As featured in The Wall Street Journal, Money Magazine, and more!

October 2012


I hope all Consumerism Commentary readers affected by Hurricane slash Extra-Tropical Storm slash Low-Pressure System Sandy are alive and safe and have avoided damage. I lost power for sixteen to eighteen hours, and although I live near a canal, flood waters didn’t reach me. Many of my local friends are still without power, and my heart goes out to families elsewhere who have suffered significant damage or worse.

It’s a good idea to check your insurance coverage before an approaching storm arrives if you’re not intimately familiar with its terms. Naturally, I didn’t look at my coverage until after Sandy had passed. I’m not a homeowner, so life isn’t all that complicated for me when it comes to insurance. I’ve been a renter of apartments throughout my adult life, but I didn’t have renters insurance until a few years ago. It’s inexpensive, so there’s no excuse for not having renters insurance for ten years. I can’t correct the past, only make better decisions today and in the future, so I’ve moved on.

I chose my insurance initially by calling AAA, the automobile membership club, who acts like a broker, for car insurance. They helped me find good private car insurance coverage once I was eligible for coverage not managed by the state, and my own shopping around revealed the price comparisons offered by AAA matched my expectations. The best deal was with Liberty Mutual insurance. When looking for renters insurance, I chose to work directly with Liberty Mutual, taking advantage of the multiple policy discount in addition to other discounts.

When I enrolled for renters insurance, I answered a few questions about my material possessions. Because the structure in which I live is theoretically covered by the landlord’s own insurance policy, renters insurance focuses on two main coverage categories: personal property and liability.

The personal property coverage should cover the replacement costs for household items, whether they are damaged or destroyed inside or outside the home. This policy hasn’t been updated in several years, and I may want to call to ensure I have enough coverage. There are some important limits to this coverage, however. For example, if I were to keep cash or precious metals in my home, this insurance coverage would only coverage loss of up to $200. That wouldn’t cover even one gold bullion round. I don’t own any gold, but if I were to own some, and for some reason wanted to hold it outside of a safety deposit box at a bank, this would be a concern.

Property coverage does have tight limits on property in the home used for business purposes — but that’s what business insurance is for.

When it comes to approaching hurricanes and storms, the insurance covers damage to property only if the force of the wind causes an opening in the wall or roof. Many people feeling the effects of the hurricane are experiencing loss related to water entering their living spaces, and this damage — flood damage — is not covered by typical renters insurance. Water damage is specifically excluded from my coverage, even if the water is driven by wind, as it would be in a hurricane. Damage resulting from water backing up through sewers and drains is not covered.

The policy includes very specific limitations related to floods, but points out that if I happen to live in a participating community, I could buy separate flood insurance from the National Flood Insurance Program. This is a program run by the Federal Emergency Management Agency (FEMA), a division of the U.S. Department of Homeland Security. Unless or until FEMA is dismantled by the government, you can buy flood insurance from the government through your insurance agent. Despite Sandy this year and Irene last year, and despite local communities being subject to flooding due to the proximity to a canal, my location is not prone to flooding, so I don’t need this coverage currently.

If any of my personal property had been damaged by power failure, this also would not be covered. I take this to mean, among other things, that I can’t enter a claim for any food that might have spoiled in my refrigerator during the eighteen hours I was in the dark through hurricane Sandy’s effects.

Update: If you have hurricane coverage, be sure to check how the policy defines the term “hurricane.” For example, when Sandy made landfall, NOAA did not consider the storm to be a hurricane. This can end up being good for homeowners, because hurricane policies often have a separate deductible. The deductible might not apply if any particular storm was not technically a hurricane when it caused the damage.

The personal liability coverage takes effect if I were to be sued for damage due to bodily injury or property damage, and there are specific limits to this type of coverage as well. Again, business insurance covers many of the potential holes left open by renters insurance. If I were to keep a watercraft or aircraft in the residence for some reason, liability coverage would not extend to circumstances related to those items.

Additional coverage in my renters insurance plan include credit card fraud, additional coverage for personal property so that the plan will pay for the full replacement cost rather than the “value” of the items when damaged, mold coverage, and Worker’s Compensation.

Last year was the first time I’ve experienced an earthquake on the east coast. Quakes aren’t normally expected in my area of the country, and one with the epicenter in Virginia last year took people by surprise. It is possible to get renters insurance or homowners insurance that covers earthquake events, but my insurance company goes so far as to warn against it:

Historically, earthquakes in New Jersey are a rare event, although the possibility exists that it could happen. Over the five year period from 1997 to 2002, for every $1 of earthquake insurance premium, 3/10 of one cent has been paid out for losses.

