HAIR

 

 People spend an inordinate amount of money on hair, don't they?

Hair is expensive.  No, seriously.  It is far cheaper to go bald and wear a hat than to have hair.

Women have it the worst, having to have these elaborate hair helmets styled and coiffed and spending tens of dollars a pop - sometimes hundreds in the tony shops - to have their hair done.

And men are only slightly better off.  While the traditional "men's barbershop" gave cheap haircuts back in the day, men had to get a trim fairly regularly to make the short hairstyles from back then look good, which in turn would negate any cost savings.  $5 a week can add up.

And of course, with the advent of the disco era and disco hair, men started going to the same shops as the women, and paying just as much, if not more, for their hair.

And it seems, like so many other things I have noted in this blog, that the poorer you are, the more you pay to have your hair done.  Don't believe me?  Ask Cris Rock.  Hair styles among the poor and minority groups are often the most expensive you can get - extensions, weaves, straightening, styling - it can cost thousands of dollars - and for what?

As I noted in an earlier posting, nearly two years ago, we bought a Braun re-chargable hair clipper for $20 at Bed, Bath and Beyond.  And later supplemented this with a $29 Wahl.  And since then, we've been giving ourselves prison haircuts.  Actually, Mark is so good at this, that some neighbors and friends have asked him to cut there hair as well.  Price?   Two cigarettes, just like in prison.

OK, I already know what you are going to say.  Some stupid suggestion to recycle pocket lint - the exact sort of thing I said I wouldn't be talking about in this blog.  But the funny thing is, not only is this a big money-saver, but a big time-saver as well.  And if you are the type of person who has a haircut that is very simple (set it to #2 and mow) well, it is not too hard to do.

How much money are we talking about?  Well, before, we went to the barber at least once a month.  And it cost us about $20 each, with tip, for a haircut.  So we are talking $480 a year, if not more.  And if you want your hair to look good, getting it trimmed and cut more frequently is the key.

So, in two years, we've saved, well, close to a thousand dollars in haircutting expenses - and that's just after two years.  If you make $100,000 a year, this amounts to 1% of your gross income, perhaps 2% of your net take-home, and perhaps 10% of your disposable income.

And not having to drive to town, sit listening to Rush Limbaugh in the shop, wait an hour for your "turn" and then another half-hour for a cut, well, it is a real time-saver to boot.

And moving forward, the savings will continue to pile up.  The cutting devices themselves cost about as much as one haircut.  So they are cheap enough.  Even if they get dull over time, we can replace them and still save a staggering amount.

And you know what?  It is kind of fun, having someone who really cares about you, cutting your hair.

Of course, this cost-cutting suggestion isn't for everyone.  But it works for me.  $480 a year is a lot of money in my book.  Money I'd rather have in the bank.  That represents time I don't have to work, and time I could be spending on the beach.

Buying stuff = more work = less beach.  Simple equation, really.

SHOP 'till you DROP!

Note: this is a revised re-posting of a December 2008 article.

Shopping is a self-destructive form of behavior, as it reverses the ordinary process of buying.  Rather than determining the need for an item and then researching price and quality, the shopping process presents items as " bargains"  and then persuades you to have a need for them.

One area of self-destructive financial behavior is in shopping. For some folks, shopping is a "hobby" and many vacation destination brochures, in addition to lauding their beach and golf facilities also list "shopping" as an "activity."

To me, this is an anathema, as the processing of buying things should not be viewed as a hobby or sport. Purchasing items and services is one fundamental aspect of the use of money. When purchasing a good or service, you are exchanging money, which represents your own stored (and liquidated) labor and goods, for someone Else's labor and goods. Making an informed and fair exchange of goods and services for money and vice-versa is essential to sound financial planning.

Note that in a perfect market, the best any participant can hope for is a fair exchange of goods and services for money and vice-versa. The idea that one can always buy some good or service for a low price and then always sell it for a higher price is not workable for anyone but the most astute businessman. And this model illustrates why the exchange of commodity items often results in the squandering of money.

For example, MLM marketing schemes argue that as a participant, you can purchase (from the company) commodity items that are readily available anywhere at market prices, and resell them at a profit. These schemes would rely upon a number of consumers being willing to repeatedly pay over market value for what are essentially commodity items. Soaps, fragrances, oils, vitamin drinks, or whatever, can be bought quite cheaply at any big box store. There is no compelling reason to buy them from a neighbor selling them door-to-door.

