Skip to main content

The Price of Pets

I have two pets, a cat and a dog, and I love them very much (something I have to remind myself sometimes when standing out in the snow at 6 o’clock in the morning, waiting for my dog to find the EXACT… PERFECT… SPOT to do her business). But there’s no question that pets are a money sink, especially if you are one of those people who has taken full advantage of all the pet services that are out there these days.

Getting the cat was easy. My wife was working in South Carolina at the time, and I went down to visit her one weekend. We were bored, so we went to the local animal rescue center. Before going inside, my wife made me promise her that I wouldn’t let her get a dog; saying that it was possible that she could see a puppy, fall in love and then do everything in her power to convince me that getting it would be a good idea. I agreed, and an hour later we walked out with a 3 month-old kitten.

The dog was a bit longer, more well-thought out process. Although not by much. We got it in our heads that we wanted to get a puppy, but became discouraged by the high initial cost. Ads in the Washington Post demanded hundreds of dollars for puppies, and that was simply too much. Thankfully, we were able to find a family in Richmond with a litter of beagle puppies willing to part with one for $50 which was a big savings compared to the hundreds we could have spent. We paid, and our current family was complete.

I had two dogs growing up, so the true cost of owning an animal came only as a mild surprise. Even so, there are many financial elements that go into owning a pet, and the costs can quickly eat a hole in your budget. The initial purchase of a dog is usually around $100, but can be much more depending on where you get the animal and what breed you’re interested in. We bought our dog for $50, which is extremely low, and fortunately we were able to verify her ancestry to ensure that she wasn’t just another puppy from a puppy mill. Our cat was a bit more; we got her from a shelter and she cost around $80, including the vet fees, tags, etc… So while we were able to get two pets for cheap, this isn’t typically the case, especially if you’re buying from a family.

A cursory glance of puppies for sale in the classified section of the Washington Post yields results for puppies costing anywhere from $300 (for golden labs) to $2,100 (for English bulldogs). The initial cost is staggering; even the shelter around my apartment charges up to $200 per animal. Added in with that initial cost is the cost of the first visit to the vet – which typically is more expensive than subsequent visits as your pet gets a full checkup – first-time medication, toys and other equipment, as well as spaying or neutering costs. Spaying and neutering is especially expense; however, many organizations offer programs to reduce the cost of the procedure; my wife and I used one of these programs and our total out-of-pocket expenses were less than $100.

Obviously the budget hit is reduced after that first year, as the only recurring expenses become vet and food expenses. Even so, this year I’ve spent a total of around $450 on both animals for just the vet bills, not including the cost of boarding both of them while my wife and I got married. Food has cost me around another $400 total for both pets. Thankfully, both animals are in great health, otherwise, the vet bills could have been even more significant.

This isn’t even taking into account other ways that people spend money on pets, such as: grooming, animal clothes, animal health insurance, anti-depressants (yes, this is real) and doggy hotels (complete with television).

Pets can be expensive, and unfortunately, this is a fact that is all too often lost on a first-time pet owner. The responsibility associated with having a dog (or any other pet for that matter) can be quite great, and regretfully this can lead to a number of terrible situations. Animal abuse, over-breeding and abandonment are just a few of the possible negative outcomes of someone getting in over their head when they decide to get a pet. An animal is a living member of the family who has an associated daily cost and a measurable budget impact. These factors should be taken into account before getting a pet to ensure a successful and happy relationship between pet and owner (as well as a happy and balanced budget).
-Michael
Twitter: michael_dink

Students Borrow More than Ever

While many of our readers are students themselves, having worked and funded my way through school on loans, I still find it interesting to look at trends related to student borrowing.

According to numbers from the U.S. Education Department, federal student-loan disbursements—the total amount borrowed by students and received by schools—in the 2008-09 academic year grew about 25% over the previous year, to $75.1 billion. While borrowing has wavered over the years, this is an all time high.

Other interesting stats are that 2/3 of students today take out loans, and the average student loan debt upon graduation is around $23k. While this might seem normative now, it is good to keep in mind that only ten years ago this was $13k.
A recent article from the Wall Street Journal, entitled “Students Borrow More than Ever for College: Heavy Debt Loads Mean Many Young People Can’t Live Life They Expected”, gives a great deal more detail about the sacrifices that those harnessed with student loan debt are forced to take. The article also discusses a bit about how availability of loans has driven up the price of schools. “Saving money” on school simply is not really an option today.

I personally am grateful that loans were available to allow me to go to college. Without them I would simply not have been able to go. Even with maxing out my available student loans and scholarships I still had to work two jobs to pay for the next semester. Having paid for ever dime of my masters as well, it feels extremely good to have them paid off in full!

