Category Archives: Value of Money

Bad debt, good debt & cost of borrowing money

Growing up, I never thought of borrowing money as a tool, rather it was a sign of not having enough money to pay for whatever you were trying to buy. It wasn’t until I started working that I learned more about it. Internet has a lot of information about types of debts, so I’ll skip that part. You can read about it on investopedia, bankrate, or cnbc to name a few websites.

What is considered bad debt may not be so depending on how you use it – it can be explained by considering the cost of borrowing money. Interest is what we pay to use other people’s money (OPM); there are several things to consider when borrowing, some of which are following:

  • Total amount borrowed
  • Fees associated with loan process
  • Interest rate
  • Length of borrowing
  • Early repayment terms

Looking at the bigger picture, this can be used to your advantage and possibly also help acquire good debt.

Bad Debt #1: Car Loan

Last year when I was buying a car, I had thought about paying cash since car loan is typically considered a bad debt – it seemed like a good idea until I ran the numbers:

  • I was getting a car loan for upto $25K at 1.99% without any other processing fee or extra charge
  • I was also considering buying a house in near future

I could pay cash for the car and figure out the house down payment later or, which I eventually ended up doing, take a car loan an put more cash towards the house. Our home loan had interest rate of 4% and we didn’t have to pay PMI because of the extra down payment I could afford. Considering that the interest for the car loan is half of that for the house, it turned out to be a good deal.

debt

Bad Debt #2: Credit Card

I always pay credit card bills on time and never carry any balance. In this one instance, I had to pay the bill on Thu and I was going to get paid, a day later, on Fri. I paid the minimum balance on Thu and waited to get paid to clear rest of the balance; total interest paid <$1. The high interest rate for credit card is the yearly rate and unless you plan to not pay for an entire year, the interest doesn’t accumulate much. Compare that with payday loan or bank overdraft fee, both of which cost more than $30!

Bad Debt #3: Store Credit card:

I am not a fan of store credit card in general, primarily because those can’t be used anywhere else. After buying the house, we still had to buy appliances and furniture. I did research on what I wanted to buy and compared prices at 3-4 physical stores besides checking online. Finally went to the one which had the lowest price for what we wanted (considered brand name, type of appliance, size etc.), they were also willing to price match.

I was going to buy from there for the lowest price alone, but they offered more discount if we used store credit card. The card also came with 0% interest for 18 months, which was an added advantage. That’s the only time I’ve used store card and didn’t think it was a bad debt because of the savings and not having to pay any interest.

When making a decision about using cash vs OPM, consider above factors and remember to do your own calculation not what the seller shows you.

P.S. My friend and I had this joke about me not willing to pay $500 to get my mustang’s broken window repaired. His exact words, “You didn’t want to pay $500 for the window, so you bought a new car for $15,000?!” I had my reasons. 

 

If you think money doesn’t buy happiness, you’re not spending it right

There are a lot of skeptics out there – don’t let them tell you what money can or can’t buy! I’ve always been a believer of the fact that money spent right brings happiness, but of course it’s not the panacea for all the problems out there.

75kstudy

Over the years, I’ve seen several research papers and read books about it and a lot of those resonate with me. One of the first studies I came across had the point of diminishing returns at $75,000 – the 2010 research talks about evaluation of life and emotional well being and how money affects those.

So those of you who’re reading this article and make more than 75K (adjusted for inflation this would be more like 85K in 2017), let us know in comments whether life has gotten happier after the magic income.

Then I saw the fascinating  research of Michael Norton (see his TED talk below) about how can money buy happiness – when you spend it on someone else. The speech highlights specific data points and details of the experiments that were performed.

If you’re convinced and/or inspired by Norton’s speech, consider making donation to redcross for Hurricane Harvey or Hurricane Irma  disaster relief fund (or DonorsChoose.org for that matter)

The Book “Happy Money: The Science of Smarter Spending” has some great findings too about how to spend money to become happier.

  1. Buy Experiences
  2. Make it a Treat
  3. Buy Time
  4. Pay Now, Consume Later
  5. Invest in Others

Taking examples from my life, I’d be lying if I said I donate money for selfless reasons [it does feel good to help others, thus helping oneself). I’ve also written about enjoying experiences in life more than buying things. Even simpler pleasures in life such as using dishwasher that frees up time adds to the happiness (#3 from the list above).