Similar, buying a used car from a used car dealer means usually that you are paying too much for a car - and book values reflect this. Trade-in, Wholesale, and Private Party sales prices in various car books (KBB, NADA, Edmunds) are usually 15-30% lower than "Dealer Retail" prices. It is true that many people purchase used cars from dealers (which is how they stay in business) but it is also true that these folks are paying more than they should for cars.

The concept of "shopping" as a hobby or sport adds another dimension to this game, in that the purchases are not necessarily for needs or even wants, and pricing is often difficult, if not impossible to determine. Shoppers love to talk about the "bargains" they got (just as gamblers talk about their "jackpots") but oftentimes, they cannot calculate the actual bargain, as price comparisons are not readily available. And in buying something that they did not need or want in the first place, is the transaction really a bargain?

As one gets older in life, objects accumulate exponentially, it seems. In addition to the purchases one makes every year, there are items owned from previous purchases over the years, minus those items sold, given away, thrown away or discarded. What this usually means is that the things one USES the most, which get daily wear and wear out, or things that have a resale value and are sold, tend to go away - while objects that are not used and cannot be readily discarded, accumulate in the attic. So one ends up keeping a lot of "dogs" in terms of purchases, which tend to accumulate over time. These can be a sobering reminder as to the futility of shopping, which is one reason why most humans tend to cut back on shopping as they age.

Note also that such unused possessions tend to be the things that end up in antique stores or museums. Items used daily wear out and are seldom saved. However, special china, clothing, and furniture, used only for special occasions, tends to accumulate. As a result, we get a distorted view of the past, as most antique shops and museums are filled with "junk" from our ancestor's attics, while the stuff they really used and cherished are at the bottom of some rubbish heap.

The hobby of Shopping can be quite addictive, and it is little wonder that persons with addictive personalities become shoppers and even refer to themselves as "shopaholics". Spending money literally becomes an uncontrollable urge. And unfortunately, the shopping industry, like the gambling industry, caters to this addiction.

Every resort community and vacation destination (and cruise ship) usually has a shopping district. Every museum or attraction inevitably has a gift shop. More and more attractions, whether they be a Disney ride or George Washington's Mt. Vernon home, force guests to pass through the gift shop before exiting the premises. It is a powerful inducement to spend. After having viewed a museum of valuable artifacts, one is compelled to purchase a knock-off to take home as a souvenir. Unfortunately, one's home can become clogged with such souvenirs, which tend to end up unused, in drawers, boxes, or attics. Since such souvenirs have no resale value, they cannot be disposed of, either.

But "shopping" as a hobby goes far beyond such gift shops or shopping districts. Many shoppers will spend countless hours in malls and other stores, looking for "bargains". As noted previously, they will regale you with their shopping conquests - "Look! I got this for 75% off!" they crow. Unfortunately, a tag which proclaims a huge mark-down on an overpriced product is not indicative of a savings. It is little more than the oldest form of hype known. Car dealers do this all the time, hawking huge "savings" over sticker prices that no one every pays. It is nearly impossible to do a proper price comparison with market value when the only data you have is the price tag.

Moreover, if a shopper buys things they have no intention of ever using, or never use, are they really "saving money?" As odd as this last statement may seem, it occurs more often than you think. Consider the case of Jim (not his real name). Jim worked for the government and had a steady job that paid well. He had few expenses, as he shared an apartment with his brother and did not own a car. Most of his income was disposable. Jim liked to shop. Like male breast cancer, the existence of male shoppers is not as well known as their female counterparts. But male shoppers exist, and oftentimes they spend more than their female counterparts.

Most of Jim's purchases were of clothes and small gadgets. He would go to the mall and look around at new clothes, usually with a friend or friends. Eventually, he would find something he liked, and whip out his credit card and buy a new outfit. When he got home, he would stuff the department store bags into his closet - already packed with similar bags. The act of looking at and acquiring objects was the sole source of pleasure for him. The actual wearing or using of these purchases was secondary. Most of the clothing he bought he never wore.

Even though he had no major debt or expenses, Jim ended up declaring bankruptcy based on credit card debt alone. In addition to shopping for things he did not need, want, or use, he also ran up a lot of credit card debt on restaurant meals and bars (more about that in another article). Jim ended up throwing away much of the things he bought this way - or donating them to charity, rather than returning them for at least a store credit.

Another example is Jillian. Jillian liked to shop and get bargains as well. Oftentimes, she would see things that she thought that others could use. "You know, Bill could use these cocktail glasses," she'd say, "and at this price, I can afford to buy them for him!" So Jillian ended up buying a lot of stuff - and then giving it away to friends and family, who often felt uncomfortable with such gifts and tried to pay Jillian back for them. Jillian's strategy avoided the problem many "shoppers" have - what to do with all the "stuff" they accumulate. Jillian's garage, nevertheless, is starting to fill up with boxes and cartons of purchases that have yet to be used. Jillian has a lot of money, or so she believes, so her shopping habits have not caused here undue financial hardship - yet.

