Monday, December 03, 2007

Should I buy an extended warrantee?

December 2007 - So we bought a new car. Because we have an expanding family we decided to purchase a mid-size SUV. There are a number of offerings, but for safety, reliability, warrantee, size and cost, we felt the Hyundai Santa Fe was the best option.

Notice that I said warrantee in the sentence above. Hyundai comes with a standard 100,000 mile "powertrain" and 60,000 mile "bumber-to-bumber" warrantee. From what I found, most car companies offer much less than Hyundai. Typically something like 50,000 mile powertrain and 36,000 bumper-to-bumper. I found Hyundai's offering to be very nice as if something happens with the transmission on mile 99,999 I don't have to worry about it.

I wrote about my experience in Denny Hecker Finance a few weeks ago. During our taped conversation, the finance manager tried to sell me an extended warrantee. That is, bumper-to-bumper coverage for over 60,000 miles or powertrain coverage for over 100,000 miles. To be honest, I can't remember the exact details. They're immaterial though.

Extended warrantees are nothing more than insurance. While some insurance (e.g. health) is good, some (e.g. legal) is bad. If you'd like to rid yourself of all risk, then you might want to buy an extended warrantee. That way if something ever goes wrong, you can drop it off and it's fixed. On the other hand, if you're comfortable with some risk, they are a rip-off. And I mean rip-off! Let me explain.

To calculate the price of an extended warrantee all you need to do is take the probability of something happening (P) multiplied by the cost (C) of fixing that something. For example, if you think there is a 10% chance that your axel will fall off during mile 100,001 and the cost of fixing that axel is $2,000, then the cost is $200 (i.e. P(C) or 10% * $2,000).

Now I hate to break it to you, but you're not getting an extended warrantee for that kind of money. I don't know what the exact costs are, but I think mine was something like $1,000. I figure there is a 10% chance of something major happing to my car after warrantee, so it would take a $10,000 repair bill to make the extended warrantee worth it. Thus, it's a rip-off for me.

In addition, the car dealership will want to finance the extended warrantee for you. As they say "it will only raise your monthly payment a few dollars." Isn't it sad how we value things by our "monthly payment?" Anyway, extended warrantees are bad, financing them is worse!

So here you have it. If you'd like to rid yourself of all risk, buy an extended warrantee. On the other hand, if you're comfortable with a bit of risk in your life (and you should be), then skip the extended warrantee like we did. Just make sure you don't bring up the "probability" discussion I described above. It has a propensity to confuse finance managers.

Friday, November 02, 2007

What kind of car should we buy?

November 2007 - November snuck up on me. I was going to write about how much a baby costs (yes again), but I'm still confused. Maybe another month will help me figure it out. Anyway, we actually have something else, equally exciting, going on. We're buying a new car!

Yes the old 1998 Mustang has finally had it. To be honest, it's actually in good shape, but getting a baby seat out of the back is like trying to move shit with a plastic show shovel. Plus mom thinks a rear wheel drive, sports car nonetheless, is not the best to transport kids. What gives?

We decided that a van was too much right now. A car is too small. A midsized SUV seems to be just about right for a family of three. Big enough for fitting baby, baby stuff, mom, mom stuff and dad's golf clubs. Not in that order of course.

We've looked at the Hyundai Santa Fe, Toyota 4Runnder, and Honda Pilot. All are very nice and would provide ample space for us. The Toyota is probably our favorite but at $28,000 it's a hefty price. At least for us it is. The Honda is about the same in both space and price. Both are very nice vehicles. The Hyundai is a bit smaller, but only around $22,000. Also a very nice vehicle.

I tell people I'm not into new cars, but two of the three cars I've bought have been new. The first one was used only because I made $4.25 an hour bagging groceries. So while I'll tell you I'm not into new cars, we'll probably buy a new car.

With a present value of $28,000 (Toyota or Honda), interest rate of 6% (yearly) for five years, we'd pay around $522 a month. That's about $9,500 in interest paid. With a present value of $22,000 (Hyundai), interest rate of 6% (yearly) for five years, we'd pay about $425 a month. That lowers our total interest payment to just over $7,500. Hyundai is cheaper.

