Common Cents # 15 - Long lasting verses disposable.

Common Cents # 15 - Long lasting verses disposable. 

We spent some time with friends this weekend, outside and social distancing, of course. We were discussing the value of buying things that will last a long time, maybe a lifetime, verses items that are essentially disposable. This borders on the idea of investing verses spending that we’ve been speaking about these last few weeks, but mainly the ideas reveal wise spending verses foolish spending.

The examples in question for each extreme are a Danish leather chair in our living room and a white straw hat. We paid $425 for the chair in 1973, the equivalent of $2,450 in 2020 dollars. For us, just out of college and still paying off student loans, that was an absurd amount for a piece of furniture, except that we loved everything about it.  However, 47 years later, it is in a prominent place in our living room and still looks just like it did the day we brought it home in our ’73 Saab. The same model chair is in the Nelson-Atkins Museum as an example of mid-century modern design in the Contemporary Art wing, and ones like it regularly sell on eBay for around $1,000. At the time, we could have bought a nice chair for less than $100 that would have been adequate but ordinary, and discarded a long time ago.

The second example is a straw hat I bought at Target last month. The funny thing is that there was a review of this hat on Target’s website. The reviewer said that the hat was poorly made and literally fell apart in less than a year. The reviewer declared that this is OK, because he just buys a new one every spring. I figured I could do the same thing. It is a disposable hat as far as I am concerned.

So, we bought a chair knowing we could have it our whole lives, and a hat, fully knowing that it probably won’t make it until next spring. Which was the wiser purchase? These are the kinds of decisions we make all the time. Do we go for quality at a premium price, or buy something cheap that will serve our purpose for a while and then be thrown away?

It comes down to how much we are committed to the item, what we are asking it to do for us, and how owning it impacts our daily life. If I like having a different kind of hat every year, I will be glad I didn’t spend a lot on this one. But if, over time, we decided we didn’t like the style or the craftsmanship of the expensive chair, the decision would be a lot more painful.

Knowing what we like and what is important to us, understanding what we hold as important in all that we purchase makes for wise decisions and dollars and sense in the long run.

Common Cents # 14 – Of Hogs and Horses

Common Cents # 14 – Of Hogs and Horses 

Throughout my teen years in Southeast Kansas, my family lived in the country and had a variety of farm animals. Along with the chickens and goats, we had hogs and horses.

My regular before and after school job was to feed the animals. The hogs were always scary. They would charge at me when I had a bucket of food, then race each other to the feed trough. The biggest and fastest would then fight the slower and smaller hogs, trying to keep all of the food for themselves.

The horses would come in from the pasture and patiently wait in their respective stalls until I brought each one a bucket of oats. The hogs acted as if each morning meal would be their last and would gladly fight for every bite. Eventually they were right as they went off to become bacon, pork chops, and ham. The horses were rewarded with fancy saddles, got to ride in parades and lived out their years in green pastures.

As humans, we can decide which perspective we want to emulate. The scarcity view is like a hog, believing that there is only a limited amount of anything important.  The abundance view is like the horse’s apparent opinion that there is an endless supply of oats not only today, but in the future as well.

We see these two perspectives play out in many areas of life. Do we feel like we have to grab for everything we can today, because there is limited supply, racing to the store to buy what may be the last roll of toilet paper? Do we not have enough because the big, mean, powerful hogs chased us away from the trough? Or do we see the world from a different viewpoint as big beautiful place with enough love, joy, food, and energy for everyone? The Abundance Philosophy believes there is plenty of room to grow food if we use the land properly, and even if we run out of oil and coal, we will never run out of sun and wind.  Perhaps it also helps to do just a bit of advance planning to avoid the stress of the times we’ve lived through recently.

In business, scarcity says that there are winners and losers. Abundance thinking means when someone wins, we all benefit from the victory in some way.  We can fight like hogs or pull together like a good team of horses.