Jeff is a home improvement buff. He likes to go to the big lumberterias - Lowes or Home Depot. Usually, one would think of a hardware or lumber store as a place where pragmatic purchasing decisions are made. However, the big box lumberterias (Lowes, Home Depot) showcase items in a "you gotta have that!" manner. Unfortunately, many of the items offered for sale require extensive installation, additional parts, or remodeling to install. Jeff would go the lumberteria looking for a can of spray paint, and end up coming home with hundreds (if not thousands) of dollars worth of items. Lumber, sheet-rock, bags of cement, tools, and electronics - all part of well-intentioned plans for home improvement. After stacking up all this stuff in the garage, Jeff would go watch a home improvement show on TeeVee and then fall asleep. The projects would never get started, much less finished. The bog-box lumberteria induces many folks to impulse purchase thousands of dollars worth of home improvement goods, which never end up being used - again clogging the garage.

The garage full of "stuff" is characteristic of the average American. Things are sold so cheaply in the USA, that many, if not most, Americans "shop" for things they do not want or need, and end up with garages full of "junk" while their automobiles, worth tens of thousands of dollars languish outside. Warehouse stores and shoppers clubs sell Chinese-made goods at startlingly low prices. Consumer goods that were once out of the reach of all but the most wealthy, are now available to average consumers. For many consumers, the chance to purchase a desirable consumer good at a low price is too good to pass up - even if they really don't need that particular good or never end up actually using it.

Again, the whole concept of "shopping" reverses the order of a rational purchasing process. In making a rational purchase, one should decide that there is a need for a particular good. Next, one should research the good in question and determine what makes and models of goods are available and at what prices and quality. Finally, one should make a rational choice as to what good has the desired features at the best possible price and then make the purchase.

Granted, this is an idealized model of the process, and such a process is much easier to implement when buying a stove than when buying a pair of socks. Some purchases are trivial enough that the amount of research or study is de minimis.

However, "shopping" as we know it, is not even an abbreviated version of this rational buying process, but an irrational process entirely. The shopper goes to the store, not with some specific goods in mind, but to "look" and see what is available. Based on what products are offered, the shopper decides to purchase a good, not based on real need, but based on the availability of the goods and the perceived bargain. Thus, the shopper ends up going home with things they never intended to purchase. In addition, since there is no way of performing a price comparison in the store (other than comparing the "sales price" to the inflated "regular price") informed pricing decisions cannot be made, except from memory.

Clothing is probably one of the biggest offenders in this regard, and women are particularly vulnerable to shopping. Women are more likely than men to own pairs of shoes that are never worn (or worn only once) and outfits that they cannot fit into or are inappropriate for most social occasions. Clothing can be very cheaply made overseas, and thus the "bargain" prices, even at 75% off, are still wildly profitable for retailers. Woman's shoes are usually very poorly made and uncomfortable as well. Since they are rarely worn, they need not be durable or comfortable - they need only have perceived style.

Men, however, are also vulnerable to the clothes shopping trap, as illustrated by my example of Jim above. Clothing retailers have expanded men's clothing choices considerably in the last 20 years to accommodate the male shopper.  Men's causal fashion stores, such as Abercrombe and Finch have expanded dramatically. In one local mall, for example, they operate two stores, across the hall from one another! Much of this type of clothing is so pretentious as to be unwearable for most social situations, so it languishes in the closet.

Note that even men who are not "clothes horses" fall victim to the shopping mentality. In most vacation resorts, there are a number of stores (usually near bars) selling t-shirts with funny and often risqué slogans on them. Drunk patrons end up buying the funny t-shirts after a few drinks, only to wake up the next morning realizing they have a t-shirt that that cannot even wear outdoors, due to its obscene slogan. For $15.95, they have purchased a very expensive wax rag for their car.



Note also th
And shopping, like most compulsive activities, can take up an enormous amount of time. For many shoppers, this is the goal of shopping - to use up an afternoon and fill the void in their lives with a perceived purpose. However, hours spend in overheated and stuffy stores are hours that can never be recovered. And in the home-improvement scenario, the time wasted "shopping" for home-improvement products often ends up making such projects difficult if not impossible to accomplish.

