A recurring topic on this blog will be ways to cut recurring costs. It is a basic, fundamental skill that is required to free up more cash flow. One of my favorite and simplest ideas is to replace your incandescent lights with LED. I did this back in 2014 in my old house, and was able to save $500 plus a year in electricity costs. $500 per year is not a ton of money, but it is a start. What is important is the mindset of cost avoidance, and applying this mindset elsewhere such you can achieve thousands per year in savings.
The first thing you have to do is determine your electricity cost per kwh. To do this simply look at your electric bill and find the total charges for electric service. Note that the total charge includes a “customer charge” and sales tax. I recommend using the all in cost which includes these items because that is amount that will be leaving your checking account!
After finding the total cost, look for the total kwh used during the same time period. For this example it is 1165 kwh
Now simply divide the total cost by the usage. $166.46/1165 kwh = 14.3 cents per kwh. Next, we need to estimate the total amount of cost that comes from lighting. You can do that with either a “top down” or “bottom up” approach. Both require some estimation:
Top down: Multiply an average for lighting by your total electricity cost. For arguments sake we will use 15%, but some estimate 20% or more: https://www.electricchoice.com/blog/50-surprising-facts-on-energy-consumption/. Therefore 0.15*$166.46 = $24.97. If you replaced all of your lights with LED which use 85% less electricity on average, then you would save approximately $21.25 in this particular month.
Bottom up : Count the number of light fixtures in your house, with focus on the heavy traffic areas where lights are left on most of the day, let’s say 12 hours on average. We will assume 10 60W bulbs in this case, so 10*60W*12 hours = 7200 watt hours per day. Divide by 1000 to get 7.2 kwh per day, and multiply by 30 to get 216 kwh per month. 85% of 216 equals 183.6. multiply that by 14.3 cents per kwh to get $26.25 in savings.
In either estimation method, you can see how one can easily save several hundred dollars per year in electricity costs. Given the cost of LED lights has come down in recent years, as low as a few dollars a bulb, one could justify the relatively small investment.
I took my family to see a baseball game last night, something I love to do and an experience that I want my kids to enjoy as well. It is a great way to spend a few hours while keeping the kids away from the TV and/or electronics. The cost to go to a game, however, has increased to a point such that it is out of reach for many families. For last night’s game, in which we had relatively low cost tickets, the cost exceeded $200. Here is a breakdown.
To start with, look how the actual cost of tickets, $115.60, are actually 45% higher than the base ticket price of $80!! You have a processing fee of $3.60, a service fee of $5 per ticket or $20, sales tax of $2.40, and the cherry on top; a $9.60 amusement tax charged by the City. Note the amusement tax is 9% of total charges paid, meaning a tax on top of service charges and sales tax as well!! The mitigation is that you could buy tickets at the ballpark rather than online, which would save you the order processing fee and service fee, or $23.60. Of course you run the risk of getting worse seats. Parking was $20, which is the cash price we paid at the gate. We could have purchased beforehand online but an additional processing fee would have applied.
The other big “bucket” of cost is food and drink. This bucket added up to about $70, of which $33 was attributed to alcohol for my wife and I. The obvious thing to cut out is alcohol or beers, however having 3 beers among 2 adults over 3 hours is certainly not splurging. If you have young kids, beer is almost a necessity :). One thing we forgot to do was bring a water bottle, which ended up costing us $6.25 for a water (really?). We also could have packed some food for the kids which would have perhaps saved us on the pretzels.
The moral of the story is that ballgames are expensive, even when buying cheap tickets. You can trim some of the cost, but in the end you usually end up going to less games per year to keep things within budget.
I started investing in Real Estate back in the good ole days of 1997 when I bought a loft in the south loop of Chicago. Little did I know we would be entering a 20 plus year (and still going) bubble and bust roller coaster. In retrospect it makes sense given the financialization of the economy that went into overdrive in 1999 when retail and investment banks no longer had to be separated. That of course is only part of the story.
The short story is the Fed proceeded to lower interest rates to record lows following the Nasdaq bubble burst and 9/11, raise them, lower them again even lower during and after the “Great Recession”, and then injected steroids into the economy with quantitative easing which has blown the biggest bond bubble in history.
By the end of 2018, approximately 11.3% of housing purchases in the US were for investment purposes (source: Core Logic). This is the highest since Core Logic starting tracking data in 1999. During this time, a flood of cable shows have popped up which showed people flipping houses and making tons of money along the way. It’s that easy, right? Wrong.
What is not glamorized is the people who bought at market highs in the 2005-2007 period, only to be left holding the bag as value of their real estate plummeted 30% or more. That event aside, the more troubling aspect is the mentality of “flipping” for a capital gain rather than holding for a cash flow. Of course this sentiment has spread to other parts of the “economy”, notably the stock market. With real estate, however, it is even more dangerous due to 1) leverage and 2) illiquidity. Leverage of course refers to making a small down payment (5-20%) and then borrowing the rest. Illiquidity means you can not buy and sell instantly. Even in the best case you have to wait a couple weeks to close.