Best,

Miel

Possible Layoffs? – Cover All Your Bases

There have been numerous signs that the economy is turning around in the United States, but one factor that has continued to be a black eye on our economy is the unemployment rate. According to the Bureau of Labor Statistics, in a report released September 4th, the current unemployment rate rose to 9.7%, from a rate of 9.4% in July. Even the most stable industries are being affected, and mine has certainly not been immune.

I’ve been fortunate enough to not be directly affected (i.e. I haven’t been laid off) but the specter of tough economic times has loomed, as I’ve seen friends and colleagues lose their jobs, or get reassigned to less glamorous positions or locations in an effort to trim the bottom line. Obviously this situation has been very stressful, as our friends in the financial industry has been able to attest to for the last two years. This stress permeates all aspects of a person’s life, and it’s tough to see people you care about and respect fall victim to our economic troubles.

So it seems that the most important thing that we can do to mitigate any potential career troubles would be to prepare ourselves, so that if something bad happens, we’ll at least have a soft landing.

The most important thing to do is take care of your current career, starting with first doing your job well, and secondly, having a good relationship with your boss. I’ve been fortunate enough to be mentored on the importance of both of those factors, and been especially fortunate to have a great relationship with each boss that I’ve had. When I first started seeing people getting laid off, I would get really worried and stressed out, obsessing over every little incident at work, dissecting the minutiae of every conversation with people in authority.

But the best piece of advice that I received during that time was just to relax and do my job. To take care of what I need to take care of and accept that if something bad is going to happen, then at least I will have done everything possible to put myself in the best situation. Having someone that I respected so much give me that piece of advice was enormously influential, and it has helped me cope when the economy started going through tough times.

In addition, there are still many things that we can do to prepare ourselves if something happens.

  • Build an Emergency Fund

This is probably the most important step. After all, we all need a roof over our head and food on our plates. Most experts recommend you stow away enough to be able to pay your bills for three to six months, depending on your job situation, economic health, and the presence of other more pressing needs for money. I struggled with this when I first started working. I went about six months without any emergency fund at all, and then when I did build one up, I found myself drawing on it every once in a while for things that we less than essential. It’s important to stock that money away; put it in a high interest savings account and leave it alone. You never know when you’re going to need it.

  • Build your Social Network

This step is the most important for finding a new job. There are many resources out there that can help with this (Facebook, LinkedIn, even Twitter in some cases) and you should find the one that works best for you and maximize its potential. It seems as though nothing is more important that personal relationships, however. Everyone I’ve known who has lost their job for whatever reason has been able to find a new one because of the strong relationships that they had built up throughout their career. This is harder for people my age, because we don’t have years of industry experience and the associated relationships to draw upon. But even so, former employers/colleagues, college professors and even family and friends can all be great assets when looking for that next position.

  • Evaluate your Budget

If you’re aware of how you’re spending your money, it can be easier to cut back during lean times. I’ve revised my budget countless times, and with the help of such tools as Quicken, each time I feel like I’m getting a better handle on the best way to allocate my money.

  • Know your Employer’s Termination Policy

This is a step that I wouldn’t have even considered had it not been for the experience of one of my co-workers. Knowing your rights as a terminated employee can be crucially important, especially when it comes to the reasons why you were fired and your severance package. Knowing what to expect can certainly help as you go through the process of exiting your job.

  • Grow your Skill Set

Often times I’ve had to take on tasks that were outside of my specialty. While I may not have necessarily enjoyed those tasks, they are marketable skills that could help me find a new position or keep me with my current employer if the company finances take a hit. Any skill set gained is value-added to your employer. A lot of big companies have internal training programs. They’re often boring, and I know I struggle finding time to complete them, but that’s a quantifiable way to show your value.

  • Maintain External Sources of Income

I graduated three years ago, and outside of my primary employer I have collected paychecks from four different organizations. Most of them have been one time deals, and the money hasn’t been enough to replace my full-time salary, but it’s always nice to have a little extra money. Which becomes even more important if you lose your job. A little money coming in is better than no money coming in, and I know of instances where a part-time hobby has turned into a full-time position. It can sometimes be hard to find little pieces of work to add to your income, but those opportunities are out there if you open yourself to them. Love for money making opportunities whenever you can. Think about how you can do things on the side, and you just might end up with one beautiful nest egg.

These are the types of things that I’ve always been told to do, regardless of whether I feel like I’m on the chopping block or not. As with anything, the best way to deal with an unfortunate situation is to prepare as much as possible ahead of time. Hopefully, this isn’t something that I or anyone reading this will have to experience one day, but if it does, this preparation will certainly help soften the blow.

