to say, but the $5,500 he loses would also accumulate interest. If we use the same 4 percent interest over the same 5 years, the total he loses is $6,715.48.
He loses $6,715.48 to save $6,119.84; a net loss.
This particular comparison does not account for the price of the new car, only the loss on the trade. If we assume he is going to own a car, either an old one or a new one, the premature trade represents the loss from not using the remaining life of the old car, which I hypothetically set at 5 years.
Different interest rates or time remaining for the life of the car will affect the result.
However, the most important comparison is the price of gas. Using $5.00 a gallon with the same mileage and interest rate, savings will hit $115 a month with a total of $7,649.80. At $5 a gallon, he can save doubling his mileage. He should trade the car. For those with mileage over the average of 12,400, saving gas money also will be more likely to pay.
I did the calculations on MS Excel using the FV, future value, function. It has a help file. Try it yourself for your exact situation.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Is Chrysler's $2.99 Gas Worth It?
Have you seen Chrysler's ads for 3 years of $2.99 gas when you purchase a new car?
Autoblog has the details:
With gas prices rapidly approaching and exceeding $4 a gallon across the nation, Chrysler is offering up a deal that just might make people who are averse to the looks of cars like the Chrysler Sebring and Jeep Compass think twice. Between now and June 2, anyone who buys any new Chrysler, Dodge or Jeep vehicle will be able to register for a "Let's Refuel America" card. Once the customer registers a credit card with the program, they will receive a new card that they can then use at participating gas stations to fuel up their new car or truck. When the card is used, the credit card that the owner has on file will be billed $2.99 a gallon for either regular gas, E85 or diesel fuel. Chrysler will pay the difference. The best part is the price is locked in for THREE years.
Obviously, this isn't as good as it sounds. Nothing in life is free — everything has a catch. Especially something has "too-good-to-be-true" as this.
Freakonomics weighed in, saying it's a brilliant move by Chrysler because consumers overreact to the price of gas.
I believe consumers systematically exaggerate the importance of gas prices to their budgets. The typical American just doesn’t spend that much money on gas.
The way we buy gas — every week or two, with the prices staring us in the face as we stand at the pump — makes price fluctuations far more visible than for other goods. Someone who signs up for this program will think about Chrysler and how they are paying part of the cost of the gas every time they fill up. I suspect that will increase the brand loyalty of people on the program.
I don't know about you, but I wouldn't be persuaded by this offer. Maybe I'm in a different boat than you, because I work at home and only have one car (that gets great gas mileage).
Would you buy a Chrysler to get $2.99 gas for the next 3 years?
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A Cheaper Car Will Protect Against Increasing Gas Prices
I recently saw an article in the Washington Post titled "Price of Gas Hits 23-Year High."
Not surprising, right?
Except the article was from May 15, 2004, or almost exactly four years ago.
The 23-year high price was cited at $1.95 a gallon. The article had a breathy tone and warned Americans that summer driving was sure to see $2.00/gallon gas.
Since I just paid $3.51 a gallon for my last gallons, the former 23-year high sounds like the kind of bargain I will never see again.
The price increase of $1.56 in 4 years works out to an average increase of $.39 a gallon per year.
Let's take a look at what that means, using the Bureau of Transportation Statistics' reports on annual average miles traveled per passenger car and average miles traveled per gallon of fuel consumed.
Convert to months and divide the miles by miles per gallon and the result equals 46 gallons: the average gallons for the average car for the average month. Use the $.39 a gallon increase on 46 gallons and the average monthly fuel bill went up $17.94.
The depressing part though is that the increase is cumulative; in the second year, it's $35.88 a month and so on. If these extra payments for gas went into the bank each month starting in May 2004 and earned 4% interest, the amount after 4 years comes to $2,283.88. Ouch!
You can think of it as a loss, or if you are a real saver, you will think of it as a challenge. Probably you have thought of driving a more fuel efficient car, or living closer to work, or just driving less. You could also buy a cheaper car.
Suppose you were buying a car in 2004 and you bought a car a year older, or two years older, than you originally planned and saved $1,946.71 on the deal. Let those savings earn 4% interest compounded over the 4 years and you would have the exact money you lost buying that expensive gas: $2,283.88.
There you have it. Save your gas money, buy a cheaper car.
If you want to know how easy that is go to a website like Carmax.com and look at model prices for 2005 and then back up to 2004, 2003 and 2002.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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What Can You Do Without Spending Money?
Since we're in full-on savings mode in preparation for our vacation to California, our weekend was kind of … well, quiet.
Not that that's a bad thing — Debbie was under the weather, but we didn't really have any plans. For us, not having plans is a bad thing.
When we don't have any plans, we tend to do the one thing we definitely do not need to be doing now — spending money. Whether it's going to the mall, going out to eat, or frivolously shopping, we spend money.
So with no major plans but no desire to spend money, what do you do?
Obviously, there's a lot that can be done. We cleaned the house, watched a movie, spent time with family, played some Wii, planned our trip, and more. Yes, it's not that exciting, but it doesn't have to be.
We managed to have an enjoyable weekend without doing any damage to our bank account.
Then next time you're sitting around with nothing to do, think about all the things you could be doing without spending money. Maybe it's going outside for a walk, spending time with your family, blogging, playing a game, taking a nap, cleaning your house …
The list goes on and on.
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