Choloclate, Part Dos

So after contemplating my chocolate episode the other day, I read today about one psychologist’s reason for my indulgence: “each instance of self-restraint weakens us a little more.” In other words, every time I passed up chocolate in the past, it was like adding helium to my burning chocolate desire. The quote came from Roy Baumeister, a social psychologist at Florida State University, c/o Laura Rowley’s recent article on understanding and controlling emotions during this tough economy. I think the moral of the story is that it’s difficult, if not impossible to go “cold turkey” when it comes to giving up wants. Instead, the article says, focus on cutting costs in a few specific areas or giving up a few “wants.”

Mmmmmm...Chocolate

When I go to the grocery, I rarely buy anything more than essential food, occasional toiletries and cleaning supplies. In other words, I almost never buy any dessert/candy or drinks (except for some cheap wine here and there). However, the other night I had a big craving for some chocolate. I really didn't want to have to make a trip to the grocery just for chocolate (my natural reactions against unhealthy food, wasting gas and wasting money on unnecessary food were kicking in pretty well). After several hours of contemplation, I finally decided to go and I ended up not feeling too badly about it. At least I got my chocolate on special.

I often find myself (at least trying) to make financial/food decisions as rationally as possible and I sometimes have a hard time relating to people who act clearly against their own self-interest in financial matters. I recognize that a lot of the personal finance blog world is built around bloggers supporting other bloggers as they decide to live frugally, invest and otherwise make healthy financial decisions; though again, it is hard for me personally to get into the "cheerleading" spirit. I generally believe that with enough good information available, people can and will make the right decisions for themselves, which is where I see the value of many PF blogs. However, like everybody else, I recognize that I'm only human and that it is OK to make irrational decisions sometimes.

Beans

I just got back from the grocery store after scoring one of the best finds in several weeks. I am a big fan of black beans. They taste great, hardly ever expire (in a can), provide decent protein with low fat, can be mixed with some Mexican cheese and cumin and chili powder for practically a meal in themselves, or can be added to virtually any Mexican dish (and I love Mexican). Perhaps the best thing about black beans is their price- 69 cents for a 15.25 oz. can of store brand beans (and I've never tasted any difference between the generic and branded beans). Sixty-nine cents is pretty insane to me. Well today, my beloved beans were on special for an almost outlandish 2 for 1 (50 cents per can!). I bought at least 10 cans. Oh, the simple joys in grocery shopping.

What Happens in Vegas....

I just returned from a family trip to Las Vegas and feel fortunate that what happened in Vegas came home with me- cash. I was lucky and won a decent amount on a slot machine. However, I don't recommend it for the cash-strapped or think it is a wise investment. Some people think investing in the stock market is a gamble, but this certifiably was a gamble. This was my first time visiting Sin City and I thought it was a great place to vacation. Despite promotional material that may say otherwise, Vegas is not the best place for those under 21, nor those under 18 actually and certainly not young children. I am already thinking about my next trip to the Strip, and while I am no expert on the city, here are a few tips I gleaned on saving money:

1. Gambling- Recognize it for its entertainment value and have fun with it. Put a limit on the amount you are willing to part with and don't gamble any more. One solution is to leave most of your cash in the hotel room (preferably in a safe) or with a friend, and only keep in your wallet what you are willing to spend/lose.

2. Entertainment- For top-rated (and generally the most expensive) shows, book tickets before your trip, far in advance if possible. You should definitely see at least one show and preferably one of the top-billed shows. We saw Ka by Cirque du Soleil and it was a fantastic and unbelievable display of dance, acrobatics, costumes and music. Tickets are expensive, but worth paying and these shows tend to sell out more often and more quickly than second-tier shows.

2.1 Entertainment- For other shows (and less frequently for the top-billed shows) a good budget-friendly option is Tix 4 Tonight, which offers tickets for the current day's show at up to 50% off, in addition to discounts at major restaurants. As I said, many shows tend to sell out (and if there is a show you really want to see, buy ahead), but this can be a great way to see a great show on the cheap. The company has 5 locations around Vegas and tickets must be purchased in person. According to the website, they open at 10 a.m. and it obviously makes sense to arrive early in the day. There is a service fee involved, but the website offers a $2 off coupon.

3. Food- Vegas can be an expensive town, where typical dinners can easily run $30-40 per person (plus the expenses of shows, transportation, hotel, etc.). Breakfasts and lunches usually aren't much cheaper. One fairly easy way to save a little (especially for a college student like myself not accustomed to a regular food schedule) is to skip a meal, usually lunch, and just eat a decent breakfast and dinner. If you think you'll get hungry, bring snacks with you from home to eat throughout the day. Vegas is the king of buffets, which are a great way to sample a ton of different food. Though officially frowned-upon, you can often sneak a banana or other piece of fruit for later. Also, see 2.1 for discounts on meals.

