The one person responsible for your financial decisions

There is no shortage of personal finance advice available. I’ve been known to produce a bit myself here and there.

There are recurring themes like “buy vs. rent,” “spend less than you earn,” “the magic of compounding,” and so forth which are the cornerstones of personal finance, saving, and retirement planning. They’re cornerstones because there’s a lot of wisdom behind them.

Checklists and more checklists

I ran across Richmond Savers today, which is run by a couple of CPAs in my part of the country.  The community is local to Virginia’s capital, but they have a list of financial guidelines that they try to live by every day.

If you’ve read lists like these before, the themes are very familiar.  They’re the important financial issues that most of us deal with at one point or another: credit and debt, big expenses like automobiles and houses, health and wellness, and investing.

The points they list pass the reasonableness test.  None of them are that off-the-wall.  Lists like these are rarely off-the-wall.

What “reasonable” and “not off-the-wall” are not

Some of the items get pretty specific.  Here is a flavor (check out the website for the rest):

  • “Do not buy a house if you’re planning on moving within 5 or even 10 years….”
  • “Make regular contributions (we suggest twice a month to coincide with your paycheck) to your investing accounts….”
  • “Always automate as much of your financial life as possible, including your contributions to savings and all your bills….”

Are these and the other few dozen points reasonable?  Of course they are.  To the first point: There are a number of reasons why buying and quickly selling a house costs a lot of money.  To the second:  By making regular contributions you can reduce the effects of market timing.  To the third:  You’re less apt to miss a payment if it’s done automatically.

Reasonable advice, though, is not universal advice.  We moved from our first house in less than ten years, but we kept it, and rented it out.  It’s less than four years from being completely paid off now.  Making regular contributions to an investment account, or automating your finances, puts things on auto-pilot, but auto-pilot may not work for you, because it allows you to become complacent and forget about those monthly withdrawals.

It’s still up to you to determine what to do!

Every website that gives this kind of advice should have a disclaimer.  Richmond Savers does (at the bottom of the pages) and this site does on the sidebar.

Website owners put disclaimers to protect them from liability in the case that someone follows their advice, and bad things happen as a result.  Richmond Savers can say “[b]uy a reliable car, such as a Honda or Toyota, and drive it for 200,000 miles[,]” but if you stretch to get that car (which run a bit more expensive than some others) or if you pour a lot of money to keep the car running 200,000 miles, and fall into financial hardship as a result, then perhaps it wasn’t the best idea to follow that advice.

In fact, even if you pay someone for this kind of advice, it’s still up to you whether you follow it or not!  Setting aside that there may be criminal intent, advice is still just that: advice.  Not a command, not a sure thing:  just advice.

There’s always context.  No one knows that context better than you do.  Which is good, because you are the one responsible for your financial decisions.  As Tim McCarthy went into great detail in his book The Safe Investor, not only do you need to look at your own goals, but you also need to verify what your paid advisers are telling you.  Extending this to the free advice you get from this blog and everywhere else, it’s up to you to verify the sources and cast the advice in the context of your situation.

Buy wholesale with a personal supplier network

Economies of scale are a wonderful thing.  The more you’re willing to buy from a particular vendor, the better the unit price they’re inclined to give you.  Selling a thousand items a hundred times is a lot more work than selling fifty thousand items twice.  It’s less bookkeeping, less tracking, less shipping, and less labor to sell bigger chunks of your inventory at once.

Likewise, businesses buy the materials for their operations in bulk all the time.  It’s part of being competitive, and profitable.  Lower expenses mean that businesses can price more competitively, which translates to higher volume, and more profits.

Team up with your business-owning friends to get bargains

Local economies have a good mix of variety and personal relationship.  In a mid-sized community there is a spectrum of business owners that serve a good number of customers.  But the scale is not so big that it’s impersonal.  Small business owners are friends with non-business owners, go to church together, have their kids on the swim team together, etc.

Your friendships with small business owners can be used (ethically) to tap into certain economies of scale, which effectively allows you to buy wholesale with the price, but not the quantity.  Here are a couple of examples:

  • End-of-season Italian ice.  There was an Italian ice shop that was in business during our engagement and during the first few years we were married.  (The owner’s wife made our wedding cake.)  We spent quite a bit of money there, for sure.  One of the last years he was in business, near the end of the season, we asked him if he would sell one of the containers to us for the winter.  (It was near addiction-level at the time :) .) He sold a large container to us pretty much at cost.
  • High-quality munchies.  A friend of ours has a niche food business.  He buys some of his food supplies by the pallet.  On a whim, I asked him if he’d consider selling some of the raw supplies to us; one in particular we consume quite a bit of, and the quality of what we have isn’t the best.  I knew that he bought supplies that were high-enough quality that we’d have to go to a specialty food store.  The price he quoted me was about half of what a comparable product would cost from Walmart.com, and was cheaper than the “meh” grade we get now.

