The Discretionary Dollar

Why do we buy? Do we buy because we need to use or do we buy because we want to have?

This simple question not always has a simple answer.

Are you spending extra time and money purchasing things you could be borrowing instead? Here are a few things to consider before you hit the store next time.

Benefits of Borrowing:

Test Drive Products for Free
Would you dream of buying a car without a test drive? I know I wouldn’t. A major benefit of borrowing is that you get to try before you buy. And if you do end up needing to purchase this item (perhaps rarer than you may think), you will be informed with hands on experiences on what features you like or don’t like.

Spend less
By borrowing you save the money you would have spent buying that “item”. If you only use an item once a year why have it in your life? Instead, spend your cash on something you frequently use or enjoy. Or sock it away in your favorite mutual fund.

Live With Less
By having less you can maintain and enjoy what you do have more. What’s the use of having everything you might need if it takes you 30 minutes to locate it? You may even spend less on housing by having less. You’ll saving time finding (shopping, researching etc) and maintaining excess stuff as well. Less stuff means less storage.

Already have too much? Shed it and fatten your replacement fund.

Build Stronger Relationships
When you borrow you are asking someone else for help in some form. People generally like to help (especially if it involves none of their time or money). I find when I borrow things from friends I end up seeing them more. As an added benefit, I usually get to talking about what I need the item for. You have a chance to hear ideas or suggestions that may save you time or money when you start your project. And sometimes your friends may even want to help you, which of course will make your project go twice as fast.

Spend More on What You Do Buy
If you only buy what you use frequently and absolutely need, you can guiltlessly spend the extra bucks on it. Chances are you have tested and borrowed this item before so you know exactly what you need. For example, would you rather have every cheap tool possible or real nice tools that you use frequently?

Share if Possible
If you are asking to borrow your friend’s power washer every other week perhaps this item may be worth purchasing. But what if your friend lives next door? Why does every home need a lawn mower when two friendly neighbors could split the cost and share? Evaluate your usage and make sure there are no simple and easy ways to borrow. Tell yourself after you borrow x amount of times you will look into buying. We bought a canoe with a family member and it works great to share it. Half the cost, half the storage, half the maintenance and the same enjoyment.

And when you do really need to buy something use your replacement fund.

Talking Point: What types of items have you borrowed instead of purchasing?

So you have now identified a few items to sell for your replacement fund. But how do you turn those items into cash and grow your replacement fund? Here are some ideas.

• Part 1: What is a Replacement Fund?
• Part 2: Funding Your Fund
• Part 3: Cash for Clutter

Pick The Best First
Set yourself up for success and sell your best items first. This means items with the highest profit and that are the easiest to ship or transport. These are usually books, electronics and other consumer goods.

Price to Sell Fast
You have already decided you wouldn’t mind shedding these items, so don’t let price get in the way. It’s easy to get hung up on what a “deal” the buyer is getting. After all, you paid -insert your price here- and it has the -insert some feature here-. The past is the past, so don’t get hung up on the other guy. (Yes, he is probably getting a good deal). Good deals are what drive sales. The fact is, if it wasn’t such a good deal the buyer wouldn’t be knocking at your door. Make your item a great deal and don’t look back.

Advertise a Few Items at a Time
Remember to pace yourself. If you have closets full if items to shed, start with just a few. Less than five is ideal. I know it sounds like a slow start but jumping in head first is a great way to drown. On the other hand if you only start with one item and have no success (it doesn’t sell) you may give up too soon. Start with 3 items or so and test the waters. This way you will not be overwhelmed and will have time to ‘learn the ropes’.

Here are a few methods of selling your stuff:

Amazon.com
Amazon is easy and quick. It is best for consumer electronics, books or other common household items. Amazon requires no technical skills and no customer interaction is necessary. Amazon takes a cut (depends on what you are selling) but also gives you a shipping credit that is typically generous (for books it is usually $4). I have listed books in the evening that all sold before I got up the next morning.

eBay.com
Ebay is best for less common or more unique items. You can set your own price and shipping terms. The downside is that auctions (the traditional way to sell on eBay) take a lot time (a few days). The buyer can also skip out on you forcing you to start the auction all over again. In addition, listing your item takes more technical skill (upload photos, type out specs, formatting etc). You must write your own details and supply your own photos. eBay fees are very reasonable.

