Sunday, June 03, 2007

Advice for saving money

Damon Darlin has another NYT article on "advice to the young". I'm not convinced it makes complete sense. I don't feel we can make reasonable predictions about the world forty years from now, and we know from "happiness studies" that adults rarely regret youthful follies -- they more often regret the chances not take.

It may be the best advice is a middle-road between "party like there's no tomorrow" and "save for your wheelchair lift". My favorite money rule is the "rule of three": Don't buy anything you don't want three times. Spending money is defensible, spending money on stuff you don't need or enjoy is depressing.

Given those caveats, here are some of the more interesting parts of Damon's list (my inline comments):
More Advice Graduates Don’t Want to Hear - New York Times (Damon Darlin)

¶Never pay a real estate agent a 6 percent commission. [jf: The day of the Realtor may, at very long last, be passing. Watch out though, there are other modern equivalents arising in other industries. In general, watch out for the hand in the middle with a conflict of interests.]

¶Buy used things, except maybe used tires. [jf: Amazon is an amazing source for used books and CDs. eBay is a disaster, avoid it at all costs.]

¶Get on the do-not-call list and other do-not-solicit lists so you can’t be tempted. [jf: Never, EVER, donate anything over the phone. Never. You are placing yourself on the "gullible mark" list for a vast industry. If you like the cause, tell them to mail you or request a URL to research.]

¶Watch infomercials for their entertainment value only. [jf: Why are you watching commercial television?!]

¶Know what your credit reports say, but don’t pay for that knowledge: go to to get them.

¶Consolidate your cable, phone and Internet service to get the best deal. [jf: Be very careful. Once you're locked-in you are prey. Do this only if you can figure out how to switch out, including losing your phone number, email address, etc.]

¶Resist the lunacy of buying premium products like $2,000-a-pound chocolates. [jf: duh]

Lose weight. Carrying extra pounds costs tens of thousands of dollars over a lifetime. [jf: Humans have a very limited ability to control their adult weight. However, see my comments on smoking, below.]

¶Do not use your home as a piggy bank if home prices are flat or going down or if interest rates are rising. [jf: If you could anticipate housing and interest rates you wouldn't need to save money.]

¶Enroll in a 401(k) at work immediately. [jf: Reasonable if there's a good employer match and for most incomes. There's a counter-argument that future tax rates will be so high that 401Ks will turn out to be money-losers. Nobody knows of course, and in any case there will be consumption taxes too.]

¶Postpone buying high-tech products like PCs, digital cameras and high-definition TVs for as long as possible. And then buy after the selling season or buy older technology just as a new technology comes along. [jf: Generally agree, but there are gotchas. I've gone back and forth on this. I think when you consider "cost of ownership" you're probably best to buy a reliable (if you can find one) model of a well established product then keep it for many years.]

¶And, I’m sorry, I’m really serious about this last one: make your own coffee. [jf: Buy the coffee, make your own lunch.]
There's one funny omission. I hope it's accidental, if she reads this she'll kick herself.

Don't smoke. Ok, maybe that's in the same category as "don't smoke crack cocaine" but it's very odd that it didn't make the list. College kids are notorious for smoking, and many won't be able to quit.

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