Carnivals

This week I was an editor’s pick at The Canadian Finance Blog who hosted Carnival of Pecuniary Delights #22 – UFC Edition

Modern Graham hosted Festival of Stocks #156

The Canadian Finance Blog also hosted Festival of Frugality #193 – G.I. Joe Edition

Automatic Finances hosted Money Hacks Carnival #80

Stretchy Dollar hosted Carnival of Personal Finance - History of College Football Edition

Around the Blogosphere

Thicken My Wallet points out that you need more then just a will to settle your estate.

The Canadian Finance Blog looked at where to find other sources of income.

Money Energy asks if this is a good time for Canadians to invest in UK dividend stocks

Dividends Value reminds us to never fall in love with a stock.

Financial Highway covers 11 dumb ways to get into debt.

Million Dollar Journey talks about converting your principal residence to a rental property.

-mfd-

Related posts:

1. A Week in Review: Edition #13 - My Money Tree Is Back
2. A Week in Review: Edition #7
3. A Week in Review: Edition #6

Things to consider

• Cost of the item - Generally speaking the original cost shouldn’t have that much of an impact on your decision to buy an extended warranty but I decided to list it first because it is important emotionally. If you’ve gone out of the way and purchased a high end item the last thing you want is it breaking right after the standard warranty runs out. This can definitely be a stressful and frustrating experience that seems to increase as your original purchase price increases.
• Servicing Your Needs - When you made the decision to purchase this item one of the things you should have done was decide what your needs where and how this item will meet those needs. Well in order to get an extended warranty you should understand how this item will continue to meet those needs and for how long. This may require a deeper look at the industry and determining what major technology shifts are on the horizon. This will help you decide how long you’ll be satisfied with the item and therefore the length of warranty required.
• Repairability - This is a real “black box” for people. Before making any purchase you should always do research at what it costs to repair an item. You will need to know cost of the components, cost of the labor and difficulty of repairing items. An example that I use all the time is PC vs Laptop. PC’s easily come apart and components are relatively cheap. Laptops on the other hand are small, difficult to take apart and the components can get expensive.
• Cost To Replace - If the item retains its value then your the necessity for a warranty becomes greater.  Or if you purchased a higher end item then it stands to reason that you will probably replace it with an item of equal cost. In eihter case it will cost you a pretty penny to get a brand new one so a warranty is a good mechanism to protect yourself from an unplanned purchase.
• Cost Of The Warranty - There is no single answer for this. This value will change based on the various criteria outline above. Obviously the cheaper the better.

An example

I recently went through this process and decided to purchase the extended 3 year warranty on my 42″ Sony XBR 5 TV. Here’s I how I came to the decision:

• Cost of the item: The TV cost us $2600, which is no small amount especially since you could get a similar sized LCD at the time for $900.  I have a hard time dealing with a product that turns out to be a lemon and get easily frustrated when it happens. I needed peace of mind with such an expensive purchase.
• Servicing Your Needs - This TV has all the bells and whistles at the time of purchase. It had the latest refresh rate and a one of the best contrast ratios. Now there are TVs with better options but what I have right now is good enough. I’m not enough of a videophile that I’ll notice minor technology advancements. Not to mention when the warranty runs out in 3 years we will most likely be moving out of our condo and into a home. When that happens we’ll probably be purchasing a second TV with the latest upgrades so I need the current TV to last until then.
• Repairabilty - LCDs are very compact in the back and are difficult to repair. Usually even if something small breaks it will require the replacement of a much larger component to fix it. My father in-law has exactly the same TV and had to get it repaired. If he didn’t have the warranty it would have cost him $1800 which is a staggering amount when you take into consideration the cost of a new TV.
• Cost to Replace - If this TV broke to the point where it wasn’t worth it to repair then I would probably go out and spend another $2600 on a similar caliber TV. I’ve had crappy TVs in the past where the different shades of black all look the same and you can’t make out anything in a dark scene. I’ve been there and done that so I’d definitely spend the money on a good TV.
• Cost Of The Warranty - The extended warranty cost $350 for 3 years. That is a mere 14% of the total cost of the TV. Considering everything above I felt this was a worth while premium to pay for the piece of mind.  Had the warranty cost more then that I probably wouldn’t have gotten it but I felt the price was reasonable.