Money is not everything though. Safety is important. All three say they have top notch safety records. They all have side impact air bags, some kind of stability controller, and brake technology that rivals everyone and all (so they say). I consider them all very safe.

Other things have value as well. Size, tires, engine, off-road experience. They all add up. When we broke it down though, we don't really need a lot of the things a more expensive vehicle offers. We don't need the DVD player. We don't need three rows of seats. We don't need a V8 with tow package. We just need a simple reliable mid-size that offers a good value with a great safety record. Thus we are leaning towards buying the Hyundai. The Hyundai also has a great warrantee. I'm not a big warrantee guy, but if you can give me one for free (at least for no additional cost, as you can't discount your car if you don’t buy it), I'll take it.

So there we have it. As of today, November 2nd, 2007, we are leaning towards a 2007 Hyundai Santa Fe. See you around town!

Monday, October 01, 2007

How much did this baby cost us?

October 2007 - After recently having a baby, I made every attempt possible to figure out our hospital bills. I knew we wouldn't have to pay for them, but I wanted to get an idea of what it costs to have a baby these days. Unfortunately, I failed as I'm totally confused by what is a bill, what isn't a bill, what's paid for, what isn't paid for, and so on.

We've literally received five to six letters in the mail from our health care provider, all with different charges and totals. We even got a letter from our pediatrician stating we owed them almost $800. I quickly called our provider and they assured me, we can ignore that bill. As a side note, when ever I get a large bill - like my tuition bill for the fall - I plan on calling my provider to see if they can magically make it go away like they do with baby bills.

Continuing on. My wife has pretty good insurance. For around $140 a month, she pays a $20 co-pay and a $250 deductible for hospital stays. Not too bad. As of right now - two months after having the baby - we've had to pay a $250 deductible for my wife and a $250 deductible for my son which was expected given her insurance coverage. I'd argue that is a pretty good deal for 10 - 15 pre-sessions with her doctor and a five day stay in the hospital. Not to mention, they had to perform "major surgery" to deliver the little bugger.

The real costs are obviously much higher and once I get them figured out (if I ever do), I'll post the results. I'd expect them to be anywhere between $10,000 and $30,000. Why such a wide spread you ask? It's because I've yet to understand what is a bill or charge verses what is a bunch of needless line items that mean nothing. Once I figure that out, I'll take a deep breath and send a nice Holiday card to my healthcare provider.

Friday, August 31, 2007

How much training do we need at work?

September 2007 - One of the most asked questions by perspective employees is how much on-the-job training is available. Employers know top candidates want training and have a full pocket full of answers ranging from management to technical training. Some companies (including mine) even offer foreign language training. "Me llamo Mac!" How much do we really need though?

When an employee first starts there is a need for human resource and job specific training. I'll give everyone that. Here is where it gets sticky in my mind. In addition, there is often a need to send employees for new technology training.

From all the training I've been in, I've observed a large percentage of individuals treating training like a vacation away from the office. Sure, we all need time away, but that's why we get personal days. When a company is paying for us to become subject matter experts, they don't expect us to take off early, show up late, or spend the entire time instant messaging our wife. These are all observations I've made in my most recent off-site training.

So here is my solution. Train everyone on human resource and job specific tasks. Then reward people with off-site training who you know will treat training like any day in the office. Sending the average employee is often a mistake as your $3000 in training fees and $1500 in travel expenses will be wasted.

When the below-average-employee asks why you didn't send them or why they've not had any training opportunities in the past year, tell them the truth. You're not going to send people who won't respect the opportunity and apply the knowledge they learned. This solves two problems; first your being candid with employees who need to improve their performance. Second, you're not wasting $4500 on some slug to spend time telling his wife how much he loves her, over, and over, and over again.

The savvy below-average-employee will become upset. They'll argue their lack of performance is due to, non other than, lack of training. Don't fall into their trap. Before sending them off-site make them improve their performance and prove they are worth of additional training. Training is a privilege that not everyone deserves. Make sure you reward your best employees and not waste money on people who don't deserve it.