So how does one avoid the perils of "shopping?" To some extent, it is impossible to avoid completely. We all have the urge, probably based on some primeval foraging instinct, to bring home a bargain. But there are some steps you can take to reduce the staggering amount of waste involved in shopping. Here are some hints:

1. Avoid shopping malls at all costs: Shopping malls have the highest cost per square foot for retail space and usually are highly overstaffed. As a result, their cost basis is very high and there are few, if any bargains to be had. In addition, the whole point of the mall is to entice you to purchase things (via "window shopping") that you had no intention of buying in the first place.

2. Shopping List: If you decide you need certain goods, make a list of what you need before you go, so you can focus on the purchases you need and not get distracted with what is available. Many a shopper has gone out to buy new socks, only to come back home with $400 worth of clothing - and discover they forgot to buy socks! They end up going shopping again, and the process repeats. Those are some expensive socks! The shopping list should be used for all types of shopping - clothes, home improvement, food, etc. Not only does it focus your efforts, it eliminates extra trips to the store.

3. Don't buy for Projects you Cannot Start or Finish Today: While shopping at the big box lumberterias, it is all too easy to get caught up in the displays. You may have gone there to buy a new mailbox, but suddenly, a string of lawn lights or a solar powered fountain seems like a "must have" item! What ends up happening, is that after hours of such shopping, you return home with a carload of goods, which you unload into your already crowded garage, and after making dinner, you flop down in front of the TeeVee. The original project (new mailbox) doesn't get done, nor do all the new projects you have already purchased part for get started either. Concentrate on one project at a time. The new mailbox is not going to get installed if you spend two hours at the store. Focus!

4. Take it Back! Buying something you didn't need is a mistake. Hanging onto it out of foolish pride only compounds the error. Most stores have generous return policies. Get in the habit of saving receipts with your purchases. If you realize on the way home that buying a new lawn swing was not such a hot idea, don't be afraid to take it back. Your bank account will thank you.

5. Use the Internet: You can compare prices and make more cold-hearted decisions by shopping on the Internet. On the Internet, price is king, and unless you get distracted by browsing for other "stuff" you tend to be more focused on finding product X at the lowest possible price. It is much easier to use the internet to compare products and research goods before buying as well. In addition, it saves a huge amount of time and energy (not to mention gasoline and car usage). Shipping costs are often less than what it would cost to drive to the mall.

6. Shop in Your Attic: After a decade of living and shopping, we found that our attics and basement and garage were filled with things we had bought and decided we no longer needed but were "too good to throw out". Going back and revisiting these items turned up a treasure trove of things we could now use or didn't realize we had. Shopping in your attic can be a good substitute for "bargain hunting" in that you may find an item that you can actually use, without having to pay anything for it at all.

7. Hold a Garage Sale: Selling off stuff is a cleansing experience and can raise hundreds, if not thousands of dollars. One positive aspect of a garage sale is that you tend to realize, in selling off this junk, that you made a mistake, in most cases, in buying it in the first place. Note that having a garage sale is always a good idea, but GOING to garage sales can just be a cheaper way of falling victim to the shopping habit. Buying someone Else's junk at a discount is no better than buying it brand new. In most cases, garage sale "fiends" end up just buying MORE junk at the reduced prices of a garage sale than they would at a mall store. The garage sale is not methadone for a shopaholic.

8. Never Shop When Hungry: This works for food buying as well as buying any goods. If you grocery shop while hungry, chances are, you'll tend to impulse purchase more foods that look "yummy" and also more prepared or packaged foods (with higher mark-ups). But shopping with a low blood sugar level for ANY goods is never a good idea. Once your blood sugar goes low, your judgment is impaired, and you'll end up buying things you don't need or want. Car dealers know this trick well, which is one reason they attempt to hold customers hostage for hours at a time, until your resolve wears down and you'll sign nearly anything.

9. Get Out of the Habit of "Shopping" as a Sport: For many folks, their idea of a relaxing Saturday is to go to the mall with no specific purpose in mind other than to spend money - and not on some specific goods. They will "go to the mall" to hang out, have a $10 cup of coffee and then see what it is they might want to purchase. Such "browsing" can be a useful way of finding new products on the market. But in more cases than not, it merely creates demand in the consumer for a product they don't need or want.

10. Avoid Gadgets: Nothing gathers dust faster than the "new and improved" gadget that is designed to change your life. It slices, it dices, it rotates your tires! In most cases, these are poorly made products that serve needs you rarely have. Traditionally gadgets were hawked by high-pressure salesmen, then the "informercial". But increasingly, many box stores are switching over to gadgets as a profitable main line. Go to your average linen and bath store and you'll find the center aisles clogged with gadgets and gimmicks. The basic supplies that you actually need however, are in short supply.