How to be a welcome side-customer

These were great bargains.  We bought in quantity, but we didn’t buy so much that it would go bad before we got through it.

Still, I do think there are ground rules to trying this out on your business-owning friends.  Follow these guidelines and you’ll be welcomed back for more:

  • Don’t use the material to compete against them.  Hopefully this would go without saying, but using the good deal you just got to compete against them in their market would be a really good way to ruin a friendship.
  • Don’t try to get the main service they offer at a steep discount.  It might appear that we kinda-sorta did that with the Italian ice guy mentioned earlier, but not really.  Yes, Italian ice was his main business, but he wasn’t going to sell us anything off-season anyway.  We asked him at the end of the season.  We didn’t consider asking him in the middle of the summer.  As for our friend with the niche food business, we’re not even trying to learn how to do what he does.
  • Treat the deal discreetly.  The two deals I mentioned above don’t create a problem for the people who gave them to me.  The first guy is no longer in business, and I was vague on purpose in talking about what I bought from the second.  If you tell people about the deal, your friend will get pinged for the same deal, and then you’ve created a problem for them.  (They’ll probably know it was you who blabbed.)  They may want to offer the deal to other people, but that should be their business decision, not one that’s foisted upon them.
  • Make sure it’s win-win.  We got great deals, and we didn’t argue the price down any further.  If the deal become too one-sided, the business owner may do it as a favor once because of the friendship, but if it’s inconvenient, or a financial loss, they’re not going to want to do it again.  (If my friend did sell his stuff at a loss, I’ll make sure he doesn’t do it again!  But I doubt it. :) )

Have you gotten wholesale prices from your business-owning friends on some of these side deals?

Frugal, or cheap, or tacky?

Saving money, and spending less money, are two crucial activities for people looking to take, and maintain, control of their personal finances. And, as with most things, there are classy ways to go about it, and … less classy ways.

On the spectrum of ways to spend less money openly, one can be (in order of decreasing classiness) frugal, cheap, or tacky. Merriam-Webster defines each in context:

  • frugal – Characterized by or reflecting economy in the use of resources.
  • cheap – Stingy; sparing or scant in using, giving, or spending.
  • tacky – Characterized by lack of good breeding.

Frugality is typically a virtue. It’s off the beaten path, and a little unpopular, but still a virtue. Cheapness is Ebenezer Scrooge, or the guy that puts in a quarter when people at the office are collecting for a retirement gift. Tackiness will result in you being asked to leave, and never come back.

“Weird Al” Yankovic parodied Pharrell’s contagiously catchy song “Happy” with an ode to tastelessness, “Tacky.”  There are a few money lines peppered in this song. Do they all fall under the description of “tacky?” Let’s see:

  • (0:21) “We can go to see a show but I’ll make you pay.” A friend of mine had bought some extra tickets to see Itzhak Perlman, and he reached out to his musician friends for takers. The tickets were $62/pop. (This is Itzhak Perlman, after all!) Initially we refused, because we really couldn’t see spending $124 as a couple to see him. Well, the day before the concert arrived, and he still had no takers for two of the tickets, and offered to give us one. (The other he had given to another friend.) I still ended up paying him for the ticket, because we could afford one. Though I don’t think it would have been tacky to not pay, it certainly would have been cheap.
  • (2:08) “Bring along my coupon book whenever I’m on a date.” I don’t see this as being either tacky, or cheap. It’s frugal. Besides, if you’re single, frugal, and are looking for a frugal mate, a good acid test of whether or not they’re like-minded is whether or not they bristle when you pull out the coupon book. If they whip out their own coupon book when you do — well, that’s true love right there! :)
  • (2:21) “Took the whole bowl of restaurant mints. Hey, it said: ‘They’re free.'”  Some time ago, I went with someone to pick up pizzas.  As we were waiting to get the pizzas, he took a lot of napkins — far more than we actually would have used even with four adults and a bunch of kids — saying, “They’re free.”  This is tacky.  It’s a fine line between tacky and not tacky, but this person crossed the line.  Why?  It’s the difference between using supplies at a business (napkins, salt and pepper, toilet paper, or mints) and overusing or stealing them.  If everybody took 70 napkins, either prices would go up, or the businessperson would ration the napkins.  What might happen too is that the businessperson would call the person out.  Or, subsequent orders may be “unintentionally” screwed up.  “Sorry about that, sir.  You probably want to take your business elsewhere, I suppose …”

Where do you draw the line between frugal, cheap, and just plain tacky?