This is a reprint of an article in The Atlantic website by Derek Thompson  a senior editor at The Atlantic, where he oversees business coverage for the website.  I read it and wanted to share it as it helps you understand what the marketing people are doing to pry your hard earned cash from your hands.  The one thing I got from it is think before you spend.

The 11 Ways That Consumers Are Hopeless at Math

(1) You walk into a Starbucks and see two deals for a cup of coffee. The first deal offers 33% extra coffee. The second takes 33% off the regular price. What's the better deal?
"They're about equal!" you'd say, if you're like the students who participated in a new study published in the Journal of Marketing. And you'd be wrong. The deals appear to be equivalent, but in fact, a 33% discount is the same as a 50 percent increase in quantity. Math time: Let's say the standard coffee is $1 for 3 quarts ($0.33 per quart). The first deal gets you 4 quarts for $1 ($0.25 per quart) and the second gets you 3 quarts for 66 cents ($.22 per quart).
The upshot: Getting something extra "for free" feels better than getting the same for less. The applications of this simple fact are huge. Selling cereal? Don't talk up the discount. Talk how much bigger the box is! Selling a car? Skip the MPG conversion. Talk about all the extra miles.
There are two broad reasons why these kind of tricks work. First: Consumers don't know what the heck anything should cost, so we rely on parts of our brains that aren't strictly quantitative. Second: Although humans spend in numbered dollars, we make decisions based on clues and half-thinking that amount to innumeracy.
Here are 10 more ways consumers are bad at math, with an assist from historian and author William Poundstone.
(2) We're heavily influenced by the first number. You walk into a high-end store, let's say it's Hermès, and you see a $7,000 bag. "Haha, that's so stupid!" you tell your friend. "Seven grand for a bag!" Then you spot an awesome watch for $367. Compared to a Timex, that's wildly over-expensive. But compared to the $7,000 price tag you just put to memory, it's a steal. In this way, stores can massage or "anchor" your expectations for spending.
(3) We're terrified of extremes. We don't like feeling cheap, and we don't like feeling duped. Since we're not sure what things are worth, we shy away from prices that appear too high or too low. Stores can employ our bias for moderation against us. Here's a great story:

People were offered 2 kinds of beer: premium beer for $2.50 and bargain beer for $1.80. Around 80% chose the more expensive beer. Now a third beer was introduced, a super bargain beer for $1.60 in addition to the previous two. Now 80% bought the $1.80 beer and the rest $2.50 beer. Nobody bought the cheapest option.
Third time around, they removed the $1.60 beer and replaced with a super premium $3.40 beer. Most people chose the $2.50 beer, a small number $1.80 beer and around 10% opted for the most expensive $3.40 beer.

