Frugal Friday Wisdom

It seems that every month Frugal Friday includes at least one, and sometimes  two, hot new frugal tips from Wise Bread. Nothing surprising in that, as Wise Bread is a multi-author powerhouse of money insight. They also maintain the official list of top personal finance blogs. (And modestly rank themselves at only #5.)

If this month’s frugalosphere performance is any indication, they may be soon moving up a few notches. I counted no fewer than four separate frugal tips worthy of passing along here.

Give kids cash for Christmas. Dollar-for-dollar, they will appreciate it more and it is much cheaper to ship and wrap than other gifts.

Make your own infused liquor. Wise Bread provides a recipe: put the thing with the flavor you want to add into your booze, let sit for a few days, and then strain the lumpy stuff out again. I never would have figured that out on my own. Most frugal suggested flavor source: leftover Halloween candy.

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Why Lotteries are Bad – The Third Reason

[Today’s Thursday re-run first ran on November 30, 2009.]

There is a pretty obvious reason why buying lottery tickets is a bad idea. You will lose money. The odds are usually just awful. Casino gambling is, in comparison, a sound investment.

And, of course, casino gambling is not a wise thing to do with your savings. You would have to be off the deep end of “positive thinking” to believe anything other than it was, for some, an amusing way to waste money.

That objection to gambling, and lotteries, is today so pervasive that we have all but forgotten another traditional objection. A hundred years ago, at least as common as the argument that you would probably lose was the one that you might win. Back in the almost forgotten era when gambling of all kinds was illegal throughout the country, it was argued that gambling undermined the work ethic, allowing some to become rich without appropriate effort. And that was immoral.

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ING Calculates Numbers

A reader sent me a link to a tool published by ING. Ingyournumber.com asks for six simple inputs and spits out, with clever animation, your “number,” that is, the dollar amount you will need at the start of retirement.

The six inputs are your current age, martial status, current income, planned age of retirement, desired annual retirement income, and through what age you want to have income. (In other words, how long you expect to live.)

I can immediately see why they need the last three, but the first three are mysterious. My Money Blog wrote about this tool in September and attempted to reverse-engineer the inputs. His theory on the current age input is that it is used to work out how many years you have until retirement, which is then used to adjust your retirement income needs for inflation. Apparently, all inputs are assumed to be in 2010 dollars.

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Negative Yields are Not Crazy

How much would you pay to lend money to the government? Most of us have this arrogant idea that the government should pay us to borrow our money. And yet, last week a Treasury auction of $10 billion in 5-year bonds resulted in a price that will yield negative 0.55% to their new owners.

It is not quite as crazy as it sounds. These are Treasury Inflation Protected Securities (or TIPS) that will yield inflation plus some stated interest rate. So these bonds are set to return to their owners inflation minus 0.55% over five years. Given that normal unprotected five year bonds are currently paying only 1.18%, this implies a five year average inflation rate of 1.73%.

Annual inflation over the past five years has averaged 1.83% and over the past twenty five it has been 2.82%. If you think inflation over the next five years will be higher than 1.73%, then the TIPS, negative interest and all, are a better bet than the regular Treasurys.

So it is not crazy after all.

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Please, No More Coins

As election day approaches, I thought this would a good time to discuss a bloated federal program that wastes taxpayer dollars, annoys the citizenry, and uses up our precious natural resources. I am talking about the minting of coins.

I was reminded of this continuing national tragedy by a post at The Consumerist about a brave grass-roots effort to address this issue. Apparently, there is Dunkin Donuts shop somewhere (for obvious reasons of safety its location was not disclosed) that now rounds all purchases to the nearest nickel. If a customer for some reason actually wants the pennies (the mind boggles) the shop will provide them.

I think this is an excellent first step and one that I hope more courageous shop managers will employ. I am sure this must be a violation of federal law (why else has it taken so long?) but if all stores do it the feds will be overwhelmed. I think the Secret Service must be in charge of enforcing the penny laws.

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