Cascading Expenses


It’s been a while since I’ve written a Cascading Expenses post and yesterday we purchased our Christmas tree for $100 which gave me the idea for this post. My daughter insisted on a Noble Fir Tree and the only one available was a 9ft tree which we ended up chopping down to 8ft to fit in our home. I took down the holiday decorations from our attic and was amazed that we had SIX full bins of holiday stuff.

Our bins contained:

1. Many, many Christmas lights

  • Outdoor lights
  • Indoor lights
  • Tree lights

2. Ornaments

  • Expensive ornaments (Lennox) which marked special moments
  • Inexpensive ornaments – for the kids to hang
  • Multicolored ornaments – to add color
  • Solid colored ornaments – to add balance

3. Miniature Cities

  • Little Houses
  • Little People
  • Little Trees

4. Figurines

  • Ceramic Santa
  • Snow globes

5. Miscellaneous Stuff

  • Christmas Table cloths
  • Wreaths
  • Beads
  • Nativity Scene
  • Bunch of other stuff

All of these things were purchased over the past ten years so I’m not really sure how much we spent on all of this stuff. I’d venture to guess that it was at least $600 of decorative stuff but we “save” so much money because my wife usually picks up “bargains” the day after Christmas when retail outlets have their “sales” to get rid of inventory.

Christmas, like most holidays, have their own set of cascading expenses that you have to watch out for but this is one holiday we don’t mind splurging on for the kids.

I stopped by and picked up another Motorola C139 phone at my local Walgreens for $20. It’s funny but the girl behind the counter asked me if I was actually going to use the phone or resell it. She said people were going in and buying up large amounts of phones and reselling them. It is ironic but the phones were cleared out of the isles and yet there were hundreds of prepaid cards available.

I was honest with her and told her that I was going to wipe the phone and use my existing service with it. I did happen to purchase the last phone they had though and I’m not sure if they’ll get any more any time soon so I guess I consider myself lucky.

By the way….these phones work great in Europe and other GSM world wide networks and if you happen to lose one or have it stolen it’s no big loss. You can also buy a prepaid phone SIM in any overseas country and use your phone locally – it saves a lot of money!

My wife’s cell phone finally died and we called up our provider to see what options we had to get an replacement. Unfortunately, any new phone would require a new two year contract and to add misery to injury, her old plan would no longer be available and the new plan would go up $10/month in cost. Doing some math, $10/month x 24 months = $240 for 1 new phone = bad deal.

We were glancing through a Walgreens flyer and came across an advertisement for a Motorola C139 phone that seemed to offer the perfect solution: A cheap replacement ($19.99) phone which appeared to be GSM compatible.
We asked the clerk if the phone was GSM capable and he adamantly said, “No, that’s a prepaid cell phone and you need the prepaid cards.”

I had a feeling that the phone was GSM capable and we figured what the hell, we’d just lose $20 if it didn’t work. I took the phone home, took my wife’s SIM and plugged it in. No go, got an error message reading, “INVALID SIM”

I googled the net for some possible solutions and came across a link that offered a free download of some software that would allow you to completely wipe the phone and restore it to an original manufacturer condition. I ran the application (I did have to order a cable for $10 from somewhere else) and the phone was completely wiped! The pre-paid vendor’s logo was wiped and replaced with a cheerful Motorola Logo. I took the wife’s Sim card and put it in the phone and it worked perfectly!

I will likely go and buy a couple of more phones and wipe them to keep as spares in the event she loses or breaks one and I might even buy one for myself too! Before any of you question the legality of my action, I will simply refer you to this CNN article about the US Copyright office lifting restrictions on doing exactly what I just did…..

http://www.cnn.com/2006/TECH/11/23/digital.copyright.ap/index.html

We frequently talk about inflation and the ravaging effect it can have on the purchasing power of your dollar but I’ve begun to understand that there is also something which I’ll call “techflation” in which subsequent generations find themselves needing more technology based items in order to get by.

What are some examples?

My grandparents lived rather modestly.  While they owned a TV in the latter part of their lives they didn’t own a VCR until the last decade of their life.

Here is a list of things my grandparents didn’t have in their life and how those things impact the cost of getting by today.