In short: We are all Goldilocks.
(4) We're in love with stories. In his book Priceless, William Poundstone explains what happened when Williams-Sonoma added a $429 breadmaker next to their $279 model: Sales of the cheaper model doubled even though practically nobody bought the $429 machine. Lesson: If you can't sell a product, try putting something nearly identical, but twice as expensive, next to it. It'll make the first product look like a gotta-have-it bargain. One explanation for why this tactic works is that people like stories or justifications. Since it's terribly hard to know the true value of things, we need narratives to explain our decisions to ourselves. Price differences give us a story and a motive: The $279 breadmaker was, like, 40 percent cheaper than the other model -- we got a great deal! Good story.
(5) We do what we're told. Behavioral economists love experimenting in schools, where they've found that shining a light on fruit and placing a salad bar in the way of the candy makes kids eat more fruit and salad. But adults are equally susceptible to these simple games. Savvy restaurants, for example, design their menus to draw our eyes to the most profitable items by things as simple as pictures and boxes. Good rule of thumb: If you see a course on the menu that's highlighted, boxed, illustrated, or paired with a really expensive item, it's probably a high-margin product that the restaurant hopes you'll see and consider.
(6) We let our emotions get the best of us. In a brilliant experiment from Poundstone's book, volunteers are offered a certain number of dollars out of $10. Offers seen as "unfair" ($1, let's say) activated the insula cortex, "which is otherwise triggered by pain and foul odors." When we feel like we're being ripped off, we literally feel disgusted -- even when it's a good deal. Poundstone equates this to the minibar experience. It's late, you're hungry, there's a Snickers right there, but you're so turned off by the price, that you starve yourself to avoid the feeling of being ripped off. The flip-side is that bargains literally make us feel good about ourselves. Even the most useless junk in the world is appealing if the price feels like a steal.
(7) We're easily made dumber by alcohol, time, decisions. When you're young and drunk at a bar, you're more likely to do stupid things with strangers. "Am I fully assessing this complex romantic situation?" is a difficult question to answer on seven glasses of wine, so we're more likely to ask ourselves a simpler question: "Is s/he hot?" When we're drunk, stressed, tired, and otherwise inattentive, we're more likely to ask and answer simple questions about buying things. Cheap candy bars and gum are situated near the check-out at grocery stores because that's where exhausted shoppers are most likely to indulge cravings without paying attention to price. Boozy lunches are good for deal-making because alcohol narrows the range of complicating factors we can hold in our heads at once. If you want somebody to take an under-examined risk, get him boozed, tired, or ego-depleted.
(8) We're pained by transaction costs... In a personal finance column here, Megan McArdle implored her readers to give up recurring payments like gym memberships and subscriptions to papers and services they don't use. "Don't buy stuff you don't consume" seems like obvious enough advice, but Megan had a great point. We're drawn to subscriptions and memberships and bundles partially because we seek to avoid transaction costs. We'd rather overpay a little than suffer the psychological pain of pulling out a wallet and watching our money go to each gym season/movie/etc.
(9) ... but we're weird about rebates and warranties. Now that I've just told you that consumers try to avoid additional payments, I should add that there are two additional payments we love: rebates and warranties. The first buys the illusion of wealth ("I'm being paid money to spend money!"). The second buys peace of mind ("Now I can own this thing forever without worrying about it!"). Both are basically tricks. "Instead of buying something and getting a rebate," Poundstone writes, "why not just pay a lower price in the first place?'
"[Warranties] make no rational sense," Harvard economist David Cutler told the Washington Post. "The implied probability that [a product] will break has to be substantially greater than the risk that you can't afford to fix it or replace it. If you're buying a $400 item, for the overwhelming number of consumers that level of spending is not a risk you need to insure under any circumstances."
(10) We're obsessed with the number 9. Up to 65 percent of all retail prices end in the number 9. Why? Everybody knows that $20 and $19.99 are the same thing. But the number 9 tells us something simple: This thing is discounted. This thing is cheap. This thing was priced by somebody who knows you like things discounted and cheap. In other words, 9 has transcended the status of charm

How much money are you spending that you don't need to?

Over the years my wife and I have learned the value of sending less.  Now that may sound very simple, but when you look deeper it is profound.  One of the ways we stretch our money is to get great value for every dollar we spend.  We are a one income family yet manage to have a standard of living that some two income families can't manage.

How do we do it?  First thing is we have built our pantry to the point that now we only buy food when it is on sale.  We are no longer caught in the situation of having to pay full price for the groceries for supper.  We know what food items we use and what a good price is on those things and when we find them on sale we stock up on them (this alone effectively cuts our grocery bill by more than 30%).   We have also refinded  our dining cuisine to feature less expensive food items.  First and foremost  we stay away from prepared foods that cost way more.  Our goal is to keep the cost of food to less then $5.00 per day per person and that includes eating out.  Take note that I still have meat with most meals even at that price.  We also avoid the candy and cookies and potatoes chips and pop, as these are all very expensive and do not a meal make.  You can buy steak cheaper than chocolate.

Second, FORGET Fashion and NAME BRANDS, and go with practical and appropriate.  The jeans for $9.00 from walmart are just as good as the $80.00 brand name jeans.  Unless you are playing in the NBA you don't need $150.00 running shoes, (and neither do your kids).  Today I look as sharp as anyone else and for a fraction of the cost, pants from walmart, shirt from the thrift store (it still had the new tags on it $35.00  for $3.00) shoes on sale, my last two coats were bought at yard sales.


Third, read my recent post about not driving a new car.  You can save a bundle.