Jesus said that he came that we may have life and have it abundantly. God’s abundant provision is a consistent theme throughout the Bible. Whether we see the world through the eyes of scarcity or see it as an abundant place, we are right. The negative thinking of scarcity will lead to difficult and stressful days and it rarely turns out well. The optimistic life of abundance will lead to hope that green pastures will prevail.

 

Common Cents # 13 – Starting a business

Common Cents  # 13 – Starting a business

 

My family’s history is filled with family members starting and running small businesses of many kinds. Since a large number of people dream of owning their own business, but few people act on that dream or know how to go about it, it seems appropriate that we consider that topic this week. I have started a few businesses so I will tell you a little about what my experience has been.

I had developed a real love for black and white photography while in college and really enjoyed working in the darkroom. While I was working in a camera store after college, I realized that owning a custom black and white photo lab could be a real possibility. Many days at the camera store I would take a camera off of the shelf and shoot a roll of film or two around the store. I would use different cameras, some new, some antique, different formats, and different types of film. Each evening I would develop the film, experimenting with different developers, temperatures, times, and various techniques. Along the way, along with experience, I began to accumulate some cash and equipment.

I thought of this recently when I came across all of those negatives, carefully labeled with date, camera, exposures, and the developer that was used.

Within a relatively short time, I began to realize that I had as much darkroom experience and knowledge of black and white film as just about anybody on the planet. That is when I started telling people that I was going to open a custom black and white lab. The response was sufficient, and I was able to leave the camera store and do film processing and printing full time. My wife joined the company, and Mathis Photo was a profitable business from 1973 until 1996.  We only sold the company when we saw the digital age coming and the end of film processing in that volume on the horizon.

The basic idea then starts with a passion, or the spark that could become a passion. Included in that is a service or product that has been proven as needed, one that people are willing to pay someone else to do for them. The next step is to become an expert. It is unlikely that there was anyone with more experience with black and white film than I had. We also held excellent customer service and care as a very high priority.

Years later, I studied the coffee industry, coffeehouses, and how to build a caring community for more than a year before I opened a coffeehouse, a “Third Place” for people to congregate and spend time while having excellent food and great coffee. It is vital to be well grounded financially with a clear understanding of what the endeavor will require to stay solvent. Avoid debt like the plague, of course now we know that people aren’t very good at avoiding the plague. Create a business plan, then step out and do it.

A website that I created not long ago may answer a few of the questions that come to mind when considering starting a new business.  The address for that is:  OnYourOwn.help

Common Cents # 12 – Thrift Stores

Common Cents # 12 – Thrift Stores

 

For anyone interested in having nice clothing for reasonable prices, a number of strategies can be utilized.  Retail stores have good sales during the year and a smart shopper watches for those.  Being able to sew clothing for ourselves can often be more economical than purchasing a similar garment in a department store. And an ever-growing choice of Thrift Stores and Consignment stores can be the source of some remarkable items at very good prices.

We began shopping at thrift stores when we had a few free minutes as we dropped off items to add to their sales inventory. We quickly developed the philosophy that we were not looking for bargains, since everything is a bargain, but to look for quality. For example, I was in a thrift store a few years ago and noticed a beautiful leather jacket. At $35 it was one of the more expensive things in the store. It was obviously of high quality and of an unusual design. After I bought it, I did a little research and found out that is a German made motorcycle jacket. The company had recently lost their US distributor, so they were no longer available here. They were selling in Europe in the $300 to $400 range. I got a like-new jacket for 90% off. I receive comments about the great jacket every time I wear it.  

We don’t normally go to thrift stores to buy something specific, but rather we see it as more of a treasure hunt, to see what we can find. We look for brand name items with little or no wear. I am always surprised when I see clothes with the original store tags. The item should not be purchased if it is the wrong size or color. It pays to watch for good workmanship and develop an eye for something of quality.

In addition to finding quality items at huge discounts from new, thrift stores are a great way to recycle the things we don’t need, or perhaps have outgrown. We don’t consider giving to a thrift store as getting rid of our worn-out stuff, but rather putting something good into the hands of somebody who can use it. Donating to thrift stores is the most efficient form of recycling and is good stewardship of our possessions.

