Dollar Cost Averaging; Not Just For Stocks

Most of the time, when you hear or read the phrase “Dollar Cost Averaging”, it’s being applied to the stock market.  It’s the practice of buying a set amount of stock at a regular interval whereby the average cost per share of stock ends up normalizing.  So, if you buy stock high one time, and low the next, and then high, your average cost is going to be lower than the high cost and more than the low cost.  So long as the stock doesn’t pull an Enron, and slowly increases in value, you come out ahead in the long term.

But, does it have to apply to just stocks?  Absolutely not.  It really can apply to anything that you buy on a regular basis.  Gas for example.  A couple of weeks ago, I filled up the car at about $3.89 a gallon.  Today, as I drove by the gas station, it was at $3.69 a gallon.  I filled up at $3.89, so I don’t really need any gas right now, but I seriously considered stopping and topping off the tank to bring the overall cost of the gas I bought over the last several weeks down a few pennies.

There might be some argument that dollar cost averaging doesn’t work very well for consumables.  After all, if I had bought a few gallons at $3.69, my overall reserves of gas would not increase.  I’ve already consumed those few gallons that I paid $3.89 a gallon for.  But, I would have increased the total amount I had bought, and the average price would have been less than $3.89.

Dollar cost averaging works especially well for things that regularly fluctuate in price.  If you’re building a stockpile of food in your basement, it’s chili bean season.  There’s sales all over the place for chili beans.  Now, you could buy 50 or so cans at the sale price, but you might be tight on storage space.  Or, they might expire before you get to use them all.  Instead, you can use dollar cost averaging to buy slightly more than you might normally buy, and bring down the average cost of the ones you have to buy later in the season when they aren’t on sale any more.

O.K.  This does seem a little silly.  After all, who’s going to go out and figure out the average cost of a can of chili beans in the basement?  But, there’s a point in there.  There’s a certain rationality in buying things in set increments over time rather than trying to time the market (or chili bean sale) and buying a whole lot of the item at once.  How many times have you bought something only to find that it was on sale the next week?

And, don’t forget that the same principle goes the other way.  There are many normal things that we do on an everyday basis that can apply to the stock market too!  When we shop, we tend to stick to the brand names we know.  Even if those brand names are generic names.  Go far enough out of town and stop at a grocery store and try and convince yourself that the generic brand at that store is the same as the generic at home.  It takes a bit of thought!  Sticking to companies (brands) that you know when investing can be beneficial too.  More often than not, those brands and companies are companies that have been around for a long time and built a certain amount of trust in the marketplace.  They’re unlikely to just be an overnight sensation, or to quickly fall from favor.  In short, they’re stalwart investing options.

What other everyday habits do we all have that can be carried over to the stock market?  And what other stock market habits do we have that can carry over to everyday life?

img credit:Nick Harris1, on Flickr

Stacking Discounts for the Win

I’m a bit of a geek when it comes to shopping for stuff.  I like to get the best price (don’t we all?), so I often find myself shopping around a lot when it comes to buying anything that’s higher priced.  And, so long as my patience holds out, I usually do end up getting a good price on whatever it is that I’m shopping for.

Most recently, I needed to buy a new set of tires for our Suburban.  Now, if you’ve bought tires for anything recently, you know that they aren’t very cheap.  In fact, they can be downright expensive.  The bigger they are, the bigger the price tag too.  Winter is almost upon us, though, so it was time to bite the bullet and get shopping.  I looked around locally first, wanting to keep money local if possible.  That was silly.  $150 a tire?  That’s crazy.

So, geek that I am, I went looking online.  There’s several online tire dealers and they usually have decent prices.  I found one that had a good price on a good tire.  Closer to $120 a tire.  That’s better, but still not great.  I noticed that a different model of tire had a nice rebate attached to them.  $75 off a set of 4.  Getting better.  Closer to $100 a tire. The rebate didn’t expire until November 6th, so I had some time to shop around.

Then I got an email from eBay.  eBay has a program called eBay Bucks where you get a certain % of your purchase back as an eBay certificate to use on your next purchase.  In the email, they told me that there was a 48 hour special.  Buy from a list of select shops and earn 20% back in eBay Bucks.  The tire shop that I had been looking at was featured right on the front page of that special list.  Rock on!

After a bit of searching through their store, I managed to find the exact same tire I had been looking at, for the exact same price that they had it for on their website.  Except, now I get 20% back from eBay too.  The deal just got a whole lot sweeter!

Not to be outdone, and wanting to save as much as I possibly could on the tires, I went looking for extra deals that I could stack to save even more money.  Which is where Discover comes in.  Each quarter, Discover runs a bonus program for their cashback program.  Instead of the normal 2% cash back on purchases, they bump it up to 5% on certain categories.  In the third quarter, the category was hotels and travel.  I used that when I went to Denver.  In the fourth quarter, the category is online shopping.  I’m assuming that’s a clever ploy to get people to pay for their online holiday shopping with their Discover card.  Well played, Discover, well played. But, I’m just buying some tires today. ;)

Discover card in hand, I went on over to the eBay store, and bought some tires!