11. Set a Time Limit: When going shopping, set a time limit for each store you are visiting. Find the items on your list and move on. Avoid the temptation to wander the aisles listlessly, looking at goods you have no use for at the moment. Shopping can be so destructive as to cause time problems in shopper's lives - making them chronically late for appointments and work, and also leaving them little or no time to attend to their personal finances. Shopping can be the ultimate "time bandit".




 
12. Be Realistic about "Projects": For a home improvement project, be realistic about how much can be accomplished in a given amount of time. If the only time you have off is weekends, then major home repairs might be out of the question. Buying thousands of dollars of building supplies for a project that will never realistically get off the ground makes no sense whatsoever.

* * * *

There is no way to avoid the shopping mistake, as being human, we are all prone to frailty.  However, if you can nip the shopping habit in the bud, you can hang on to a lot more of your hard-earned cash. Owning "things" gets to be really, really old after a while, so getting shopping out of your life can really cut down on the clutter. But shopping is not about actually acquiring things, is it? It is more of a form of compulsive spending.

FV - Future Value of Money and Doubling Rate

What is the Future Value of Money?

In Law School, one of the things our professors talked about in various economics related classes (tax law, trusts and estates, anti-trust, etc.) was FV or the Future Value of money.  As I noted in my Understanding Money post, what makes money complicated is that it exists in (at least) two dimensions - the first dimension being its value, and the second being time.  Time is the part that most people don't get - and as a result, simple things like loan interest and compound interest, mystify them.

My tax law professor used to bandy about the term FV, or Future Value of money.  If you have a dollar today, what is it worth in 10 years?  If invested properly, it should give you some rate of return and thus be worth more.  But of course, inflation is the spoiler in this party (and another time-based feature of money that most of us miss).

But in general, he used to use the rule-of-thumb that "money doubles in value about every seven years."  Seven years?  Is that realistic to expect in this day and age of 0.5% passbook savings?  Let's take a look.

Using our compound interest calculator, we find that, at:

1% Interest - money doubles in 70 years

2% Interest - money doubles in 35 years

3% Interest - money doubles in 23.5 years

4% Interest - money doubles in 17.5 years

5% Interest - money doubles in 14 years

6% Interest - money doubles in 12 years

7% Interest - money doubles in 10.25 years

8% Interest - money doubles in 9 years

9% Interest - money doubles in 8 years

10% Interest - money doubles in 7.25 years

11% Interest - money doubles in 6.6 years

12% Interest - money doubles in 6.15 years

Ouch.  Note that the low interest rates offered today by many banks are almost pointless.  You will never earn anything, in your lifetime, in terms of rate of return.  In order to get that fabled "double your money in seven years" you have to be looking at a 10% overall rate of return.  And there is only one place to do that, and that is in the stock market - if you are lucky.

Note also that the time to double money drops down as a decaying exponential, again, one of those "math thingies" that you "don't need to know in real life".  But what this means is that the fractional interest rates of today will never double the value of your money in your lifetime.  On the other hand, even a modest interest rate of 5-10% will easily double your investment within a fairly short period of time.  And what is even more interesting, is that really super-high interest rates, like 25%, 50% and 100% don't accelerate the process all that much (those rates double money in 3.15, 1.75 and 1 year, respectively).

In other words, if you can obtain a "reasonable" interest rate between 5-10%, you can expect to double your money in a fairly short period of time.  Anything lower than that is like watching paint dry.  Higher rates are faster, of course, but then again, are much harder to obtain and are quite risky.

What is interesting, of course, is that if you expect to "make money" on your investments, you need time for money to increase in value.  And if you want money to increase in value more quickly, you have to invest in riskier investments which have the potential to pay back more.

But, if you are getting closer and closer to retirement, well, you can't afford to "risk it all" to double-down your bet.  But that means, of course, that what you have in the bank won't grow much more than the rate of inflation.

This is why most investment advisers advise young people to put money in early and also take higher risks.  If you are young, you have more time to work with - and can afford to bounce back from bad investments as well.

A fairly conservatively invested portfolio should be able to return about a 7% rate of return over time - and thus double money every 10 years.  Perhaps this is an easier standard (and nice round number) to use than the 7 year standard my law professor used.  Thus, if you have $100,000 invested in a mutual fund with a 7% rate of return, you should expect it to double in value in a decade, provided there is not a major market crash.