Local Craigslist.org
This works great for items that are too expensive or too large to ship (couches, cars, washer/dryers). There are no fees but you will have to post your own photos and description. The downside is that you have to deal with customers. You have to meet them in person to exchange the item for payment. However, I bring smaller items to the office so I don’t have the public coming to my house. You can also meet in your front yard, or at a large parking lot if you really don’t like the idea of someone coming to your home.

Tip: Don’t use the Craig’s list photo upload. Instead, use another service and embed the photos. Craig’s list forces you to upload images that are very small which doesn’t provide the detailed photos most buyers want.

inumbr.com
Are you hesitant about giving your number to strangers? This is a free tool that assigns you a free number that forwards to your cell phone. It’s a anonymous number that you can use for free.

Don’t Negotiate
You may end up lowering your price or accepting a lower price than you want. Swallow your pride and take it. Chances are you aren’t a retail salesperson so don’t pretend you are skilled at it. Take whatever reasonable amount you can bear and say goodbye to one item at a time. By attempting to negotiate you risk getting burnt out and frustrated. And for what? A few extra bucks?

Talking point: What techniques or practices have you found success with when selling your stuff?

Do you wonder where your hard earned dollars get spent? Here are some ways to track your expenses in just a few minutes per week.

1. Use Online banking

Some smaller banks are still catching up but the larger banks have done a great job of giving you all the tools you need online. If you aren’t using online banking then tracking your expenses will be much more difficult and may require far too much time and effort.

2. Use Plastic Exclusivly (or as often as you can)

Using your checkcard/credit card is the easiest way to make your purchases trackable. Everytime you pull money out of an ATM or you use cash to purchase something, you lose the ablity to track and account for that money or item. The same generally goes for checks also. There are other ways to keep track of your expenditures but none of them rival plastic. By using plastic you set yourself up for automatic tracking of expenses. Plus there are other benefits of using plastic.

3. Use an Online Account Aggregator

Now that you have all your transactions trackable via online banking, you are ready to process and categorize them. Find a service that will use your online banking credentials to process and cateogorize your transactions automatically. Here are a few:

• Mint.com (Personal Favorite) | Free. Custom Budgeting for all accounts including investment, brokerage and mortgage. Also has Cyberhomes.com integration for real estate valuation. It will give you a pretty accurate net worth in addition to very flexible and easy to use budgeting tools.
• Wells Fargo Spending Report | Free (with certain Wells Fargo accounts). No Hassle Budgeting and Categorization of expenses. Only limited to Wells Fargo accounts, and has no custom bugeting feature. From a trusted source, no other party has your login credentials.
• MoneyStrands.com | Free. Claims to have similar features to Mint.com. I have not used this but it appears to have some neat features.

4. Classify and Demystify

The above sites may not perfectly classify your spending types and accounts. The first few months it may be nesscary to audit your budgeting tools just to make sure Mint.com didn’t classify a few transactions incorrectly. For example your Safeway Gas purchase may default to the groceries category. Make sure to set it up so that future transactions are classified correctly so you won’t have to manually correct any classification more than once.

Mint.com will suggest a few budgets automatically but you will most likly want to tweak them to fit your needs. Check back weekly or as often as you need. You can even setup alerts that warn you as you get close to your budget. You now have a fully automatic way of tracking nearly every expense and income source.

Talking Point: What is your favorite feature of your online bank or budgeting tools?

You might have a good idea about how your cards work, but it seems there is still a whole lot of confusion on what types of plastics are out there. Your bank sends you a card, but what does it really do?

Credit Card - Most Widely Understood.
This is not your money. You simply sign and present this card when you purchase something. You can use it interest free for about 30 days, then you must pay it off, or make minimum payments plus interest.

Check Card – My Personal Favorite.
This is your money. Any purchase with this card comes straight from your checking account. You simply sign and present this card when you purchase something (just like a credit card).  This card also has all the funcationaitly of a debit card defined below.