It’s just not a good deal, and the company is admitting as such. Compare the 0.003% rate of coverage value to what’s expected with health insurance. The Affordable Care Act specifies that health insurance companies should spend 80 percent of collected premiums on coverage. That said, it sounds like earthquake insurance could be quite a profitable business, at least here in New Jersey.

How did your household fare if affected by Hurricane Sandy? What damage would be excluded from your homeowners or renters insurance? It’s good to know the details of your coverage before the next natural event.

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Products of all types — cars, incandescent bulbs, your iPad and iPhone — are designed with planned obsolescence in mind. The need or desire to replace products quickly and a shorter product life-cycle are a consistent drain on wealth. In the previous generation, the latest television sets were big household expenses, just like they are today, but they stayed operational and sufficient for a couple of decades.

Today, I don’t know anyone whose main television is older than five years. And with new technology continually entering the market — high-definition, internet connectivity, LED backlighting, 120, 240 or 480 frame-per-second interpolation, applications, 3-D, wide color gamut, and 4K — salespeople always have a reason to convince consumers to upgrade. The older relatives of today’s technology still work fine, but this is the core of planned obsolescence. Products are designed in a way that consumers don’t want to keep the old.

The automobile industry is a great example. Every year, manufacturers release slightly updated versions of the same cars that have a slightly updated look and feel. The body is a little sleeker, a signature feature is more pronounced, and the dashboard technology is a little more advanced. What was perfectly modern last year is now stylistically out of date. There can be a social stigma to owning a product that isn’t the latest iteration, and this encourages consumers to spend more money.

There’s nothing wrong with boosting the automobile industry or lining Apple’s pockets with cash. It helps the economy. But if you’re doing so to the detriment of your own personal finances, take a minute to evaluate how you’ve been psychologically manipulated into spending your money. Although I had the same mobile phone from late 1999 when I purchased my first to about 2003, when my finances had improved, since then I’ve regularly upgraded every twenty-four to twenty-eight months.

I had and continue to have three reasons for upgrading:

  • The new phones have features I want, making communicating or working easier for me, like the upgrades from a voice-only device to one that could sort-of browse the internet in a Gopher-like interface to one that could receive email and send text messages to one that can fully browse the web.
  • After a few years, the phone batteries don’t hold a charge as well and the software gets sluggish. If I’m going to buy a new battery, I think to myself in a situation where I can afford the purchase, I might as well just buy a new phone.
  • Owning a newer device makes me feel immersed in the exciting world of current technology.

If you can afford constant materialism like what I continually exhibit, there’s no reason for criticism. It’s always true that if you save your money rather than succumbing to the latest upgrade cycle, and repeat this each time you are tempted to upgrade, your savings will build up. Invest your savings in a broad stock market index fund, and your wealth will most likely grow over the long-term at a rate that will allow you the freedom to do more with your life later on. Immediate gratification often takes precedence over long-term savings, and that’s a person decision. It helps, however, to be aware of the choice and make the decision as consciously as possible, recognizing how manufacturers and retailers are working together to manipulate your brain.

You don’t even need to sacrifice much in the way of technology to choose savings over buying the latest product. In the mobile phone industry, last year’s models are often given away for free as long as you sign up for a two-year contract. I paid $150, an already discounted price, for one of the latest phones a few years ago; the next year, the price was down to $50 although there were more than enough methods of paying nothing for the device. When the desire to stay at the forefront of technology repeats itself, this behavior is costly.

When I needed a reliable way to get to work everyday — I couldn’t use a broken-down car as an excuse for being late — I purchased a theoretically reliable Honda Civic new from the dealer. It was a 2004 model when the 2005 models had already arrived at the showroom, but that didn’t provide me much of a discount. I’ve kept the car for so long mainly because for the most part it still runs like new and somewhat because I don’t have a garage to keep a fancier car protected.

Much more than the biannual phone upgrade, upgrading cars every few years would be significantly damaging to my personal finances. Why take on unnecessary debt? Why spend $16,000, or $25,000 or $40,000, or however much for a replacement when the 2004 Civic is working fine at 140,000 miles? It’s a part of conscious decision-making.