Fourth, we save a ton of money on things like cell phones (bought both of our cell phones at yard sales for less than $5.00 each) and have them on a pre-paid plan. We don't text and the cell phones are used sparingly and are often off more then on.

Do you really need 130 cable channels, 4 movie channels, pay per view sports?  You can function without a 64 inch HD LCD TV, really you can.

Fifthly, watch what you spend, things like gym membership, go for a walk instead.  Limit your eating out (brown bag it at lunch).  Turn off lights when they are not needed, like when there is no one in the room.

Think about what you spend and where you spend it, work on getting the best value for all your hard earned dollars.

Cheap_O Economics

Cheap-O Economic Returns

Cheap-O Economic Returns

It has been a year since my last post. During that time a lot has happened. In Feb. Of 2011 I suffered a heart attack, and had quad bypass surgery in May 2011. It took all that summer and fall to recover and get back to being able to function. The good news is that I am doing great and the surgeon tells me my heart is better then it was 20 years ago. For that I am very greatful.

Now I am going full strength and ready to pick up where I left off. I have a list of projects left over from last summer plus ideas and plans for new projects, more then enough to keep me busy for the whole summer.

I trust that everyone is doing great and that the economic climate is encouraging you to take the steps to necessary to regain control of your money and your economic future.


Gas Prices and Mortgage Rates Creeping Up

Every time I pull into a gas station it costs a little bit more to fill up. A few cents a liter or a gallon adds up by the tank full. We have seen gas prices at the pumps go up by more then 10 %. With the average family already spending $6000.00 per year on gas that extra 10 %, means they will have $600.00 less to spend each year on things like food and clothing. Given that the forecast is for gas prices to keep moving upward, there will be less and less money available for other purposes.

Don't forget that with increased transportation cost, businesses will pass the increase cost of doing business on to the consumer, which translates to everything will cost more.

Morgage rates are moving up as well. Royal Bank and TD Bank both raised there 5 year rates .20 percent and that trend is upward as well. The fact is that at some point interest rates have to return to a "normal" level.

Business analyst ate telling us that even a 2 % increase in mortgage rates would result in a significant number of consumers having to spend greater than 40 percent of their paycheck just for debt service. Add that to the increase in gas expenses and you can see that there is trouble on the horizon.

So how do you adjust to cope with this onslot. First DO NOT incur any additional debt, if you feel you have to have that new High Definition 54 inch LCD TV, wait to buy it until you have the cash to pay for it, don't put it on the credit card. Make a concerted effort to pay off your debts, starting with the debt with the highest interest rate.

Next drive less, I know that is easier said then done, but there are things you can do to cut down on the number of miles you drive. Walk or ride a bike, if that is not practical then organize your trips so that you are combing several trips into one.

A lot of money advisors would suggest getting a car that gets better milage, and that is a good idea, BUT not if you have to borrow thousands of dollars to save a few hundred on your gas bill. I own a. 1984 Dodge that I paid $500 for, I can buy a lot of gas, even expensive gas for less then making car payments. So make sure you are looking at the total picture when making decisions.

Automotive experts tell us you can save a lot of gas by following some simple rules. Don't let your car idle for any length of time, check the air pressure on your tires, slow down, keep your car tuned up, check your air filter often and keep it clean or replace it should it need to be changed.


Don't be like those people that have a bumper sticker that says, "I owe I owe it's off to work I go". Start now staking your claim to economic freedom. You should always be striving to reduce your debt, and reduce your cost of living. It can be done.

Cheap-O Economics

If you think there is more month left at the end of the paycheck you are right.

If you think there is more month left at the end of the paycheck you are right.

If you are starting to feel like you are working harder and have less to spend you are not alone. In fact wages have been flat, in some sectors of the economy even going down, while prices for food, gas, heating oil and other must have things is going up and up and up.

With 13.5 million americans out of work and the average workweek running just over 34 hours a week, that paycheck is not going to be getting larger anytime soon.

So what are your options?

Find a way to live on less. Yes it takes work but it is worth it in the long run.

