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How to Prioritize Your Spending
Don’t buy that.
At least take a few moments to decide if it’s really worth buying.
Too often, people go on auto-pilot and buy whatever catches their attention for a few moments. The end-caps at the store? Oh, boy, that’s impossible to resist. Everybody needs a 1000 pack of ShamWow’s, right? Who could live without a extra pair of kevlar boxer shorts?
Before you put the new tchotke in your cart, ask yourself some questions to see if it’s worth getting.
1. Is it a need or a want? Is this something you could live without? Some things are necessary. Soap, shampoo, and food are essentials. You have to buy those. Other things, like movies, most of the clothes people buy, or electronic gadgets are almost always optional. If you don’t need it, it may be a good idea to leave it in the store.
2. Does it serve a purpose? I bought a vase once that I thought was pretty and could hold candy or something, but it’s done nothing but collect dust in the meantime. It’s purpose is nothing more than hiding part of a flat surface. Useless.
3. Will you actually use it? A few years ago, my wife an cleaned out her mother’s house. She’s a hoarder. We found at least 50 shopping bags full of clothes with the tags still attached. I know, you’re thinking that you’d never do that, because you’re not a hoarder, but people do it all the time. Have you ever bought a book that you haven’t gotten around to reading, or a movie that went on the shelf, still wrapped in plastic? Do you own a treadmill that’s only being used to hang clothes, or a home liposuction machine that is not being used to make soap?
3. Is it a fad? Beanie babies, iPads, BetaMax, and bike helmets. All garbage that takes the world by storm for a few years then fades, leaving the distributors rich and the customers embarrassed.
4. Is it something you’re considering just to keep up with the Joneses? If you’re only buying it to compete with your neighbors, don’t buy it. You don’t need a Lexus, a Rolex, or that replacement kidney. Just put it back on the shelf and go home with your money. Chances are, your neighbors are only buying stuff so they can compete with you. It’s a vicious cycle. Break it.
5. Do you really, really want it? Sometimes, no matter how worthless something might be, whether it’s a fad, or a dust-collecting knick-knack, or an outfit you’ll never wear, you just want it more than you want your next breath of air. That’s ok. A bit disturbing, but ok. If you are meeting all of your other needs, it’s fine to indulge yourself on occasion.
How do you prioritize spending if you’re thinking about buying something questionable?
Comfort Zone
Even though some people disagree, I am an introvert.
Crowds, strangers, and activities I don’t understand are all things that make me uncomfortable.
A couple of weeks ago, my business partner forwarded an invitation to me. One of our clients invited us to his annual “Giant-Ass Poker Tournament.”
I haven’t played more than a hand or two of poker in more than 20 years. If you do the math, that’s junior high school or earlier. I’ve never played Texas Hold ‘Em at all. Thirty to forty people were expected to be there.
Crowds? Check.
Strangers? Check.
An activity I don’t understand? Check.
I was planning to blow it off. My partner could handle the social niceties, I could stay home and watch Dexter. Win/win.
Saturday, I got a text telling me that our client wants to talk business at the tournament.
Cue four letter words.
I tried to get out of it. I tried to play sick. My partner–also my best friend and designated extrovert–wouldn’t hear of it.
So I walk into this tournament full of people I don’t know. I was late. I thought that would make a good compromise. I’ll deal with the crowd, and ignore the activity I don’t understand.
First words out of the client’s mouth? “Jason! Great to see you, we just started, so let’s buy you in!”
Crap.
I sat out the first game, and talked the business that needed to be talked. Mission accomplished.
Half an hour into it, my friend sends me a text telling me to do a quick wiki search.
Teach myself to play poker using wikipedia while watching a $50 buy-in game played by experienced players? That’s effen nuts.
I knew the hands, I was already familiar with the bet/call/raise process in general. I was really just missing a few details and the mechanics of Hold ‘Em.
What the hell, it’s only $50.
I went out to the living room/bar area and pulled up wikipedia. After reading everything I could, plus a few terms that had never previously registered (A check isn’t what happens when you bet more than you have. Who knew?), I went back to the game and watched with a bit of understanding about what I was seeing.
When the second game started, I bought in and played until almost 2AM. I had a great time and went home $150 richer than I arrived.
Leaving your comfort zone is, by definition, uncomfortable. Sometimes, it’s downright painful. Without it, you can’t grow as a person. Find yourself someone who is willing to obnoxiously drag you into situations that push your limits. It really can be fun.
Late Pass: Insurance for the Terminally Ill?
This is a guest post.
Uh oh. Not only have you put in decades of loyal service for a company that does not offer a life insurance policy to employees, now you have a terminal disease that has numbered your days. You always meant to get a life insurance policy at some point, but it was just one of those things that there was never enough money left for at the end of a month after bills, groceries and just enough fun to make worthwhile.
Your life is one that needs insuring to protect your family following the now-inevitable, but has that ship sailed? Is it possible to make up for lost time by obtaining a life insurance policy as a terminally ill patient?