But, that also illustrates how many of us are now forced to invest in stocks these days, as stocks are "the only game in town" for the average person wanting to make more than a 2% rate of return.  And if you put ALL of your savings into low-return investments (1-2%) your portfolio will not appreciate much at all, over time - and in fact, fall behind, due to inflation.  While we actually had slight deflation during the economic crises of 2009, today, inflation is running about 2% (up slightly from last year).  So money in a 0.5% passbook savings account is actually worth less at the end of the year than at the start.

Again, this forces us to invest in more aggressive instruments, just to stay in place.  While you may "double your money" in 10 years, inflation has taken some of that money away from you, in terms of effective spending power.

And this is where planning for retirement gets tricky - and where most of us wake up at night and worry.  Yes, we can put aside a million bucks, over time, and retire a "millionaire".  But as history has shown, economic conditions can rapidly change the value of that money, to the point where it would hardly buy a cup of coffee.  Hyper-inflation can wipe out a carefully planned portfolio in short order.

Even more modest inflation, such as the double-digit inflation of the late 1970's, can be devastating to retirees.  Back then, most retirees were collecting Social Security or a Pension Plan.  The former has a cost-of-living adjustment, while the latter pays out the same amount (and some even have cost-of-living adjustments), regardless of market values of stocks.  The 401(k) and IRA had jut been invented, and no one had yet to retire on them.

For our generation, things will be different.  We have to hope that our money will get a good rate of return without risking it all.  We have to hope that inflation will remain relatively modest as well.  And we have to set aside as much money as we can, so that we don't "run out" in retirement.

There are many variables in the equation, with savings being the only thing we have control over.  For our generation, the retirement years will not be as easy and carefree as the defined-benefit pension plan generation.

Unfair? Perhaps.  But the defined-benefit pensions were probably not sustainable (as GM and School Districts found out or are finding out).  And as I have noted before, you can rail about the unfairness of it all, or take action the best you can.  Cutting expenses and saving money, in the long run, is really your only choice.

Gas Rebate Cards..

People, particularly poor people, obsess about the price of gasoline, while ignoring other, larger expenses in their lives.  Gas rebate cards play upon the fears of "high gas prices"  by inducing you to spend a lot of money to save a little.  They throw pennies at us, hoping we spend dollars.

Another example of fake financial acumen is the gas rebate card.  As with the airline miles credit cards, the gas cards reward you with a discount on gasoline, or free gasoline, after you have made so many purchases.

The interesting thing about both types - airline miles and gasoline cards, is that they proffer the carrot of something that poor people think is valuable.  "Golly Gee Whiz, Lurleen, we're gonna fly on an aero-plane!"  Or perhaps it is "Gee, gas is so expensive, here is a way I can git it for cheap!"

As I noted before, to stop being poor, you have to stop thinking and acting poor.  And thinking that flying on an airplane is a big deal, or that gasoline is "expensive" is one sure way to remain poor.  Free airline flights and discounted gas are not some big "treat" or giveaway.  In fact, as we shall see, what they are giving you is a pittance compared to what they take in.

The gas rewards cards take a number of forms.  Some are credit cards, some are loyalty cards.  Oddly enough, most of the loyalty cards are from grocery stores, not gas stations.

We recently had an experience with one of these at the local Winn-Dixie. They were offering a staggering 50 cents off a gallon of gas at Shell, if you bought over $100 in groceries in one purchase.  But what they didn't say was that your existing "rewards" card wouldn't work, and you'd have to get a new magnetically-encoded card to participate.  So our purchase of $100 of goods didn't count.  And of course, the 50 cents off deal was "for a limited time only".

And of course, it was limited to 10 gallons.  So you get $5 off nearly $40 of gas, after buying $100 of groceries.  Neither Winn-Dixie or Shell was giving away the bank here.

The REAL deal was that depending on how much you bought in groceries, you could get 5, 10, or 20 cents off each gallon of gas.  So after one shopping trip, newly minted magnetic card in hand, we set off for the Shell station (not our first choice) to "cash in" on this great deal.

Now, the price of gas, at the time of this posting, is $3.35 a gallon - at the Flash Foods here on our island.  The Shell Station wanted $3.55 a gallon, exactly 20 cents more.  So we jumped through all these hoops and ended up. . . . paying the same amount for fuel that we would have at the gas station nearest our home.

In other words, the savings were zilch.  Zero.  Nothing.  Bubkis.  Nada.

And everyone these days is jumping on these "rewards" bandwagons and it is really starting to get on my nerves.  I can't buy pet food, office supplies, groceries, gasoline, heck, just about ANYTHING without being asked first if I have a rewards card or would like to get one.  Suddenly, nearly every single financial transaction in my life requires I swipe some sort of "loyalty" card - and I have a wallet full of at least 20 of these - plus a separate key chain with corresponding bar-coded or magnetically coded "key fobs" for the same stores.

