Saturday, July 16, 2016

Borrowing Money from Yourself at Interest

It's good to have a budget, as you can read elsewhere on this blog.  It's also good to include saving in that budget.  If you save carefully, you can do some pretty cool things later on in life.  I've been saving for 15 years including paying down my previous mortgage so that it was almost paid off in 13 years before we sold the house.  Combining these two disciplines created opportunities I want to share with you so that you might catch the bug and become more disciplined yourself.

Between our savings, and the equity in our old house, we wound up with some pretty healthy deposits after we moved into our new house.  Due to the healthy amount, and my credit union having a special rate the day I showed up with our check, we are getting above average returns for the duration of the certificate.  How much isn't important, if you find yourself with a large sum in savings not making much interest, shop frequently for good deals on CD's, especially those that don't penalize you for partial withdrawals so that the CD can function as a safety net should you need the money in an emergency. Whatever you get, make sure you pick something with the best interest rate you can find.

This provides you a little swagger if you go shopping for a newer (used of course) vehicle.  Allow me to explain.  I had decided last winter that the small and efficient car I had got a great deal on last summer was just too small for me.  The wheelbase was making for a rough ride and my neck was having trouble as a result of a blow to the head on the same vehicles hatchback. So I decided I would need something with a smoother ride.  This summer, I finally settled on a 2014 half-ton pickup truck.  The money in my CD more than covered the price of the vehicle, so when I got to the dealership, I simply told the sales manager: I can pay cash for this truck today, or I'll let you loan me the money if you can get me an interest rate like this: and I gave him a number a half percent below what my CD is paying.

Naturally, they wanted to write the loan and make the sale, so they were able to find an interest rate exactly like I requested.  It just happened to be with my Credit Union, but I could have guessed that knowing they had been running competitive specials on car loans all summer.  The important thing is, I walked in with nothing more than what I wanted to put down on the truck to get the payments I wanted, and drove off with the truck, while my safety net money is still sitting in my CD.  The best part: I'm making interest, half a percent, while paying back the car loan.  I'm practically borrowing my own money, and making interest while doing so.  Pretty sweet deal.

I mentioned at the beginning of this article that it's good to have a budget that includes saving.  Currently, I'm not saving all that much because of one other neat thing I was able to do due to years of discipline. To make my monthly truck payment, all I had to do was reallocate my budgeted savings, which comes out of checking automatically every month, to my truck loan.  My net operational income that I pay bills, tithe, and use as play money hasn't gone down at all, all I have done was started saving at a lower level than I had been.

This isn't rocket science, it's delayed gratification and honestly a great way to experience financial freedom as a direct result of financial discipline.  You can do it, you just have to start with the basics and keep cracking on until you are where you want to be financially.  You might wonder if this violates my first principle in my Basics series: don't have debt.  Actually, if you go back and read that, you'll note that this lines up precisely with points 1 and 2. I'm not spending money that I don't have, and I'm making money on the money I borrowed. Happy budgeting!

Thursday, April 28, 2016

Level Billing on CNG a good deal?

Brought over from my G+...

Did you get an offer in the mail for level billing on your monthly gas bill that promises to save you money?  It just might, this year.

According to the US Energy Information Administration, we are on the tail end of a slide to historic low prices for dollars per million BTU's delivered gas.

You might look at this chart and conclude that level billing would be a losing proposition for you, which would be true if the price continues to slide.  But, there are signs it can't, and so to determine if this is a good deal for you or not, you'll need to do a little math.

First those 'signs' I mention.  With prices so low, the industry is feeling pinched.  Their operating capital and profit comes from the price they can charge customers for their product.  The lower the market price (more supply) the less profit for them.  Eventually, apart from what might be (wrongly) ascribed to greed, the basic economics in a very mechanical sense provide a buffer on production due to the cost to operate wells, compress and transport the fuel.  Put another way, I can't run at full production output when the profit only pays for half production output.  So it is likely that production will decline this year, decreasing supply towards late fall, and making the prices next fall and winter begin to climb out of this trough.

Now the math you'll want to do is pretty simple but you need to get all of your gas bills for the past 12 months together.  You want to figure out the total ccf you purchased and the total dollars you spent on all of these.  Then you will want to compute your personal average cost per ccf.  You want to look at a year's worth of data because any given month you may have paid more or less per ccf.  If the level billing (sometimes called flat billing) offer you get is a nickle or more less than what you paid last year, you are in a good position.  You will certainly save money over last year.  The worst you can do is not save as much if the market prices stay at historic lows, which isn't terribly likely.