The goal isn’t depriving consumers of enjoying the products they use, especially when the products are used everyday and have become, for better or worse, an integral part of life. This path isn’t right for everyone, however. Replacing and upgrading products that aren’t malfunctioning can be a habit that drives a consumer further away from financial independence, whether it’s one phone at a time over the course of many years or one unnecessary large purchase that takes resources away from more important goals.

Another part of planned obsolescence is when the products you buy are designed to fail after a certain amount of time. Quicken, for example, is a piece of software wherein some features like online connectivity are disabled after several years. The company thus encourages its users to upgrade at least every few years. For more concrete products, manufacturers have moved towards cheaper materials in order to reduce production costs, but the result can be products that fall apart sooner.

The best solution, though not always complete, is making conscious spending decisions.

  • Recognize that you are not fully in control of your actions. Manufacturers, retailers and marketers understand human psychology better than you (unless it is your job as well). You’re being manipulated.
  • Although you’re being manipulated, you can adjust your behavior to compensate for the direction in which you’re being subconsciously pushed.
  • Consider whether the product you’re interested in purchasing is a need or a want. It’s fine to buy products that are nothing more than wants, but it’s better to do so after you’ve given some thought to the alternatives.
  • How many hours did you need to work to be able to afford this product, after taxes? If a new mobile phone, not including the two-year contract, costs you one hour of work, it may be a better choice than a phone that costs twenty hours of work.
  • What percentage of your net worth are you spending to make this purchase? If your net worth is negative and you owe more in debt than you own, how far back will this put your debt-reduction progress?
  • If your purchasing of the product were the lead story in the New York Times, what would the headline say? “Man buys sports car, delays retirement by 5 years?” “Woman upgrades to latest iPhone again, tells children to pay for their own college education?”
  • Choose products that aren’t designed to fail quickly.

Do you resist planned obsolescence in favor of maintaining a strong financial situation for yourself and your family? Do you make better decisions for large purchases, “allowing” yourself to splurge on some of the less expensive upgrades? How do you balance planning for financial independence with keeping up with the latest products and technologies?

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I wrote recently about how sharing my financial progress publicly on a monthly basis enabled me to better evaluate my life, make better decisions, and grow my wealth faster than if I had kept my progress to myself. Over time, not only did the public display of my net worth and income motivate me, but the transparency became crucial to my philosophy of improving anyone’s financial situation, and the same transparency helped build a relationship with readers here on Consumerism Commentary.

Here’s why I believe this worked. Knowing readers would be looking for positive improvements each month, there is extra motivation not to let them down. Fear of embarrassment can drive better decision-making. It’s rooted in a life philosophy I’ve often heard: “Live as if everything you do could be a front-page story in the New York Times.” This type of motivation may apply not others, not only myself.

A few reasons now prevent me from being just as forthcoming about my own finances today, but I have decided to take this model of transparency and create an exciting new feature on this site. In the midst of writing the article linked above, I came to the realization that the monthly progress reports are and should be an integral part of the identity of this site, and I want to bring them back. At the time, I called for readers to be willing to share their monthly financial reports anonymously.

The response was positive and unexpectedly voluminous, so I’ve expanded the plan. Each month I’d like to track up to five readers’ financial progress. Assuming there are enough readers willing to commit to this tracking for at least year, I will be able to choose those whose life situations are substantially different from each other. For example, one reader might be a single guy looking to quit his job and start his own business, another might be in a family of four with a household income of over $150,000 with investments to track, while yet another might represent a couple nearing retirement with a savings deficiency.

The participants will provide a report exported out of Quicken or something equivalent, which I will format in much the same way I’ve formatted my reports in the past. Each reader will be featured in one article a month, in which they will present their financial update and describe any obstacles or successes they might have experienced in the past month. Each article will also feature feedback from me and a few financial experts I’m recruiting.

I plan for this to begin with the end of 2012. The end of the year is a great point for creating a baseline. It will also be one year after my last personal net worth update.

Even if you have already contacted me to be part of this major new feature on Consumerism Commentary, please complete the form below. It’s important to understand these details about each interested reader in order to select a good mix of financial situations. Continue reading this article to see the form. Read the full article →

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I’ve taken a cursory look at the possibility of investing in real estate near where I live, with the intent of buying a property for rental. The numbers don’t work well in my favor. I’ve confirmed this with friends experienced with renting their properties in the area; most would not do it again if given the choice. The small potential profit is not worth the extra effort and stress.

