Tag Archives: saving

Living in a non-Amazon world

After I lost my Amazon prime student, I missed it the most when I asked Alexa to play music. It played one song that I had downloaded long time ago (I don’t even like it anymore) instead of usual ones from prime music collection. That was a sad day! Reluctant to pay $99 for the renewal, I started looking for other ways to replace the prime features I use (Amazon has a long list of what comes with the prime membership, but I primarily used only three)

  • Free 2 day shipping: I haven’t bought anything from Amazon after my prime membership ended because I got so used to Two-Day Shipping that regular delivery times seem too loonnngggg. As economists would say, free shipping is not really free – the cost is embedded in the product. It may not be as evident on Amazon.com as it is on Jet.com (which was bought by Walmart) where you can get discount by opting out of free returns; the discount is essentially how much the “free return” is valued at.

My wife suggested to look at our purchase history to determine whether it would be online_shopping.pngworth renewing – I did and the statistic was biased because we bought a lot of stuff since we moved to a new city and also bought a house.

Alternatives to 2 day shipping: I look at things online and check prices at other websites such as Walmart, Target, or even jet.com; I have heard about Shoprunner, which offers free 2 day shipping and free returns, and even got a complimentary membership through American Express but haven’t used it much.

  • Prime Music: It doesn’t have the best collection, but it’s not bad. We mostly played music through Echo (Alexa) and it was good enough to keep you entertained while doing house stuff, cooking, or even when we had guests over.

Alternatives to music: I tried Pandora and iHeartRadio as alternatives but it wasn’t quite the same. Currently I am subscribed to Amazon Music Unlimited trial through Alexa deals and not sure whether I am going to renew. Also looking at other services such as Spotify. I am open to recommendations here.

  • Prime video: I liked House of Lies and few other shows (none of included movies that I liked were exclusive to amazon video) but not something I couldn’t survive without, specially since I am subscribed to other streaming services. Few shows that I liked such as: Suits and The Big Bang Theory are not included, forcing you to pay $2.99 per episode – talk about Bait-and-switch. This was the easiest for me to let go of.

Alternatives to prime video: Any other streaming service would do; I currently have Hulu and couple of free ones such as Roku channel, NBC app, CW app etc. For regular TV, I have a digital antenna which works great. Roku live TV pause is awesome if your favorite show is on and you still haven’t finished dinner yet!

Prime video, if bought separately, currently costs $8.99/month which is way overpriced, in my opinion, for what it has to offer. Also I recently got MoviePass and now I don’t have to worry about checking promos and ratings before I choose a movie; I figured if I don’t like a movie, I can just sleep and not feel guilty of spending money on it. For a flat price of $9.95, moviepass let you watch one movie each day in most of the theaters. I was excited to see Alamo Drafthouse in the list.

I am probably going to miss amazon prime a little bit, but not enough to shell out $99.

Can’t decide between 15 vs 30 year mortgage? Lets’s look at what math says

There are several decisions to be made while buying a house and probably one of the most debatable one is the mortgage term [15 year vs 30 years]. When I asked around, there were folks in both the camps – everyone had a valid point. Quick search shows millions of results about endless discussion that are out there.

What if there was a way to get the flexibility of 30 year mortgage and payment terms (almost) of 15 year? With following assumptions, let’s do some maths to find out:

  • Loan amount: 300K
  • 30 year interest rate: 4%
  • 15 year interest rate: 3%
30 yr rate 4%
Monthly payment $1,432
Total Cost $515,609
15 yr rate 3%
Monthly payment $2,072
Total Cost $372,914

Above table shows the monthly payment and total cost of both the options (use any mortgage calculator online to get the numbers for your loan value). Since most of the loans do not have prepayment penalty meaning you can always pay more than the required monthly payment and the extra goes towards the principal.home

Accelerated payment calculation:

If you pay the difference (2072 – 1432 = 640) towards the principal, the total accelerated payment would be $410,289 which gives you savings of $105,318 and shortens the time of repayment by 13 years 6 months. But the original saving with the term and interest difference was $142,695   ($515,609 – $372,914) so the accelerated payment method costs you $37,375 more, which I call the cost of flexibility and piece of mind knowing that if something happens within those years and you can’t afford the higher payment, you’re not stuck with it!

Net Present Value (NPV) of the total payment: 

Since the mortgage payment amount is fixed, above calculation wouldn’t be complete without considering the effect of inflation. Let’s consider the NPV of the total payments considering standard 3% inflation:

  • 30 year payment NPV: $340,504
  • 15 year payment NPV: $300,787

Since the payments are in future dollars, the buying power (value) of the dollar will be less compared to the value of dollar today. To put this in perspective, consider what $100 gets today vs what it bought 20 years ago.

Note: Above calculations doesn’t consider either other payments such as tax, insurance etc. or the tax tax advantages we get from the interest payment.

investOpportunity Cost

Opportunity cost should also be considered to look at the bigger picture. Let’s say you take 30 year mortgage and invest the monthly payment difference in stocks, which historically has given 7% return.

total value of investing $640 every month for 15 years considering 7% annual return is: approx 200,000; which is more than the difference in savings you get from 15 year term.