The money that thrift stores make from selling used merchandise often goes to non-profit organizations to support their work. We usually decide where to take our used items to support the work we believe in. For example, City Thrift is run by City Union Mission that helps the poorest people of our city. Savers is operated by Big Brothers and Big Sisters that has improved the lives of children for many years. Adelante Thrift support Mission Adelante, a ministry to the immigrant population based in Wyandotte County. Furthermore, these places employ people to sort, stock, clean, and sell the things we donate.

Thrift stores allow us to get great value for our money, give us a place to recycle the things we no longer need, provide resources for causes we believe in, and provide jobs for members of our community. It’s a Win, Win, Win!

Common Cents # 11 Finding More Money

 

In the past few weeks we have been talking about investing verses spending. Every penny we have we either invest or spend. If it is gone forever, we call it “spending,” if we can get it back later, we call it “investing.” Some things like food are obviously spending while other things like putting money in a retirement plan are clearly investing. Many things, like a house, are a little of both.

Today I want to talk about finding more money to invest, moving some of our money from the spending category to the investing category.

A big chunk of our income comes right off the top in the form of taxes. That is really spending because it goes to pay for things we all want, like highways, bridges, airports, national defense and thousands of other things. The basic principle of taxes is to pay all we owe, but not to pay any more than we need to. The trend toward DIY taxes has added billions to the nation’s coffers from people over-paying their taxes, but we will save that story for next tax season. The government will not return your money unless we ask for it – on the right forms.

The majority of people, 80% in fact, get a tax refund each year, not only from the IRS but also one or more states. A refund means that we have overpaid our taxes and we are asking the government to give back the part we overpaid. I cannot imagine very many of us, intentionally paying too much for a refrigerator or for clothing, and then asking the store send part of it back next year. No, we want to pay the correct amount the first time.  Adjusting our income tax withholding amount to more correctly reflect our taxes due will immediately put more investable money in our pockets. If we owe taxes on April 15, that is a good thing; it means we have delayed paying those taxes for the year and had access to those funds in the interim.

There was time not many years ago when we all paid cash for about everything. Forty years ago, I always had a couple of hundred dollars in my pocket. Now I have had the same two twenties for six months. Like most people, I always use plastic. Credit cards are safer than carrying cash, we don’t have to wonder if we have enough money in our pockets for an immediate need, and we get a statement every month telling us how much fun we had. Most cards even give rewards or cash back. What a deal, assuming we pay the balance every month. With interest rates of 15-20% and very high late charges, we can easily double the price of everything we buy if we have not developed good credit card practices. I heard someone say, “I want to charge my lunch, I don’t want to finance it for 36 months.”

Adjusting our withholding, have our tax returns completed correctly by someone like a tax professional who knows all of the legal procedures, and paying our credit card balance every month could easily put a few hundred dollars of investable money in our pockets each month.

More ideas to save money next month.

 

 

Common Cents # 10 Other Investments

 

Last week we talked about investing in the stock market using mutual funds and individual stocks. The problem with these kinds of investments is that they are usually not very much fun. It is far easier to get more excited about investing in baseball cards, vintage model trains, or classic cars.  If we employ good investment strategies, the hobbies or items we own that bring joy to our lives can also be part of our net worth and retirement calculations.

The secret to investing in collectibles is knowledge. It is very easy to get burned and very hard to find appreciating investments unless we are extremely knowledgeable about the subject. The big rule of thumb is that anything manufactured to be sold as a collectible isn’t. By that I mean that anything advertised as a collectible is almost never a good and appreciating investment. In my sixty years of observing such things I have seen dozens of items rise and fall because people thought they were an investment. I am talking about Beany Babies, Jim Beam Bottles, Cabbage Patch Kids, Avon Bottles, Commemorative Coins, Hallmark Christmas Ornaments, anything from the Franklin Mint. . .  you get the idea. If you really love owning those things, go right ahead and buy them; just remember that you are spending not investing.