Computers – $800+  – didn’t really go into mass production until late 80’s early 90’s
Cell Phone- $100+  – didn’t really go into mass production until late 80’s early 90’s
DVD Player- $100+  – a rather recent invention available in the mid 90’s on large scale
PS2/XBox  – $300+  – another recent invention available in the mid 90’s on large scale
Cable/SAT – $100+  – while availble since early 80’s, became a “necessity” in the late 90’s
iPods/MP3 – $250+  – a recent invention of the late 90’s early 00’s
HDTV      – $1000+ – recent invention of the 00’s
ISP       – $40+   – high speed internet is a must
Camcorder – $300+  – record those precious memory on video
DVR       – $100+  – record those TV shows

If I add up the base cost of these things it comes to about $3100.  This doesn’t include the cost of the cascading expenses that arise as a result of owning these items.  A PS2 for example will need to havve controllers replaced $30 and games purchased $30+/each to enjoy.

I know many will say that you don’t “need” cable or satellite TV or some of these other items but in today’s globalized world you do. I think of every thing that I purchase as an investment tool.  The SAT TV brings me news from around the world.  A bad harvest of wheat in Australia will impact inflation in the US.  An HD show on the phenomenal growth in China will lead me look into an exchange traded fund (FXI) as an investment opportunity.

My iPod allows me to listen to radio broadcasts (Ray Lucia, the Money Man) that I would otherwise have missed.

Of course, it’s hard to justify a PS2 as an investment expense but there must be a litte fun in our lives.

I can only wonder what “techflation” will do to my grandkids.  Instead of leasing a high speed internet connection will they be buying “cycles” on a gigantic grid computer?  Instead of mp3 portable player will they have holographic projectors?  Instead of a real life human financial advisor will they lease a virtual financial advisor that trades for them automatically based on their financial goals?

Only time will tell but techflation is here to stay.

My grandmother passed away recently and I began to recall some of the stories she told me as a child.  I recall one particular story about how she remembered as a child her grandfather’s vibrantly green wagon with big red wheels hitched of course to some horses.  “I had fun playing on the wagon” she recounted to me.  She had that memory in her mind so vividly that she smiled when she thought about it almost as if she were a little girl again.
Her passing away and that memory got me thinking about how much the world has changed and perhaps why so many people struggle to get by these days.  My grandparents had managed to get by while raising 5 kids in the 40’s and 50s. Other families of the same era usually had between 5 and 8 kids.  My parents had four kids and that seemed to be the norm during the late 60s and through early 80s while today the average family has 2 kids.  In the time frame of three generations the number of kids being produced dwindled from 8 to 1 or 2.

This crisis, in part, is why there is a huge social security crisis coming over the next few years. The grandparents that had those 8 kids have grown up into aging seniors and their grandkids are only having one or two kids.

Granted there are numerous differences between the lifestyles of grandparents to today’s grandkids. For starters, grandparents didn’t have comptuers, cell phones, dvd players, x-box/PS2/gamecube, satellite/cable TV, iPods, HDTV, high speed internet, camcorders, and digital cameras amongst other things.  I don’t recall my grandparents ever saying anything about having to pay for health insurance nor did they have mandatory insurance for their vehicle back in the “old” days.

All this leads me to think that perhaps the real issue isn’t inflation as the main culprit for the situation many people find themselves in but the fact that there are so many modern conveniences or “luxuries” that people simply want to have in the lives.

Tomorrow, I’ll provide a cost summary of all these “luxuries” to see how far we’ve really come in our modern world.

I had a good visit with a close friend this weekend and he gave me some interesting ideas for this weeks blog. It seems my friend went to visit the doctor and dentist this past week and he was amazed at a few things.

The first was the number of drug sales people lurking around the doctor’s offices. Within a matter of 15 minutes while waiting for the doctor did no less than 3 drug sales people come calling with their pills ready to make a sale. The odd thing is that I know exactly what he’s talking about because the last time I went to visit the doctor I saw at least two people come calling for the doctor as well as seeing numerous sales people trolling the hallways. The tell-tale sign of course is the black suit case on roller and the dark suit these people always wear.

I’m not against pharmaceuticals trying to make some sales but to have half a dozen people wondering the offices of doctors almost every day seems a bit ridiculous. Does any other industry have this type of sales tactics?

It brings me to yet another topic for my cascading lifestyle expenses: Human Maintenance.

I’ve written about maintenance costs for homes, cars, electronics, and even video games but it never occurred to me to think of the Human as a maintenance item until this weekend.

While you have your basic human maintenance expenses:

Food – $300/month
Shelter – $500/month
Clothing – $75/month

There are wide arrays of extras:

Healthcare (insurance, medicine, co-pays, etc) – at least $100+/month
Hygiene (toothpaste, brushes, deodorant, hair/nail care, soap) – $70+/month
Education (books, seminars, college, trade associations, etc) – $100+/month
Health Fitness (gym, sporting equipment, etc) – $60+/month
Psychological/Physiological health (companionship/dating) – $100+/month
Mental Health (entertainment, exploration, etc) – $100+/month

And of course, you have the entire costs associated with human reproductions and the cascading expenses that ensue as a result of successful procreation. The health maintenance expenses become recursive onto themselves in this particular instance.