So, here we are in 2019 and behavior has not changed. Not only with flipping either. Folks I know are buying houses and dumping in 50-100K or more before they even move in. That is great if you intend to live there for at least 5, 10 years or more. Usually though it is a striking example of poor money management and putting too many eggs in one basket. Alternatively, I have long been an advocate of generating cash flow by buying houses or 2-4 unit buildings and renting them. Why is this not sensationalized? Because it is more work and you do not get the “sugar high” of the quick capital gain by flipping.
Those who are familiar with wordpress know there is a whole universe of “plug-ins” that are available to enhance the functionality of your website. Last night I tried to install a plugin to make the comment area more versatile and interactive, including the ability to get a notification email if someone replies to your comment. Some quick beta testing showed that plugin to be ineffective for whatever reason, so I installed a new one today. You will see a new look to the comment section and additional functionality (hopefully lol).
For those of you who are with me here on the ground floor of this site, please add a comment or two on this post and let me know what you think. There should be a little bell that is highlighted by default and will allow notifications to you if someone responds. Thank you!
My sister posted on FB yesterday regarding a no HW policy implemented by her daughter’s 2nd grade teacher. Basically you only have homework if you can’t finish the days assignment while in class. I queried my 7 year old son walking home with him from school, and I was surprised to find out his teacher was implementing a similar policy. The only difference being that test prep material will be sent home before an exam, although it is not clear to me if this means every exam or just big, state mandated type tests.
Is this the new trend in schools? On the surface it sounds good as my son would have more time at home to hang with us and just do “kid stuff.” If I am playing devil’s advocate I wonder if this means that more time will be spent in class doing assignments rather than instruction by the teacher?
One of the reasons to blog these days is that we truly live in historic times. Political upheaval seems to occur weekly if not daily in some part of the world. Technology is advancing at a rate beyond our ability to comprehend. Social and cultural shocks are commonplace. I contend that all of this ultimately comes down to a scarcity of resources on the planet in which we live and how to allocate those resources as they dwindle while populations continue to grow. That is the subject of another post, or series of posts, so I digress.
The subject of this post is the extreme monetary measures that are being utilized in an attempt to address our problems, and why I think it will all end badly. You can see this in the amount of negative yielding sovereign debt that currently exists. As Zero Hedge mentions in the below link with reference to both a B of A research report and one of my favorite economists, Albert Edwards of SocGen, the average yield of all sovereign debt outside the US has dropped below zero for the first time ever
On top of this, the US share of global investment grade yields has climbed to 95%. Make no mistake about it folks, this is insane. Negative interest rates are a tax and a monetary black hole. One would also have to revisit the normal theory as to why the yield curve is currently flat or inverted recently. Is it that investors do not expect growth in the long term, or is it they have nowhere else to invest for yield aside from US sovereign paper?
Going back in history, printing money has always ended badly. War, food and supply shortages, governmental and societal collapse are things that come to mind. This time it is happening on a global scale.
This is an important topic that I would like to cover as I lay some ground rules for this blog. The term ‘Fake News” has been increasingly used over the last several years, notably during the last election cycle. Fake news can mean outright false information. It could also mean someone calling out a news outlet for providing misleading information without full context, and then spinning a certain narrative based on speculation. With the 24 hours news cycle it is even more acute as there are vastly different ideas on how to run this country in this time of great change.
Therefore most of what you hear these days are simply battling op-eds, with tribes of people that will follow their “side” or “team” regardless of factual content or logic. This is a true lack of critical thinking. For this blog, I will always lay out what I know to be the facts and let people decide. There will be times when people do not agree on the facts.
Fortunately the focus of this blog will be my own experiences and ideas on how people can improve their lives. It will be very difficult to completely avoid current events and news, however, as my ideas or plans may be influenced by the external environment. An example would be if the Fed started printing money again or a significant court ruling.
Lastly I always question a given narrative, especially those presented as “official.” Does that mean to not believe everything you hear? No, however you should always ask “why?” and then ask “why?” again and again until you get the root of the matter (the proverbial five whys). In other words “Trust but verify”.
Today is my older son’s second day of school, and I am just starting to reap the rewards of the extra time available. Don’t get me wrong, I love hanging out with him and enjoyed our summer immensely, but it is nice to have 6-8 hours to myself again.
I want to comment on the markets today, and more specifically yesterday and the drop we experienced in the equity market as it relates to the “inverted yield curve”. The yield curve is simply a curve showing several yields at various lengths of time for a similar debt instrument. It “normally” looks something like this:
Yesterday, however, the yield on 2 year treasury was higher than the yield on the 30 year. In other words the curve has “inverted”. What this means, generally, is that investors have low growth expectations for the future. The news outlets seem to attribute yesterday’s inversion to the 800 point drop on the Dow, however it is my contention that this was merely semantical as the curve has been “flattish” or nearly inverted for some time now. The Fed plays a huge part in this of course and where we are at now which I will explain in another post.
The point of this post is simply that the “bond market” has been screaming recession for a while now, and the equity market is just slower to react.