I remember talking to a couple a few years ago who were very excited about adding an item to their collection that they had been looking for. It was a brand-new “collectible” in a retail store. When I commented that they were buying at retail prices and would someday be selling it at a wholesale price, they looked at me like I was nuts. They somehow thought that they could sell it next week for more than they paid though they had never tried to sell anything from their collection yet. That is not investing. That is speculation and seldom works out well.

If we watch the very popular American Pickers, Pawn Stars, or Antiques Roadshow, we learn that there are thousands of obscure items that are highly sought after by a small number of people. If we are one of them, and know exactly what we are doing, collecting and investing in antiques can be extremely rewarding and possibly lucrative in the long-term.

If there is one thing that we are passionate about, say for example electric guitars from the 1950’s or Tri-Five Chevrolets, we must learn everything there is to know before we buy, enjoy owning the item every day we have it and consider it part of our investment portfolio until the time is right to sell it. Someday we will pass the item on to another collector who may love it even more than we do. Selling our collection may be part of our retirement plan, but we cannot consider this to be the only investment made toward these long-term goals, just as we wouldn’t want to own stock in only one company. High-end collectibles are seldom liquid, and the values can vary in many ways. And of course, unless we are a dealer in the business, we are buying at retail and selling at wholesale.

 

Common Cents # 9 Investing

Common Cents # 9 Investments

Last week we discussed that part of everything we make is ours to keep. The idea is that ten percent of what we make should first be given away to Non-Profit works we support or for the Believer, returned to God. The second ten percent is ours to keep. That means invested and not spent.

Even if we agree with this concept, it is not always possible to implement it with our next paycheck if it has not been our strategy before.  The first thing we must do is to look at our current percentages and see, over a period of time, when these goals can be achieved. 

When we write a check, pull out some cash or a credit card, we are doing one of two things: spending or investing. If the item we are paying for is consumed, such as food, gasoline, or electricity, it is spending. If we can get our money back later, hopefully after it has grown a little, we call it investing.

There are a few areas where the line is blurry. For example, if we are making a mortgage payment on a house, the part that is interest, taxes, and insurance is spending. But the part that goes to increase our ownership in the house, paying down the balance, might correctly be considered investing. If at a later date we sell the house, we will most likely get that money back, probably increased by inflation. So in that case our home may well be a good investment. One does not really know until it is sold.  However, we do know that rent paid is just spending.

So, what about other investments? Anything that we can easily sell for at least as much as we paid is considered a good investment. We sometimes talk about investments in terms of liquidity. Liquidity is a clever word that means how easily an item can be sold or converted to cash. A stack of one hundred dollar bills is very liquid, they can be spent right now. A house is not very liquid because it could take months to sell.

A good place to park our money where it is reasonably secure, at least in the long-run, and is quite liquid is the stock market. If we get really excited about investigating companies and making decisions about their long-term viability and feel we want to be part of that company, buying individual stock may be what we do. For most of us, we would rather make small investments in a large number of companies over a large number of industries and let professionals pick the individual stocks. We call this shopping cart of stocks a mutual fund. Anyone can go to one of the many web sites operated by mutual fund companies, choose a fund, write a check or transfer the money and become a proud owner of a chuck of the American (or world) economy. One can also go through a stockbroker or financial planner. Many people who work for a company with employee benefits can have money deducted from their paycheck and invested in mutual funds through a program such as a 401(k) retirement plan.

Setting up an account with an online brokerage company and putting in a small amount every month is one the smartest things we can do. As we have seen in the past few months, the stock market can be volatile over the short term with big swings in prices in just a few days. However, the long-term trend over five years, ten years, or more has proven to outpace inflation and increase in value.  Understanding our tolerance for risk is required and investments made accordingly, but the stock market is an essential part of long-term financial success.

Next week I will talk about some other forms of investing such as collectibles, musical instruments, and vintage cars.