I hate it.  They want to harvest your demographic information and the bait they use is to offer you crappy prices on food - if you want to retain your anonymity.  Or they offer the bait of a few pennies off a gallon of gas, which as we have seen, isn't really a lot of money - if any savings at all!

There are also gas rebate cards tied to credit cards.  These are even worse than the loyalty cards, as like with airline miles, they are tied to the most odious forms of credit cards available - cards with staggering annual fees of $100 to $150 or more, plus interest rates that only a loan shark could love.

I am only hoping that some day these rewards schemes will backfire, and like green stamps, fade into obscurity.  Perhaps, perhaps not.  People seem to like these programs, and the discounts offered for using the "rewards cards" in many grocery stores are significant - to the point where you have to use them.  Fortunately, most clerks have a "generic" card at the register they will scan for you, so you can still get the lower price, while not having to tell a computer what you like to buy.

But with the "free" or discounted gas thing, I fail to see the savings.  Unlike grocery stores, gas stations still compete on price, and for every high-priced gas station offering "rewards" to bring the price back down to reality, there are other stations that just offer low prices without gimmicks.  So instead of chasing gas rewards, it is easier to just go to the lower priced gas station.

Like anything else, there are, of course, exceptions.  For example, if the corner grocery store is offering this deal, and the gas savings are for a gas station you frequent anyway, maybe it makes some sense.  But don't kid yourself that you are being "financially astute" by doing this.  All you are doing is following the herd, right down the chute they designed, and into the slaughterhouse.

And guess what?  The gas station here on the island, which has low gas prices, is offering a gas discount card as well.  5 cents a gallon, for a "Go Blue" card that debits your checking account for the gas you buy, using ACH debit.  Is this worth it?    For super unleaded at nearly $4 a gallon, this works to a 1.25% discount - hardly a major sacrifice on their part.  And for the average driver, driving a 20 mpg small SUV 15,000 miles a year, the savings, on 750 gallons of gas, comes to a whopping $37.50 a year.  And I drive maybe 5,000 miles a year.

UPDATE:  Most credit cards with dollar rewards (not airline miles, thanks!) offer 3% off on gas purchases, so this beats the "GoBlue" card.  What "Go Blue" is trying to do is avoid paying VISA and M/C fees and debiting your checking account instead.  But from a customer perspective, the credit card is a better deal - provided you pay off your balance every single damn month, of course!

What's the upshot for the gas station?  Probably lower charges, compared to credit card and debit card fees.  By using ACH debit, they save the 2-3% fee that the credit card companies charge on each transaction.  So they have incentive to offer us 1.25% instead.

Will I do it?  Perhaps.  Perhaps not.   They want not only my bank account information, but my PIN number, driver's license number, and a lot of other personal information that basically gives them complete access to my bank account.  For five cents a gallon?  I don't think so.    But even if I did, I won't be kidding myself that by doing so, I am being financially astute or clever.  It is just a gimmick they are throwing at us - a marketing ploy.  And when you bite on the bait set out by marketers, generally bad, bad things happen.

Why can't people just sell things the old-fashioned way anymore?  You know, here's a dollar, you give me goods.  Every transaction is so complicated today that it makes one want to stop consuming....

Why Airline Miles Are Pretty Worthless

Airline Miles are an example of businesses throwing pennies at us, hoping we spend dollars.  Rarely do they every amount to anything other than upgrades.

Many folks bite on the idea of the "frequent flyer miles" credit card, which promises to give you one frequent flyer mile for every dollar you spend on the credit card.  Sometimes they double this, as a promotion, and sometimes they try to entice you with 5,000 free miles if you sign up for the card.

And in almost all cases, it is a really shitty deal.  You end up with a gun-to-your-head interest rate, that will be triggered the moment you don't make a full payment every month.  And yes, there is a bullet in the chamber.  And just to make sure you really are financially dead, they'll put in a second round, if you miss a payment, which will jack your interest rate to 25% to 30% or more.

It is playing Russian Roulette, basically, all for the idea that you'll get a free airline flight - as if a free flight on an airplane these days was some sort of "treat", right?  Some kid behind you kicking the seat, and breathing everyone else's farts for two and a half hours.  Flying on an airplane sucks, so why view it as some sort of present?  I certainly don't.

And the upshot is:  It is highly unlikely you'll get anything other than an upgrade out of the deal.

