Overvaluing Intangibles, Part 1

If you're anything like me, you watch Pawn Stars (because you're interested in historical items) and you watch Hardcore Pawn (because you're a horrible person).  One of the defining moments in both shows occurs when people walk into the pawn shops wanting to either sell or pawn items, and they inevitably think that their item is worth a ridiculous sum of money.

"So, all you'll give me for my seal is a
swift kick in the pants?
I guess I can do that."

Sometimes the object is worth as much as the people expect, but most of the time it isn't.  Even if it is worth money, because the pawn shop needs to make money when they resell it, the pawn shop gives the seller a necessarily lowball offer to ensure that money can be made.

In the first place, in this age of eBay and Amazon, why on earth do people still insist on selling to pawn shops?  If you have something of value that you want to sell, SELL IT YOURSELF TO MAKE MORE MONEY.  This is called the American Way.

In the second place, when something isn't as valuable, why do people assume that it is?  The answer to this lies in an object's intangibles.  This can also be known as sentimental value that we tend to place in items that is above and beyond what those items are actually worth.

As a point of comparison, consider Tim Tebow.  The guy is not your normal quarterback in that he can't throw two consecutive good passes to save his life.  Still, he was a first round pick in the NFL draft because scouts really talked up his intangibles.  He isn't a partyer.  He is a natural leader.  He says his prayers, minds his manners, and chews with his mouth closed.  Because of these things, certain coaches in the NFL ate him up and drafted him (arguably) much higher than he should have been.  He began starting as a quarterback last season, and he lead the Broncos into the playoffs even though nearly every person who comments on football considers the guy a sub-par quarterback.

Will Tebow's intangibles eventually translate to a Broncos Superbowl victory?  Only time will tell, but in my opinion, you'd be better off engaging in a land war in Asia or going against a Sicilian when death is on the line than betting the Tebow will lead the Broncos to a Superbowl.

Not Pictured: Wallace Shawn.

In a similar way, we overvalue objects that we've had with us our whole lives.  Sure, you've had that clock that your great-aunt Mildred passed down to you all your life (so it's worth a lot to you), but the truth is that it's not as much of a clock as it is a piece of plywood with (most of) the numbers between one and twelve painted on it.  Even though you may value this item intensely, from an objective standpoint, it's not worth a whole lot.

Make sure to come back later this week to see how this mindset costs you money (even if you're not a pawn shop regular).

Photo 1 from Thomas Shahan 3.
Photo 2 from Jerf Kern.

This post was featured in the Carnival of Personal Finance #350.

9 Fees to Watch Out For

My paycheck this week coincided with the first pay period in which I was able to put money into my 401(k).  I am hugely excited about this because of my company's very generous matching policy.  Due to my excitement, I logged into the 401(k) website to make sure everything was running smoothly.  For the most part, it was, until I checked my preferences.

The site had my default settings set to me paying a fee to receive monthly/quarterly updates on my investments through the mail.  Being the frugal dude that you all have come to know and Love (capital L, things are getting serious between us, I know), I immediately switched my preferences so that I will now only receive free electronic account updates.

I really despise fees, hidden or otherwise, so, in the spirit of being helpful, I've compiled a list of nine fees that I do my best to not pay.

