Hobbled by a Hobby?

This past Sunday I read an article in the Newark Star-Ledger describing the financial obstacles encountered by local motor sports enthusiasts. Most of the guys profiled came across as hardworking blue collar types who had a genuine love for racing. The article portrayed them in a sympathetic light, or at the very least, a non-critical light:

So how do racers fund their "professional hobby?" Pretty much any way they can.

Gregory Fisher, who lives in North Brunswick and volunteers on Herman's crew, is working to get his own car up and running. By day a software engineer for a telecommunications company in Piscataway, Fisher admits he is "50 Gs in the hole" just to buy his car, motor and transmission. That's not yet including a trailer to transport it or a golf cart to tow it around.

"You can see that it starts to add up really quickly when you get at that level of racing," Fisher said.

Fisher also borrowed against his own 401k to get the necessary money to support his driving habit, paying himself back with interest. It's a risky proposition even when the economy is stable, but Fisher said he's being careful.

"I knew how much money I could pay without jeopardizing my own future," he said.

I can' t blame a guy for following his passion, but is a hobby which forces you to live on cat food during retirement worth it? There's a reason why motor sports, equestrian sports, yachting, polo, etc. are the domain of the rich: they're expensive hobbies! A regular person can enjoy many hobbies such as biking, bird watching, photography, record collecting, etc. without emptying the 401(k). I would love to turn my car into a rally racer, but for me the thrill of winning an occasional race would not make up for the constant financial worry such an undertaking would cause. Prolific DVD, CD, or book buyers generally end up with nothing worse than a maxed out credit card or two. A biking enthusiast might blow a few grand on a bike worthy of the guy who rides interference for Lance, but that's a purchase made every few years. Trying to live out your Michael Schumacher fantasy when you can barely afford his watch is a ticket to disaster. It's important to live within your means and know that a hobby with a high barrier of entry and ongoing costs should remain a spectator sport.

Trashing Out in California

I was getting caught up on blog reading and I came across a video which puts a touch of reality on the foreclosure wave hitting California and other parts of the country. We've all heard the foreclosure stats, but the stats pale in comparison to a trash out crew removing a little girl's dolls and dresses. A child's life is disrupted and a grown-up's dreams are shattered. I feel bad for the folks who just dreamed of a decent place to live. I have no pity for the folks who dreamed of never-ending 20% appreciation and HELOC-fueled consumer binges.

Foreclosure Alley (SoCal Connected)

Coupon Olympics

Sadly, neither Halo nor coupon clipping are Olympic events.  During the Olympics I did visit the grocery store a few times, wearing a Rambo-esque bandolier full of coupons.  Instead of dispensing death to hapless soldiers of a Soviet or Chinese client state, I dispensed savings at every aisle.  After combining with sales and store discount cards I've saved about 15% off my grocery bill so far.  I could have done better however I've recently moved and with that comes a stock-up period where you just need to buy stuff whether on sale or not.   I anticipate hitting closer to 20% after things settle down a bit.

I've only been into coupons for a few weeks.  I know there are hyper-coupon-clippers out there who can get savings of 50% or greater off their grocery bills.  In a few weeks though, I've learned a few lessons which I'll gladly share at no cost:

1.  Moving has its perks: once you move, the local stores will bomb you with coupons.  Shop-Rite, a chain here in NJ and parts of neighboring states, sent me coupons which I found hard to believe: $5 off my order, $3 off the deli total, as well as others.  Here's hoping that I get special coupons every few months.

2.  The store discount cards will save money, even if it means Big Brother knows you like to buy Evian and are therefore more likely to choose Obama over that wily maverick McCain.  Store card savings made me forget the fears I had about stores collecting data about my shopping habits.

3.  While Rambo was loyal to the U, S, and A, a smart shopper is rarely loyal to any brand.  The old me would buy only Stonyfield Farm yogurt because I live in a Blue State.  The new me would buy Osama bin Yogurt if it was on sale and I had a coupon.

4.  Private label brands have come a long way.  I remember hating the chemical taste of Flavor King ice cream or watching Shop-Rite mayo emulsify right before my very eyes.  The store brand was an inferior item in a lot of cases.  Today's store brands are every bit as good as the name brand stuff since the same producer is making both items and slapping different labels on them.  There are some cases where the brand name item is worth the premium.  But for items which are commodities, such as butter, orange juice, or mayo, the store brands are a better value.

5.  I've noticed that certain items have coupons more than others: over the counter medicines, cleaning products, paper products, yogurts, batteries, etc.  Items in these categories should only be purchased with a coupon in hand or on sale if not both.

6.  Combine methods of attack to reap more savings: use a store discount card to get something that's already on sale.  Combine it with a coupon (which may be doubled!) to get even more savings.  

7.  Take advantage of sales and deals by maintaining a supply of frequently used items.   When the supply gets low, start looking for deals in order to avoid paying full price for an item that's needed immediately.  Maintaining raw material inventory may not make sense for the business world, with this "Just in Time" delivery fad, but for most people it makes sense to get some use out of the basement: why not store some bargains instead of that gently used Nordic Track from 1993?

I wish I had done more with coupons in my pre-townhouse days: I didn't feel like putting in the time, and I didn't think I had the storage in my apartment.  Do you have any coupon clipping strategies to share?  Feel free to post your ideas in the comments section, without fear of reprisal!

