You Have 24 Hours

ticket_counterI recently learned that the Department of Transportation has a “24-hour reservation requirement” rule for airlines that, “requires carriers to hold a reservation at the quoted fare for 24 hours without payment or allow a reservation to be canceled within 24 hours without penalty”.

More information:
Guidance on the 24-hour reservation requirement

I foolishly assumed that a teenager could find the best flight to get to a summer activity in another state and I allowed that teenager to make a reservation for connecting flights and and a long layover.  Then I found that Southwest had a less expensive direct flight.  But all was well.  I was able to cancel the more expensive flight, get a refund, and book the better alternative.

Thanks, Department of Transportation!

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Einstein, Algamish, and Compound Interest

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“Burritt’s Universal Multipliers for Computing Interest, Simple and Compound” by Elijah Hinsdale Burritt

Albert Einstein probably never said,

  • “Compound interest … one of man’s greatest inventions.”
  • “The most powerful force in the universe is compound interest.”
  • “Compound interest … the greatest mathematical discovery of all time”
  • “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”

At least, despite all of the appearances of these and similar quotes attributed to the great physicist in modern personal finance literature (and all I’ve seen were published long after Einstein’s departure from this sphere), I’ve never seen any that had a proper citation.

The formula used to calculate the future value of an investment with compound interest is pretty cool.  Maybe that’s what Einstein was talking about.  But I digress.

While there’s a lot wisdom in those (probably) spurious “Einstein quotes”, and I especially like the last one, here’s another saying about compound interest that I like even more (and I don’t know who said it):

Compound interest can either work for you or against you.  You decide.

Borrow money and you’re in debt.  If things go as planned, you pay all of the interest and part of the principal in a given month.  (Of course, you should pay more than just whatever part of the principal is required by the lender.  You should pay more so you can get out of debt as quickly as possible)  But if don’t manage to pay all of the interest you owe in a given month, then that interest is added to the principal.  Let that happen and you owe more than you initially borrowed.  Then you owe interest on the interest!  That’s compound interest working against you, whether it’s a loan against your car or just your signature.  Another reason to avoid debt.

But:

Put your dollars into a good investment.  They earn more dollars.  Then put those dollars you earned into the same investment.  They will earn even more dollars along with the dollars that were invested first.  It goes on forever.  That’s what’s so powerful about it.

In The Richest Man in Babylon, Algamish says it this way:

Every gold piece thou keepeth is a slave to work for thee.

Every copper it earns is its child that also can work for thee.

If thou wouldst become wealthy, then thou must keep and save.

And every coin thou keepest must work and earn, and their children must also work and earn, that all may help to give thee the abundance thou dost crave.

 

 

Which Movie to See?

On Father’s Day, I thought it would be the thing to do to eat hamburgers and see a movie with the kids and wife. There’s one place I like to go for burgers, so that was the easy choice to make. The movie, however, was another matter. So many choices. Which to see? It so happened that two movies that I was interested in seeing were in theaters that weekend. One was a new release, in theaters for only a short time. The other had been in theaters a couple months and had found its way to the second-run discount theaters (which used to be called “dollar theaters”).  Which to see?

I thought of “The Richest Man in Babylon“, in which wealthy Arkad speaks about the many things that we won’t be able to do:

“… consider them but a part of that great multitude of desires that must go unsatisfied and regret them not.”

Arkad is making the point that there are an infinite number of things we might like to do, but we will never have the time, the appetite, the stamina, and (not to mention) the money to do them all.  We need to make choices.  The smart thing to do is find things that are equally enjoyable.  Things that provide equal amounts of utility as economists say.  Then choose the one that’s least expensive — especially if it’s free.

jungle_bookIt’s fun to see the just-premiered movie. But when you think about it, a movie that’s been in theaters for a few months is just as new to you if you haven’t seen it yet.  I spend a lot of time watching movies that are new to me but were made before I was born.  That recent Father’s Day, it seemed that both movies were likely equally enjoyable.  Pay more than $10 per person to see a movie just because it’s new?  Not me.  Why not see the movie at the discount theater and save over $6 per ticket?  And that’s what we did.  (And we enjoyed “The Jungle Book” very much.  Maybe we’ll see “Finding Dori” when it’s at the second-run theater.)

Free Scissors and Light Bulb

hair_cutting_kit.pngOne of my older neighbors moved away, leaving a huge pile of things on the curb in front of her house.  I took a look.  Saw a 1960s-era electric clippers hair-cutting set.  I didn’t see much point in taking it, as I already have one.  But it did contain a pair of scissors that were in very good condition.

There was also an old floor lamp, which I didn’t want, but it did have a light bulb in the socket.  I took the bulb home and it worked.  This isn’t the first time I’ve found working light bulbs in light fixtures that have been thrown away.  I lit my bathroom for years with fluorescent bulbs that were part of someone else’s built-in fixture that got put out with the trash when they were doing some bathroom remodeling.

Scissors and light bulb.  Together worth at least a few dollars.  Not bad for about 2 minutes work.  On an hourly basis, that’s around $100 per hour.  That’s why I keep my eyes open.

Please Don’t Get A Car-Title Loan

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It makes me sad and angry to read, “Back in 2007, the couple took a $500 car-title loan that mushroomed into a $3,000 headache”, in a news story about car-title loans.  Clearly, there’s something morally wrong here.  Ethical lenders don’t lend money to people whom are clearly unable to pay it back.  But these car-title lenders not only lend money, they count on profiting when the borrowers are unable to repay.  That’s when the lenders pile on the fees and the loan gets rolled over into a new loan.  The story of a $500 loan growing into a $3,000 debt is only one of thousands of such stories.  Many of these loans grow much larger.

We could discuss what the couple should have done (work more, spend less, beg or borrow from family and friends instead of going to the car-title loan place).  Or we could discuss what kind of laws might help protect people from this sort of lending (limits on interest rates or fees? mandate that all loans must allow repayment in some large number of monthly payments?).

But what I want to say most is simply this: Debt can be an awful, evil, horrible thing and must be used with extreme care and caution and avoided as much as possible.

If you are unable to borrow a small amount like $500* by just filling out a couple forms and signing on the dotted line (without putting up your car or any other valuable property as collateral), then you shouldn’t be borrowing money at all.  The system is telling you that you are not a good borrower.  You are not a good risk.  If you proceed you will be treated accordingly.

The rich rule over the poor, and the borrower is slave to the lender.
— Proverbs 22:7

* However, you probably wouldn’t need to borrow $500 if you consistently live below you means and have money in the bank.