Paying every 2 weeks:

Lot of online discussions revolve about paying the loan every 2 weeks instead of monthly, with the logic that the interest is based off of the total outstanding principal and if you pay every 2 weeks (half the amount), it lowers the principal and in turn lowers the interest amount in the long run. Check your financing documents to see whether your lender accepts “Partial Payments”; if they don’t, then the amount you pay every 2 weeks will sit in their bank account without being applied towards the loan – which is similar to you giving the bank free loan for 2 weeks.

To sum it up:

While it’s prudent to get 30 year mortgage and invest the difference somewhere else (mortgage is considered good debt), however, there is always an option to pay more and thus early payoff on 30 year terms, which gives flexibility to folks who would like to pay if off sooner.

Why do we have Coupons – how understanding price discrimination can save money

Price discrimination is an economic term for selling the same product at different prices to different buyers. It exists everywhere: airlines, car dealerships, hotels, restaurants, and even at the places that you wouldn’t usually thing of, such as: amazon.com (who hasn’t heard of stories that if you put something in the cart and leave it, sometimes the prices are lower when you come back later), or depending on whether you use iPhone or Android, the price is different for the same item.

Business model of several companies such as Groupon and Living Social are based on price discrimination. and So next time when you see an an email with that 50% off coupon – think about the economic theory behind it. It’s good for both consumers and businesses. You get the picture now: researching things in advance and using coupons saves money. Before I buy anything, I usually google to see if that product or company has online coupons (internet has made this a lot earlier)

All of this sounds nice until people get wrapped up so much in deals that they buy stuff just because it’s on sale. That defeats the whole idea of of saving money and gets into the “pound foolish” territory.

What I recommend is figuring out what you already want to buy or have, then look for deals. It can be either an online search or those physical coupon books (it still exists, I just found some deals in Vegas 2 days ago that wasn’t available online)

high-roller

Sometimes you see something and don’t have time to research, there is a long line and if you wait longer, you can get pushed even further. Don’t worry: in those situations, get in the line so you don’t lose the spot, then look for online deal. I’ve done that several times for activities ranging from a popular activity to an attraction.

When you’re on vacation and are going to spend money on certain things anyways – why not just spend few mins checking whether you can stretch that dollar! There is no better feeling than seeing people in line paying full price for that high roller you want to go to and saving $14 (by buying it online) and getting out of the line. Not only you pay less, but also get ahead in the line to beat the crowd. Didn’t they say, “time is money too!”

Tips for negotiation in everyday life

Have you ever gone to a restaurant, looked at the menu and said: “I don’t value the chicken wings at $11, but I can buy it for $10” Sounds absurd, isn’t it? You’ll be surprised at what can happen when you just try things.

When I took negotiations class last year, first thing we were taught was “everything is negotiable” and that opened a lot of possibilities. We usually don’t think about it in day-to-day life and our mind goes towards negotiations mostly when evaluating a job offer or buying a house. I personally have negotiated (and had luck getting prices down) at gift shops, tailor shop, parking spots, and even at Costco to name a few instances.

negotiation

Next time when you’re buying something, keep an open mind and try to negotiate: the worst thing that can happen is you’ll pay the full price, which you were going to anyways.

Here are some tips that can help:

  • Remember some people have more authority to bring prices down than others: for example: at a grocery store, manager can do much more than the person at the checkout counter can; a lot of times, you’re probably not talking to the right person
  • Consider the bigger picture: It’s relatively easier to get refund for bank account maintenance fee because on a broader level, they value the relationship. I’ve had an instance where I was getting a car loan check from my credit union and I needed it urgently: the agent said they charge $15 for expedited delivery which can’t be waived. When I talked to her manager, it was waived immediately and I got the check next day. (this also shows the importance of talking to the right person)
  • Know what others are offering for the same item: If someone else is offering a better price for a TV, there are good chances that the store you’re at will match it even if they don’t advertise price match (look for prices online)
  • How much do you value a product or service: One time, at a gift shop, I said I’ll buy this only if I get it for $3.99 (I tried that just for fun; original price $5.99) and sure enough, I got that price
  • Know your walk-away price: If there is a counter proposal, for example, the other person says he/she can’t discount that much but could do little less. You have to make a decision quick on whether you want that product – since it’s not an official discounted price, you probably won’t get it if you come back later. At Costco, I asked for discount for a vacuum cleaner (long story why I asked) and was offered 10% off after talking to the manager. I knew that I wanted the vacuum even at the full price, so I gladly said yes for 10%
  • Consider the situation to identify opportunities: Last year I was at a beach and it was starting to rain (I needed to be there anyways for something else); while I was parking my car, I was able to negotiate the parking fee saying if it rained hard, he won’t even be getting what I was paying.

Remember, you’re not going to succeed at everything and that’s okay (sometimes I just ask to see what the other person says). In the long run you get better at it and small things add up.

Let me know, in comments, if any of the above helps you save your hard earned money!