Shopping 
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$19.95 Pricing Explained

There’s an interesting Scientific American article out regarding Why Things Cost $19.95 and it delves deeper into a concept most people understand and generally regard as true. I always had thought that the purpose of pricing something at $19.95 or $19.99 rather than $20.00 was because it seemed psychologically “much cheaper” despite an actual difference of a few cents. While that may still be true, the article in Scientific American seems to paint a picture in which the impact is more subtle. If the original price is in round numbers and we try to guess the wholesale cost, our guess will be far lower than if the item were originally priced a few cents off. The $20.00 price puts our “increments” in whole dollars whereas a $19.95 price puts our “increments” in cents. The mental anchor, whether it’s a round or not-round number, really set the stage for how we guess.

To be honest, I never bought the concept that $19.95 seemed psychologically cheaper than $20.00 but this explanation seems far more plausible. If your eyes see a $20.00 item and your brain unconsciously guesses it’s worth $18.00, you’re less likely to buy it (because you want a good deal). You’re more likely to buy it if your eyes first see $19.95 and then your brain is tricked into thinking it’s worth $19.45, you are paying less of a premium (despite you actually not knowing how much of a premium you’re paying). The trick is far more subtle!

To extend this further, and this is now based on my experience (or perhaps I read this somewhere a long time ago) and not the article, I find that the Wal-Mart pricing structure is intended to give shoppers a sense that they are getting a deal. Now that people are tuned into $19.99 being actually $20 (or more, given sales tax), they gone to weird pricing like $19.43 and $19.57, because I think people see odd numbers and think discount! $19.99 is regular price, but if it’s $18.76, it probably means it’s cheaper because another retailer would probably price it at $19.95. I don’t know if this is actually what happens but I bet that’s what they’re banking on.

What do you all think?


 Frugal Living 
3
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Any Frugal Families Out There?

Lynn Schnurnberger is a writer working on a magazine article for Parade Magazine and would like to speak to a “a family (with at least four children) who is liviing very frugally –on $50,000-$100,000 a year, no mortgage, saving for retirement or college, perhaps they find “treasure” in other people’s trash by restoring a piece of found furniture…”

If that fits you, please contact me and I’ll forward along your information to Lynn.

She’s finished, thanks!

Incidentally, our set of dining room chairs are “restored treasures” my wife’s parent’s neighbors were going to throw away. My wife and her mom sanded down these four chairs, repainted, re-stained, and then refinished them. I didn’t see what the chairs looked like beforehand but they look absolutely incredible now. There are certainly treasures out there if you’re willing to do some hard work for them, I think our society has become too quick to toss everything.


 Personal Finance 
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Buying Paper Savings Bonds

Today is the very last day to take advantage of the 1.20% fixed rate component on Series I Savings Bonds (unless they remain at 1.20% in the next six-month period) and if you don’t have an active TreasuryDirect account with a linked bank account, you won’t have enough time to open one and purchase electronic bonds by the close of business today (last day in April). Fortunately, you can purchase paper savings bonds from most major banks and credit unions through Form PD F 5374 (I believe PD F stands for Public Debt Form) Order for Series I US Savings Bond that they should have on hand.

The form takes about five minutes to complete and allows you to purchase bonds for yourself or on behalf of someone else. All you will need is the owner’s social security number and the amount of the bonds in cash, cashier’s check, or personal check from the bank you’re buying the funds from. If you’re buying it through M&T Bank, to use a personal check you’ll need to have an account there and use a personal check from that account. It’s not a problem if you don’t have a personal check, you’ll simply withdraw the funds and have the bank issue a cashier’s check (that’s what I did).

Remember, there is an annual limit of $5,000 per social security number for the Series I Savings Bond – be sure not to exceed that (I assume the bank will notify you if you try to purchase too much). Also, you may purchase $5,000 in paper bonds and an additional $5,000 in electronic bonds. (I bet this is because their paper and online systems aren’t connected so there’s no way they could enforce a single shared limit)

Lastly, the bonds won’t be issued right there, but the effective date of the bonds will be that date. The bank is authorized to act as an agent of the Treasury Department and so the purchase is effective as of the date on the stamp. When I bought them yesterday, it had a effective stamp date of April 29th. According to the back of the order form, processing takes about three weeks.