3.1 Drinks- Drinks can also be wildly expensive and drink prices vary an equally wide amount. At the bottom end are a few convenience stores sprinkled throughout the Strip, which sell liquor, beer, etc. at prices closer to what you might expect at home. Otherwise, it is not hard to find a bar and/or cocktail waitress to bring you drinks. Always look for drink specials and ask about prices before you buy. The same beer might cost you $6 at one place, but only $1 35 feet away. Often in casinos, if you play long enough, a waitress will bring you a drink for "free" (hoping for a tip, which is not a bad deal).

4. Hotels- Vegas has something like 140,000 hotel rooms, a number which is always on the rise. Hotel prices can be a tricky business but I picked up a few fundamentals. Obviously, avoid major holidays if you can. For instance, New Year's Eve in Vegas is big, but the middle of December is slow, so the same room on New Year's Eve might cost 5-10x that which you would have paid a couple of weeks earlier. Many hotel websites show calendars with room prices per day, simplifying a budget-friendly stay. Also, avoid the ritziest hotel/casinos if you are more concerned with value than luxury. The newest, fanciest hotel/casinos on the Strip can charge the most, but there are a number of older, less-expensive accommodations right next to the newer places. Check out older places like The Flamingo, Bill's Gamblin' Hall and Saloon, and the Imperial Palace for more budget friendly rooms still in the heart of the action. Also, Vegas hosts some major trade shows every year, so look ahead at the dates and exact locations of these shows to work around them.

4.1- Rewards Card- You can sign up for a rewards card at nearly every major casino for free. When I signed up for one, I received a decent coupon book and t-shirt. Most people use them in slot machines when they play, and it tracks your winnings and losses, plus gives you rewards points. Honestly, I think you would have to play slots a lot more than I ever will in order to earn enough points to use, but I did find one good use for the cards (in addition to the shirt and coupons). On your next Vegas trip, you can usually get a slight discount off your hotel rate if you use your rewards card with the hotel/casino. If it is your first trip, ask friends to see if they have one. One note- sometimes, room prices can actually be cheaper without using a card, so always check prices with and without the card.

5. A note on coupons in general- Coupons are plentiful in Vegas, so get them and use them. People will often hand out coupons on the sidewalk and sometimes coupon books can be found in hotels (see 4.1). However, watch out for the swarms of people handing out what look like baseball cards (they usually operate in packs and flick the cards to get your attention). These cards are actually ads for call-girl/escort service, with naked women on the front. I'm not sure if they save you money on their services, but they definitely won't save you anything in restaurants and legit shows.

6. Airfare- I feel like books could be written (and maybe have) on the art of picking cheap airfare. There are many strategies people follow (a common one is using sites like travelocity and kayak to compare airfare) which I will not get into in this post. However, since we used frequent flyer miles to book most of our tickets, I thought I would share some wisdom I have found in that area. Nearly every major airline offers a credit card which allows customers to earn airline miles as they shop, usually 1 mile for every dollar spent. Most major airlines' cards also offer sign-on bonuses (at least they are now) just for signing up for the card. I have been compiling a list of offers, some more valuable than others, which I hope to post soon. The best deal by far is the current American Airlines Promotion with Citi. If you apply by August 31, 2008 and spend $750 within the first 4 months, American will give you 25,000 miles, enough for a free ticket in the continental US. Most airline cards usually carry an annual fee, but this offer waves the fee for the first year. So basically 1) get an AA frequent flyer number (if you haven't done so already, it is free to sign up) 2)spend $750 on the card in 4 months (shouldn't be too hard for most people) and 3)now you have a free ticket for yourself or a friend to Vegas or anywhere else. Of course, the usual frequent flyer difficulties still apply. I would probably cancel the card before the 1-year mark, in order to avoid the annual fee, unless you really like the card.

Gas and hot air

While I don’t intend to weigh in on the mucky waters of politics in a personal finance blog, I was intrigued by Hillary Clinton’s Plan to temporarily suspend the federal gas tax of 16.5 cents during the summer driving season. John McCain proposed s similar plan, though Clinton said she would pay for the lost revenue through a tax on oil companies’ profits while McCain would not impose a new tax.