1. ATM Fees - This one is one of the more obvious choices, but it bears repeating.  If you get money from an ATM that is not affiliated with your bank, you stand to pay $2-$5 for that convenience.  Additionally, your own bank may ding you with an extra fee for taking money out as well.
2. Overdraft Fees - Again, super obvious, but if you pull money out of your checking account, whether at an ATM or by writing a check, and you don't have the funds to back it up, your bank will likely pay the money out, but it will charge you a premium for doing so (probably between $20-$30).  There are times when I've been broke, and I bought fast food under the mistaken assumption I had money in my account to pay for it.  Let me tell you, I've yet to taste a cheeseburger that's worth it's own cost plus an overdraft fee.  Six dollar burger meet Thirty-six dollar burger.
3. Bank Statements - Just like how the company that manages my 401(k) tried to do to do to me, some banks charge you to receive paper statements.  If you can opt out of this, it's a good idea to do so (Guess what?  If you're reading these words, you have internet access!  You can therefore check your balances online!).
4. Fees for Having a Debit or Credit Card - It caused an uproar in the personal finance community when Suze Orman released a debit card that charged a monthly fee.  Look, you should not have to pay money for the privilege of accessing your own money.  Similarly, many rewards credit cards charge an annual fee for you to be their customer.  As there are many rewards credit cards that give you cash back without an annual fee, it's usually the acme of foolishness to stick with a credit card with a fee.
5. Talking with Customer Service - While we're singling out Suze Orman (though I know this is also a policy at some banks), it's worth noting that, while the first monthly conversation with a customer service agent is free, each additional conversation will cost you $2.
6. Purchasing Investments - If you have an investment account, (with Sharebuilder for example), you will pay up to $9.95 each time you order stocks, bonds, ETFs, or (most) mutual funds.  While $9.95 may be cheaper than going through other investment brokers, this can be a big percentage if you're not investing very much money at a time.  In general, I suggest making it a point to not pay more than 2% in fees for each investment purchase, otherwise you'll find yourself eating to much into your profits.
7. Dining In vs. Taking Out - Some local restaurants in San Diego charge me an extra fee if I say I'm eating there instead of taking it to go.   The nefarious thing is that these restaurants do not automatically state that there's a fee one way or the other.  I make it a point to always ask if there's a fee either way, and then stating that I'd prefer the way without the fee (who wouldn't?).  
8. Credit vs. Debit vs. Paying Cash - Some places (particularly gas stations) will charge you different prices depending on which of these three methods of payment you're using.  I do my best to only shop at places do not discriminate on this basis.
9. Financial Advisers - This one is a little different than the others, but hear me out.  Financial advisers generally get paid by you in one of two ways (not to mention getting paid by investment companies if they recommend their products).  The first way is by getting an upfront fee from you for the time they spend with you.  The second is by getting a percentage of whatever they encourage you to invest in.  I bring this up not to suggest that financial advisers should not get paid for their work, but instead to remind you that they are getting paid one way or the other.

I hope this list raises awareness of some of the fees that you might not realize you're paying.  I realize that in some instances, paying a fee is a matter of convenience (sometimes your closest bank ATM is 100 miles away and you need some cash right now), and that it might occasionally make more sense to pay a fee than not to.  Still, if we can be aware of the fees we might be exposed to, it'll help us all save some money in the end.

What do you think?  Are there any fees that I missed that you find absolutely deplorable?  Let me know in the comments.

Photo by paul nine-o.

This post was featured in the Yakezie Carnival of February 26, 2012.

Money Traps: The Unexpected Inevitability of Human Error

If you watched the playoff games over the weekend, you'll agree with me on one thing:  errors ended up deciding the loser in each game.  In the Giants/49ers game, a key fumble in overtime by a member of the 49ers set up the Giants to kick the winning field goal.  In the Ravens/Patriots game, with time running out in the 4th quarter, the Ravens' field goal kicker missed a 32 yard field goal (read: very short distance field goal) which would have tied the game.

While it's a bit reductive to assign these players all of the blame in the losses, it's human nature to assign the most blame to what (in retrospect) were the most obvious causes for the losses.  Even though these guys were out on the field trying to help their respective teams, they each made a key mistake at the worst possible time.

But what does this have to do with personal finance you ask?

A Frugal Confession

Brothers and sisters, I feel compelled to make a confession.  You see, I've developed something of a bad habit.  There is an area of my spending that I have allowed to go unchecked, and I think that it's time to come clean about it.

I love to buy clever t-shirts.

I just found this shirt, and I'm dying to buy it.
If you get both references, I'm probably in love with you,
as you're probably my wife.

Whether the shirt comes from Woot, Tee Fury, Threadless, or any of the other myriad t-shirt sites that are represented at Shirtoid, if I love that which was referenced, it's very hard for me not to log in and buy that shirt lickety-split. 

It doesn't help my mindset that many of these sites only offer a particular design for 24 hours, thus making me feel like I will ABSOLUTELY MISS OUT by not buying it right away.  It's not uncommon for me to purchase five or more t-shirts in any given month.

The thing is, each shirt doesn't cost a lot of money.  Particularly at Woot, I can buy a t-shirt for $10 (which includes shipping).  Still, I am realizing that these $10 chunks add up.

You know what?  I think it's time to slow down.

In part, this realization stems from a recent commitment I've made to lose some weight.  While practical advice for buying clothing even during weight loss is simply to buy your correct size, I've got plenty of shirts that I can wear right now.