 Government, Investing 
10
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Emigrant Direct Foiled My Series I Bond Purchase!

I don’t know if TreasuryDirect changed their policy or if EmigrantDirect changed theirs, but my attempt to purchase Series I Bonds and take advantage of the potentially awesome new rates was foiled! I received the following message from TreasuryDirect:

Dear JIM,

We’re sorry, but your purchase request IAAAB was canceled. While trying to collect payment from your bank, they returned our debit. Please check the Investor InBox section of your TreasuryDirect account for more detailed information.

Thank you for using TreasuryDirect.

It was entirely my fault. It wasn’t Emigrant Direct’s fault, or the Treasury Direct’s fault, it was Jim Direct’s fault. The only linked account I had was from an Emigrant Direct savings account and I assumed it would still be valid to make another purchase. I had purchased $100 in Series I bonds a while back just to play with the system and assumed everything was still good. Unfortunately, TreasuryDirect now debits the linked account rather than a regular ACH transfer (I think) and so a savings account doesn’t debit! (The other explanation was that there were insufficient funds, but I confirmed I had enough)

So the only solution is to head over to the bank and buy a paper Series I Bond so I can still take advantage of the upcoming favorable rates. I suspect it should be pretty easy, the government always makes it easy for you to give them your money :) .


 Personal Finance 
7
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Laddering CDs at ING Direct

Looks like ING Direct, which I lauded in my post about laddering your emergency fund, has now made it even easier to ladder you CDs by letting you open multiple CDs at multiple maturities all on one page.

If you have an account (if you don’t, you can open one through a referral link on ING Direct $25 new account bonus referral page and get $25 for a $250 deposit), the easiest thing for you to do is to go to their Orange CD laddering page. If you aren’t logged in, that link will take you to a login screen. After you log in, you’ll be presented with the normal account screen. Simple come back and click on the link again and it should take you to a screen that looks like this:

ING Direct Laddering CDs Screenshot

As you can see, the 6-, 9- and 12- month CDs are all at the 3.30% rate (not exactly the best, but you can’t beat the convenience and simplicity that ING Direct brings to the table) and you can open all three simply by entering values on one page.

Here are some recommendations or ideas I wanted to share:

  • Name the CDs with the rate you’re getting (conver 3.30% to 330, because the naming system doesn’t allow special characters),
  • Don’t label the period of the CD, such as 12 (or 6 or 9) month CD because that will change month and eventually every CD will be a 12 month CD,
  • and, I wouldn’t write in the maturity date because that will be listed in your account snapshot (the “Account Type” will be Orange CD [maturity date]).

One final word of advice about ING Direct CDs, they’re default set to renew upon maturity. You’ll want to change that for your 6- and 9- month CDs because you will change them out for 12 month CDs once they mature. You can do this by clicking on the CD, clicking on the Account Maintenance link or icon, and change the Account Maturity to either closer or “Renew Principal Only to:” a 12 month CD (with interest rolling into the main account).

If anyone from ING is reading, any chance you guys could sort the Orange CDs in order of ascending maturity? That’d be nice!

Enjoy laddering!


 Personal Finance 
20
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Talking About Salary with Friends

This past weekend I was in a New York Times story about young professionals sharing their salaries with their friends. In it, I was quoted about how I knew the salaries of my friends within a $10,000 spread (I had said about $5k either way) and that we openly discussed our salaries, raises, and other financial details. I was glad the article captured the most important point I was trying to make, not focusing on the fact that we were disclosing a taboo number, which was that sharing information helps everyone involved. The point of knowing my friends’ salaries wasn’t so that we could compare bank accounts, it was so that we would be armed with the most and best information possible to make decisions.

