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November 2005

This is Part 2 in a series about The Number by Lee Eisenberg. Part 1 is here.

Lee Eisenberg is not a fan of rules of thumb. In his new book, The Number, he takes a look at a few of these rules and effectively thumbs his nose at them. The author says:

[M]any financial writers are content to continue to crank out simple but useless rules of thumb. Feel free to ignore them. A solid, reliable Number will not fall out of the pages of a magazine or newspaper. If you’re looking for certainty in a Number, a large factor of you must be added into the equation.

Lee takes a look at a popular calculation whose proponents claim that in order to determine your necessary annual income in retirement for an “acceptable existence,” multiply your latest annual salary by a factor of 0.7. Lee points out that this simplifcation neglects several important factors that can greatly affect the Number, thus greatly affecting the strategy necessary to attain that number.

Here are the missing, difficult-to-quantify variables:
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Over the next week or so, I’ll be taking an in-depth look at a book to be released next year entitled The Number, written by Lee Eisenberg. Before I get to the book, let me explain how the book came into my possession.

At the end of October, I blogged about Lee’s article in New York Magazine, Nailing Your New York Number. (The New York Magazine article is here.) I found the article interesting, but I did not know a book was in the works.
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Just like for the older Xbox, the new Xbox 360 costs more to manufacture than Microsoft charges for the system. The retail price is $399 (which will eventually be cut down, which is the pattern for video game consoles) but the cost for all of the components is $552.27.

Microsoft must believe that people who purchase the console will also purchase enough games to make up the difference or the online service which involves a monthly fee. On the surface, this seems like a good sales strategy. It’s similar — but not quite the same — as printers that sell at a loss, allowing all the profit to be made by the sale of consumable ink.

The Xbox strategy is different because the games are less consumable; although players will often play the game, win, and then move onto the next, many games are designed to provide more entertainment than just “beating” them. While printer users are forced to buy more ink from the manufacturer (unless the users opt for cheap ink refills, a workaround that newer printers are built to restrict), video game console users are not required to purchase more games in order for the device to function.

Microsoft has another strategy regarding the Xbox, and this one involves supply and demand. At the early stages of the device’s “release,” supply is controlled and limited. With the high demand, or perceived high demand, this causes the street price — what someone is willing to pay — to shoot up. This results in bidding wars on eBay, for example.

A quick glance at the auction site’s bids shows that the Xbox 360 is still hot, and people are actively bidding $500 to $900. The article from Reuters mentions a bidding price of $1,200 and a “Buy It Now” price of $2,500, so it appears demand is starting to wane.

Of course, Microsoft won’t see money directly from the inflated auction prices, but they will benefit from the press involved. This is all good for the company, and therefore good for the shareholders. (MSFT is included in some of my mutual funds.)

There has been bad news for the company as well. Microsoft received some negative press, especially from techies, when people began coming across hardware glitches such as the software freezing (getting stuck) and overheating. A fix has been found, but a better solution will hopefully come from Microsoft through a revision of the hardware and software.

I think the message for consumers is clear. Don’t feel the need to be the first on the block with new technology. While it’s exciting to be the first amoing your friends to have a much sought-after device, is it worth the premium? Being privvy to the early version also puts the buyer at risk for bugs and glitches (despite copious laboratory testing), which are often fixed in a later revision.

I just noticed that Five Cent Nickel touched on this topic as well.

Now if you’ll excuse me, I’m going to play the JavaScript version of Scott Adams’ AdventureLand, the first game I remember playing on my VIC-20. (Centipede was a favorite, too.)

Personal note: I’ll be flying back home from California today, so I won’t be online much. I had a wonderful Thanksgiving out here, and I hope all my readers were able to celebrate the holiday, if they chose to do so, with much love, happiness, peace, and food.

At the most, I would rent a car once or twice a year when I find myself traveling to remote cities for friends’ weddings, for example. Luckilly, this has not yet happened to me.

According to the New York Times, it’s common for rental car companies to charge mutiple customers for the same dings or dents on cars. There are a few examples where the company in question — in this case Enterprise — has charged customers’ credit cards $500 before the car has been inspected.

How many motorists are billed for existing damage to the cars they rent? Of the scores of complaints I have received about damage disputes, I counted about a dozen recent cases that seemed to fit the bill. All of them involved Enterprise.

Enterprise defended their actions in the article, saying the customers were misbilled due to their returning the rented vehicles on a Saturday. Now, generally I’m quite trusting and I give others the benefit of the doubt, but if that’s the best excuse they can come up with, it’s a sorry state of affairs.

The best advice is to thoroughly inspect the vehicle before you sign the rental agreement. Walk around the car and mark down any blemish that the company might try to blame on you. I generally don’t take the extra insurance offered by the rental company as between my own insurance and AAA, everything’s covered. Most of all, don’t get into any accidents.

Speaking of accidents, now it’s confession time: One time, I rented a small truck (like U-Haul or Ryder) for moving my worldly possessions from one town to another. As I drove around the gas station between filling up and returning the vehicle, I think I took out part of the roof of the building that extended past the side. The truck was fine.

Has anyone else had any interesting experiences with rental cars or the companies?

Are You Pursuing Your Passion?

by Luke Landes

I am struggling to determine my “dream job.” I would like to get out of the rut I believe I am in, but I’m not quite sure what to do. How do people determine their dream job? I think most individuals stumble upon it by accident, while others — possibly many more — never find ... Continue reading this article…

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Don’t Stress About Investing

by Luke Landes

Kiplinger’s presents four mantras for stress-free investing. If you’ve been feeling nervous about the stock market lately, perhaps considering these ideas will put you in a relaxed state of mind. 1. Think Long Term The longer you have until your savings deadline, the more risk you can afford to take. If your goals are decades ... Continue reading this article…

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Carnival of Personal Finance #22

by Luke Landes

Welcome to the Carnival of Personal Finance, 22nd Edition! I’m not quite sure what happened to this week’s actual host, so I’m filling in. I may have missed your submission — please send me a quick note and I’ll add yours in if I did. Here are this week’s submissions, in reverse order of arrival. ... Continue reading this article…

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The World Is Bitchier

by Luke Landes

This article from Wired Magazine takes a look at how technology has changed consumerism over the last sesquicentury. It’s a little bit tounge-in-cheek, but it resonates with me and my feelings towards working and living. Just because technology makes it possible for us to work 10 times faster than we used to doesn’t mean we ... Continue reading this article…

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Your Credit Report Affects Your Cards

by Luke Landes

If you carry a balance on your credit card from month to month (which I strongly feel should not be done if possible), be extra careful about negative items hitting your credit card. In the past, credit card companies would raise their interest rates to a card user who misses a payment or two. Missing ... Continue reading this article…

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One Year of AdSense, Welcome Elliott Wave International

by Luke Landes

Here is how AdSense has done for me (in relative terms) since when I added ads to the site in November last year. This doesn’t include any of the revenue from other advertising programs I’ve experimented with. Speaking of experimenting with ads, I’ve added BlogAds to the site to determine if I’ll fare any better. ... Continue reading this article…

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Balance Sheet and Income Statement, October 2005

by Luke Landes

If you continue reading, you’ll see my balance sheet and income statement for the end of October, 2005. Progress has been slow this month. Some comments about my balances are below the chart.

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