Industry and Frugality

What is Price Elasticity?

2010-08-18T10:38:00.000-07:00

I saw this term used on clarkhoward.com and couldn't remember the exact definition from when I took Econ way back when, so I thought I'd look it up and share it. There are at least two different types of elasticity. Price Elasticity of Demand and Price Elasticity of Supply. They are basically the same thing but for two different variables.

Price Elasticity is simply a measure of how much the Supply or Demand changes with a change in price.

Let's do an example with Price Elasticity of Demand. Say a candy bar is $1 and the demand for it is 100 units and the price is raised to $1.01 and this causes the demand to decrease to 90 units. We can come up with a number that represents how much this difference in price is affecting the demand.

The equation is (P/Q) * (∆Q/∆P) or ∆Q%/∆P%. For our example, let's use the first equation. P = Price = 1.01, Q = Quantity = 90, ∆Q = 90 - 100 = -10, ∆P = 1.01 - 1.00 = .01. Therefore, PED (Price Elasticity of Demand) = 1.01/90 * -10/.01 = -11.22

Note that since the value is negative, it indicates an inverse relationship. Basically, as price increases, the demand decreases. That's usually how it happens, but sometimes you could have weird cases where the fact that it's becoming more expensive makes it more in demand. Perhaps this could happen with an IPO of stock or a rare diamond.

Volcano Causes Financial Strain and Stranded Travelers

2010-04-19T16:34:00.000-07:00

MyWay has an associated press article highlighting individuals around the globe that are being affected by the recent volcanic eruption in Europe. Here is another good example of why you need an emergency fund!

Mortgage Payment Inflation

2010-03-20T07:31:00.000-07:00

I had an interesting idea this morning when I was reading a Bogleheads post on paying extra on your mortgage. Basically, assuming you are doing a traditional fixed mortgage, your mortgage payments are going to remain pretty much the same throughout the term of your mortgage. However, inflation will take it's toll on the value of your dollar so the real cost of your payment each month will be decreasing. To compensate for that, why not increase your mortgage payment to keep pace with inflation?

For example, if your mortgage payment is $1000 in today's dollars, then 10 years from now you should be paying the equivalent of today's $1000, which at 3% a year is $1,343.92. All of your other expenses will be increasing at that rate, so why not force yourself to pay off your mortgage faster. If your relative level of income has remained the same, you won't notice the difference. Of course, if your situation has changed then the reduced relative cost of the mortgage payment is a great advantage and can help you get by.

3 Months of Amazon Prime

2009-12-31T11:18:00.000-08:00

You can once again get a 3 month trial of Amazon Prime. This is an awesome deal. I had this once before and it was really nice... free faster shipping!

http://feedproxy.google.com/~r/SlickdealsnetFP/~3/NrtYidhdxWE/28834

USAA Expands Membership

2009-11-16T23:17:00.001-08:00

USAA has further expanded their membership to include all veterans who were honorably discharged, no matter what the length of time in service. Family members of service members may be eligible as well. If you think you might be eligible I highly recommend that you check it out. You can read some good comments about USAA here. I have been more than pleased with my membership.

ING Plans to Sell ING Direct

2009-10-29T19:29:00.000-07:00

Apparently my favorite savings bank, ING Direct, is set to be sold by 2013 by it's parent company, the ING Group. I plan on keeping my ING account at least until I find out who they plan on selling it to. It is FDIC insured so I'm not worried about losing my money. I believe the bank is still in good shape, but even if it's not, your money should be safe and move seamlessly over to any new owner.

World of Goo Name Your Price

2009-10-14T18:24:00.000-07:00

You can get the independently developed, award-winning game World of Goo for whatever price you want through October 19th. The game is normally $20. This deal was spotted on slickdeals.net

2010 Chick-fil-A Calendar Coming Soon

2009-10-14T14:02:00.000-07:00

If you've never received a free Chick-fil-A calendar, take my word for it that it is a treat you will enjoy the whole year through. The calendar is usually very creative and contains great coupons. The calendar is on the Chick-fil-A website, but is not available yet.

First-Time Homebuyer Credit Extended for Military

2009-10-09T20:58:00.001-07:00

Jim over at bargaineering.com posted the news about the First-Time Homebuyer Credit being extended an additional year for some military. The only catch is that you have to have been deployed for at least 3 months. Right now this is only a bill and it has only passed in the House. It is expected to be pushed through the Senate and to the President shortly. You can read the full post here.

Starting Salary A Critical Difference

2009-09-27T19:02:00.001-07:00

I found it interesting to read about a young accountant's situation on the Bogleheads forum. He was unhappy with the fact that despite being a top-performer at his company, someone else was making slightly more than him just because that person was there longer. Some of the comments that emerged mentioned that the school you went to could impact your starting salary. From here it was pointed out that the starting salary can be a key difference and that it may take a peer with a lower salary several hard-working years to catch up to the peer with the higher starting salary.

DiscoBunny1979 wrote:
"My experience has been that it's really important to obtain the appropriate compensation from the beginning because all pay increases go from that initial salary."

This seems like an important tidbit to keep in mind if you are hunting for a job.