Here's why:

1.  To get a free flight, you generally need about 25,000 miles.  And those miles "expire" in one or two years, if not used.  So you'll need to charge $25,000 a YEAR on your credit card, just to get one free flight.  That means, using that credit card for EVERYTHING you buy, in most cases, and also spending a lot of money.  For most middle-class people, $25,000 in credit card spending is a lot.  Even if you make $100,000 a year, chances are, most of that goes to taxes, mortgage, 401(k) savings, car payments, utilities, etc.  If you are spending $25,000 a year on credit cards, chances are, you are over-spending and under-saving.

2.  Every flight has very, very few "free miles" seats on it.  So if you do get the miles, you have to book your flight way in advance.  And chances are, you won't get two seats on the same flight.  And to get two seats, well, you'd have to charge $50,000 a year (!!!) on that credit card.  If charging $25,000 a year is hard, doing $50,000 is going to be damn near difficult.

3.  In many cases, the helpful reps will offer to "sell" you additional miles to make up the difference for your "free" flight.  You may end up spending as much as, if not more than, you would to just buy a discounted ticket, to buy miles for a "free" flight.  Discount airline tickets can be as cheap as $99 and often are even cheaper than that.  So what was the big deal about getting a free ticket?  You dick around with twenty-five grand on a credit card to get a $99 flight?  Where is the bargain in that?

The idea that you'll get a free trip to Hawaii (which requires far more than 25,000 miles!) is specious - and the idea that you'll take the whole family is basically impossible.  At best, you might get an upgrade, provided you fly a lot. 

When I used to fly coast to coast a lot, this is what I did.  I accumulated a lot of miles quickly, and since I was flying solo, I could get a single seat "free" flight once in a while - like maybe once or twice a year.  But mostly what I did was use my miles to "upgrade" to business class or first class for "free".  It was very, very rare that I could arrange a free flight for myself, and nearly impossible to get a flight for two people.

So even for someone who flies a lot, the miles thing is a joke.  And if you end up paying more for airfare on the pretext that you get miles, well, you are not being very astute.

Corporate fliers, of course, charge their company for the flights and keep the miles.  And if they accumulate a LOT of miles in a short period of time, AND book well in advance, then yes, they may be able to get the fabled trip to Hawaii for the whole family.  But these are very frequent fliers - the gold club or platinum club set, who fly nearly every week of the year.

For the rest of us who fly occasionally or even "often" the whole scheme ends up being a bad joke.

And if you get a credit card on the pretext that you will earn all these miles and get a "free flight" well, think again.  Chances are, all you'll get is a really crappy credit card with a staggeringly high interest rate that could break you, financially, if you end up carrying a balance.

Airline miles are another example of fake financial acumen - an ancillary deal tacked on to the primary deal, in an attempt to distract people from what a rotten bargain they've made in the primary deal.  People like to think they are being financially astute by chasing these sorts of deals, when in fact, they are just falling into an obvious marketing trap.   And yes, there are folks out there who can tell you how many "airline miles" they have, but have no idea how much is in their 401(k), their bank account, or the balance on their credit card. 

Is a free trip to Duluth really worth that risk?  I don't think so.  Screw the miles.  They're a joke.

UPDATE:  May, 2011:  US Airways e-mails me this morning saying that my 88,000 frequent flyer miles will "expire" and my account will be closed unless I pay them $25 for the privilege:

Stay active and keep your miles! Keep the miles you've worked hard to earn. It's simple: Just log in to your account and pay $25 by 07-30-2011. Then, your account will remain active for another 18 months.

For a complete list of reactivation options visit usairways.com/stayactive.

This is, of course, just annoying.  But it illustrates the fallacy of frequent-flyer miles.  If you don't fly, don't bother trying to accumulate them, as they will just expire over time.  It is not like the olden days, where a person could travel on business for their whole career, and then retire with a million frequent flyer miles and spend their retirement jetting off to Paris and Rome.

No, today, you might get an upgrade to first class, or, if you fly a LOT, maybe you and the wife (but not the kids) can go to Hawaii once a year (then again, maybe not, redeeming frequent flyer miles is nearly impossible to do).  But you can't "accumulate" miles over time.

We are flying to Ft. Lauderdale this fall to catch a cruise ship.   Southwest has a direct flight for $79 each. 

$79.  Is that worth the hassle of frequent flyer miles?  I think not.

Chasing after something that is "free" is a very dangerous thing to do, financially.  Because in the pursuit of "free" you often end up spending more money.

If you pay a $25 to $50 redemption fee, is a "free" $79 ticket worth it?  What if you have to pay $29 to check your luggage?  Suppose you pay a $125 annual fee for the "miles" credit card?  Or pay $500 in interest expenses.

Free isn't!