Wednesday, August 01, 2007

How can I make more money?

August 2007 - I had a thought the other day. Every person will hit their maximum "individual contributor" earning potential. I'm nearing mine. I'm actually not that concerned about it as for now I'm pretty happy as an individual contributor, but it was just something that popped in my head while walking around the block and trying to figure out how my neighbors all have nice cars and new pools.

By my definition an individual contributor is a person who is not acting as a supervisor for anything or anyone. Two examples are a ditch digger and a seasoned software engineer.

A ditch digger will eventually max out their output and what they are paid for digging ditches. They can dig more ditches by digging them faster, but even then there is a maximum number of ditches ditch diggers can dig. Similarly a software engineer will eventually max out their output and reach an upper limit of what employers and/or customers are willing to pay for their services. They can work extra long hours, take additional training and moonlight for small shops in their spare time, but like a ditch digger, there is a max to their output. So how do they make more money?

Now I'm not saying the individual needs more money or even wants more money. My question is simply, if the individual wants to stay within their current employment, how can they increase their compensation. From my perspective, the only way is to take a percentage of compensation from someone or something that you're supervising. Basically have something or someone work for you.

Back to our ditch digger. If the ditch digger wants to make more money, he needs to either use technology and supervise an automated process that digs ditches. Or hire another ditch digger, supervise them, and take a percentage of the junior ditch digger's compensation.

A software engineer can either develop software to solve problems for her, or hire other software engineers to work under her so she can take a percentage of their compensation. For any of you who are in corporate America, this is how it works. I work for my boss and my boss is compensated based on his output plus a percentage of my output. Done right, it works well as everyone needs someone to hold them accountable. Done wrong, and supervisors can get away with doing very little while making lots of money.

In a way what I've described is a pyramid scam. You work for me and I make money off of you. Then you get people to work for you so that I make money off of you, plus the people working under you. Throw in a few more layers and as long as you don't get any cantankerous employees, you're doing just fine for yourself.

So there it is, to get the nice car, pool and house you need to run a pyramid scam. The good thing is any organization in the world provides the needed infrastructure. Then again if you're like me, you may be happy with what you produce as an individual contributor and what you're paid for it. Money's not everything!

Tuesday, July 03, 2007

What drug coverage should we get our son?

July 2007 - It's time to decide what health care option our new addition will need when he arrives. If you're like me, picking healthcare is more difficult than splitting an atom. From what they tell us, my company has made things "easier" but it's still something you need to spend time on to figure out.

My wife pays $135 a month for coverage. For her donation, she gets a $20 co-pay, a $250 deductible, %100 coinsurance (what ever that is), and drug coverage at $10/%30/%30. That is $10 for a 30 day supply of generic drugs (e.g. high blood pressure medicine); %30 of a 30 day supply of retail generic formula with a $50 max; and %30 of a 30 day supply of retail nonformula (i.e. all other drugs you may need) with a $50 max.

I pay $104 a month for coverage. I get a $20 co-pay, a $500 deductible, %100 coinsurance, and drug coverage at $10/$30/$60. That is $10 for a 30 day supply of generic drugs (e.g. high blood pressure medicine); $30 for a 30 day supply of retail generic formula; and $30 for a 30 day supply of retail nonformula. As you can see, her plan has less risk, which works out since she had an emergency room visit (x-ray on her foot) a few months back.

Our dilemma is whether to add the baby to my plan, her plan, or go with a combined family plan. Adding the baby to her plan will increase her monthly expense to $284 a month. With her plan we will pay a $250 deductible for the baby's birth and have the best drug coverage the company offers. If he needs drugs (who doesn't these days) we'll only pay %30 of the price up to $50.

Adding the baby to my plan increases my monthly charge to $224. With my plan we pay a $500 deductible when he arrives and have the second best drug coverage we offer. Compared to my wife's plan we save $60 a month, but must pay an extra $250 (my deductible less her deductible) when he's born. Luckily after four months we would break even on the deductible which is to our advantage. But if he needs drug coverage, we'd end up paying $30 a month (or retail price if the drug is less than $30) which could eat into our savings if drug prices are less than $100.