-Michael
@michael_DINK

Felix Dennis on Wealth and Luck


Hi All,

So I’m working through Felix Dennis’ How To Get Rich in my spare time. He’s got a great quote on wealth and luck that bears repeating here.

Chances come to everyone in life, in all shapes and sizes, often disguised, and more often radiating risk and potential humiliation. Those who are prepared to analyze the risk, to bear the humiliation and to act in deadly earnest — these are the “lucky” ones who will find themselves, when the music stops, holding a potful of money.

Essentially what Dennis is saying is that luck has very little to do with becoming wealthy and building wealth. Instead its more about hard work, being willing to take calculated risks and believing in yourself. This will help you become one of the “lucky” wealthy individuals.

Best,

James

Cognitive Dissonance & Personal Finance

Psychology plays such a huge role in how we manage our personal finances, and yet it is often overlooked when attempting to explain our behavior. We’re often told to not let emotion get in the way of making solid financial decisions, but what exactly does that mean? A major psychological effect that a lot of us experience when investing is something called “cognitive dissonance”.
Cognitive dissonance occurs when someone holds two contradictory ideas or behaviors at the same time. Having two contradictory ideas, beliefs or behaviors at the same times causes such feelings as anxiety, guilt, anger and embarrassment, and often leads to the individual attempting to rationalize in an effort to resolve the apparent conflict.

The most famous example of cognitive dissonance is one of Aesop’s fables, the story of the Fox and the Grapes. In the story, a fox comes across some grapes. He tries to reach them, but is unable to. He finally gives up, rationalizing that they looked sour anyway. In the story, the fox had two contradictory ideas and actions (the desire to eat the grapes and the inability to reach them), which caused him enough stress that he had to reconcile the issue by asserting that they looked sour, despite the fact that they weren’t.

Cognitive Dissonance appears in all aspects of our lives. With regards to money, examples can be found in two major areas: how we spend our money and how we invest our money. As a personal example, my contract with Verizon recently came up. The phone I had up to that point was perfectly fine. It worked great, there were no major problems and in fact, it was only about a year old, as the first phone I bought on that 2-year contract had broken a year ago and had to be replaced. There wasn’t going to be a penalty for not re-signing my contract; I would pay the same amount and outside of a few pestering phone calls from the Verizon folks, there really wasn’t going to be much of a difference between being on a 2-year contract and not in the short term.

So the rational thing to do would be to keep my old phone while it still worked (and I was happy with it) and when I actually needed to get a new phone, I could. I would have the added benefit of deferring the inevitable cost of a new phone, and by holding out, I might wait long enough for something cool like the Palm Pre or the iPhone to come out on Verizon’s network.

So what did I do? I went ahead and renewed my contract the day it was up, thus allowing me to get a sweet deal on the BlackBerry Tour, of course. The benefits of not signing a new contract right away directly conflicted with my strong desire to buy the coolest new technology. Ultimately, I told myself (and my skeptical wife) that my old phone was probably going to break soon (it wasn’t) and the new BlackBerry had so many cool features that it was worth it (somewhat true). That rationalization was all I needed to resolve the issue between those two thoughts, and two days later I was setting up my new phone.
This cognitive dissonance created while spending money can cause anxiety leading up to the purchase (“I know I shouldn’t but…”) and shame and guilt afterwards (“I probably shouldn’t have spent that much money on that”). How we resolve those feelings is to justify it.

Common justifications I use are: “It was on sale”, “I’ve been thinking about buying one for a while”, “I deserve something new and shiny”, etc… Being able to justify our actions (whether it’s a solid justification or not) alleviates that guilt and we’re free to enjoy what we’ve purchased, even if in the long term that decision is proven to be the wrong one.

But it’s not just our spending choices that can bring about cognitive dissonance. It’s often seen in our investment choices. William Goetzmann and Nadav Peles wrote an excellent paper published in the Journal of Financial Research entitled “Cognitive Dissonance and Mutual Fund Investors” where they attempted to understand why investors continue to stay with poorly performing funds, despite the fact that logically, they should move their money elsewhere. In the past, this behavior had been attributed to a number of different factors, such as high transaction costs, poor research, general irrationality, etc… and while not completely discounting the influence of those factors, they explored possible psychological explanations for that behavior.

