It might be boring, but one of the best, most consistent ‘investments’ is buying in bulk.

Take a big trip to Costco and go on a $1,000 spending spree and buy everything in bulk that you will need over the next year. Compared to what it would cost to buy those items individually, you will normally save at least 20%. That $1,000 of stuff would have cost you $1,250 without the bulk discount.

A $250 savings is a good start, but it gets better: the money you saved is tax free. You now have an extra $250 to spend or save as you like that you otherwise wouldn’t have had.

If, instead of saving $250 you had asked for a raise or worked extra, you would have to pay 25% to 30% income tax on that money. That cuts your $250 down to only $175. To actually get $250 extra dollars you have to earn $313 before taxes.

There’s also inflation. The average annual inflation rate in the United States is about 4% per year. If you buy a year’s worth of products at a 20% discount, you’re really saving 20% + 4% = 24%, because you’re buying next year’s products at today’s prices.

Adding in the savings from taxes mentioned above, you get a total of 20% + 4% + 30% = 54% return on the investment of buying in bulk.

The lesson? Get thyself to Costco.

Buying in bulk also saves you time – which is better than money. Getting your home and office supplies in big batches saves on the number of shopping trips each year and cuts down on switching costs.

Also, you never know, but having an emergency supply of food just might save your life one day.

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Header photograph by David McKelvey

John Gerzema gave an interesting TEDx talk on how customers are dealing with the current economy and how communications technology is making capitalism better.

Some of the highlights:

• Spending is at its lowest in 63 years
• More people are using debit cards than credit cards
• Americans are holding onto their cars for longer than ever: 9.4 years
• Library membership is now at 68%, the highest rate ever
• 30% of homes in America are now built by owners

A graph the personal savings rate of Americans from 1929 through the present day:

Also the total debt of the United States since 1918:

How people are dealing with the stress of the current economy:

And to answer the question presented in the title of this post:

• Dentists report replacing more fillings because people are grinding their teeth due to stress
• Gun sales are up 25% since January of this year. (presumably due to fear of uncertainty)
• Vasectomies are up 48% (presumably due to the cost of having a child)
• Shark attacks are at their lowest point since 2003 because of people taking fewer trips to the beach

If you didn’t know already, babies are money-eating monsters. As discussed in the previous article, the cost of raising a single child from birth through high school is a quarter million dollars.

But that’s just the direct costs.

Let’s look not only at those direct costs, but also the opportunity cost of child rearing.

A United States government survey listed the annual costs of raising a child as such:

The total cost is $247,150. If instead you had invested that money into a Roth IRA mutual fund with an average return of 10%, at the end of 18 years you would have $683,000. The real cost of raising a child is nearly seven tenths of a million dollars.

For two kids, the total cost is $494,000, and the lost opportunity cost is 1.3 million dollars. Three children cost $741,000 with a lost opportunity of 2 million dollars at the end of 18 years.

While children can bring joy into your life, you need to seriously consider the financial implications of having one before you do.

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(If you are interested in the details of these calculations, you can click here to see the spreadsheet.)

Would you pay $1,000 for something that you could get — of equal quality — for $1? If you use disposable batteries, that’s exactly what you’re doing.

The electricity you get from a disposable battery, according to Eric Giler, is thousands of times more expensive per kilowatt-hour than the electricity you get from the wall. Rechargeable batteries make an enormous amount of economic sense — the cost of electricity from your house to charge them is so small, it might as well be free.

When I bought my first digital camera, I learned just how expensive disposable batteries can be. After discovering, with horror, that my new camera chewed through four AA batteries in a day of active photographing, I knew I couldn’t justify $8.00 a pop for a new clip of batteries anymore.

After researching on the web, I settled on the eneloop brand of rechargeable batteries. Since then, I’ve added many more battery-hungry devices to my life and I became curious as to how much money the rechargeables were saving me.

Here are the main devices I use that require batteries:

• Two digital cameras
• One LED flashlight
• One Bluetooth keyboard
• One Bluetooth mouse
• One GPS tracker
• One timer

According to Amazon.com, the average price for a single AA battery is $0.97 and a AAA battery is $0.86.

I estimated the number of times per year that I change the batteries on each device and multiplied that by the number of batteries per device and the cost per battery. You can see the results in the spreadsheet below:

The total yearly savings is $317.49. According to the everything I own project I bought 14 AA’s, 8 AAA’s and two chargers for a total cost of $90.65.