First, work hard at getting out of debt and not taking on anymore debt. The less you have to pay in payments the more money there is left over for food and gas and to enjoy life. That may mean driving your car another year or two, rather then trading it in and buying a new one. It might mean downsizing your home to reduce your monthly payment. It will for sure mean putting away or better yet cutting up your credit cards and their 19.8% interest rates.

Second, adjust your expectations, No you do not need that new outfit, No you do not need a new LCD HD TV, No you do not need...well the list goes on and on. Find a way to do with out and you will need less money to live.

Third, change the way you shop for food, work out a menu and stick to it. Buy the food that is on sale, buy in bulk. Stop eating out, you can eat at home for a fraction of the price and eat better.

Fourth, don't go shopping, that is the best way to not spend money. It is in fact that simple, in you aren't in the store you won't be spending the money.

You can in fact beat the paycheck game, you just have to be playing it smart.

Cheap-O Economics

The Great Advantage of Having NO Money

The Great Advantage of Having NO Money

I know it seems weird to think of not having money to be an advantage, but it is in fact one of the biggest advantages that a person can have.

When you don't have money, it expands your horizons, as you have to find other ways to get things done. You learn to make do with what you have, you learn to improvise, you learn that time and talent can make up for lack of money, you learn to do it yourself rather then pay someone to do it for you.

The biggest advantage of not having money, is that money never is part of the decision making process. If you don;t have money then the lack of money is never a reason to decide not to do something or not to under take a task. It just means you have to be inventive and find a way.

Over the years we have done things anyway, money or no money. In fact my first business was started when the total family bank account had less then $200.00 dollars in it. I just had to find the right people (a guy that was retiring and who just wanted to get rid of his inventory and who didn't need money, just needed to get out on the golf course.) the right situation (a landlord who so badly wanted to get some one to rent his building that he made me an unbelievable deal - mind you his building had been empty for 2 years so he was very open to being supportive.)

The best part about not having a ton of money. It is so much more fun to find other ways to get a project done. So much more fun to hunt for and find that special treasure and find it at a bargain price or even better find it for free.

So when you are thinking about starting a business or buying a house or a car or undertaking a project, Don't let the lack of money stop you before you have gotten started. If the deal or the project makes sense and is something that you really want to do or that is going to benifit you and others then, stand back and think of all the ways you could get it done without money. Maybe you can trade your talents for work you need done. Maybe you can sell something you own and buy what you need. Perhaps if you ask around you can find it for free.

The list of things I have gotten for free, just for the asking or for the hauling away would run into pages and pages. The treasures that I have found at yard sales, thrift stores, and auctions would be even longer. The work I have done for other people who in turn did work for me would make interesting reading.

The bottom line, money is no object. Just that unlike the man at the Rolls Royce dealerships it is the lack of money that makes it no object, Not the over abundance of money that makes it no object.

Cheap-O Economics

What Does 2010 Have In Store For Us?

At this time of year, one always takes a moment to look back at the year in review, so we can see where we have come from, what we have accomplished, and were we are likely to be headed.

On a personal note we have moved several steps closer to our goal of going off-grid, and each step has shown us that it is possible, and that we can make the adjustments that will make the possibility a reality. With some good planning and some diligence 2010 should be the year that we race for the main breaker and pull the plug on the power company.

But it is more then that. It is the whole process of discovering that we can get by on less, that we don't have to earn the mega income, that life can be simpler, and we can have more control over what we do, when we do it, and where our food comes from. Those are the composites that work together to make being self-reliant a realistic option.

The year 2009 has been a year of ups and downs. We have witnessed the near collapse of the US banking system, seen major companies hover on the brink, be forced to merge and have to fly to Washington and Ottawa for bail-outs. People have seen the value of their homes and pensions nearly wiped out. We have seen the weirdest weather, seen gas race up to $1.50 liter and then drop to 90 cents a liter, and watched as governments from around the world can not agree on anything.

Each of us will have to take out their own score card to see how you fared in 2009. Regardless of how that looks, we need to look long and hard at what is likely coming in 2010. Depending on where you live and what kind of work you do, even that can vary drastically.

Looking at the large picture, there will be continued recovery in the US and Canadian economy's, BUT almost every expert agrees that it will be a recovery that will not see much if any growth in the job market. The jobless rate will stay near record high, and wages will fail to keep pace with inflation.