Everyone needs a place to live and there are two common choices: Rent or Buy. In my lifetime I’ve done both and each have their unique advantages and disadvantages. Today, I’m writing about the ultimate cascading expense: Purchasing a Home.

You’ve searched all the neighborhoods, checked out the schools, looked at the comps, estimated the traffic time, and you’ve found the perfect home. The purchase price is within your budget and you know what your mortgage & escrow charges will be monthly. You’re all set right?

Of all the things I’ve purchased the one purchase that has had the largest and deepest cascading expense has been my home.

We’ll start with what the realtor didn’t tell you about the inside of your home and the hidden cascading expenses that await you!
At some point, depending on the age of your home, you will need to fix, replace and maintain the following items:

  • Water Heater every 6 to 10 years – Cost $300+
  • A/C System every 10 years $2500+
  • Furnace/Heating every 10 years $2500+
  • Refrigerator every 10 years $800+
  • Washer/Dryer every 5 years $600+
  • Roofing every 10 to 20 years $6000+
  • Fencing every 8 years $2500+

Optional items that some people may have/want:

  • Dish Washer every 5 years $350+
  • Ovens every 5 years $600+
  • Stove (tops) every 7 years $600+
  • Microwaves every 5 years $200+
  • Overhead Venting Fans every 10 years $150+

But wait there’s more! Tied into each item above there are subsets of expenses:
A water heater dispenses to:
-Fixtures, aerators, pipes & joints, disposal unit, etc
An Air Conditioning Unit needs:
-Filters, Freon, vent cleaning
A Furnace needs:
-Filters, Gas/electricity

Outside the home are some cascading expenses too!

  • Landscaping $2000/year
  • Lawn Maintenance $40/month+
  • Flowers/Garden $30/month
  • Tree Trimming $300/year+

This is by no means an all inclusive list. There are other expenses that can creep up and be even more costly such as foundation problems, mold, and carpeting/flooring but I think you get the general idea. There are many cascading expenses waiting for you in a new home. It’s prudent to have a plan in place to budget for these items. Ultimately, a home is a place to live and an investment; A well-maintained home will appreciate in value while one that isn’t won’t. Keep these items in mind when contemplating purchasing a home.

I’ve been an avid amateur photographer for a long time.  I started out with cheap 35mm point and shoot cameras and over the years, I’ve traded up.  My first “real” camera was a Canon 35mm SLR.   I think I spent about $300 for the camera and thought that that would account for the majority of my expense.  I knew I would pay developing costs at about $10/roll but boy was I wrong!   Upon using the camera for a few weeks, I quickly realized that I needed extra equipment:

  1. A tripod – $40
  2. Additional lenses – $1200
  3. Variety of filters – $300
  4. Cleaning supplies – $35
  5. Batteries – $15 every other month
  6. Variety of films – $30 every other month
  7. Remote Control – $30 (for time lapse photos)

After about two years of paying expensive developing costs and finding it harder and harder to develop specialty films, I finally decided to go digital.   About a year ago, I purchased a Canon Digitel SLR 8 mp camera.  The camera cost about $700 but I knew that this would only be the beginning of some cascading expenses.  I was fortuante to buy the same manufacturer camera because my lenses were interchangeable.  The filters, remote, and tripod were also reusable but there were a slew of other expenses associated with the camera:

  1. Memory Cards – $50-$100/each (the good news is that storage gets cheaper with great capacity over time – not the same with film!
  2. Printing – $20/quarter (While much cheaper than film developing, printing costs have been relatively cheap since I keep most pictures digitally and print only my favorites)
  3. Storage – $300 (I now have over 6 gig of photos taken over the years and had to purchase an additional drive to store them; this also includes expenses forb burning images onto CD/DVD media for archiving images.
  4. Software – $40-400 (A slew of imaging software editing programs will be needed for you to enhance your pictures)
  5. Cables – $20 (connecting your camera to TV, Computer or other devices requires various cables)
  6. Card Reader – $20 (most computers now come with a card reader standard but you’ll need one if you don’t have it)

And then there are a whole array of additional options you can buy for your camera and photography hobby:

additional lenses, flashes, fancy tripods, holders, filters, lighting, backdrops, and such.