There is only one reason why we all would discuss our salaries and it’s the same exactly reason why people turn to Salary.com. We want to know if we’re getting paid a fair sum for the work we are doing. I knew what my engineering friends earned in a year and I knew the differentials for level of education and area of expertise and the point of knowing was so I could be better educated about my potential value in the workforce. When my friends left, they would disclose the raises they’d be getting to go to another firm. I disclosed how much more I was being paid. For me, it was about learning, with real life data points, what was out there and how I could use it to my advantage.

It’s important to note that we were all in the same field, working for the same employer. There wasn’t a situation of high school friends where life decisions led one to a more lucrative profession or another to a less lucrative one. I don’t see the point in a lawyer sharing a salary with an engineer or a financial analyst sharing her salary with an administrative assistant. Since you’re not in the same industry, that’s not information you can use. In fact, I don’t discuss salaries with my high school friends, or friends in other industries, because it provides no added value (and because it never comes up).

“This is a generation that is much more attuned to teamwork, collaboration and sharing information.” – that’s a quote from the article and one that I feel captures what my friends were trying to do. One prime example of this was that every single year, management would tell employees that “raises weren’t going to be good this year.” By sharing information, we could figure out whether management was feeding us a line or if raises were really not good (it was a defense contractor and we’re spending billions upon billions on defense, plus executives are getting ridiculous bonuses… not everyone’s raise is bad!).

Lastly, one surprising thing I learned in reading the article was that it is/was taboo to talk about how much someone paid for their house. I find that surprising because that is a matter of public record (all home sales and tax records are public), I consider it a much bigger affront to surreptitiously research someone on the internet than it is to come out and ask them. I paid $295,000 for my house. I know roughly (it’s not like I write it down so my memory fades) how much my friends have paid for their homes. It’s not a big deal. I suppose we never learned that talking about that was taboo, but then again the spread of information is valuable.

What do you all think? Salary talk is always taboo? Never taboo? Or are you like me, talking salaries isn’t taboo if there is information to be learned but taboo if it provides no such informational value?


 Retirement, Reviews 
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Review: Cash-Rich Retirement by Jim Schlagheck

Cash-Rich Retirement by Jim SchlagheckCash-Rich Retirement by Jim Schlagheck, seen on public television’s Retirement Revolution, seeks to turn the retirement advice community on its head by taking “the investing techniques of the mega-wealth” and bringing it to the masses. It’s quite a bold statement to make, since we all know the mega-rich are afforded a much different set of rules than the rest of us, so we’ll see if Mr. Schlagheck can deliver.

The dust jacket says that Schlagheck’s advice “breaks with conventional advice that tells the public to invest mightily in stocks, flip holdings, and seek capital gains.” I’m not sure that the conventional advice says you should be actively trading stocks, but then again personal finance bloggers live in a world where we are exposed to the sage advice of Buffett and Bogle, two accomplished investors who actively advocate index funds for the masses. However, even if you accept the belief that the conventional advice is flipping stocks, Schlagheck advocates investing for “prudent income… Build a ‘life-cycle’ annuity package for lifetime retirement income. Focus on dividend-, interest-, and rent-producing investments and insurance.” If your alarms went off when you red “life-cycle” annuity package, you weren’t alone – mine went crazy. Annuities are actually one of the “six straight-shooting, show-me-the-money steps” in the Cash-Rich Retirement plan. We can see what Schlagheck means when we get to them.

The six steps are:

  • Change your “automatic pilot”
  • Diversify your holdings in radically different ways
  • Build out your investment plan with funds and objective research
  • Get all the professional help you can
  • Build income streams with a ladder of annuities
  • Invest in long-term health care insurance

Setting the stage

The book begins by discussing retirement and how the rules of the game have changed. Schlagheck has a very straight forward and easy to understand writing style and the book is organized in a way that makes it very easy to follow. He makes excellent points about how the retirement is changing, given the changing demographics, solvency of Social Security, and a whole collection of other issues. It really does drive the point home that the old rules of retirement are changing (because they are!).