As the recovery starts to take hold, we will see a increase in the price of gas, that coupled together with the lack of easy to get to and cheap gas will see the price of gas works its way up to the $2.00 liter area. At that price there will be people that will not be able to afford to drive, so they will end up parking their cars or defaulting on their car loans. Some have suggested that at that price for gas, upwards of 20% of car owners will abandon their cars. It will mean that the long commute will be getting less and less feasible.

Presently interest rates are at an all time low. Which has resulted in people over buying when they purchase a home. The Governor of the Bank of Canada has warned that interest rates will have to go up and that will see some people having to make much larger house payments then they are prepared for. Additionally He has stated that the biggest threat to the Canadian economy is the very high level of household debt. The debt level in the US is at or near the same level and holds the same threat for the US economy as it does it Canada.

Governments and individuals will not be able to spend their way to a recovery, despite what some “rose color glasses” wearing economists have suggested. To many people are to deep in debt for the “buy now pay late” to work. If interest rates go up even a little, the recovery could stall. I am afraid that the optimistic outlook, has overlooking the fact that discretionary spending dollars are at an all time low and about to get even lower.

What does all that mean for you and me? Well as a Cheap-O we already taking steps to pay down debt and to make sure that cars and homes are paid for or paid off as soon as possible, to eliminate the use of credit cards or at least see that they are paid off monthly. I have spent some time evaluating my work situation, and while my employment looks secure at this point, there are real reasons to look at self-employment, or the possibility of other work should things change. We have been working hard to reduce our cost of living to the point that if and when push comes to shove we can survive on one minimum wage job. That in its self helps a persons stress level stay in the safe range. We are also working on a back up plan and a back up plan for that. Call them plan B, plan C, D, E and so on.

We are making sure the pantry and freezer are full, working toward having a 6 month supply of food on hand. We are working hard to decrease the amount of driving we do by combining trips to town, coordinating with neighbors so that when someone does to town they can pick up thing for the rest of us and or the other way around, having supplies on hand so we don't have to just run to town for this or that.

We continue to find ways to reduce the ongoing monthly cost of living, we have cut back on some telephone calling features and got rid of the long distance plan this lowered our phone bill over $40 a month. We are working hard at getting the power bill way way down, the tale will be in February when we get our annualized billing, that will tell us how effective we have been, and let us know how much harder we have to work at trimming our power consumption.

More then anything we are ready for just about anything the Government or the market place can throw at us. Generations of our ancestors faced adversity that we can only imagine, they would think that we have it easy, and wonder why we are worried. But then, for some people it is a major disaster when the cell phone battery goes dead, I guess they might be right that we don't know anything about real hardship.

We can all take a lesson from our parents, grandparents, and their parents, that every challenge presents an opportunity, and that like them we can get through. They dealt with world wars, the great depression, and things we have only read about. So this bit of a bump on the road should not give us that much trouble.

As we head into 2010 lets take the opportunity for each of us to get closer to our goals.

Cheap-O Economics

That is Cheap-O, not cheapskate

Yesterday I was listening to the radio. Charles Adler the radio talk show host was interviewing a guest and talking about cheapskates. I have to admit I had a pretty good laugh about some of the silly things we heard that the cheapskates did.

Today I want to clarify something. I am a Cheap-O, I am NOT a cheapskate.

My definition of a Cheap-O, is someone that is reserved and controlled in how they spend money. Who expects and gets full value out of every dollar. Who finds uses for what would otherwise be discarded items. Someone who lives in a sustainable way. Someone that knows that they, not the government are the best one to make the choices about their life and how they live. Make sure you read my article on "Being Cheap is Greener then Being Green."

I am the one laughing, as a Cheap-O I have money left over to give to charity. I can cut back on the hours I have to work to make ends meet. I can keep my money to speed on things that bring me satisfaction, as I am not speeding it on trivial things. I find pleasure in doing things for myself. In learning new skills, and in spending time doing the things I want to be doing and watching our grandkids grow up.

Don't ever confuse being a Cheap-O with a cheapskate. We are not cut from the same cloth.

Cheap-O Economics