I want to have fun stuff to wear when I'm a smaller dude.

As such, I'm putting my t-shirt buying on a limit.  My limit is that I will only allow myself the purchase of two t-shirts in any given month.  I will also allow myself to "bank" shirts from one month to the next if I don't actually buy two.  This will leave me spending closer to $20 a month, as opposed to the $50 or more that I have been spending.  When I get closer to my ideal weight, I'll probably allow myself to spend more (as I will need plenty of new clothes).

How about you?  What small spending habits have you realized really add up over time?  Let me know in the comments.

**This post was featured in the Carnival of Personal Finance.**

AT&T Can Suck It! (And Also, Thanks AT&T for Being Reasonable)

When in Rome, make sure not to get charged for roaming.
(Wordplay!  Zing!)

A few weeks ago, I encouraged you to double-check your invoices, particularly while travelling via cruise.  My reasoning behind this advice was that Norwegian Cruise Lines double-charged me, my wife, and my brother for an excursion that we took.  However, it turns out that there were even more accounting irregularities due to our vacation.

When I was up at my family's house for Thanksgiving, my grandma complained about how high their cell phone bill with AT&T was the previous month.  Being the personal finance blogger extraordinaire that I am, I asked to take a look at their bill.  The culprit, it turns out, was my brother.  He had single-handedly made their bill go up by nearly $90.

Now, right away, I know what you're thinking, and no, my brother did NOT download Aqua's Barbie Girl 90 times through iTunes.

How did he make their bill go up so much you ask?  Well, he made and received some phone calls while he was on the east coast prior to our cruise.  And he was charged 79 cents a minute in roaming charges for the privilege of being a part of those phone calls.

Let that sink in for a moment.  Somebody, in 2011, was charged for roaming.  ROAMING!  That's like building a fire in your fire place, and then receiving a bill in the mail a few weeks later for using smoke signals.

To AT&T's credit, it was actually pretty easy to get this cleared up.  I called them up, expressed my incredulity that anybody could get charged for roaming (it's not even a thing anymore!), and they credited my grandparents' invoice the amount that had been charged.  It turned out that my grandparents had just kept renewing a very old cell phone plan (that I think they originally signed up for in 1999) under which roaming charges still applied.  With their permission (and at the firm suggestion of the AT&T customer service representative, who claimed that he would only issue a credit for roaming charges one time), I updated their service plan online to a newer, comparable plan.

But the kicker is that neither my grandparents or my brother were going to call AT&T about it!  If I hadn't been there, they would have just paid the extra cash and gone on their merry way.  Somewhat fortunately, neither my grandparents or my brother are really pressed for cash, but I can't help wondering how many people see extra charges on their bills, figure that those charges are fair, and pay them.

How much money do big companies receive just because people don't call them on it?

How about you?  Do any of you still get charged for roaming?  Do you realize that we are no longer in the year 1999?  Let me know in the comments.

Photo by tejvanphotos.

Is Price Synonymous with Value?

In a recent article over at Slate.com, a story is told about Ernest Gallo (whom you may remember from his and his brother Julio's wine commercials in the 80s).  In the story, Ernest conducted an experiment in which he would pour two glasses of wine for his customers.  He would say that one glass was worth five cents, and the other glass was worth ten cents.  He found that every single person he did this to claimed that he or she enjoyed the ten cent wine more than the five cent wine.

The kicker?  Both glasses contained wine poured from the same bottle.  His customers had been fooled by the price, and not by the actual quality of the wine itself.

This got me to thinking about other items whose apparent value had a comparable price point.  When I think about the first generation iPods, for example, they had high price tags because they didn't have much in the way of cometition.  However, even when other companies got on the portable digital music player bandwagon, iPod prices remained high even while Zune and other comparable devices sold for much cheaper.

You might argue that the consistently high price for iPods was a product of the infrastructure that Apple had built in the form of iTunes when compared with the sparser resources for purchasing music on the other devices, but at the end of the day, an iPod and a Zune are basically just the same thing: a very portable hard drive.  The only real difference is the branding.

I guess my basic question for us is (and I'll use Apple as my example), is it the intrinsic value of an iPod what drives up the price?  Or, is it the high prices of Apple products in general that make us think that they're more valuable?  Let me know what you think in the comments.