What are some of the ways you’ve spent money that made you feel happier?

Las Vegas or Cruise vacation

Every year, approx 40 million people go to Vegas and 20 million to Cruises. A recent trip got me thinking that these are not that different. Can we call cruise ships Vegas in sea? Here’s the way I look at it: everyone has different taste, but for the comparable duration, things to do, food etc. cruise is definitely a better deal financially.

Mega Structures: When someone asked me [after my first cruise] what’s a cruise like, my answer was it’s like Vegas; the ship is huge like hotels and everything you can think of is inside – casino, restaurants, entertainment.

architecturevegas

Casinos: Hotels make you walk through the smokey casinos and so do Cruises. On the cruise that we were on, some of the elevators didn’t go to 6th floor – we had to get out at Casino floor (#5 I think) and go through the whole casino if we wanted to go to the Irish bar.

Shows and buffets: Both have good shows; Vegas has more celebrity shows, but those are included in the price for the cruise. We also did escape room at the cruise along with comedy show so all inclusive pricing is definitely better there. Also there are restaurants everywhere, you name a cuisine and there is place – Food at Bacchanal was great and so was the Hibachi at cruise. I gained a lot of weight in both the trips, which I am trying to get off.

It’s crowded everywhere and people walk holding drinks: It’s not necessarily a bad thing, but both places to have a lot of people [walking holding drinks], at times not even knowing where they’re going. On the first day of our cruise, I saw a guy holding drinks in both hands and jumping in the elevator.

Excursions vs Day trips: Vegas has few day trips options and they call it excursions in cruise. With cruise, you can go to Paris and Venice for real. Also when you get our at a port you forget all the drinking and gambling life for a minute and can indulge in other things. I am not a big fan of going to beaches but Atlantis looked great and again reminded me of Vegas.

Views: You can go to Paris tower, high roller or stratosphere tower to look at city view, which is incredible in night. Cruises have great views too – more nature than buildings though.

cruise

If I had to pick a favorite, I’d pick Cruise because you can go to so many places and still gamble, watch shows, eat and have fun!

Which one is your favorite?

Valuing things in life – stuff vs experiences

Twenty years from now, you won’t remember the things you possessed, but you will remember the experiences you had!

minimalismI wouldn’t call myself a minimalist, but I realized a long time ago that things don’t make me happy; the excitement of getting new and shiny stuff sometimes doesn’t even last a day, forget about lifetime. While I am no expert in how to live a happy life, but I’ve started value experiences over possessions [stuff that you seem to want]. I still remember my first flight over 9 years ago since it was my first time looking down at the clouds; I don’t remember what I got for my 25th birthday, which was later than the flight.

That’s one of the reasons I started exploring about how to pay less for things (or get more value out of them)  – what’s the point of paying a lot of money for something that doesn’t make your life worthwhile [however, one still needs certain minimal things such as food, clothing and shelter to survive]. For things of comparable features, I buy the cheaper one; for experiences of comparable cost – I like to find the value. Couple of recent experiences that far out-valued the cost [for me] are as follows (in no particular order):

  • Running a marathon in the windy city: there is no better feeling when you make a turn (along the long tiring route) and wind welcomes you distracting from the fact that all the parts of your body hurt, including hairs!
  • Fighting with a storm and not letting it divert you from what you want: yes, I drove to Virginia beach for 2016 ROCK ‘N’ ROLL race to beat the odds against Storm Hermine
  • Moving to a new city: I’ve moved several times to completely new places, without even being there first
  • Getting that glass of wine at an airport lounge: It was my first time to an airport lounge last week and for the first time in my life – I enjoyed a full glass of wine (it’s got to be at least 3 times than served at an usual restaurant) without the sound of any announcements and far from anxiety of people rushing to flights
  • Jumping into the cold water spring: not realizing that it was deeper than I had thought, and the swimming lessons that I took several years ago as a survival skill saved me from drowning
  • Spending 2 hours at a buffetand having to pick things that I liked the most from 500 items, all of which looked delicious
  • Jumping from 14000 ft: in a split second you realize that the difference between life and death is knowing how to pull open the parachute

balloon

I also have a long list of items (otherwise known as bucket list) and I am on a lookout for how to make it happen by combination of saving money and finding good deals.

What do you value in life and like to spend money on?