They did this by surveying two groups of mutual fund investors, and found that even the most respected and well-informed investor tends to alter their perception of the past poor performance of their investments. Cognitive dissonance is all about people revising their attitudes about a certain idea in an effort to reconcile logical contradictions. When the opportunity presents itself to make those revisions, investors tends to take it, thus allowing them to feel a greater level of comfort about their decision, which in turn allows them to stick with the poorly performing fund for a longer period of time. The referenced paper is more extensive than I have presented here, and it’s definitely worth checking out if you’re interested in this subject.

This begs the question: how do we avoid falling into this trap? First of all, it’s impossible to completely avoid this manner of thinking. Financial decisions are rarely black and white, and everything is a cost-benefit analysis, so there will always be logical wiggle room when presented with scenarios such as the ones described above.

The key is to recognize when we’re making a logical leap. As with every financial decision, careful planning and recognition that our emotions and psychology affect how we behave is a crucial step in ensuring that we don’t fall victim to irrational behavior that will prevent us from building wealth.

-Michael
Twitter: @michael_DINK

Expensive Parking Tradeoffs

Keeping with the theme of expensive city living, I wanted to throw out the recent case I heard from a friend who now no longer has parking included with her job. This means that she was weighing the pros and cons of paying $415 a month to park at her office.

True it offers some convenience and saves time in the day, but there are certainly a few better things I could think of to do with that $415 a month.

Personally you can see where I fall in the spectrum, as having a car in the first place isn’t worth it to me. Another friend was trying to convince me that I needed to take the bus to work rather that walk 1.6 miles each way, but I’ll still take walking for a bit of extra exercise than pay $50 a month. I take it about once a month, and that is enough for me.

Needless to say, I’ll be skipping the parking, but there are plenty of folks in DC who do pay it year after year. Don’t know how or why, but clearly there is a market. There are other ways to get around that are not quite as convenient but are much more frugal and will allow you to save a lot of money over time.

To each their own.

Cheers,

Miel

Cost of City Living

Michael’s post yesterday inspired me to write about our own experiences in the realities of the cost of living in DC. James & I are both originally from Oregon and go back a couple of times a year to visit family.

Given how much I travel internationally, I find it crazy that the differences in prices between Oregon and Washington, DC are akin to traveling to another country. Certainly there are some chain places where prices stay consistent, but even these there can be a difference from time to time.

Oregon doesn’t have sales tax, so that also adds to the bliss of cheaper shopping. We can go to an outlet mall in Oregon and get a whole wardrobe of Brooke’s Brothers for the same price as an outfit on Connecticut in DC. I’ve learned that I don’t even both shopping for James in DC, it is rare to find a deal worth it.

Eating out is also crazy cheap out West. You can get a full fabulous sit down meal for the price of eating out at a “cheap” sandwich joint near to the office.

Unfortunately Oregon also has one of the highest unemployment rates in the country, but for those going back for a visit, it can be good times. Portland rocks as a city, so consider it for a nice weekend away as well! Catch it now as fall comes in, before the rains set in.

On the flip side – DC is simply expensive. About the only thing you don’t have to pay for in DC is breathing, though you do pay the price in terms of poor air quality in the long term.

Stop into Whole Foods (or whole paycheck) for a quick couple of things and you’ll be lucky to get out of there for less than $20 for a lunch bag worth of goods. Go actual grocery shopping, even at more reasonable stores such as Safeway, Giant, or Harris Teeter, and you’ll have spent $100 and you only have two full bags to carry home. It can be pretty incredible to see how spendy it really is. Saving money is essential when prices run so high.

However, given how expensive it is in the city, I still think one is better off right in the District than out in the burbs. First, you don’t need a car. Second, you can get your exercise walking. Third, the price you put into metro and car can go straight into your mortgage or rent. Really the only advantage of the burbs is more space, which then just leads to more stuff.

I will say that while our real estate is expensive, it could be much worse. Back at the height of the bomb we took a trip to San Francisco and Hawaii, both of which are much more expensive to live. That made us feel better about coming back to DC!

It might be more expensive living in DC, but we also have careers that would be impossible to have elsewhere. I’ll take my 600 sq ft condo over a place in the burbs any day. I know for those who live in American super sized places, I bet it is hard to even imagine, but it works for us DINKs!

Cheers,

Miel

Felix Dennis on Fear

Hi All,

Last week I picked up a copy of Felix Dennis’ How to Get Rich. So far its been a terrific read. If you haven’t heard of Dennis, he is the owner of a number of magazines in the UK and estimates his net worth somewhere north of $400 million. In addition to being really rich, he’s something of a poet and an iconoclast.

The following quote jumped out at me. Its on the topic of dealing with fear. Felix says that essentially you have to embrace it and work through it.