Why You Still Need an IRA

2009-09-26T12:04:00.001-07:00

As you may know, I am in the military. More than once I have had someone tell me that I don't need to be putting money in my Roth IRA each month since I'll have a pension waiting for me after I retire from the military. Ignoring the fact that I could become disabled or choose to leave the military before the required 20 years to claim retirement, there is another reason why it is important to have your own retirement funds. Boston Gal has the story of a U.S. Army retired ranger who did not get his retirement pension despite serving over 20 years and being wounded in combat.

Note: The views expressed on this blog are strictly my own and do not represent the opinions of the U.S. Military or any other agency.

Budget Tracking with Google Docs

2009-09-15T10:51:00.001-07:00

Many of you may have heard about the recent acquisition of mint.com by Intuit, the makers of Quicken. I really like using mint.com to monitor my financial status. I have yet to really embrace the budgeting aspect of it though. For budgeting, I use a little more antiquated method... spreadsheets! I originally created my own custom spreadsheet, first in excel, then in google docs. Having it available anywhere and being able to quickly update it without launching spreadsheet software is a plus. I can also easily share my budget with my fiancee. Recently, I discovered the wonderful library of templates available on google docs when I needed to create an invoice for some freelance work I did. Out of curiosity, I also checked out the personal finance templates available. If you are looking for an easy way to create a budget online, I highly recommend you look into the spreadsheet function of google docs and also check out what templates are available in their template library.

50 Cent on Investing

2009-09-09T17:41:00.001-07:00

CNBC has an interesting interview with 50 cent. Some parts, such as the speculation that the recession will be over in a couple of years or less, were a little worrisome. There were some bits that made me think though. For example, when he talked about the fact that Mike Tyson's made over $500 million in his lifetime but now he wakes up in his old bedroom. It was also nice to hear him say he lives below his means, although I'm not sure how accurate that statement is. I guess he can live pretty extravagantly and still live below his means.

New Credit Card Law

2009-06-15T15:44:00.001-07:00

Congress recently passed the Credit Card Accountability, Responsibility and Disclosure Act (Credit CARD Act... cute, huh?). Here are some of the highlights.

Companies required to mail statements at least 21 days before the payment is due.
The payment due date is required to stay the same each month.
Credit Card companies will be required to show how long it will take to pay off your balance making only the minimum payment. *I think this is a great change. Too many people don't realize the impact of small payments with high interest. Too bad they don't show how much total interest you would end up paying.
You can no longer be charged an over-the-limit fee for transactions that exceed your credit limit unless you sign an agreement saying that you specifically want to allow transactions that will exceed your limit.
Payments in excess of the minimum amount will be required to pay off balances with the highest interest rates first.
Companies won't be able to increase rates on the existing balances for the most part, but they will be allow to increase the rate on new purchases after the first year. A penalty rate cannot be applied unless you don't make your payments for more than 60 days, and then a 45 day notice is required before the rate change. *I disagree with this provision. I think it is the companies right to fluctuate the rate in response to the market. If you don't want to be subjected to market changes in interest rates, then you shouldn't take out unsecured credit.
For rate changes on new purchases, 45 days notice will be required. Also, you will have the option to close your account if you disagree with the new rate.

Source: USAA

Thrift Savings Plan Upgrades

2009-06-13T04:53:00.001-07:00

In typical government fashion, a tobacco bill is carrying changes to the Thrift Savings Plan.

From the article:

• A Roth 401(k) option, which would let participants
put some or all of their after-tax salary into an account that will
grow without tax liability on future earnings.

• Automatic enrollment of new federal civilian employees.

The Federal Retirement Thrift Investment Board said this will encourage
more young employees to start saving for their retirement as soon as
they begin working for the government and take advantage of matching
funds offered by their agencies.

• A survivor benefit that would allow spouses of deceased TSP participants to maintain TSP accounts.

• A mutual fund option that would allow participants to direct their
TSP funds to private-sector mutual funds. The board would be authorized
to select the mutual funds that would be available to plan
participants.

It’s far from certain that a mutual fund option will become reality.

I think the first three are definitely good improvements to the program. The fourth one I could care less about. It's noncongruent with the Boglehead philosophy. I'm very pleased with their current low-cost index funds. As long as they keep those, I'll still be happy. The bad thing is that people will bite off on these funds, which I think is a mistake.

The original article from the Federal Times can be found here.

Free Mother's Day Card

2009-04-28T16:35:00.000-07:00

There is no longer any excuse for not showing your mom some love this Mother's Day. Hallmark is offering a free customized card through their website. The best part is they even mail it to your mom for free! Check out all of the info from the SlickDeals post. Also, to help you get in the Mother's Day mood, here's a message from Mr. T. I pity the fool who doesn't send his mother a Mother's Day card!

Mr. T - Treat Your Mother Right

iTunes Ups Their Prices

2009-04-07T21:35:00.001-07:00

From Slashdot "Steve Jobs vowed weeks ago that when iTunes shifted to a tiered
price structure in April, older tracks priced at $0.69 would outnumber
the contemporary hits that are rising to $1.29. Today, several weeks
later, iTunes made the transition. While the $1.29 tracks are
immediately visible, locating cheaper tracks is proving to be an
exercise in futility. With the exception of 48 songs that Apple has
placed on the iTunes main page, $0.69 downloads are a scarce commodity."