To make the numbers work more in the investor’s favor, there’s the possibility of purchasing foreclosed or pre-foreclosed homes. If you can get a significant discount on the price and minimize the out-of-pocket costs required to make the dwelling attractive, there’s a better chance of making a profit. Buying a house in a distressed situation, whether from the buyer in a pre-foreclosed status or from the lender or bank once foreclosed, is not very simple. Auctions are attended by professionals, and the best deals are monopolized by the most experienced investors. It can be difficult, expensive, and time-consuming to break into the elite group of foreclosure investors.

Zillow Pre-ForeclosureZillow is making this process a little easier or less expensive for the amateur investor. I’ve been a fan of Zillow for a while. The website, and particularly the iPad application, helps me easily find public information about any property. While driving around neighborhoods in which I might like to buy a house, either for myself or as an investment, I can get an idea about the cost of the home.

The application uses a map and GPS to locate the house of interest, and provides details such as a history of sales prices and Zillow’s own market value estimate of the property. The application also identifies which homes are currently for sale and offers homeowners a chance to advertise their homes to potential buyers without officially putting them on the market. Of course, I don’t actually use the iPad while driving.

Now, the website also indicates when a home is in a pre-foreclosure or pre-market status. This means that the bank has initiated proceedings to foreclose upon the property, but the home is not listed for sale yet. Previously, this information had been difficult to aggregate or has been kept away from the general public by services that require membership fees. Zillow’s new feature brings a wider inventory of potentially better deals to more investors for free.

That doesn’t mean, however, that it’s going to be any easier for amateur investors — those without connections in the foreclosure real estate market in their location — to get better deals. Professional investors find pre-foreclosure deals within a day or two of the public filing, and with cash in hand and experience making deals, are often able to make the most out of the information they have. If Zillow’s information is as slow as two days, the best deals might no longer be available. That doesn’t mean it’s not worth pursuing, because the deals one might find with Zillow might still be better than the deals one might find if you wait for a foreclosure auction.

Zillow’s new development is bad news for companies who profit by charging membership fees to access an aggregation of public information. When a competitor comes in and offers customers the same information for free, the company that charges its customers must come up with a new business model fast or explain how their paid service is worth the price compared to the free service.

To feature foreclosure and pre-foreclosure listings, Zillow has introduced a foreclosure center, making it simple to search just for these deals without other listings cluttering the screen. A search in my ZIP code reveals a surprising number of pre-foreclosure properties within a mile. I don’t have to walk very far to see fifteen homes Zillow has marked as pre-foreclosure.

Without walking around to see these homes, the pricing looks favorable. The estimated foreclosure prices seem to be 15 to 20 percent below Zillow’s estimated market value for these homes, putting these properties in the “good investment” range based on that information alone. Of course, if these properties need a significant amount of work, the value as a potential investment decreases.

I’d be interested to hear what seasoned real estate investors think about this new development.

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Mortgage Fraud: U.S. Government Suing Bank of America for $1 Billion

by Luke Landes
Bank of America

I never liked the term “hustle” when used to discuss making money on the side. The word has the slight connotation of fraud or taking advantage of someone, and moving quickly to do so. Now, the word “hustle” is going to be linked to something more specific and decidedly negative. This was the name of ... Continue reading this article…

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Mass Affluent: College is Worth the Investment

by Luke Landes
Questioning the value of a college education

You can be financially successful without a college degree. One summer when I was younger, fresh out of college, I worked for a touring drum and bugle corps. It’s a group of 128 adolescents and young adults and 40 staff who drive around the company in buses, performing almost every night for seven weeks, marching ... Continue reading this article…

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2013 Federal Income Tax Brackets and Marginal Rates

by Luke Landes
Tax

When you file your federal income tax return before April 2013, you’re filing your 2012 taxes, and the 2012 income tax brackets define the amount of tax you owe to the government before credits and after-tax adjustments. The first paycheck or consultancy fee you earn in 2013 falls under new rules, however. The 2013 income ... Continue reading this article…

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Virgin America Visa Signature Card Review, 15,000 Bonus Points

by Luke Landes
Virgin America Visa Signature

Editor’s Note:  Thank you for your interest, this limited-time offer has expired.  Barclays Bank may be beginning to offer its own branded cards like the recently-reviewed Barclaycard Rewards MasterCard, but in the United States this bank is more known for its branded cards. The Virgin America Visa® Signature Card is one such offer from Barclays, ... Continue reading this article…