The only way to deal with fear is to cozy up to it. Look it in the eye and pump its hand. To translate its negative energy into adrenaline. To harness it. To laugh with it, rather than at it.

Best,

James

Cost of Living

A city’s cost of living is not something I considered when I was about to graduate from college and needed to find a job. Competition was stiff, and I didn’t really care where I worked. I had always lived in Indiana, but my field did not have a lot of employers in my home state, so I knew that I’d probably have to leave to get a job. Which state I went to wasn’t really important, I just needed to find work wherever I could. I was fortunate enough to land two job offers, both in the Commonwealth of Virginia. I took the one closest to D.C. (eventually moving closer for subsequent jobs), not because of its location, but because it was a better job. As anyone in my position would be, I was excited (and a little nervous) but I was in for quite a shock when I finally moved out here and experienced first hand the giant impact that living in an expensive region can have on your finances.
The last three years have been quite an education in the impact of a high cost of living. I recently visited Bankrate’s Cost of Living Comparision Calculator to see exactly what the difference is between where I live now and where I grew up, and despite being intuitively aware of the difference, it was still disheartening to enter my salary and see the difference. According to Bankrate I could take a 36% decrease in salary back home and still maintain my current standard of living. That is simply unbelievable. Words can’t describe how that made me feel.
And yet I feel like I knew that already. A friend of mine purchased a house back in Indiana – before the housing market collapse, 5 minutes from where I went to High School, for less than $100,000. Even after housing prices took a nose-dive you couldn’t buy any sort of living structure for that amount out here. My rent payment is nearly three times as much as his mortgage. It all was quite shocking to me.
A lot of people can’t help where they live. There might be only a few places in the country where they could work in their chosen area. Or maybe they prefer to live near a certain city, or want to be close to family or friends. I could always move away, and one day I will. But this experience served to illustrate the substantial difference that living in a one city or another can make.

But how are these city comparison figures generated? The United States Bureau of Labor Statistics publishes something called the Consumer Price Index, which is often mistakenly referred to as a Cost of Living Index. They are not exactly the same thing. The CPI measures the costs of certain goods and services on a city, regional and national level. A truly comprehensive Cost of Living not only takes in account the price of goods and services, but attempts quantify the quality disparity in other hard to quantify areas, such as public services and certain environmental factors. Even so, the Consumer Price Index is a good, objective, quantifiable place to start when discussing the price difference between two cities.

The Consumer Price Index is a massive index of the prices of various goods and services; covering everything from the price of chewing gum to the price of dry cleaning services. The full list of goods and services can be found here.

There are two CPI categories: CPI-U and CPI-W. CPI-W is for Urban Wage Earners and Clerical Workers, and CPI-U is all for All Urban Wage Earners, which includes everyone except the military and rural earners. CPI-W represents about a third of the population (it excludes professional, managerial, and technical workers) while the CPI-U represents roughly 80% of the U.S. population. The CPI is calculated by aggregating a series of indices that correspond to each good and service that is a part of the whole CPI. Each good or service is multiplied by a weight, and then compared to the previous period’s value to develop the rate of change of the price level of that particular good or service, as well as the rate of change of index as a whole.

The CPI is most commonly used as an economic indicator (an approximation of inflation, although it has been shown that the there isn’t a one-to-one mapping of CPI change to inflation) and is also commonly used to adjust income during union wage negotiations, as well as adjustments made to Social Security payments and other government-funded assistance.

To give you an idea of how these numbers work, we can look at the July 2009 CPI-U for both the national city average and for comparison purposes, the Midwest city average. The U.S. city average, on a 1982-84 base (meaning the CPI for 1982-84 is set at 100.00) was 215.351, whereas the Midwest city average, for the same base year, was 204.814 (the August 2009 CPI will be released on September 16th). So by looking at the numbers, you can approximately say that the Midwest is generally cheaper than average to live in. More information on the CPI can be found on Bureau of Labor Statistic’s website.

So in general, what does this mean from a personal finance standpoint? It clearly illustrates the influence that the city you choose to live in will have on your bottom line. If you are trying to build wealth, it can be quite difficult to reach your goals when it’s so expensive to live. It’s more than just rent or housing prices that are affected by your geographical region; almost every consumable good is priced differently depending on where you live. I was unaware of the extent of this influence when I first moved out East, and although I probably would have moved here anyway, it certainly wouldn’t have been such a shock.
As a reminder, you can always contact me using the link under my profile at the top right of the page. Also, I think I’m going to give Twitter a shot. If you’re so inclined, you can follow me at: @michael_DINK.
-Michael

@michael_DINK

You cannot copy content of this page