According to Alan Greenspan, this is of the first types of spending that consumers give up when a recession is felt personally. When men come to the point at which they need to save more money than usual and decide to cut bank their spending, underwear is at the top of the list of possible reductions. Because underwear is invisible to the public, man apparently have no shame in letting the fabric deteriorate more than they would when a flush bank account would allow them to replace tattered undergarments when necessary.
Furthermore, an increase in underwear purchases could signal the beginning of a recovery. If this is true, it’s bad news for the economy in the next few years. Underwear industry experts are predicting no growth in sales until 2013.
I have not noticed any decline in my own undergarment purchases. My overall spending on clothing has remained strong as I have been replacing some of the clothing I’ve owned for ten years or more, some of which no longer fits anyway. My underwear doesn’t necessarily last as long before I replace the old clothing with something new.
Purchases of women’s underwear does not correlate to the recession. Any time is a good time for buying lingerie.
Have you reduced your clothing purchases, particularly underwear, to save money this past year?
If you can’t answer this question because you don’t know how much you spend on clothing, consider tracking your expenses for a period of time. You might find you have some opportunities to save money across your entire budget.
When DVDs (and before them, Laserdiscs) were new, I really used to enjoy listening to the commentary tracks. Granted, some were better than others, but I couldn’t seem to get enough of the “behind the scenes” talk, and to hear the cast and crew telling funny stories about each other.
Those don’t interest me as much as they used to, and in fact these days I’m more likely to rent a DVD than buy it, but there is a kind of commentary track that I still enjoy: the kind made by people who weren’t at all involved in making the movie.
The gold standard for these is Rifftrax, from three of the people who made Mystery Science Theater 3000. When it comes to making fun of movies, few people have had anywhere near as much practice. It’s a pretty ingenious system that manages to avoid conflicts with copyright law. Here’s how it works:
Find a commentary track for a movie that you have a copy of (or want to rent, or buy)
Pay $3 or $4
Download the .mp3 file (free of DRM, of course)
Play the movie and the .mp3 file simultaneously (the commentary will come with instructions for syncing and a guide to help you get back on track if they drift apart)
Here’s an example from the first “Pirates of the Caribbean” movie:
This is a great way to spend a few dollars and make new again some of the movies you probably already have on your shelf. Some of my favorites from Rifftrax go with movies that honestly, nobody should own (Troll 2 comes immediately to mind), but among those you’re likely to have lying around, these are good, too:
Now that Tax Day has come and gone again, and anger is subsiding, let’s spend some time thinking about what a better system might look like.
Have you heard of the “Fair Tax” proposal? I may be late to the knowledge party (Flexo mentioned it briefly in December 2007 when comparing presiential candidates’ ideas), and it’s likely I had disregarded it because I was confusing it with various Flat Tax ideas, which failed miserably in the 1990s. But it’s different; here are the basics:
It’s a Tax on Spending and Nothing Else
Let’s start with the greatest part first: Federal income taxes get repealed. This includes personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes. That’s just about all the big boxes on your 1040. Instead, the Federal government collect revenue from sales of new goods and services (unlike Europe’s VAT idea, used goods are not taxed again).
According to the people who’ve calculated what would be a “fair” tax, a national sales tax of 23% would completely replace the need for all those kinds of income taxes. We’d be collecting the same amount of revenue. In short: because you take home your whole paycheck, the amount you spend or save is entirely up to you. Things in the store would appear to cost more than you’re currently used to, but a $77 item would still cost you $77 (read the complex bit contrasting tax-inclusive and tax-exclusive).
Wealth isn’t Penalized
Under our current progressive income tax system, you’re taxed more when you earn more. Subsequently, wealthy people (for whom I admit I do not yet feel sorry) are likely to complain that they are being “taxed to death”. The most common understandable complaint sounds like this: I don’t benefit x% more from common Government services more than anybody else, why should I pay x% more? And the unsatisfactory answer is always: because nobody else can afford it. (Then the argument goes off onto various tangents, some of which make sense.)
In the Fair Tax proposal, you choose how much you get taxed by choosing how much to spend. One of the assumptions behind the proposal is that if a) you already have plenty of extra money after your budgetary needs are met and b) you’re taking home your whole paycheck, that you’ll buy things that you want. I know I would, and I’m not exactly wealthy.
It’s Meant to be Revenue-Neutral
Replacing Federal income taxes with a 23% Fair Tax is supposed to mean that almost* all common services being paid for will continue as usual.
I ran our household finances through the Fair Tax Calculator and came up with these results:
2.40% more spendable income
$1,984 more purchasing power
$3,114 less federal taxes
These are fairly modest differences, which makes me feel better, and helps convince me that the idea really is “revenue neutral” and not a scheme to shut down Government services without considering the consequences.
* Taxes would be much, much simpler, and so the IRS would probably have to lay off some people. CPAs, likewise, would probably need to find other work.