Conclusion

There are a lot of warranties out there that are big rip offs and aren’t worth a second thought.  However just blindly turning them down is careless as well. Hear out what the warranty covers and what it costs. Consider the criteria above and you may find its worth the extra bit of cash to protect investment.

Have you ever bought an extended warranty  and why?  Do you blindly turn down the extended warranty options ?

-mfd-

Related posts:

1. A week in review: Edition #14

In addition we were looking into buying out our lease at the end of the term in 6 months. However as in all things in life it quite isn’t going to work out that way and we are now looking to purchase a new vehicle. This means a big down payment and several years of financing. A car is an albatross especially when you are leasing.  September is definitely going to be a bad month for our net worth.

Savings: We currently maintain $4500 in our personal checking accounts so we don’t have to pay any banking fees. The rest in our accounts is being set aside for an emergency fund which we hope will reach $30k.

Mortgage: There is debate on how one should include their home in their net worth. Some people try and track the present value of their mortgage and others prefer to use their purchase price and leave it at that. I’m in the latter camp. I feel tracking the value of your home on a month to month basis isn’t worth while. We have no intention of selling since we need a place to live and it takes away from true net worth growth of saving and investing properly.

Line of Credit: This is a line of credit that I took out to invest in the market. This will remain the same as I will continue to only pay the interest since I’m claiming it on my taxes. I will eventually pay down the loan I just haven’t decided on when.

Vehicle: We are currently leasing our vehicle. This is preexisting to my fiance and I meeting. Our intention is to ultimately purchase the car once the lease expires. Unfortunately it looks like when all the added items tallied up the final price came out to a lot more then what we are willing to pay. We are looking to purchase a new vehicle now. We won’t be tracking its value as it is a depreciating asset and serves no purpose in helping us achieve our goals. It’s benefit comes in the way of us running this car for as long as possible allowing us to save and invest more.

Related posts:

1. Net Worth Update - January 2009
2. Net Worth Update - May 2009
3. Net Worth Update - March 2009

1. Say no to binders:  Don’t get your child those big binders since duotangs are often provided. As well teachers prefer to keep the subjects separate rather then have everything in one.
2. Label clothes: Label your child’s shoes, hats, mits, and jackets as they tend to get mixed up and lost. They’ll eventually end up in a lost and found bin and it will make it much easier for you to identify the items.
3. Seasonal discount clothing: Buy their new back to school clothing at the end of September.The weather will be warm enough for them to use their summer clothes while you wait for the fall/winter clothing to go on sale.
4. Meal programs: Look into utilizing school breakfast and lunch programs as they can provide healthy meals in a cost effective manner.
5. After school sports: Speak to teachers and administrators about what athletic activities are being offered or what you would like your children to take part in. You can get the school to start up activities if there is enough interest.
6. Reusable water bottles:  Purchase a reusable water bottle instead of a disposable ones as the disposable ones tend to sit there all day and get thrown out at the end of the day by the teacher.
7. Homework clubs: Look into after school home work clubs to help avoid expensive tutoring costs.
8. Fund Raisers: Keep an eye on school fund raisers as you can purchase items and even Christmas gifts while supporting your child’s school. A prime example are magazine subscriptions offered by QSP which has something for everyone. P.S. if your child’s school doesn’t have a fundraiser then look into starting one!
9. The school library: Rather then purchasing books have your child look at the school library. If they don’t have a novel that your child is interested then discuss it with the librarian as they are responsible with keeping the library stocked with the latest age appropriate books.

What school saving tips do you have? Any teachers out there have some money saving tips for parents ?