I stopped using iTunes a while back and have been very pleased with the decision. The DRM is an unnecessary hassle that just makes life more difficult. I used TuneClone to convert my iTunes songs from DRM'ed m4p files to mp3. It creates a virtual CD burner and allows you to 'burn' playlists to the virtual drive. It automatically converts any songs sent to the drive into mp3 and stores them in the folder you specify. As far as purchasing new songs, I've chosen to use Amazon.com since they've already had songs less then $0.99 for a while and their music is already in mp3. They are obviously aware of consumer wants and aren't just out to trap consumers into their products indefinitely. I don't like how Apple has always been less open than other tech companies.

Free Game from Amazon

2009-03-23T13:31:00.001-07:00

Amazon is again offering a free game. Big Kahuna Reef (which was offered before) can be yours, free, from amazon.com. http://slickdeals.net/permadeal/19287

This Too Shall Pass

2009-03-10T06:30:00.000-07:00

Here is some more info on past bear markets compared to the current one. All of them were bad, but all of them eventually recovered. Try to keep your cool and maintain your plan and asset allocation no matter what the markets are doing.

Source: dshort.com

Free Credit Score... If You Hurry

2009-03-09T16:54:00.001-07:00

Fair Isaac Corporation (FICO) is giving 10,000 people their credit score for free. Click here

Is $6600 Really That Low?

2009-03-08T08:07:00.001-07:00

I know the state of the economy right now is troublesome to most people. Many people have investments that have lost half or more of their value. However, I don't think we're necessarily that far off from what we should expect. Take a look at the chart of the Dow Jones Industrial Average, below.

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View the full .DJIA chart at Wikinvest

If we look at 1980, the Dow was around $830. A common number for the average growth of the market is 8%. So if we take $830 in 1980 and grow it at 8% for 29 years, it comes out to $7,733.34. This is higher than where we're at, but not too much higher. Even at 10%, we'd be looking at $13,166.37. I think the $14,000 range that the Dow was at previously (July 2007) was outside of the norm and that at least part of the drop in value is due to a correction back from that bubble. I know that won't do much to comfort those (myself included) who have seen a drastic drop in the value of their portfolio, but maybe it will help keep you from worrying too much about a total collapse of the market.

What is the Savings Deposit Program?

2009-03-06T22:28:00.001-08:00

The DoD describes the Savings Deposit Program as "A safe way to save for those members serving in designated combat zones." Basically, it's a savings account for the military with a really good interest rate. Here's what you need to know.

Must be in the armed forces and receiving Hostile Fire Pay
Must be deployed 30 consecutive days or at least part of 3 consecutive months
Deposits may not be more than your unalloted pay and allowances for the given month.
10% APY, compounded quarterly
Deposits must be in multiples of $5.00
Withdrawals may only be made when you leave the combat zone or in the event of an emergency (requires commander's approval)
However, if you have more than $10,000.00 in the account, the amount of $10K (the part not earning interest) may be withdrawn while still deployed
Interest will continue to accrue for up to 90 days after you leave the combat zone (so wait three months to withdraw the money! Or, redeploy within three months to keep it going.)

This is a really good deal, especially given current rates on savings accounts.

Reference: http://www.dfas.mil/militarypay/woundedwarriorpay/SDPBrochure_Mar08.pdf

Oldie but Goodie

2009-03-05T15:49:00.001-08:00

Don't Buy Stuff You Can't Afford. A simple one step program to being debt free! This clip is pretty old but still funny and especially pertinent now-a-days.

http://www.hulu.com/watch/1389/saturday-night-live-dont-buy-stuff

Industry and Frugality in 1919

2009-02-23T17:35:00.001-08:00

I was skimming the results that come up when you google "Industry and Frugality." The second one was from an article written in 1919. I'm not exactly sure what the circumstances were but they were referring to high costs of living. The quote I like from the article was by Governor Milliken, "Nothing but the return of the old-fashioned virtues of industry and frugality will solve the problem."

Unfathomable Spending

2009-02-18T17:59:00.001-08:00

If you have ever had any significant credit card debt, you know how difficult it can be to dig yourself out of a hole. Now imagine a 787 billion + 75 billion + 200 billion = 1.062 trillion dollar hole. This number is most likely difficult if not impossible for you to imagine. In fact, I'm willing to bet that a very large majority of people could not write this number down if you asked them to. I'd like to see this challenge on one of those clips you see on late night talk shows. This number is close to the total known digits of pi as of 2002. It is also more than 6.5 times the total market capitalization of Microsoft (161.1 Billion). And, according to this article, our federal governments obligations now exceed the world's gross domestic product. Add to that the interest accrued when we borrow from China and other countries. It is going to be impossible to pay this off in the foreseeable future. I cannot believe that our politicians are running the country this way. Individual responsibility and now national responsibility is going down the drain.

P.S. - 1.062 trillion is 1 062 000 000 000