While $90.65 sounds like a lot, it isn’t when you do the cost saving calculation and see that it pays for itself in three and a half months. Assuming I live for fifty more years, I’m looking at a lifetime saving of $15,000.

If you haven’t switched to using rechargeable batteries already, you should. Your wallet will thank you.

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Header photograph by pasukaru76

The best financial decision I ever made wasn’t a financial decision: I got married. Much to my surprise, my financial life turned around once I found my beautiful bride. Mine is not an unusual situation — according to Barbara Dafoe Whitehead and David Popenoe from Rutgers University. people who marry are, on average, four times richer than those who never marry. Here are some of the reasons why:

Marriage makes you pay attention. You are no longer that idle bachelor, you’re in a partnership. Stupid decisions that you make now don’t just affect you, they affect someone else.

Marriage encourages long-term thinking. It’s not until you start planing ten, twenty, or thirty years ahead with someone that you understand what long-term savings really means.

Marriage cuts many bills in half. The moment you move into an apartment or buy a house together, every communal expense such as rent, heating, and property taxes has just been divided. Many other bills such as food and electricity are much cheaper for two people than for one. Just watch out for lifestyle inflation and, for heaven’s sake, don’t have a baby.

Marriage lowers taxes. Most countries, like the United States and the United Kingdom, give tax benefits to married people.

Marriage Makes Men Work Harder. According to Avner Ahituv of the University of Haifa and Robert Lerman of the Urban Institute, married men drink less, take fewer drugs and work harder, and earn 10% and 40% more than single men with similar backgrounds. (From The Economist, May 24th, 2007 The Frayed knot)

Marriage clarifies your thoughts. The big advantage of getting married is that you now have to say out loud your financial plans to another human being.

The first time you try and plan your finances with your spouse, you’ll probably realize that you don’t have a plan. You thought you had one, but when you try to articulate it, you discover that the details are missing — like trying to recall a dream hours after waking.

Working with someone else forces you to clearly articulate your goals. When you make a budget together you have to decide what your priorities really are, and it helps to talk them over with your partner. Do you really want to eat out that much, or would you rather put that money into the ‘early retirement’ and ‘vacation’ funds?

Marriage makes millionaires. In both The Millionaire Next Door and The Millionaire Mind, the author Thomas Stanley, states many times that one of the factors Millionaires credit as the source of their wealth is their spouse.

I don’t recommend you go out trying to find a fiancée so that you get wealthy, but if and when you do get married, don’t forget about the financial benefits.

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Header photograph by cedarjunction

Not all dollars are created equal.

According to research performed by Priya Raghubir, people are more likely to spend small-value bills than large-value bills. She terms the brain’s preference to hold onto bigger bills the “Denomination Effect”

Dr Raghubir tested this effect by paying visitors to an Omaha gas station $5 to fill in a fake survey. The visitors were paid either with five one-dollar coins, five one-dollar bills, or one five-dollar bill.

Even though all visitors were paid the same amount, those given the five-dollar bill were more likely to save their money. The people given one-dollar bills or coins were much more likely to spend their cash immediately.

Dr Raghubir performed similar tests in China where she gave housewives payments that equaled their week’s salary. Housewives given the money in large denominations spent less than those given small denominations.

So, if you want to trick yourself into saving more money, keep the small bills out of your wallet.

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Header photograph by AMagill

Story via Planet Money Podcast

The number one cause of divorce in the United States is disagreements over money. If you want to keep your marriage in good condition regular, open financial talk must be a part of your relationship.

Arguments over money are probably such a large issue in relationship because the way you spend money shows, in an undeniable way, where your priorities really are. If you talk about how much you want to save for retirement, but actually spend money on eating out, then eating out is really your priority.

Making a budget is actually a priority setting activity — which is exactly the kind of important thing that you should be regularly doing in a relationship.

Here are the steps that Noelani and I follow at the start of each month for a successful couple finance meeting:

1. We gather all the information about our incomes from the preceding month.
2. 15% of our pre-tax incomes goes toward long-term savings and retirement before any other discussion. No negotiation.
3. We estimate the month’s bills, and put that amount of money into our joint bills account. We pay the bills proportionally to our income e.g. if Noelani makes 45% of the household income, she pays 45% of the bills and I pay the remainder.
4. We review any medium-term savings plans we have, such as travel or large joint purchases. This money is put into separate ING accounts and is also split proportionally.
5. The money we individually have left over after our joint budgeting is our discretionary money. We can each do whatever we like with our respective remaining money without needing to consult each other. Having a little financial space of your own is important for releasing some of the pressure.