-mfd-

Related posts:

1. 11 Money Saving Renovation Tips

Carnivals

I was an editor’s pick over at Modern Tightwad who hosted Money Hacks Carnival #79 - Hack The Planet Edition

Bugets are Sexy hosts Carnival of Personal Finance #218 - “Chuck Norris” Edition

Your Money Relationship hosted Carnival of Personal Finance #219 - Little League Edition

Paycheck Chronicles hosts Carnival of Pecuniary Delights, Edition 21

Around the Blogosphere

Suburban Dollar helps people understand debt

Debt Free adventure looks at a cheap alertnative to a compost bin

Canadian Finance Blog looks at the risks associated with leverage investing

Financial Highway looks at the power of compounding interest

Thicken My Wallet points that it should look at more then some simple credentials when choosing a financial advisor

Canadian Capitalist looks at why you should us median family income statistics instead of average family income.

Million Dollar Journey discusses the problems with reward points.

-mfd-

Related posts:

1. A week in review: Edition #14
2. A Week in Review: Edition #6
3. A Week in Review: Edition #10

• If I would have sold sooner I wouldn’t be down so much - If you find yourself saying this then most likely you’ll be timid and anxious in future investments. You’ll be prone to jumping out of stocks at the first sign of trouble and missing the eventual rebound.
• If I hadn’t sold I would have made even more money - Prior to making any investment you should understand what your goals are and have a plan. If you find yourself saying this it may distract you from your plan and keep you from exiting when you  should. This leads to impulsive investment decisions.
• If I would have bought that stock last month I would have made a ton of money - Watching stocks rise quickly is always hard especially when you are sitting on cash. If you find yourself saying this you could eventually be leaping into a rising stock before its set to come crashing to earth again. You just need accept that you’ve missed the opportunity and keep your composure.
• If I had more money I would have made made even more - You’ve made some money investing and now you are feeling good. You begin to think of all the lost opportunity had to invested more. You get over confident and decide you’ll buy on leverage or margin in order to amplify your returns. However at this point you’ve taken on far too much risk and sooner or later you’ll misstep and lose everything and owe a lot.

Conclusion

Never look to the past when investing for the future. Understand (see my article on my rule #1 to investing) what you expect from a particular investment (this should include more then just the future stock price)  and the consequences involved that way you can probably deal with all the risks involved.  Once you’ve done that act with conviction, stick to your plan and never look back.

Do you have any personal stories of how hindsight caused you to make bad investment decisions?

-mfd-

Related posts:

1. My Investment Rules: Rule #1 - Understand What You Invest In No Matter What!
2. My Favorite Lesson From The Market Crash
3. Account Type vs Investment Type

Whats the beef ?

Unemployment Insurance is a social program established in order to help people who have lost their job and not a means to fund an extended vacation. Now like any other social program it is open for abuse and that abuse is built into the system. However this thought of being funemployed is a new breed of abuse. It is one that can put substantial strain on unemployment insurance program.

Whats different about funemployment?

Here you have well educated people who have the job skills to find new work but decide not to. It seems as though its become socially accepted and even trendy to fleece the system in this way. When things become trendy they have a tendency to pick up steam and the system will not be able to handle such a large influx of people. This is just another example of a new generation carrying around a sense of entitlement. They don’t seem to realize because something is there that doesn’t me you should take it.

If this kind of attitude continues it will be the end of a lot of social programs and a lot of people will suffer. It’s sad to say but it appears that in order for society to fix itself it may have to venture back into the dark ages in order to spur on a new era of enlightenment.

Do you think having this sort of action become socially acceptable will have on impact on the future?

-mfd-

Related posts:

1. Be Funemployed - Could You Do It?

Whats a price war?

Companies in an attempt to increase market share decrease prices to get customers into the store. This sounds simple enough until the competitors catch wind and decide to lower their prices.  This leads to further prices cuts until in spirals downwards into a price war.

What happens to companies in prices wars?

Unfortunately as companies lower their prices, their margins profit get squeezed. This causes the companies revenue to shrink. Now they usually hope to make up this difference in revenue by increasing their market share and therefore increase the amount of merchandise they sell. However increasing market share becomes difficult as competitors also lower their prices. The price cuts could continue until neither company is generating revenue and are actually losing money which forces them to tap cash reserves. Once companies get to this point they have  a few options:

1. Raise prices again - This may seem a simple enough solution but you can end up with a lower market share then what you started with. Customers enjoy price decreases but major price increases can end up being a real shocker. The company not only will lose the new customers they’ve gotten but some existing ones that were initially loyal to the company’s brand.
2. Cut costs - Cost cutting is a popular choice in a price war. Companies can start by cutting dividends which won’t make investors happy at all. Then they’ll cut costs in store. They can cut back on staff, product circulation, and free perks.  These sort of cutbacks ruin the experience for customers who are loyal to company’s brand and can have them seeking alternative places to shop.

