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Three new ways to control your spending

by The Investor on December 12, 2008

In this post, I’ll outline three methods I’ve successfully used to stop me spending money on stuff I didn’t really need.

Warning: All three methods are a bit unusual!

1. Reserve it on Amazon

Nearly everything is cheaper to buy online. If I’m out shopping and I see something I like, I try to:

Postpone the purchase until I check the price at home
Look it up on Amazon
If I still want it and it’s cheaper online, I add it to my shopping basket or my Amazon wishlist
I then logout of Amazon – without going through the checkout, and so without buying anything

If after a few days I’m still thinking about the product, I’ll log back into Amazon, load up my basket, and consider buying the product again. If I decide I really do want it, I’ll buy it.

This method has stopped me buying all kinds of stuff, especially books, CDs, DVDs and video games. I think I originally came across the idea via one of the personal finance blogs, but I don’t remember which.

I think it works for several reasons:

It enforces a ‘cooling off’ period before you spend any money
It is connected with buying cheaper online, which I can’t resist
The buying-without-really-buying trick probably satisfies my hunter-gatherer instincts

Often I’ll check over the basket a few days later and think, “Nice product, but I don’t really need it”. Sometimes I wonder why I added a product at all.

2. Buy it for a friend

This one also works by satisfying the hunter-gatherer urge.

I often come across great products when on a rare ‘real-world’ shopping trip.

However: I hate clutter as much as the next frugal saver, and I’d rather most of my spare cash was invested in my future financial freedom.

So sometimes instead of buying it for myself, I’ll run through a list of family members and close friends.

Do any of my family or friends have birthdays coming up?
Would the product keep until Christmas?
Have I showed a friend I’m thinking about them, recently?

If the product is a great fit for someone close and it’ll keep, I’ll consider buying it as a future gift.

Again, this method works best for small items like books or for kitchen equipment, which is my personal Achilles’ Heel.

It also ticks off spending that I’d make anyway, such as buying a family member a birthday present.

I can’t personally use this trick for high-end TVs or leather jackets, but your mileage (and bank balance!) may vary.

3. If you’re going to buy something, buy two of them

My fellow money bloggers might have something to say about my first two tips, but the third is sure to provoke some disagreement.

When I’m considering a purchase, I think about buying two

This might sound odd, but the method makes me ask just how desirable the product really is.

Do I really need this t-shirt? Do I really need these new shoes?

Often the answer is no, and so I buy none at all.

But sometimes I do buy two of the same thing. Truly great shoes are hard to find, for example. If I buy two pairs, I can keep one for parties or promenading, and wear the other ones to death. I’d rather have two pairs of great shoes then one great pair, and one mediocre pair.

This tip obviously works best for clothes – you don’t need two iPods, or two laptops! In a sense it also complements my first two methods, which are more effective ways to control your spending on impulse buys rather than clothing.

I hope you found at least one of these tips useful.

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Gordon Brown claims he saved the world

by The Investor on December 10, 2008

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Young? Can’t afford a house? You’re getting shafted by the government

by The Investor on December 10, 2008

Two-year mortgage holiday? Life's a beach when you're a home owner

(Image by: magnus)

What has the UK government got against young people? Why is it obsessed with pulling up the drawbridge to anyone who’d like to buy a home but who can’t afford (or won’t pay) credit bubble prices?

I will declare my interest: I rent, having decided several years ago that housing was too expensive. I believed I was making a sensible decision, weighing up the risks of losing my 25% deposit in a frothy market.

I could afford to buy, but I decided to keep saving and wait for house prices to come back to sane levels.

Well, I had it all wrong. Apparently, the correct thing to do was:

Lie about my income on a self-assessment mortgage application
Buy a house I could only afford if interest rates stayed low for 30 years
Furnish my new house on credit cards
Wait for the taxpayer to bail me out
Go bankrupt without any stigma if things turned pear-shaped

[continue reading…]

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How you can enjoy the profits of 2,267 companies around the world for free

by The Investor on December 8, 2008

Bloomberg is reporting that more than 2,000 companies around the world have cash balances exceeding their market capitalization. That’s more than eight times as many cash rich companies as when the last bear market bottomed in 2002.

With these companies, a $1 share is worth more than $1, just in terms of the cash held by the company. The actual business of the company is thrown in for free.

And these aren’t tinpots but rather big global companies that hold more cash than they’re worth:

Bank of New York Mellon Corp. in New York, Danieli SpA in Buttrio, Italy and Seoul-based Namyang Dairy Products Co. hold more cash than the value of their stock and debt as the slowing world economy wiped out $32 trillion in capitalization this year. Companies in the MSCI World Index trade for an average $1.17 per dollar of net assets, the lowest since at least 1995, and 39 percent sell at a discount to shareholder equity, data compiled by Bloomberg show.

Of course it’s not a one-way bet. The market is pricing the companies expecting falling profits or big losses that start to eat into their reserves.

But that’s always a danger with stock investing – you don’t normally get to buy a $1 for less than $1 to calm your nerves.

Apple and Microsoft: two cash-rich tech aristocrats

Besides the ‘free’ companies, the article also looks at Microsoft and Apple, two companies in the S&P 500 that have more than $20 billion in cash and securities and less than $2 billion in debt (excluding financial companies).

Now that’s not more than their market caps ($192 billion buys you Microsoft and $82 billion secures Apple). But it’s a very healthy cushion to fall back on. Both companies look excellent buys to me.

Techs never really recovered from the dotcom bust, in terms of getting their old pre-bubble ratings back. The tech sector is currently about as cheap as it’s ever been, yet as a group these giants still enjoy deeply embedded advantages and are churning out billions in cash from relatively small capital bases and workforces.

Here in the UK I’ve been buying shares in the Polar Capital Technology Investment Trust, which holds a wide range of tech shares from around the world and is overweight in the big US companies. It has just bounced off an all-time low, and must now be even cheaper, relatively speaking, then when I started buying, given the fall of sterling versus the dollar over that time.

Of course if you’re based in the US you can buy these cheap tech shares direct and not worry about the currency risk at all. I envy you!

The economy is going to get worse before it gets better, but I think it’s very hard to make a bear case at these levels, with dividend yields well over stupidly expensive government bonds in the US and the UK. You must make your own mind up, of course.

Bloomberg says the cash rich equivalents in 2002 rose 115% over the next year.

Food for thought. I’ll ferret out some cash-rich UK companies for an article in the next few days, so please do subscribe for free to ensure you get the article when it’s written.

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