Posted: 12 Sep 2011 01:00 PM PDT
Saving Pennies or Dollars is a new semi-regular series on The Simple Dollar, inspired by a great discussion on The Simple Dollar's Facebook page concerning frugal tactics that might not really save that much money. I'm going to take some of the scenarios described by the readers there and try to break down the numbers to see if the savings is really worth the time invested.
Marshall said, Perhaps you’re already done considering ideas for the segment, but I never have run the numbers on whether or not the SodaStream machine I bought for $80 will ever save me money – assuming the device lasts a long time (I don’t see why it wouldn’t.) One thing it does do is provide me a great variety in the flavor of soda’s and less recycling/trash.
Right off the bat, the point needs to be made that it’s far less expensive to drink water than it is to drink any kind of soda, whether it’s SodaStream or any prepackaged soda. I can get a gallon of water from my tap for less than a cent. Not only that, it’s better for me than the soda.
Now, let’s look at Marshall’s question. Marshall is referring to a SodaStream, which is one of several different types of household devices that mix water and a syrup to create a soda beverage for drinking. Typically, these devices require an initial investment to buy the machine, but thereafter you only need to buy replacement syrup. Once you’ve sunk the initial cost into the machine, the cost of the syrup and the water is somewhat less than purchasing soda at the store.
Is it a bargain? It really depends on how much soda you drink. What we first need to figure out is the “crossover point” – the point at which a SodaStream machine and the syrup necessary becomes less expensive than the equivalent amount of purchased soda from a store.
Since there are tons of variables here, I’m going to simplify by comparing Coca-Cola to the SodaStream using the “cola” mix. The same approximate numbers work for other soda-making devices and other sodas you might buy at the store.
Costs for SodaStream As mentioned in Marshall’s message, you can purchase a SodaStream machine for $80. After that, you can purchase “cola” refill kits for $5. A single “cola” refill kit costs $5 and makes 12 liters of soda.
Costs for buying Coca-Cola My local store regularly offers a dozen 12 ounce cans of Coca-Cola for $3. This is 4.25 liters of soda for $3.
Cost per liter The cost per liter for SodaStream cola is $0.40. The cost per liter of Coca-Cola is $0.70. Clearly, the SodaStream is going to be cheaper over time.
How much soda do you have to drink to make up for the initial cost? You save $0.30 per liter of SodaStream cola that you drink versus Coca-Cola. The initial cost of the machine is $80. Thus, you’d have to drink 267 liters of soda to make up the initial cost.
Wow. That’s a lot of soda.
To put that in perspective, a twelve ounce can of soda is 0.35 liters. You would have to drink roughly 762 cans of soda for the machine to start being worth it compared to buying Coca-Cola in the store.
Simply put, for this machine to pay off, you have to be a high-throughput soda drinker. There are no ifs, ands, or buts about it. You have to drink a little over two cans of soda a day for a year to get past that point.
Of course, if you drink the equivalent of three cans of soda a day for five years, a machine like the SodaStream is going to be a great bargain. But if you’re drinking three cans of soda a day for five years, it’s going to have a crippling impact on your health, which isn’t a bargain.
In short, over a long period, a SodaStream can reduce your soda costs significantly if a lot of soda is consumed in your home. However, if a lot of soda is consumed in your home, you may end up finding that you have other expenses as a result of that consumption.
Posted: 12 Sep 2011 07:00 AM PDT
What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
One interesting part of being a parent is figuring out your own balance of independence and protecting your child while also observing (and sometimes having to deal with) the balance that other parents choose.
For example, I let my kindergartener walk to the bus stop on his own. The walk to the bus stop is quite short – it’s about half a block away and he has to cross a very low traffic street to get there.
At the same time, there are other parents who insist on walking to the bus stop with their kindergarten-aged children.
Another funny aspect of all of this is the protectiveness that my child requests. In the afternoon, he’s asked me to be at the bus stop when he gets off the bus. (There are usually several other parents over there at the same time.) If he ever changes his mind, I’ll certainly wait for him at home.
This happens over and over again with things like playing at the park, visiting friends, and so on. There’s a balance between making sure your child is safe and also making sure that they have the independence they need to grow. I think, by default, I tend to be closer to the “independent” end of the spectrum, but I’ll be there when they ask for me.
Q1: When to start retirement fund?
Next year I estimate my income to be around $50000, and his about $25000. We are lucky enough to live with my parents, who charge us minimal rent with all bills and food included. They have offered to let us stay for 1 year after I graduate so that we can save a 20% deposit on a house ($50000) which would see us getting a nice enough house in an OK area, close to where I would like to work.