Aftermath of the price war

If the company wins the price war they will most likely be weak from low revenue and low cash reserves. Even with a larger market share they could be at risk of failing. It may be a long while before investors see the gains of the past. Investors could also be dealt another blow if the company sees fit to raise more capital by issuing new stock.

If the company losses the price war then not only will they have low cash reserves but have also lost market share. The company will most likely have damaged its brand in the process. They’ll have to raise cash  in order to stay afloat. Even then they may end up dieing a slow death until they eventually go bankrupt or are bought out by a competitor. Now this isn’t to say that the company can’t recover but it could be a slow process with many years of poor performance.

Conclusion

Prices wars can be long and drawn out ordeal with investors caught in the middle. Now if you think that the company you are invested in is strong enough to win the price war and rise up after the dust has settled then you can be in store for a profitable future.  However this sort of gamble can be as risky as betting on a horse race.

How do you view investments that are in the midst of a price war? Are they still good investments?

-mfd-

Related posts:

1. Understanding Same Store Sales
2. My Investment Rules: Rule #1 - Understand What You Invest In No Matter What!

What are same store sales?

Same store sales is a look  at the sales of stores opened for a year or more.

Why is the same store sales figure important?

Revenue growth is an indication that a company is increasing its market share and growing. However looking at revenue alone can be misleading as an indication of growth. Companies can increase  revenue by expanding and opening more retail shops. This sort of expansion is good but unsustainable and also more expensive. Healthy companies should also be showing revenue growth in existing stores. This is where same store sales figures come in. It removes any new stores and looks to compare the revenue from the previous year with the same amount of stores in the current year.

An example

In 2009 Widgets Co. had 10 outlets and revenue of $100 million.  Now in 2010 they’ve expanded to 20 stores and increased revenue to $200 million. It’s great that revenue has doubled but so has the amount of stores. However if you don’t weed out the new stores from the revenue stream (which is what same store sales does) technically speaking sales per store would remain flat at $10 million per store. It’s conceivable that Widgets Co. could continue to expand to the point where they have a retail shop on every block in north America. If this were the case then the only growth they could achieve would be same store sales growth.This is what makes same store sales an important figure.

Do you agree or disagree about the importance of same store sales figures?

-mfd-

Related posts:

1. Price Wars: A Good Investment ?
2. Understanding Currency Hedging

Finding New Employment

When you first make the decision to be funemployed rather than looking for a new work the job landscape may be completely different. The recession  could continue to get worse and unemployment could have risen substantially.   Now here you are, after a year of fun you have no savings, no unemployment benefits left and an ultra competitive job market with you being at the bottom of the barrel. You could quickly come to regret that year of fun.

Lack Of Security

Just as quickly as you found yourself unemployed other aspects of your life may change just as quickly. On paper being funemployed will seem to work out great but unfortunately life isn’t always like that. There could be illness, an accident or some other life altering event waiting for you. Having a job could provide security and stability during those trying times.

Plans Delayed

Most people have plans like early retirement, having children or buying their first home. The concept of being funemployed is great but you need to live with the fact that these plans will have to be put on hold. This especially becomes an issue if you blow through most if not all of your savings. You’ll be pretty much starting over.

Work Provides Structure

For better or for worse work provides you a certain amount of structure. This structure gets people up and going.   With no structure you could find yourself going to  be at all hours of the night and waking up just in time to catch the sunset. In this situation life can become a blur and that is an unhealthy state of being.

Conclusion

Funemployed is a great concept but has to be implemented uniquely to each person’s own situation. Just be prepared for what may lie ahead of you when the fun is over.

Could you ever be funemployed? Do you think its worth putting all of your plans on hold ?

-mfd-

Related posts:

1. Funemployed - The End Of Society?