Debit Card/ATM Card - Practically Extinct.
This is your money. This card only allows you to access funds via an ATM with use of your PIN or with merchants that accept debit/ATM cards. Merchants can charge a fee for this service, since you can ask for cash back. Generally the only reason to use this type of payment is when you need cash back, or when the merchant doesn’t accept credit cards.

* Note: Dependent on your credit card company. You must also have a pin (sent to you when you first get the card many times.)
** Note: Many banks have varing polices on over-drafted transactions. They can even be different for a Debit vs. Credit transaction. It is possible to overdraft your account with either, but generally, it is easier to do it with a credit transaction (compared to debit). Debit transactions check your account in real time, where as credit simply looks for an approval (there can be floating transactions, and unsettled transactions).

Allowable Fees
You will see all sorts of fees and minimums as you use your plastic around town. Most of which most likely are in violation of VISA/MasterCard policies. Generally the only type of transaction that permits a fee (charged by your merchant to you) is an ATM/Debit transaction. But wait? Why all the minimums and fees for using the other types of cards? The answer, for the most part is ignorance. You can dispute these fees also.

So What Should I Use?
Well that depends on your personal situation, but in most cases a check card will be the best type of card for the majority of your purchases. For example my wife and I have a limit, for example let’s stay it’s $20. Anything over $20 we use a credit card, anything below we use a check card. There are a number of reasons we do this but the main reason is simplicity. We don’t have to worry about overdrawing our checking account since the credit card is used for all larger purchases. We get more reward points if we use a credit card (we still earn points on check card purchases but its a smaller point system). You can find your own system.

And if you are a person that still uses cash, you can use this same check card at most ATMs. Just remember only to use your PIN when you have to. Running a transaction as a credit (rather than a debit) not only can earn you reward points, but gives you more protection (like a credit card) and doesn’t permit the merchant to charge extra for it. In addition, using your checkcard makes it easy to track your expenses.

Talking Point: What is your favorite card to use and why?

So you are ready to start funding your replacement fund. Now what?

• Part 1: What is a Replacement Fund?
• Part 2: Funding Your Fund
• Part 3: Cash for Clutter

Finding Items to Shed
Here are a few ways to surface and identify items that you can sell.

1. Inventory Your Emotional Baggage
What item would you never dream of selling? Are you held back by emotional reasons? What are these emotions costing you? Now of course there are things worth keeping simply for emotional sake, but what if it is something you know you will never actually use again? Can you justify having this item take up space in your life? Maybe you can, maybe you can’t.

One way to let go, is to take a photo of the item with sentimental value. Take 10 photos if that helps. Save the photos somewhere safe, and shed that item. Next time you feel like bringing back those memories, view the photos. You will find you get nearly the same emotional reaction to a set of photos, as the actual item. Not to mention, photos are a lot easier to organize, backup and save!

2. Create a Maybe Box
Not sure you can do without something? Try designating a box or drawer (or spare closet) where you “quarantine” these items from everyday life. Whatever is left after after a time frame  (30 days, 60 days, 6 months.. it’s your call) deserves to hit the road. We use rubber-made bin (a closet at first) to test theses items. Whatever is left over doesn’t earn a spot in our life, and gets donated, or sold.

3. Keep an Idea List
Chances are you can’t think of too many items you don’t use much simply because you don’t use them much! As you think of or see items in your daily routine write them down. Chances are once you think you sold every last possible item more will show up. It’s funny how that seems to work. It’s simply because they are out of sight and out of mind in most cases.

4. Ask Your Friends and Family
There is nothing better than an objective point of you. Chances are this stuff is a part of your life and you have adjusted to seeing or having it in your life. Ask someone else that will honesty tell you their thoughts on your extra baggage. Don’t get defensive, just get busy. After all they are just giving you feedback on your stuff, not on your life.

Consider Borrowing
Do you have an item that you use so rarely you wonder why you still have it? Maybe there is a friend or family member with one that you could borrow instead. Sell the item and free your space, your pocketbook and your thinking. More on borrowing.

Shedding Your Stuff
Give yourself a fighting chance and set yourself up for success, so start with the expensive items and easy ones to sell. Get some positive momentum going and sell your easy items first. Don’t save them for last…or you may never make it.