To save $50,000 in one year when our combined income is $75,000 will not be easy, but I am frugal and commited so I think it is possible. I would also be wanting to get a short mortgage (15 years, max) which would see us owning a home freehold by 40, but would also have us spending around 40% of our income on a mortgage.
My question is: How soon should we start a retirement fund, keeping in mind that after 40 we would be able to save around $20,000 per year for retirement (I have a retirement fund which takes 4% of my income)? I would be pouring everything we have into a deposit next year, and then adding to our $4000 emergency fund for a couple of years after that so I don’t know where we would find the money. I would also like to travel, and we do not want children.
To save $50,000 in one year when your combined income is $75,000 is nearly impossible because of federal income tax, state income tax, insurance, FICA, etc. To achieve that goal is going to require that you spend nothing in that year. Your parents will have to provide not only housing for you, but also feed you. You’ll also have to basically avoid all entertainment or hobbies with any expense during that year.
That being said, I would still not avoid retirement savings if at all possible. The reason that it’s suggested that people start retirement savings immediately is that you just can’t bank on the future. Putting off retirement savings commits what I consider to be the biggest personal finance cardinal sin.
It puts an extra demand on your future self, and your future self is inherently unreliable.
Never, ever put off until tomorrow what you can do today. Yes, even if that means not having that thing you want at the first possible moment.
Q2: First house decision
The last people to look at it are getting it inspected and will offer on the house this weekend. My aunt said we could have the house for what they owe on it $150,000.
Should we purchase the house with zero down for a 30 year fixed mortgage? Live here until next fall while paying the same amount we would in apartment rent or purchase the house a bargain basement price and rent it out next year? Since we got the house so cheap the rent to cover the mortgage would be low. We would be away for three years at grad school and my parents could be the go to contacts for the renters. I imagine my sister-in-law would rent the house. I know if we did not have to move for grad school we would buy it with no reservations since it is nice in a great neighborhood.
I was looking at it as an investment since the housing market should be in a much better place in 5 years and I would be able to recoup the 150k in costs since we bought it 60k less than the house is valued at.
My speculation is that your aunt is offering the house to you under the impression that you need the house for a place to live. You seem to be looking at it as a potential investment since you’re thinking of renting it and then selling it in a few years for a profit. Before you go down that road, I would discuss it with your aunt or else you might find that you’ve really damaged that relationship with your aunt.
Assuming your aunt is fine with this, I would probably buy it. When you go away to graduate school, I’d live in on-campus housing and do it as cheaply as possible. You do not want two mortgages while in graduate school.
Also, I would not bank this entire plan on the housing market being wonderful in five years. I would call the housing downturn a correction. It’s a return to close to how houses should be priced. I would never expect the fairy tale of the mid-2000s to return and I certainly wouldn’t make financial plans based on that.
Q3: Shopping for health insurance
The cost for the more traditional health insurance plan I would choose is $483 a month. Obviously, the max payout for traditional health insurance is a bit less and although we have never maxed our payments out in the past, for my purposes here I think I might as well assume that will be true for the next two years. The thing is, the HSA is pre-tax, allows tax-sheltered investment and tax-sheltered withdrawals. The traditional plan is paid for pre-tax, but some significant costs aren't totally covered (the last time I was on it, I paid about $700 out of pocket in one year, and I think it’s reasonable to double that estimate for the family plan) and there’s no HSA. This is where the math starts to make my eyes swim, but my gut feeling is that, contrary to the received wisdom that these HDHP plans are not intended for families anticipating a lot of health costs, this plan would actually be a better deal over the long run, esp. since I have a small amount of savings already built up in it. Do you have any suggestions for details I might have missed?
Again, this is all a bet on your future self. You’re assuming that you, your husband, and your child are going to be perfectly healthy in the future.
If I were you, I’d hedge your bets until at least after your child is born. I would choose the insurance plan that offers the most protection during the child birth process and also during the first few months of your child’s life. There are a lot of problems that can happen during birth and there are also early childhood conditions (and a lot of doctor visits) to worry about, too.
If I were you, I’d revisit this question when your child is a year old or so.
Q4: Driving school
In the state where I grew up (Illinois), driver’s education was taught in school as a normal class, so the process of actually paying for driving school is a new one for me.
Assuming I’m faced with that decision, I would likely split the cost with my child. I don’t think rewards actually encourage any sort of long term positive behavior, so I usually don’t do them beyond things like “get the table cleaned and then we’ll have ice cream” or something along those lines.
I asked a few friends who have older children in areas where one has to pay for driver’s school and many of them replied that it was either a fourteenth or fifteenth birthday present. That’s not a bad idea.