Essential Goods and Services are Not Taxed
Well, sort of. Just like many groceries don’t have sales tax applied now, there are essential staples that none of us can live without that under the Fair Tax plan, you would get reimbursed for. The novel thing is that you’d get a “prebate”: a rebate before it happens. This is different depending on the size of your household, see the full table.
Conclusion
I’m not ready yet to conclude whether this is a better idea. It’s certainly simpler, and on its face it’s very tempting and does indeed seem more fair. I’m going to keep reading all the Pros and Cons I can find (from only reputable news sources, naturally). In the meantime, I’d love to get your opinion.
Finally, this isn’t just an idea floating around in the ether. There is a bill proposed in the U.S. House that is up for consideration. If you like the idea, I encourage you to call your congresspeople.
I will admit that the title of this post is a bit inflammatory. I should specify that the more accurate number one frugality tip should be “Don’t be a woman (or a man, but in our society, mostly a woman) obsessed with beauty.” Newsweek illustrates this by breaking down the cost of female beauty maintenance over a lifetime in a recent article, linked below.
According to the study, the average “modern diva” will spend over $200,000 on hair alone. Add in the expenses for maintaining a beautiful face, body, hands and feet, and the average lifetime expense climbs to almost $450,000.
The Newsweek editors go into further detail by splitting the expense by age group. The graphic below shows how much a woman will spend throughout her “tweens”.
Now, I don’t judge. If you have the money to spend, spend it. But it’s better to be conscious about these costs than to let them go by without thinking about them.
The Newsweek study doesn’t go far enough, however. While they’ve provided details about the expenses, they haven’t studied the effect that spending money on beauty will have on a woman’s income or other levels of success. For example, one theoretical possibility is that a lifetime expense of $450,000 for conforming yourself to what the rest of the world considers “beautiful” will result in a lifetime increase of income of $1,000,000. If that is the case, it would be hard to argue than the price of beauty was not well spent.
And in real life, return on investment (ROI) is measured in other ways than money. If for whatever reason, spending money to fit into a certain category makes a person happier, and she can’t find happiness by any other means, how can you argue against spending the money if it is available? If the money is not available, and our diva relies on debt to finance vanity, the true cost out of the pocket could be much greater.
According to the survey’s methodolody, invasive procedures like breast implants and liposuction were not considered in the totals. You can view the raw data here or view the Newsweek story that offers a browsable interface.
Any divas out there? Can you cut back on spending on beauty or is it a justified expense?
A few months short of five years ago, I purchased a new 2004 Honda Civic to replace a failing older model that had not been in my care. Today, this “new” car is passing 100,000 miles on the odometer, and it’s still running great. While I occasionally find my mind wandering towards the purchase of something sportier, at this time, I plan on sticking with the Civic until maintenance costs more than the car is worth. I hope to stretch ownership for another 100,000 miles.
Here are the expenses I’ve put into the car so far:
Accessories
$745
Insurance
$9,894
Interest on Auto Loan
$413
Fuel
$7,042
Parking
$302
Registration
$239
Service
$3,208
Tolls
$3,645
The main accessory I purchased was a lower-end GPS device, which was ultimately stolen from the car while it was parked for the weekend in a particularly bad parking space in Queens, New York. I never replaced the device. The next most expensive accessory was a replacement stereo that fully integrated with my iPod. The service category includes regularly scheduled maintenance as well as a slew of oil changes. It also includes my $500 deductible after a “minor” accident, a tire replacement after one was punctured and unrepairable, and a couple of traffic tickets.
I paid off my non-industry auto loan with an interest rate of 2% somewhat quicker to keep my total interest expense down to $413. Also, according to edmunds.com, my car has depreciated a total of $7,580 since it was purchased.
Many of the expenses should be controlled better, and it may be time to re-evaluate my insurance coverage.
Many of us are going to be faced with tough decisions this year, and probably next year. We might even have to grapple with “how do I get these creditors to stop calling me?” or “well, where do I live now?” If owning a home is the American Dream, then being homeless is surely the American Nightmare.
Before it gets that bad, there are things you can do to trim your monthly budget. But instead of just presenting you with a list, I thought it’d be fun to try and take advantage of the wisdom of crowds once again, as I did in my article “No More Credit Card Debt: Now What?.” (Incidentally, the credit card debt is down to about $4,100. It hasn’t been that low before in this entire millennium.)
So, here’s a list of things that I have previously considered removing, or actually did remove, from my family’s budget when we needed to be spending less. Vote “Yay” for the things you think should be removed from a struggling household budget. Vote “boo” for the things you think are necessary for survival in a civilized world.
If you think something is missing from the list, go ahead and add it.
If you’ve been paying attention lately, you might have heard that throughout the economic recession, Americans have been saving more of their income. Some economists worry that saving, while good for the individual, can be harmful to the economy as a whole. This is commonly called, “the paradox of thrift,” a theory developed by John Maynard Keynes, a popular economist who in the early 20th century saw spending as the basis of an economy.
Keynes looks at a recession as a vicious cycle, illustrated here:
Less money is being spent by consumers.