I don’t mind the expense because I’d like to eventually sell some of my photos and I consider this an investment in training and education but beware, the $xxx price tag on that film or digital camera is only the beginning!

Have a safe and happy holiday weekend!

This past holiday season, we purchased a High Definiton LCD TV. After seeing prices drop from $10,000 a few years ago to $1000 we decided the time had come for us to try HDTV. We paid about $1100 for a 37″ LCD HDTV. We’ve been quite happy with the quality and resolution of the TV. We enjoyed it so much that we opted to sign up for additional HDTV channels by signing up with a satellite provider. I initially thought that $1100 was pretty much all that I would spend on the TV but I should have suspected that this, like every other piece of electronic equipment I’ve purchased, would have some cascading expenses that I had not considered.

First, if you don’t have a built in decoder on your TV then you’ll need to purchase one. Cost $300+

Second, you will need to purchase a series of cables to get “optimum” performance on your TV. Cost $40-$300

Third, you will need to pay an additional fee for HDTV converter box to your cable/satellite provider. Cost $10+/month

Fourth, if you own an XBox or Playstation, you will need to purchase additional cables to hook them up to the TV. Cost $50

Fifth, you’ll likely not want to watch anything other than HDTV broadcasting so you’ll sign up for more channels with satellite or cable company. Cost $30+/month

Sixth, you’ll need to purchase some rabbit ears to pick up those additional “hidden” channles that stations broadcast. Cost $20

I’m sure there are other expense to come in the future. We can’t record HDTV broadcasts on our VCR so it’ll only be a matter of time for an HDTV VCR to come out. We do have the option of using DVR on our receivers but this also requires and additional monthly fee.

If you see an HDTV advertised for $499 out there (I’ve seen a few recently) be forewarned that this is only the beginning of some cascading expense you’ll incurr over the course of owning an HDTV.

Over the years, I must have purchased a dozen computers, many of which I don’t really remember. I do however recall the first computer I purchased. It was a 386DX with 4mb of RAM and a 100mb hard drive. I think I paid $1300 for it years ago. Today, you can buy something many times more powerful for half the cost but there are many hidden expenses to owning today’s modern computing devices.

I first suspected something was dramatically wrong with my home computing infrastructure when my electric bill came in significantly higher than before and I did a little research to begin to understand the true costs of owning a computing environment.

Owning two laptops, three desktops and array of peripherals and other devices I realized I had a cascading expense problem.

Problem 1:

Each of the desktops had a 300 – 500 watt power supply. The computers were often left on so this meant ~400 watts of energy being used every hour for 8 hours for 30 days = 288,000 watts or 288 kilowatts. At $0.15/kilowatt I was paying close to $44/month to keep the computers running!

Problem 2:

As my infrastructure grew so did the casacading expenses to maintain the infrastructure. I needed to network these computers so they could all share the same high speed internet connection. I purchased a 4 port router ($50) then purchased and ran cabling ($100) to wire my whole house. As technology got cheaper and more advanced, I swapped the wired router for a “wireless” router ($70) to accomodate our wireless laptops. I had high speed internet that I was paying $55/month for but I recently cut it down to $20/month -still high speed at 768k but not as fast as 3mb cable. I found I could do without the faster speeds just fine.
The cascading expenses…..

Over the years, we ended up purchasing many peripherals and devices to accomodate some of our other electronic devices.

  • Purchase firewire card to interface with Video Camera to convert video to DVD.
  • Purchase DVD burner to burn video onto DVD. $60
  • Purchase DVD media to burn video onto DVD media. $20
  • Purchase DVD making software to make DVDs $200
  • Purchase Inkjet printer to print labels ($100, recurring ink $40, recurring paper $10, recurring labels $10)
  • Purchase external Hard Drive to store and edit video files $200
  • Purchase scanner to add photos to DVD slideshows $150

This is just but a small sample of the cascading expenses related back to just one device (the computer). I’ve written about the Ipod and DVD Player as well. Printers can even be grouped into their own generation of cascading expenses. We promptly change from inkjet to laser when the consumables were costing us much more than the printer itself.

Of course, the computer is simply one device that I could not cut back on. Aside from being an item that generates expenses it has also been a way for me to earn a living and generate income. It is also a highly specialized tool that I use for investing, education, communication and so much more. This blog would not be possible without it!

I will just caution you that a $499 price tag on a laptop or desktop is only the beginning of a series of cascading expenses. Whenever possible, try to use the computer to generate some income to offset some of the expenses you’ll incur. Whether you use it to trade stocks, setup your own online business venture, or simply use it to invest in your education, make sure you get some return on your investment.

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