While it sounds like a hassle, it only takes us fifteen minutes to complete the steps, but that’s after the practice of years. Our first time took an entire night (mostly because estimating bills is difficult the first time through), but it gets faster with each repetition.

More important than sorting out the bills is the communication about our future, common goals. Some of the big changes we are making in our lives are the direct result of conversations we’ve started in these meetings. A couple finance meeting is a dedicated time to talk about the shape of the future you want with your partner — so make sure you get started on them if you haven’t already.

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Header photograph by neona

This American Life has put together another one of their excellent shows on the current economic problems. This time they explain what wrong with the banks — it’s worth a listen. From the show’s description page:

The collapse of the banking system explained, in just 59 minutes. Our crack economics team—the guys who explained the mortgage crisis, Alex Blumberg and NPR’s Adam Davidson—are back to help all of us understand the news. For instance, when we talk about an insolvent bank, what does it actually mean, and why are we giving hundreds of billions of dollars to rich bankers who screwed up their own businesses? Also, two guys go to New Jersey to look at a toxic asset.

[Click here for ‘This American Life: Bad Bank]

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Header photograph by tanakawho

A while ago, I ran a question on if couples should combine their finances or keep them separate. Since then, my wife and I have been tweaking our system to come up with what we think is the best of everything:

The hybrid financial system

My wife and I, by our nature, are independent people — the more we thought about combined finances, the more it repulsed us. From a practical standpoint, however, there are numerous times when joint bank accounts make financial transactions simpler. So we decided to compromise and do both.

We have separate checking accounts where our respective employers deposit our paychecks. This allows us to keep our independence and not feel that every purchase will be scrutinized by the other person.

We did, however, open a joint checking account. Our joint expenses such as rent, the bills, gym memberships come of of this account. On the 3rd of every month, we have a couple finance meeting where we total the bills for our joint expenses and deposit that amount into the joint checking account.

We split the bills proportionally to our income. A spreadsheet in open office does the calculations for us. For example, last month my wife took home £1800.00 after taxes and I took home £2000.00. Our total income is £3,800. My fraction of that is £2,000/£3,800 or 53%. I pay 53% of the total cost of the joint bills and my wife pays 47%.

By paying proportionally, if one of us starts earning more money, it also helps reduce the bills of the other one. If one of us loses a job or their salary decreases, the burden on them for the bills is also proportionally reduced.

We also contribute in the same proportional way to the joint savings account for things that we will want to do together, like vacations or large purchases for our flat.

What are the methods you use in your relationship to split the bills? Do you see any problems with ours or have any suggestions?

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Header photograph by kevindooley

January has just passed and it’s terrifying to realize that one month of my twelve-month goal of earning $1,000 a month has already passed. I’ve made slight progress, but need to do much, much more. Here are the charts for January:

For expenses, the bill to renew my domain names came up, accounting for a small portion. Annoyingly, there was a charge for website hosting from my old, pre-dedicated-server plan that I should not have received. That charge stings because it’s unnecessary and I thought I had resolved the issue already.

On the income side, there was no cheque from Google Adsense. For reasons that I don’t understand (and will vaguely blame on the recession) my Adsense revenue has plummeted from about $20 a week to just pennies. Since Google doesn’t pay out until you accumulate at least $100, it may be a while before I see them again.

On the positive side, one of my irregular payments from Cafepress came in. Also, my text-link-ads income was slightly higher this month.

Text-link-ads has been a strange experience so far. For almost half a year, I had a big, banner on the Miscellanea webcomic letting people know they could buy text ads on the site. All that time the banner just gather dust and I decided to remove it. I was literally hours away from taking it down when I sold an add. Then the next day I sold two more and increased the limit to five. Shortly after I sold another. If I was a dirty hippy, I’d believe I was manifesting my way to success — but I’m a science guy, so I’d like to try and figure out what happened.

In summary:

Income:

• Cafepress: $60.83
• Text-link-ads: $72.69

Outgo:

• Hosting: $28.36
• Domain names: $9.99

Profit: $95.17

It’s an improvement over last month, but I really need to up the pace if I’m going to hit the goal of $1,000 a month.

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Header photograph by artemfinland