You already know that insurance companies are experts at assessing risk. Each potential policy holder is effectively examined to determine their likelihood of living a reasonably long time, and a terminal illness is an obvious negative in this department.
Many insurance companies will be hesitant to offer a comprehensive policy that they know they will have to pay out in fairly short order, but you may be able to get a type of life insurance known as graded premium life insurance.
With graded premium life insurance, you pay a monthly premium to retain coverage. If your illness should terminate within two years, your family will receive all the premiums you have paid as a benefit. Should you last longer, the insurance provider pays the full value of the policy. This is a compromise that gives you the peace of mind that a life insurance policy can provide while allowing the insurance provider to minimize their risk.
These policies typically have cash values ranging from $10,000 to $50,000, so while they might not guarantee the permanent stability of your family, it will offer them much-needed assistance through what is sure to be a difficult time in their lives. Premium amounts vary by age and relative health, but generally the closer you are to qualifying for a payout, the more it costs to enter the lottery.
Life is unpredictable except for its certain end, and sometimes this reality leaves us less prepared for the future as we would like. Fortunately, a terminal illness does not make a person completely uninsurable in most cases. Of course, it is much easier and less expensive to get life insurance as a person who is not dying, so the best strategy may be to invest before your health becomes an issue.
Breaking Bad: The Economics of Meth
In AMC’s “Breaking Bad,” Walter White plays the role of chemistry teacher turned meth producer and drug kingpin. While it certainly makes for good television to think about the profits available to someone willing to trade in illegal drugs, the mountain of money that Walter makes by the end of the series is actually not that unrealistic. Meth has a street value that approaches $30,000 dollars per pound. Not only that, but Walter displays a deceptively keen business acumen, especially for a chemistry teacher. A number of keen decisions allowed Walter White to become as successful as he has.
Production Costs
As any business owner knows, merchandise costs are a major portion of any operating budget. Mr. White keeps his profit margins robust in a number of ways. The first of these is by managing his production costs. When he started out in the business, Walter simply stole the majority of the required chemicals from the high school where he worked. This allowed for the product to be sold at a substantial profit when compared to producers who are required to invest more upfront.
Location, Location, Location
On top of his discounted production, Walter was able to stay ahead of the competition both literally and figuratively by utilizing his RV for production. Typically, meth is produced in a laboratory environment, which requires a building. This adds an additional cost of rent to the typical business profile. Walter, on the other hand, produced out of his RV in the early stages of his business’ growth, further increasing his profit margin.
Distribution
On the production side of the economy, a major consideration is distribution costs. While most of Walter’s competition used pricey, established lines of distribution for their products, he cut out the middle man by distributing his product with his team. This caused major disruptions to his business when his competitors tried to kill him. However, while he was able to accomplish this model, Walter was the beneficiary of increased profits. Then, when he killed his competition, he was able to return to the healthy margin he enjoyed previously.
Advertising
Many new products are launched with a full blown media campaign. This is a costly proposition. Walter, instead, relied on the quality of his product to speak for itself. This competitive advantage reduced the need for an extensive advertising budget. Furthermore, after a period of time, his product became a preferred choice by consumers everywhere. While he was required to distribute a few loss leaders at times, Walter kept the advertising costs down and profited greatly.
So, while it may seem like Walter White was simply a chemistry teacher who got lucky, it’s clear that he actually had a specific plan for his upstart business. By following a few standard economic principles, he was able to increase his margins at the crucial beginning phase of his business, and had established himself as a leader in the market when he chose to expand
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Beat the Check
- Image via Wikipedia
Have you ever played a game of “Beat the Check”? Your rent is due tomorrow, but you don’t get paid until Friday, so you write the check today an, on payday, you run to the bank to get your paycheck deposited before it has a chance to clear. To stretch out the time, you write yourself a check from another account to cover the deficit, knowing that will take a few more days to clear. This is called “floating” a check.
Sound familiar?
I think most people who write checks have tried to rush a deposit in before a check clears.
In 2004, the Check 21 act went into effect, which turned the game on its head. This law gave check recipients an option to make a digital copy of a check, slashing processing time. Instead of boxes of checks being transported around the country, the check began getting scanned and instantly transferred, along with all of the encoding necessary to keep the digital checks organized. This dramatically cut the amount of time it took to clear a check. What was once a week was reduced to as little as 48 hours.
Now, as technology improves and banks update their infrastructure to match, the “float” time has been reduced even further. Many banks are using image control systems to instantly convert all incoming checks to digital format. Within a couple of hours, these images can be transmitted to the Federal Reserve, to be transmitted nearly instantly to the issuing bank. If both the issuing and the receiving banks are using modern image control systems, it is impossible to float a check. “Beat the Check” is a thing of the past. It’s like betting on purple at the roulette wheel.
Of course, this doesn’t mean that the funds are instantly available. That would eliminate the banks being able make use of the funds during that time. Don’t expect the banks to make a habit of allowing you the use of your money before the federal regulations demand it.