Picture by kevin dooley

A Mental Spending Trick: Spreading the Money Out

She's a ticket and I'm drowning slowly

A few weeks ago, I was in the midst of a long trek as I was driving back home to San Diego with my wife after spending a long weekend visiting my family.  The trip (approximately 300 miles)  takes about 5 hours, on average, especially when you add in meal breaks.  It's not a bad drive, but if I can speed it up in a reasonably safe way, I'm going to do so.

I guess what I'm trying to say is, I was speeding.

You see, there's a shortcut that will take about 20 miles off of the trip, but it entails driving along a mountainous (read: hill...ous?) path that is primarily two lanes (one in each direction).  There are occasional passing lanes, though, but they end pretty quickly.  As such, I find that if I'm going to pass somebody while on this road, I'd better step on the gas to get around them so that I don't end up flying into oncoming traffic.

I guess what I'm trying to say is, that that was how I caught speeding.  I, at 29 years old, received my first speeding ticket.

The speed limit at that point was 55 miles per hour (though I was stuck behind a couple of cars driving slower than that -- hence, the desire to pass), and the officer of the law clocked me as doing 70.*  I'm not sure if that was the actual speed I was driving, or if the officer was doing me a solid by saying that's what he clocked me at (after doing some research after receiving the ticket, I read that in California, speeding tickets become significantly more expensive if you are clocked at speeding by 16 or more miles per hour over the speed limit).  Either way, I'm stuck with a fairly expensive reminder of my mistake.

Now, I admit, I shouldn't have been speeding.  Even so, I wasn't really furious about receiving a ticket.  In the first place, I am fortunate to be in a stable financial place where I have the money to pay for speeding ticket without being too inconvenienced.

But in the second place, I just kind of figured I was due.  You see, I, like I'm assuming most people do, speed a little bit pretty consistently, but my speeding is moderate.  When on the freeway, I find myself generally driving about 5-9 miles per hour over the speed limit (10 MPH seems like you're really pushing it to me :-) ).**

However, even though I speed, I mentally acquiesce to the idea that laws should be obeyed, so a part of me feels some guilt when I speed (I chalk this guilt up to years of Christian private schooling)  With this in mind, I kind of feel like my ticket, in a sense, could be distributed equally across each of the instances in my 13 years of driving that I've gone over the speed limit.  My speeding just finally caught up with me, and I received my (very overdue) punishment.

See, I'm not mad because I got to speed all those times for free up until now, and now, I'm just paying my dues (which probably work out to mere pennies per each time I've driven too fast).

This seems more than fair to me.

As another example of this sort of thinking, in the last weeks of my last semester, I bought a class ring to commemorate my grad school education.***  I paid about $400 for it, and I literally thought the first time I wore it, "If I never wear this again, this one time wearing of this ring cost me 400 bucks."  Each time I wear it, I take comfort in that fact that, from a days of use perspective, I'm bring the cost of the item way down.

Does anybody else play mental tricks on themselves like this to spread out some cost so that it seems less intense?  Let me know in the comments.

*Perhaps it will come off as unrepentant, but I never thought I'd get a speeding ticket for doing 70 on a highway.
**If I'm overestimating the speeding mentality in my readers, I apologize.  All I can say is that most traffic in the city where I live while on the interstate flows at about the speed I drive at.  I guess what I'm trying to say is that I'm the worst person for speeding, and I deserve your judgment.
***I know, school rings are profoundly silly, particularly for a grad program.  Still, I was proud of my accomplishment, and I guess I wanted/was suckered into buying something tangible to commemorate it.

Money Traps: Nostalgia

This is the first in a series of posts I'm working on that describes ways in which we fool ourselves into parting with our cash.

I sure didn't think it was the truth.  I had just gotten out of football practice, and my dad smiled at me as I was slowly but sorely getting into the car.*  He looked at me and said, "You'd better enjoy this, because you're going to miss it." 

I just shook my head because, I mean, what do you say to that?  Why exactly would I miss bodily pain?

As a high school student, I didn't have the perspective.  I enjoyed playing football well enough, but more than that, I really loved acting.  In addition to that, I was really good at, and really enjoyed, school (I'd eventually graduate valedictorian of my high school class).  Football was for the body, and I was eager to get to college and start a more intensive life of the mind.  Who likes running laps and doing bear crawls anyways?