Archives For May 2007

My Back!

May 29, 2007

You don’t realize how much you use your back until you hurt it. Yesterday I was playing around with my daughter and somehow, some way, I pulled something in my lower back. It didn’t hurt that much at first but this morning in the shower, I moved the wrong way and REALLY hurt it. Now I can hardly move.

Other than that, we had a great week/weekend. Between all the stuff going on during the last week of school and Memorial Day weekend, I didn’t have much time for blogging. It was nice to take a break from the blog world although now my stats are in the toilet.

Anyway, I’m back now and I have a lot of stuff to write about. I’ll post my weekly roundup and a book review (along with a book giveaway) sometime today.

Stay tuned…

I haven’t had time to blog this week. This is the last week of school and the kids have had a lot of programs, field trips, and picnics at school this week. My wife has been off most of the week. All this means that my blogging time has been very limited. I have a bunch of great topic s to blog about but most of them will have to wait until next Tuesday, when things should be back to normal.

Until then, read the archives. I have a ton of stuff that I think is worth reading. One of these days I’ll do a “best of” list or something like that.

I know I have been writing a lot lately about mortgages and all the issues surrounding them. It’s not my intent to beat a dead horse, but I do want to draw your attention to this Getting Going column titled Why a Mortgage May Be Your Best (and Worst) Move (free). Clements says basically the same thing I have been saying all along: use your mortgage to your advantage, but use it wisely. I thought this quote was interesting:

Economists Gene Amromin, Jennifer Huang and Clemens Sialm found that, among households striving to pay down their mortgage quickly, at least 38% could be stashing more in their employer’s 401(k) or 403(b) plan. That means these folks are missing out on their 401(k)’s initial tax deduction and tax-deferred investment growth. That combination should easily outpace the interest expense they save by paying down their mortgage.

Throw in a matching employer contribution, and the 401(k) would be even more compelling. Similarly, you could probably improve returns by taking money earmarked for extra mortgage payments and using it to fund an individual retirement account or to buy stocks in a taxable account.

Clements does say that there are times when prepaying a mortgage makes sense and that’s when the alternative to paying off the mortgage is investing in bonds or money market funds in taxable accounts due to the after-tax returns on that money.

Finally, Clements and I agree on another thing: don’t take on more mortgage than you can afford. I don’t want people to misconstrue my thoughts on mortgages and think that I’m advocating taking out as big a mortgage as possible.

As gas prices rise, I’m sure there are lots of people thinking about trading in their gas-guzzling vehicle for a more fuel-efficient car. However, is that a good idea? Aside from environmental issues, if your current vehicle is paid off, does it make sense to purchase a new car just to save money on gas? If it doesn’t make sense at current gas prices, at what point will it make sense?

Hmmm… it’s quite the conundrum isn’t it?

I’m going to attempt to answer this question by conducting a little analysis. First we need some assumptions:

Let’s say you have a paid-off truck that gets 17 miles per gallon. You drive 15,000 miles per year. At $3.19 per gallon, you’re tired of spending $235 per month on gas (73.5 gallons per month × $3.19 = $234.56). Your friend tells you about how his Honda Civic is getting 38 miles per gallon and that although he drives the same distance as you do, he only spends $105 per month gas (32.9 gallons per month × $3.19 = $104.93) or $130 less per month than you spend. You start thinking to yourself that maybe it’s time to dump the truck and get yourself a Civic.

Let’s say your truck is worth $10,000 trade-in and a brand new Civic LX is around $20,000 including tags, title, and license, leaving $10,000 that will need to be financed. Payments on a 36 month loan at 6.5%, will run $306.49 per month. So, with gas at $3.19 per gallon, the net monthly cost of the Civic is $176.87 ($306.49 monthly payment – $129.62 gas savings = $176.87). The higher gas prices go, the more advantageous it is to buy the Civic. Of course, if gas prices fall, the opposite is true and the less attractive the Civic becomes.

Now, how high would gas prices have to go in order to fund the entire Honda Civic payment with the difference in fuel cost? Since we know that the Honda payment is going to be $306.49 per month and we know how many gallons of gas we consume each month, we can set up an equation to solve for the gas price:

(# Gallons T × PPG) – (# Gallons C × PPG) = $306.49

Where:

T = Truck
C = Civic
PPG = Price Per Gallon

(73.5 × PPG) – (32.9 × PPG) = $306.49

Setting it up algebraically, the equation becomes:

73.5PPG – 32.9PPG = $306.49

73.5PPG – 32.9PPG = $306.49

40.6PPG = $306.49

PPG = $306.49 ÷ 40.6

PPG = $7.55

At $7.55 per gallon, you would be spending $554.60 per month on gas for the truck, while gas for the Civic would cost $248.11 per month for a difference of $306.49, which is equal to the Honda payment (all else being equal).