Demand for products and services decreases.
Businesses reduce production and eliminate jobs to meet demand.
Unemployment increases, resulting in less income for saving or spending.
Rinse and repeat.
In this model, it is theorized that saving more money can eventually result in having less money to save on an aggregate level. The only thing that can break this cycle is something external. In our case, it is the government. The first treatment was “stimulus,” payments given to taxpayers (from current or future tax receipts) to help “stimulate” the economy.
The reaction, when this didn’t work, was that this wasn’t enough to break the cycle, and more stimulus was needed to noticeably affect the economy. The government decided to go directly to businesses, providing them with the capital needed to finance shovel-ready projects, hire more employees, and keep aggregate income up so consumers would feel that their money is better spent spent.
The easiest argument against the validity of the paradox of thrift is that, for the most part, there is no such thing as saving money. Money is either spent now or it is spent later. Another possibility is that it is invested now and transferred to a business, and the business either spends it now or spends it later. When you decide to spend money later, in almost all cases, you put the money into a bank account, which provides the bank with more funds with which to provide loans to businesses now.
As long as banks to continue to loan out money, the economy doesn’t decline. But as we see now, thanks to the “credit crunch” (which we haven’t been hearing about as much recently), that’s not happening.
In short, it’s not consumer spending or saving, but the financial industry’s refusal to lend money to credit-worthy businesses that is keeping us amidst the recession.
The paradox of thrift, the idea that saving more money was bad for the economy, was invented when personal rates of saving were much higher and consumer credit was all but nonexistent. At this time in American history, “saving money” meant keeping cash under a mattress outside of the banking system. Perhaps the paradox of thrift was a reality at that time, but despite its popularity in the news recently, it probably no longer applies to America’s modern economy. Many economists now agree that this aspect of Keynesian economics has seen better days.
Does the government need to step in to break the cycle, like Keynes suggested? Probably, but it needs to take the right actions. Helping tax payers with $400 over two years is not enough because it doesn’t have a large enough effect for the majority of Americans in order to restore consumer confidence.
The economy is broken at the lending level, and that’s where the government should focus. Banks need to lend money to credit-worthy customers. If they refuse, the government can step in, and they have a number of options, with approaches ranging from near-socialism to capitalism, including:
buying the banks, nationalizing the industry, and changing the way banks do business
buying controlling shares in the banks and making management decisions to lend (responsibly)
investing in the banks with the requirement that the money be used to increase lending
providing tax incentives for institutions that decide to increase responsible lending
creating a federal bank that accepts deposits and lends its funds to compete directly with private banks
Continue to save money and spend less than you earn. It’s not a patriotic duty to spend it on products and services you don’t need, despite what you might hear. There is no need to sacrifice your future financial well-being for the sake of the greater good. It wouldn’t work, anyway. The economy will be sorted out with or without the house you buy now rather than a year from now.
Early last month, I decided to leave my credit card in my wallet throughout November. Over the last few years, I’ve been using a rewards credit card to pay almost all of my day-to-day expenses. I never pay interest charges because I always pay my credit card in full before the due date. I buy what I buy, and the form of payment is irrelevant. If I spend $30 on music with my credit card, I would spend just as much with cash. The bonus cash back provided by the credit card would effectively leave me with more money once the points are cashed in.
I spent less in November than I have since October 2006. Before October 2006, the most recent month in which I spent less was January 2005, the earliest date for which I have data in Quicken.
My biggest concern when starting this experiment was my ability to track everything spent with cash. I was careful to collect my receipts and record transactions in Quicken within a few days.
The use of cash was not the only aspect of my spending that resulted in a month with low expenses. I spent a week with my family in California, and I had very few expenses during that time. Without working during this week of vacation, I did not purchase my lunch every day, nor did I need groceries for other meals. I also had no restaurant expenses during that time.
With an entire week of practically no expenses, I can’t completely call the experiment a success. I left a few recurring expenses, such as a monthly charitable contribution and my cable television payment, on the credit card. It would have been a hassle to change my settings. In these cases with set expenses, there is no opportunity for me to automatically spend less just by using a check or a debit card rather than a credit card.
Since November was mostly inconclusive, I will continue this experiment through the end of the year. December should be a month with more expenses, particularly due to holiday gift giving.
LeanLifeCoach: In the end how much will the IRS really get; 10% maybe 20% of all this money? And how much will we spend collectively in actual dollars and... on Enforcing Tax Laws Works. Go Figure.
Jim: Would better IRS enforcement make a big dent? No. Even if the IRS was perfect in enforcing law and collecting all debts it would probably not increase... on Enforcing Tax Laws Works. Go Figure.
FruGal: Hi Allison, Wow, I’ve never heard of a library that even mails you your items. That is so convenient! What a great (and free) alternative to a... on Living It Up… At the Library?
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My biggest concern when starting this experiment was my ability to track everything spent with cash. I was careful to collect my receipts and record transactions in Quicken within a few days. 