Q5: I’m overextended – what now?
Ok, all that being said, am I going to be in debt for forever?? Will there ever be a day when I can go hang out with friends because I have a little discretionary funds for entertainment? Do you have any suggestions on how I can pay off this debt quicker now that I have no extra expenses to cut back on and still don’t have enough to pay more towards the debt??
It sounds like you’re doing the right things, but the fact is that financial success takes a lot of patience and time.
You sound like you’re really in a very tight financial pinch without a large income. Have you considered big moves like getting a roommate to reduce your housing costs? Have you considered ditching your car and relying on some sort of mass transit for commuting? Have you considered community food resources?
These are often challenging moves for people to make, but they often make an enormous difference in terms of moving forward with debts.
Q6: Making money via social media
They make money by encouraging people to think about their product, talk about their product, and so on.
Let’s take a typical Twitter contest. They’ll have a contest where you have to tweet something like “The new book by Trent Hamm ROCKS! (some link to the book) (some link to the contest information) #trentcontest”
Each contest entry becomes an ad for my book. The same thing happens with a Facebook giveaway, since your comment shows up on your feed.
Bloggers sometimes offer giveaways to get bursts of readers. This provides short-term traffic, but it also increases the blog’s name recognition.
Q7: Working during grad school
SO, my question is this: would you recommend working full time and stretching my 2-year masters degree to 3 or 4 to minimize my loans (and overall cost of grad school)? Or would it be better for me to use other ways to cut down on my school expenses, finish my degree in two years, and start working at a higher level (and hopefully higher paying job) sooner rather than later?
Do you have a job lined up that you can walk right into after you get your degree?
If a job is in place, I would get the degree as fast as possible. You’re going to be walking quickly into a job with a higher income level, so the increased cost of your education should be quickly mitigated. A great job is a great opportunity and you need to grab the brass ring.
If a job isn’t in place, I’d use whatever method resulted in the lowest debt after you leave school. You’re heading toward some degree of uncertainty and minimizing the debt load you’re carrying into that uncertainty is a good move.
Q8: Trying out games inexpensively
One way to do this is to stop by a gaming shop in your area (use Google to find one) and ask if they have demos or if they have a night where you can try such games before you buy them.
You also might want to shop around online using sites such as Cool Stuff, which is a good discount retailer for board games.
The real key, though, is to just make sure you enjoy playing them. Start off with an ordinary deck of cards and try playing bridge or euchre or pitch with some friends. Build from there.
Q9: Credit reports of children
The annualcreditreport.com site doesn’t allow for online checking of people under the age of 13. But I believe I can request a paper copy of the child’s report.
Is this what you would recommend to check on children’s reports or would you do something else?
There’s no reason to not check your child’s credit report. Mostly, what you’re looking for is identity theft.
I probably wouldn’t worry about it unless you start to see a reason for it. Is your child getting credit card offers? Have they received any sort of unusual communication relating to money? Those would be warning signs.
I did once request a paper copy of my oldest child’s credit report. I was slightly concerned about identity theft. It was completely clean.
Q10: Sales pitch or genuine question?
Simply put, I don’t. I just try as best I can to avoid questions like that.
Writing on a topic like personal finance to a large audience sometimes feels like walking a tightrope. I’m often advising people to the best of my ability on complicated issues, from ethical, financial, and sometimes legal standpoints. There’s also the concern that people need their privacy protected. There’s the concern that both the person asking the question and the person reading the column need to get something out of it. There’s also the worry that you mention above, that I’m inadvertently promoting something I don’t necessarily believe in under the sense that I’m helping out a reader.
I face these kinds of concerns every day, and I have to make calls on them every day. I do the best I can. I’m not perfect, and sometimes I make the wrong choice.
I give a poor piece of advice. I post a bit too much information about someone. I edit a question a bit after posting at the request of a reader and it makes the answer sound nonsensical or wrong. I write an answer that’s too specific, meaning it only helps the person writing the question and none of the readers. Or, I’ll write an answer that’s too general, meaning it really doesn’t help the person writing the question too much at the expense of helping others. I have done all of these things over the years.
All I can say is that I’ve been writing The Simple Dollar for almost five years now, posting at least two posts per day during that entire run. I’ve answered more reader questions than I can count. In the vast majority of cases, I think I’ve done the right thing with regards to choosing questions from readers that genuinely are seeking help, protecting the privacy of those readers, and giving an answer that not only provides them help but provides help to the people reading the column.
That’s all I can really do.
Got any questions? Email them to me or leave them in the comments and I'll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.
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