  • 4 Tires: $472  (with free shipping)
  • Rebate: -$75
  • eBay Bucks: -~$94
  • Discover Cash Back: -~$24
  • Total: $279 (or about $70 a tire.)
  • Stacking discounts, cash back, and rebates for the win: Priceless

Taking my time, making sure I checked for all the possible discounts and rebates I could, then stacking them all where possible saved me a ton of money!  Granted, most of that is in the form of cash back.  The eBay Bucks must be used on eBay but we actually buy a fair amount of stuff on eBay because it’s generally far cheaper than anywhere else.  We haven’t bought hardly any Christmas presents yet, so I’m sure we’ll find a good use for it, and we’ll save on that stuff too.  The Discover cashback can be redeemed for gift cards and such, but I prefer to build it up over $50 and then use it as a credit on my account.  And, the rebate, when it comes (why does it take forever to get those?), will likely be used to buy some groceries or something that we would have already been buying anyways! Plus, we needed the tires, so we were going to be buying tires anyways.  (I don’t suggest you do this for frivolous things you don’t need!)

One other note, that’s probably specific to this purchase and not, necessarily, others is that some tire places will charge you a bit extra to mount the tires if you buy them elsewhere.  I’m aware of that, and will probably try and bargain that down a bit, but it makes some sense.  There’s a new local (not a chain) tire shop in town, anyways, so I’ll likely take it up there and pay the small premium to give the local guy some business.  Even if they charge me $25 a tire to mount them (I think it’s closer to $12), the total cost per tire will still be well below what the original price would have been.  And, if I had paid that original price, I still would have had to pay to have them mounted, so I still win!

Do you try and stack discounts?  When was the last time you had a win in discount stacking?  What was it for?

Personal Finance Reassessment

Occasionally, there comes a time when you have to take a look at your personal finances and do a little personal finance reassessment.  While the need may arise to do a complete overhaul once in a while, a simple reassessment can usually suffice.  All it takes is a little attention, and some dedicated time to making sure that your finances are in order.

Recently, my wife and I were, more or less, forced to do a little personal finance reassessment.  That’s such a nice, delicate way of saying it isn’t it?  Truth be told, our finances were (are) in a mess. The ripples from when I quit my job last November are still plenty big, and the new job that I have seems to have come just in time to keep us from completely going under.  Combine the drastic decrease in income that event brought about with a couple of people who remained stubborn in their budget, and it was a recipe for disaster.

financial peace jrLuckily, we’re usually pretty good at talking about money with each other.  Don’t get me wrong.  There’s plenty of room for improvement.  But, we’re good about not getting into any heated arguments with each other, and being able to figure out where we’ve gone wrong and correcting it.

So, we sat down and caught up our dreadfully behind budget.  And, let me stop here to say something.  What kind of idiot doesn’t keep doing the budget when he quits his job and is making a fraction of what he used to?  This guy.  Dumb.  So, yeah, we caught up the budget.  About 6 months worth of financial data entry.  Some by hand because our bank doesn’t keep history online over 90 days.  So, one by one, directly from the statements I printed off.  Did I mention how dumb that was?

In case you’re curious, catching up on about 6 months of budgeting takes about 6 hours.  6 HOURS!  It’s done though.

One of the things that we discovered, after having done all of that, is that the reason that we were in the pickle that we were in wasn’t because of the loss of income, although that played a part, but more because of how badly we had slipped in the last few months with our spending.  July and August in particular were well above what June was.  In our defense, those are usually higher spend months because they’re usually the only real summer months we get up here in North Dakota, but it was still way off.  And it cost us.  The last several weeks have been pretty hairy, financially.

The scary part of all of that is that we haven’t had a bad financial situation like that for over 5 years.  And, maybe, in that 5 years, we’ve become a little bit lax in our budgeting, and in our finances in general.  No more.  We’re taking the control back, and keeping our finances in order.  Not doing so could mean disaster.  It surely means stress, and that’s something we just don’t need.

During our little reassessment, there were several things that we picked up on.  Like the fact that we didn’t have any life insurance on me.  In my previous job, my employer kept a policy on me that would have been more than sufficient.  For some reason, they decided to cancel that policy when I quit.  ;)  So, we’re now budgeting for life insurance policies. Or, the fact that our spending on eating out and groceries had gone way up.  A simple attitude adjustment helps with the eating out, and we’re going to start trying to use menu plans to keep our grocery bill down and to spread it out over the month. Another thing that seems to be part of the issue is the timing of some of our bills.  Before, I made enough that it wasn’t an issue when the bills came due, we always had at least enough to make it to the next payday.  Now, with my lower salary, it’s getting a bit tight right before the 15th (when my wife gets paid), and a few of the bills that come in right before the 15th are adding a little extra stress.  I need to call a few of them and try to get them moved to a slightly later due date.

In the end, our personal finance reassessment came just in time.  We kept a close enough watch on our finances to see the need arising, and were able to meet the need and keep things from getting any worse.  Chalk it up to a lesson learned.  The (almost) hard way.

When was the last time you had a personal finance reassessment?

img credit: Matt Mcgee, on Flickr