Let’s see these six steps…

Change your “automatic pilot”

Schlagheck’s term of “automatic pilot” refers to the fact that you concept of “saving for retirement” is investing for speculative gains. It means taking stocks in your Roth and going after high flyers, it means pushing your 401(k) contributions into microcaps or other more risky investments, and he argues that you need to rewire the way you think and act differently. Less like a slot-machine player and more like a saver and cautious investor. Mostly, he’s saying you need to take your retirement seriously right now. What does he recommend you do?

  • Save at least 20% pre-tax income
  • Hold savings in tax-sheltered accounts (401k, 403b, etc.)
  • Automate saving (think, Automatic Millionaire)
  • Don’t chase speculative gains

So far, nothing super incredible or only within the realm of the super-rich. It’s just straight up, smart personal finance advice that’s been repeated before, though it does have some eye-opening statistics not often included in other books.

Radically diversify your holdings

This chapter focuses on how your asset allocation is probably off, though it focuses on many of the simple mistakes people may make such as investing too much in company stock or being too risky in allotments. He advocates investing in things that provide cash flow. That includes dividend stocks, interest bearing accounts or investments, and “rent” producing REITS or rental properties. This is probably where the “Cash-Rich” in the title comes from. Another category he says you should increase in is international exposure, an idea that probably would’ve netted you quite a tidy sum had you implemented several years ago.

From here, this book has some nice ideas but nothing that’s radically new or unheard of. Since the annuity chapter sounded some alarms, let us skip to that chapter.

Build income with annuities

Annuities are like timeshares, they’re not inherently bad, they were just pitched by inherently bad people. The book makes an excellent case for annuities and one that I buy into, though, as they say, the devil is in the details. Annuities provide protection against longevity risk, which is the risk that you’ll outlive your retirement savings, by providing a guaranteed constant income stream and Schlagheck recommends using them after everything else (401k, Roth). I believe that to be prudent advice.

Schlagheck explains annuities, how they are structured, the four main types, the benefits, drawbacks, etc. If you want a primer on annuities, Schlagheck has a good one in his book. He warns about the costs of an annuity, which are 2.3% average, and says that there are many excellent ones at a fraction of the cost.

So what’s this life cycle strategy? The idea is that you want to ladder your annuities so that you get different amounts of income at different points of your retirement. His example has three annuities, each paying out for three different time periods. The first pays out income for 9 years from age 65 to 74, #2 pays out for 9 years from 75 to 84, and #3 pays out from 85 and onward. I’m afraid the details are outside my capability to detail with much clarity so you’ll have to check out the book if you want to know how their structured. He also provides a lot of explanation that I think is crucial for understanding how to ladder annuities, such as tax implications, purchase tactics, etc.

Overall Impressions

Overall, I felt Schlagheck did a good job explaining his cash-rich retirement plan, even though I skipped a few of them in this review, though nothing seemed exclusive to the mega-wealthy. Granted, the ability for most retirees to invest in rental properties is slim (but not unheard of) but investing in dividend stocks, buying annuities, and many of the other suggestions are not anything special. His explanation of annuities, for someone who knows little about them or the fact that laddering them would be a good technique, was comprehensive and easy to understand. If you have the basics of retirement down and are looking to learn more, I think getting this book, either at the bookstore or your local library, would be a great first step.


 Shopping 
13
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2008 Sales Tax Holiday Schedule

Shopping Contentment!This page covers the 2008 Sales Tax Holiday Schedule. Here is the latest 2010 Sales Tax Holiday Schedule.

Since many states are having their first tax-free period (for hurricane preparedness) this weekend, I thought it would be helpful if someone did a recap of all the tax sales across the nation (I’m unaware of a similar list for 2008 existing anywhere), so I did searches of all the states and collected the information on any sales tax holidays they are having. Many states have scaled back the tax-free program because of projected tax revenue shortfalls (Florida canceled its spring tax sale for hurricane preparedness supplies and shortened its typically ten day school supply tax-free period to seven days) but many still have some sort of program in place.

(Click to continue reading…)


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