Like any other frugal, gas-paying American, the idea of saving a little bit at the pump interests me. But remembering back to Econ 101, this may not represent a wise or effective policy at this time. First, one of our nation’s greatest problems is our demand for oil/gas, and taking away the tax would only increase demand. If the tax is dropped and demand increases, prices will return pretty much where they stood with a tax. Assuming the lost tax revenue is not fully recovered, this is just another example of deficit spending to give Americans a little more money, on top of the $150 billion economic stimulus package. Though smart people can debate the principle of taxing profits (and the message it sends), Americans’ demand for gasoline is also relatively inelastic (remember back to Econ), which basically means any new tax on the oil companies could and would be directly passed onto consumers. And I’m not just making this up because I secretly want to pay more for gasoline. Thomas Friedman of The New York Times apparently has similar thoughts.

Everyone loves indexing, right?

I have started reading a few books on the advantages of using index mutual funds (or exchange-traded funds, which are like mutual funds but trade like stocks) over actively managed funds. Malkiel's "A Random Walk Down Wall Street" and my current read, Ellis' "Winning the Loser's Game" both lay out a pretty convincing argument: Most mutual fund managers perform worse than the "average" (especially after fees and expenses); it is next to impossible to predict or time the market effectively and consistently over the long term, so picking a good mutual fund manager (like picking good stocks) almost comes down to a guessing game with the odds against you; the top mutual fund performers of any one period tend to perform among the worst during the next period; indexing allows for "lazy" investing, where investors can stick with a basic mix of funds instead of constantly switching stocks or managers; since it is next to impossible to predict equity returns over a given period, the one thing investors can know is the expenses and fees they are paying and index funds carry lower fees than actively-managed funds; index funds tend to be more tax-efficient since they are not constantly buying and selling stocks.

Investing in index funds is such a good idea that professionals like Warren Buffett, David Swensen (who manages Yale's $22 billion endowment) and even crazy CNBC stock picker Jim Cramer recommend it for most investors. I personally favor exchange-traded funds, since they tend to operate even more efficiently than index mutual funds, but I will leave that argument for another day. Basically, index mutual funds are the way to go for most average investors.

I was not surprised, however, when I ran across this article from Kiplinger's online titled Indexing in Question. In it, author Steven Goldberg notes how popular S&P 500 index funds have essentially remained flat from January 2000 through the first quarter of 2008. Goldberg, who admits he personally does not favor passive funds, saying "I think I can pick funds that will beat the market indexes over time. But it's hard as the dickens, and I know I will often fail," warns that good investing is not as simple as putting all of one's money in an S&P 500 fund or even a Wilshire 5000 fund. I completely agree with him on this, though apparently we disagree that index fund investors have some deficiency that causes them to only invest in a single fund.

Of nearly all the information I've read advocating index funds (and there is plenty I have not yet read), I have found no pro-index author who only recommends investing in a single fund, even if it does diversify across a broad range of stocks (like 5000 of them). Instead, most experts I've read have recommended a portfolio suitable to one's age and risk-tolerance, composed of index funds properly diversified among small, medium and large capitalization growth and value stocks, as well as bonds, foreign stocks and (often) real estate.

My feeling (and hope) is that people who research the value of indexing also recognize the value of proper diversification, which is key to any portfolio of actively-managed funds as well.

And the Rates go Down...

The Federal Reserve cut a key short term interest rate again yesterday by 1/4 point, marking the seventh cut in the last 8 months or so. The decision dropped the federal funds rate to 2.0% from 5.25% last September, and interest rates in most people's checking, savings and money market accounts have plummeted with the key rate. Two popular options for finding a decent savings rate include the ING Direct Orange Savings Account and E*Trade Complete Savings Account, both currently paying around 3%. This rate is several times larger than the average savings rate from a "brick and mortar" bank, which may currently pay .5-1%. I've tried both the ING and E*Trade accounts, and both seem to offer a good alternative to low rates at local banks. It is usually easy (and free) to transfer money between these accounts and your regular checking or savings account, making this a great option for an emergency savings fund.

However, I'd like to recommend another option I think people often overlook- credit unions. Credit unions are basically member-owned, non-profit banks. Because of this, they don't pay taxes and pay higher interest rates to their member-owners. Credit unions are generally set up to serve a specific group of people, so there are some requirements (such as being a government employee, living in a certain area, working in a certain field, etc.) to join one. However, most people would find they are eligible to join one near them if they did a little looking.

I’ve been a member of a credit union for about 5 years and have always been happy with it. While others are currently earning .5-1% interest or less, my money market account with the credit union is currently paying 3.25%, down from about 4.5% before the Fed started cutting rates. In other words, I get a better rate from my convenient “brick and mortar” bank, with access to ATMs, than I could get from many of the highest-yielding online banks.

To find a credit union near you, check out Credit Union National Association .