The Colorado Index

Dealing with the financial mess

From time to time we have guests write essays for this blog.  Here is one such essay:

Everyone knows by now that all sectors of the economy are impacted by the current downturn. So, the real question is, “What should I do about money as the holidays approach?” Lots of issues are at stake (what stocks to keep, which to sell, how much cash to hold, etc.) but a key question for lots of people is whether (and how much) they should spend for consumer items. With Xmas coming, this is a good time to have a plan that 1) takes advantage of the inevitable price cutting that is coming and 2) keeping reserves of cash for the future.

Here’s Grandpa’s advice;

Consider the following questions most carefully; they determine if you are going to spend money you may not have.

Do I need it or do you just want it? This is the toughest question in the list because it demands honesty. It helps to get someone else to participate by being a sounding board. But, taken on its own, the question is deceptively simple. After paying for food, insurance, rent or other essentials, is there money left? If there is, then should we spend it for a new DVD player, bike or other playthings? If you look at your budget and find needs that are not being addressed, then walk away from the deals or try some of the alternate ideas I present below.

Is it for me? I vote against items that are just for you, unless you’ve already paid for seasonal gifts. If you have questions about whether consumer purchases make sense, even if they pass all of the prior criteria, I lean in favor of those things that are gifts and against those things that are just for you.

How will I pay for it? If this is a credit purchase, you probably shouldn’t proceed. Taking on debt now is not prudent and shows that you have not considered the first question enough. The real question is “Can I pay off all of your bills (including credit cards) in full next month if I make this purchase?” Just to emphasize the obvious, making a decision to avoid a necessary expense (like safer tires for your car, insurance, healthy foods) so you can pay for ‘toys’ is not smart.
If you decide to buy, use the following questions to decide how to proceed

Will I keep paying for months or years to come? Lots of people want a new cell phone, iPod or other electronic toy. I discriminate AGAINST those things that will oblige me to keep paying. Phones, games and other relatively inexpensive items have a built-in expense for tunes, monthly service, boredom, etc. A big example of this type of problem is the purchase of a new car. Sales of larger gas guzzlers are so poor that almost any deal can be struck, but what is the long term cost? Insurance prices go up and gas, although cheaper now than in the recent past, can go back up. This goes for gifts as well as items for you; watches, gift cards and similar items don’t create future expense and still provide joy for the recipient (as well as you). Every item you buy has the potential to force you into long-term expenses that you may not be able to cover so be careful about what you buy.  Remember that buying a large screen TV will inevitably lead to a passion to get HD programming; you’ll pay for this for the rest of your life. Is it worth it?

When to buy If you decide you can’t live without this item, you might consider delaying your purchase until after the holidays when prices will go even lower. This doesn’t help much with items for Xmas, but it’s a worthwhile scheme for purchases for you (or understanding gift recipients).

Can I take it back? Buyer’s remorse is a good instinct. Make sure your dream purchase can be returned if you decide that the expense just isn’t worth it or if adult supervision in your house asserts itself. Returns are a problem for some electronic items, fancy shoes and other items. Keep your receipts and all the packaging so the return involves fewer hassles. 

Does it have residual value? eBay remains a good way to dump items after the thrill is gone. Take a look at their residual value before you buy. Most electronics, used but with original packaging, can return half the original price. A vacation, on the other hand, has essentially no residual value. Sure, it generates memories that can be important to a family, but spending money you don’t have to take a vacation makes no sense. By the way, a form of residual value is how much you can save down the road by giving the item to someone else. Today’s fancy cell phone may be a luxury for you but it also may allow you to thrill a young person 3 years from now when you find the item boring.

Can I save enough to pay for it before the bill comes? This used to be called layaway and still represents a responsible way to deal with seasonal buying. Sears and other retailers recently re-instituted layaway; you lock in the price and the item is yours, but you have months to save the money to pay for it. And, unlike credit cards, the cost to set up an account is tiny (as small as $5 per purchase). Once you’ve committed to buying an item, plan your purchase so that you have at least a month to assemble resources to pay off the item (another reason to only buy things that have no future expenses) when you get the bill. This means knowing when the bill will come.

Can I get it used? As prices for new items drop, used prices will be pushed down. This is a great opportunity to get something a year or two old, but still hip enough to entertain you and the kids. Examples include video games, music CDs and sports equipment. eBay and Craig’s list offer good deals and many storefronts offer good deals.

Can I pay for it by selling another toy? I really like this approach because it gets old things out of the house, generates the cash needed to buy the new things and reduces the financial load. At least consider giving your old TV to a place like the Salvation Army before you buy a new one; you get a tax credit and the item gets used by another family.

So, this is the summary of the decision process you might want to consider. The first question is where most people go off the rails.

The Audacity of Fluff

From time to time, we will publish a guest editorial from a reader.  This is one such editorial:

Following Barack Obama's historic acceptance speech last week at Invesco Field, Oprah Winfrey admitted she'd cried her false eyelashes off.  While excited media people star-watched as people arrived, Oprah was spotted with sunglasses with "Obama" inlaid in diamonds. 

Ms. Winfrey is one of many celebrities and social elites that attended the event.  All of them could be classified as Big Money. 

When Sen. Obama speaks of taxing the rich and redistributing to the poor, this is the crowd that will be exempt.  These are the folks that funnel money into deep dark places where the IRS cannot find it.  Not one of these Big Money supporters of Sen. Obama has taken the lead and publicly offered up what they consider a fair share of their wealth.  They could easily donate their ideal in taxed income and hand it over to the federal government right now. 

If you truly believe in taking from the rich and giving to the poor, why wait?  Many of the 'stars' that showed up underneath the beautiful Colorado night sky are people that trash America, her traditions, her policies and her future. 

Many of them believe all is doom and gloom and only a Democrat in the White House can cure any of it.  That's why they buy homes out of the country and spend as much time as they can overseas so as to avoid the "evils" that exist here.  Does Sen. Obama really believe these folks are willing to cough up more in taxes to a country they really don't support?

Middle class America was not sold a bill of goods last week during the Democrat Convention.  Though Michelle Obama delivered a well rehearsed and orchestrated speech about being just like us, her previous comments and attitudes about her country still ring in our ears. 

Barack Obama, in his continual attempts to convince America that he, too, is just like us would have been much more compelling had he taken a more subtle approach in the venue for his acceptance speech.

There was nothing "middle America" about the extravagance and wasteful use of resources and manpower in his Hollywood stage production.  The millions of dollars spent could have more appropriately gone to buy school supplies and clothing for poor kids in this country. 

Rather than Obama's recent proposal for an energy rebate for every American household (paid for with money seized from Big Oil windfall profits), why didn't he announce a Call to Action, accepting all those donations for his convention, but redistributing it instead to Americans that need assistance to buy fuel? 

Instead of an expensive fireworks display at Invesco, why didn't he announce a 'pass the hat' offering to collect money for those that aren't able to see a doctor that he has so frequently spoke about in his campaign? 

If the Democrats had passed on the fluff, there was before them a golden opportunity to put some teeth into their campaign platform of taking from the rich and giving to the poor.  After all, Big Money was right there in the audience, and if Oprah came without her checkbook, she could have just dropped those diamond inland sunglasses into the hat.

(Editors Note:  The author makes a very good point about the stinginess and attitude of Big Money Democrats.  His point has been documented elsewhere.  Big Money Republicans consistently give more money to charaties than do Big Money Democrats.  Oprah is an exception who does give away large sums of money to charaties in Africa, a fact that the left would use to discredit this essay if not acknowledged.)