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Welcome to Consumerism Commentary

by Luke Landes
Profile Photo

If you are new to Consumerism Commentary, start here. My name is Luke Landes, and I am the founder of Consumerism Commentary. I started this website in 2003 to hold myself accountable for my choices pertaining to my financial condition. Over the subsequent years, Consumerism Commentary has grown into one of the most popular blogs ... Continue reading this article…

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Education Majors Earn Less Regardless of Career

by Luke Landes
Teacher

As I’ve mentioned before, I studied education as an undergraduate. I knew that my career as a public school teacher would limit my potential earnings over my lifetime, though I eyed administration as a potential progression. I diverged into non-profit work, and if I learned anything from my time working at a non-profit, it’s that ... Continue reading this article…

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Go to College for Free

by Luke Landes
West Point Academy cadet

Welcome new readers. Be sure to subscribe to Consumerism Commentary via RSS. New readers should start here. I enjoyed my experience as an undergraduate at a “state-assisted, privately governed” university. As I did not live in that university’s state prior to attending, my tuition fees were higher than many of my classmates’ fees. To attend ... Continue reading this article…

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My Net Worth History

by Luke Landes

Part of the draw of Consumerism Commentary has been my monthly financial reports. Having worked in the financial reporting area of a company that happened to be in the financial industry, I recognize the importance of monthly public reporting to be accountable to stakeholders; I started publicly reporting my own finances to be accountable to ... Continue reading this article…

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Financial Voyeurism: Sharing Your Finances to Improve Your Life

by Luke Landes
Net worth balance sheet, December 2011

There’s something weird about what I’ve done here at Consumerism Commentary. Although I no longer share all the details on a regular basis, when I started this website in 2003, its purpose was to track my financial progress, to discover and share thoughts about building financial freedom, and to grow my own knowledge about money ... Continue reading this article…

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Barclaycard Rewards MasterCard Review, Sign-Up Bonus

by Luke Landes

Until recently, Barclaycard was a credit card issuer focused on branded credit cards. Retailers of various types would use Barclaycard’s services to offer credit cards that seemed to be issued by the company whose name was on the card, like Barnes & Noble. The company is at work building its brand and presence in the ... Continue reading this article…

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Robert Kiyosaki, Financial Guru, Declares Bankruptcy

by Luke Landes
Robert Kiyosaki Bankruptcy

Robert Kiyosaki has been in the business of selling books and seminars, taking advantage of the Amway pyramid scheme and endorsements from Oprah Winfrey, and built his way to wealth selling his ideas about investing. A few years ago, he teamed up with perennial mogul Donald Trump to sell more books. Kiyosaki and one of ... Continue reading this article…

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5 Most Annoying Banking Fees

by Luke Landes
Grabbing money

Fees and surcharges seem to be an unavoidable part of living in a world where banking is big business. If you keep your financial situation simple, diligently shop around, and keep an eye on your money, you can avoid may of the more common fees. In theory, you could increase your fee-avoidance ability by keeping ... Continue reading this article…

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Teaching Kids About Money

by Luke Landes
Teaching Kids About Money

Most people who learn about proper money management as an adult learn the hard way. A common thread in stories about personal financial recovery is a journey to “rock-bottom.” Often, a financial crisis is necessary to motivate people to change behavior and learn to be responsible for their financial condition and their path towards improvement. ... Continue reading this article…

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Rescheduling My Life: Using Google Calendar for Better Time Management

by Luke Landes
Luke's Daily Calendar

Time management has never been my strength. Part of my approach to time management is rooted in my disdain for over-organization. I don’t want to treat my time as if I were on an assembly line. For most of my life, however, I was somewhat bound by daily schedules, just like most people. In school, ... Continue reading this article…

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Declining Interest Rates, Declining Common Sense

by Jason Larkins

This is a guest article by Jason Larkins. Jason is the Director of Financial Education at Wise Wealth, LLC in Lee’s Summit, Missouri and the author of the website WorkSaveLive. For years I had my personal struggles with money: spending more than I made, following the status quo, and living life like I’d die tomorrow. ... Continue reading this article…

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Quicken Home and Business 2013 Giveaway

by Luke Landes

The giveaway has ended. Thank you for participating! I’ve contacted the winner by email. We may launch another giveaway in the coming months, so follow me on Twitter and follow Consumerism Commentary on Facebook to be the first to know when there is another opportunity to win a free copy of Quicken 2013. Intuit is ... Continue reading this article…

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