Photo by ronnieb - license by morguefile

The People Have Spoken

The verdict is in! Since only three readers cast their votes, I really have no excuse to further delay releasing the results. Two votes to pay, one vote to not pay. While this poll was a joke (as those of you who know me offline figured out in about a femtosecond), I'm glad I won't have to trash my credit rating just to prove a point. While I'd probably stay in my house for at least six months to a year before the system caught up to me, I'd prefer not to risk losing the roof over my head.

Thanks to all who voted!

To Pay, or Not to Pay?

My first mortgage payment is due on September 1st. Since the United States is now a full-fledged bailout nation, I've given some thought to not paying my mortgage and waiting for some government agency to save me. Why bother making mortgage payments when there are hardly consequences to not making them? Perhaps a New York Times reporter could profile me and write a sob story about my predicament.

I have mixed emotions about the housing bailout since it looks like I'll benefit from the $7500 tax credit for a home purchase. I'll have to pay back the credit over the next 15 years, but I'll take $7500 today for payback in cheaper future dollars at zero interest - I'm not 100% sure of the mechanics of the tax credit, but I believe I'll have $500 added to my annual federal tax bill until it's paid back.

Feel free to offer me advice through the poll!

Photo by Arjun Kartha, licensed by stock.xchng.

Sayonara, SUV?

Now that $4 gas is here, I'm amazed at the sheer desperation shown by owners of guzzlers such as SUVs, minivans, and big ol' American land yachts. It seems that every SUV owner is suddenly intent on trading in their Dreadnaught XLT for a gas sipper. Does it make sense? Thanks to Detroit's friends on K Street, we've become conditioned to thinking of fuel economy in terms of miles per gallon, or MPG. A recent study at Duke University showed that MPG is a misleading statistic, and that we really should look at gallons per mile, or gallons per hundred miles when comparing one vehicle to another and estimating savings. After all, it's how they do it in Europe, only with drams and cubits. Somehow I don't think Dick Cheney and Rick Wagoner will let that happen - just a wild guess.

If you have an SUV at 15 MPG, switching to a station wagon or other model delivering 25 MPG can be a big improvement although the numbers aren't as sexy as a hybrid's. 15 MPG translates to 6.7 gallons per 100 miles, while 25 mpg is 4.0 gallons per 100 miles. A driver under such conditions would save 2.7 gallons per 100 miles, which at today's prices works out to $10.80 per 100 miles. 125,000 miles in a 15 MPG SUV would use 8333 gallons of gas, costing about $33 grand at today's prices. 125,000 miles in a 25 MPG station wagon would use 5000 gallons of gas, costing $20 grand at today's prices. $13 grand in savings for slightly reduced cargo capacity sounds like a good deal. You won't look as cool as you would in a Prius, but you can drive around knowing that you're not losing mileage because of the batteries weighing down your trunk.

The MPG metric starts to break down when evaluating hybrids vs. regular cars. If you have a regular sedan averaging 30 MPG, does it make sense to get a hybrid rated at 45 MPG (not including the fossil fuel energy used to make the batteries)? The regular car rings in at 3.3 gallons per 100 miles, and the hybrid at 2.2 gallons per 100 miles. 1.1 gallons saved per hundred miles at today's prices would amount to a savings of $4.40 in gas costs per 100 miles driven with the hybrid. Assuming a $5000 premium for the hybrid vs. a comparable normal car, you would need to drive the hybrid for 113,636 miles just to break even. You would have used 3787 gallons of gas in the regular car, or about $15 grand at the pump. A hybrid would have used 2525 gallons of gas, about $10 grand at the pump. A driver in such a scenario wouldn't realize any appreciable savings until after 150,000 miles of driving. Under such conditions, I don't think hybrids make sense until we start seeing 150 MPG, and I think current hybrid owners are unknowingly taking part in a large-scale beta test for Toyota and Honda (apologies to my hybrid-owning friends out there! you know I will always love you, in a non-creepy sense).

There are reports of car dealers no longer accepting SUVs in trade, or of offering thousands less than book value. Most drivers can save as much as a hundred dollars per month in gas costs by dumping the SUV for a more fuel-efficient economy model. But at the added expense of a car payment, plus a major hit on a trade-in or lowball craigslist offer, it's generally not worth it to dump your gas guzzler for an econobox. Spending tens of thousands thousands on a new car and realizing a loss of several thousand on your family personnel carrier to save hundreds on gas is never a good idea. On the flip side, if you were thinking of an SUV to accomodate your growing family or your Costco addiction, now is the time to pick one up for cheap.

(Photo by Doug - everystockphoto.com)

Cutting Back?

Apparently this frugality thing is hitting home to a lot of consumers. According to an article on USA Today, Americans of all income levels are cutting back on luxuries like lattes and spa treatments. Oh yeah, no more $100 jeans either.

I wonder if cutbacks will be talked about until the housing market rebounds or stocks start escalating again. This is another example of the diet approach: most people go on diets when they suddenly realize that they need to lose weight. Once the goal is reached, they stop dieting until a few months later when it's time to diet again. The fundamental problem (eating too much) hasn't been addressed. Reading the stories in the article didn't convince me that the people interviewed had any intention of sticking to their regimens once better times return. They all came across as people who came to view daily luxuries as normal living.

While I was never one for the daily latte or the $300 jeans, I could have done better. I found that I didn't need to do much cutting back, but I did need to adopt a spending plan where I would do my best to make sure that my spending habits mirrored my values and enhanced my life and the lives of those around me. As always, I encourage everyone to read Your Money or Your Life, and to think about where you're going with your spending in addition to where you can cut back.

Photo by fugitivepeas. Licensed by Creative Commons.