Like I said earlier, this does not take into account the environmental side of the equation which is hard to quantify. It also compares a Honda Civic with a full-size truck. There’s lots of people who drive trucks because they have to and a Civic just wouldn’t work for them. Still, there will always be people who will make the switch to a more fuel efficient car if gas prices get high enough.

My first impression of Gen Y after reading Attracting the Twentysomething Worker in Fortune, is that they are bit pompous and arrogant. Now I realize that not all Gen Yers are like this. That’s just the impression I got from reading the article. In fact, the cover of this particular issue of Fortune has a picture of a guy and a girl and the caption:

“Manage” US? PUH-LEEZE…

One thing that really stood out to me was the story about Joshua Butler, an audit associate with KPMG:

With his broad networker’s smile, stiff white collar, and polished onyx cuff links, Joshua Butler has the accouterments of an accountant. Even so, he looks a little out of place in a KPMG conference room. At 22, he’s 6-foot-2 and 230 pounds, with a body made for gladiator movies. A native of suburban Washington, D.C., Butler chose accounting after graduating from Howard University because he wanted “transferable skills.”

At KPMG he’s getting them – and more: The firm has let him arrange his schedule to train for a bodybuilding competition, and he’s on its tennis team. Even before that, KPMG got his attention when it agreed to move him to New York, his chosen city. “It made me say, ‘You know what? This firm has shown a commitment to me. Let me in turn show some commitment to the firm.'” He pauses, a twinkle in his eye. “So this is a merger, if you will – Josh and KPMG.”

It’s the last line that really gets to me: “So this is a merger, if you will – Josh and KPMG.” Nothing arrogant about that!

Finally, the other thing I thought was funny was the article mentions Jason Ryan Dorsey, who wrote the book Graduate to Your Perfect Job even though he dropped out of college to write the book and didn’t have a job! That would be like me writing a book on how to manage a restaurant even though I have never managed a restaurant.

All that said, it isn’t my aim to make fun of a generation. Each generation has their strong points. I just don’t understand why companies are bending over backwards to treat these kids like royalty (read the article and you’ll see what I mean). If they (Generation Y) get hungry enough, they’ll work.

There’s a pattern here, folks. Robert Kiyosaki is proving over and over again that he’s not worthy of writing for Yahoo! Finance. Not too long ago, I profiled one of his silly articles in a post titled Let’s Read Some of Robert Kiyosaki’s Drivel. This time it’s Samerwriter’s turn. Check out Kiyosaki – What a Joke.

Enough said.

Here’s an interesting comment from last week’s post How Much Does it Cost to Drive ONE Mile?

Kevin says:

The emotion of Gas pricing is funny. Lets compare it to other liquids.

$1.50 plus deposit for one liter of soda. Or a $1.25 for 16oz. of you buy out of a vending machine. Thats roughly half the price of gallon of gas for sugar water. Where’s the outrage?

A gallon of water at the grocery store. I’ve never paid for it but I would guess at least $2.

Don’t even get me started on alcohol prices in a metropolitan bar.

All these products don’t have to be shipped across oceans, refined, distributed. Now I am not saying that the pricing of gas isn’t going a little crazy based on oil companies profits. I am just saying its interesting to think about what people will get outraged about.

My Response

Kevin,

Although what you say is true, you’re missing one important point:

NONE of the things you mentioned are necessities. Gas, on the other hand, is. There’s a big difference. If I don’t want to pay $4.00 for a cup of Starbucks, then I don’t pay it. I can buy cheaper coffee beans at the grocery store and make my own coffee for 1/4 the price (or less) of a cup of Starbucks.

For the most part, I don’t have that option with gas. Sure, I could drive less or buy a more fuel-efficient car. But what if I’m already driving as little as possible? What if I already have a fuel-efficient car? As of right now, there’s not a lot we can do until the following happens:

1. We find alternative fuels to help lower the demand for gasoline.

2. Build more refineries to alleviate supply issues.

3. Build better fuel-efficient cars.

The bottom line is that we should all expect for fuel to take a much larger percentage of our budgets than it has in the past. I don’t like it, but what can we do about it?