Price Like You are Serious
This is important. Remember value is not what it’s worth to you, but rather what it’s worth to the buyer that matters. So the goal here is to sell these items quickly. You’ll get burnt out in no time if you start trying to sqeeze every last penny out of all your items.

Yes, you may be leaving some money on the table, but look at the long haul. You will be shedding many items and you have a limited amout of time, so save your energy for later and price your items to sell!

Research the Market
Don’t guess. Find similar items that actually sold and price your item under that. The goal here again is not to maximize your dollar and play around with potential buyers, the goal is to actually move your items. Find what’s selling and what’s not before you spend any of your time.

Have an item with no vaule or not sell-able? Donate and get a receipt for your tax returns. Get rid of it and take the easy deduction.

Get Started and Stop Planning
Start with one item a week. It’s not going to happen overnight. Pace yourself, but get going.

Next post on actually selling your stuff!

Talking point: What is preventing or has prevented you from selling something? How did you overcome this?

My wife and I started developing the replacement fund idea right before we started packing for our last move. As do many couples, we seemed to have a lot of things, that we either didn’t use, or only used a handful of times. As we started to pack we starting dreading packing, moving and unpacking all these things we rarely even used. We wondered why we had all this “stuff”.

• Part 1: What is a Replacement Fund?
• Part 2: Funding Your Fund
• Part 3: Cash for Clutter

Now let me just say, we live lightly. Most of our friends and family have far more “things” in their lives. My point? If we can benefit from using a replacement fund there is no doubt most of us could!

The Replacement Fund Idea
Sell or shed all belongings you don’t have an immediate need for. Take the funds you raise doing this and save them in a separate ”replacement fund”. If you ever actually do have the need to use these items, purchase them using these funds! The basic theory is you won’t use all the “things” you think you might. Save the remainder, and use it for things you do actually need.

A quick note for those who like to be prepared. This doesn’t mean you need to shed your emergency supply of water, or 5 gallons of gasoline. It doesn’t mean you should be unprepared. We are simply talking about things that are not survival items, but rather everyday consumer electronics, books, and other non-life threating items.

The Benefits:

• You will be keeping less things (save on storage, live a less cluttered life, can buy a smaller home etc.)
• You will be left with only things that you rely on and use frequently
• You will have funds set aside, for when you actually do need to buy something or “replace” something
• You will make interest on your “replacement funds”
• You may possibly need less homeowners/renters insurance
• You can more easily take care of the fewer items you do have
• You will view your possessions with a new perspective. “Would I rather have $30 or this old iPod we used once last year?”

You will be surprised how many things you have around that are just sitting there. First go with your large items (furniture, cars, tools). Once you get the hang of it you can move on to the smaller stuff (books, DVDs, electronics) Below are a few (of the many) items that we ended up selling rather than packing.

At this very moment, we have a little less than $2,000 sitting in our replacement fund, and we don’t miss a thing!

• Portable DVD Player (My wife’s new laptop does the job better!) (Sold for $80 Amazon.com)
• Waffler Maker we used once in the last 3 years ($25 Craigslist)
• Old Laptop in the closet, given to us a few years ago($80 ebay)
• Ti-89 Graphing Calculator from my high school days! ($75 ebay)
• Many more items! (Old CD’s, DVD’s, Books I never would read again etc)

You can see it adds up quicker than you would expect. After a month or so of liquidating our extra stuff, we started to look at our possessions with a different perspective. Is that $30 calculator getting enough use to justify not selling it? If “your item” was a $20 dollar bill would you just leave it there in the drawer? Or would you rather have it in your “replacement fund”?

Next: How to Determine What to Shed?

Talking Point: Can you think of anything you have, that you may not use ever again?  Would you rather have a nice collection of stuff you might use, or a nice collection of cash ready to be spent in the bank?

Welcome to the Discretionary Dollar!  My goal for this blog is to explore everday ideas regarding personal finance. Here are a few main objectives of this blog.

• Explore ways to save and live frugally
• Create an environment of collaboration
• Discuss and evaluate various investment strategies
• Learn more about personal finance!

Please feel free to comment with your suggestions, tips and personal experience. We all have something to add.