If we went with the family plan and used my wife's plan as the basis, we'd pay $448. If we used mine as the base, we'd pay $358. With my plan we'd have to pay a $750 deductible ($1000 less $250 that she all already paid for the x-ray), which is no good. With my wife's plan we'd only pay $250 ($500 less $250 that she all already paid for the x-ray), but we'd have too much coverage for me.

We decided to put the baby on my wife's coverage which costs her $284 and I decided to keep my own coverage which is $104. This gives us a total cost of $388.29, which is not the lowest option but does ensure mom and baby have the best coverage available (remove all risk), which makes both mom and dad happy.

Tuesday, June 05, 2007

Is a parenting/birthing class worth $100?

June 2007 – My wife and I are expecting our first child in two months. Fifty one days to be exact, not that I’m counting. We both went to college and have been working professionals for around ten years. During this time we’ve taken on a number of leadership roles, implemented important projects, and slowly increased our responsibilities. For example I’m working on a half million dollar project to implement Team Foundation Server and my wife is a team lead with ten or so reports. We’ve felt pretty prepared for our new addition. That was until we attended our parenting/birthing class this past Saturday.

From what my wife tells me, we paid $100 for an eight hour session. Notice how I say “we” as it’s now in vogue for both the mother and father to be pregnant. Anyway, we arrived Saturday morning with four dollar lattes in hand. She had a small half-cafĂ©, skim, vanilla and I had large, extra-caffeine, whole milk with vanilla. I’d needed all the caffeine and sugar I could get for the next eight hours.

The session started off with a short introduction by our two trainers and then the obligatory “get to know your neighbor” handshake with the couples around us. The couple next to me seemed nice. This was their first child together and they seemed overly excited as Tony keep a close eye on his wife’s every need. Tony had familiarity with the area as they lived just a few blocks from the hospital. I thought this would come in handy at lunch time, but as it turned out next on our agenda was lunch locations and McDonald’s was our only option.

After going through the basics of the day, the trainers moved into a few group questions to warm everyone up. At this point I lost interest and started to daze off and wonder why we spent $100 to sit in a room on a nice sunny day in June. Right before our first break, which was well needed given I had a large coffee and half of the room was pregnant, we watched a video showing an actual child birth. I remember seeing something like this in eight grade health, but this video was far more traumatic for me. It’s probably because in two months that dad in the video will be me! From that point on I paid attention like a kid does to his Game Boy.

I won’t get into all the details, but our favorite speaker was the pediatrician. He came in and gave us a forty-five minute explanation on what we need to do once the baby arrives. Apparently that is important. We covered how to look for jaundice, how many times a baby should pee/poop, what supplements we can use to help brain development, what kind of car seat to buy, if we should gather stem cells from the placenta. My note pad was almost completely full after this guy finished.

It was at this point that I felt overwhelmed. Here we are educated and grown adults with absolutely no clue on how to give birth to this kid or get them in the car seat to bring home. How in the hell are we going to do this I thought? And to be honest, I’m still not 100% sure.

The rest of the afternoon was filled with some breathing exercises and a “birthing ball,” which is no more than one of those big rubber balls old people roll around on at the health club. As you can imagine, I couldn’t help myself but try to dribble it.

In conclusion, was the parenting/birthing class worth $100? Yes, it was worth every penny. I’d recommend it to all parents to be and make sure you try to dribble the birthing ball for me.

Monday, May 07, 2007

How can large companies continue to grow?

May 2007 – This month’s post is a bit late (and short) as I’ve been working on a final paper for my international business class. We’re studding international companies like GE, IBM, and Exxon. It simply amazes me how large these companies are. In fact I’m so amazed by their size, I wrote about how large companies can grow for my mid-term.

Imagine this; GE had $160 billion dollars in sales last year. The pesty shareholders, which is a group I consider myself part if, demands companies like GE grow at double-digits. Double-digit revenue growth, double-digit earnings growth, double-digit this, double-digit that, and so on. We want almost $17 billion in new sales next year or about the same as Kenya’s gross domestic product. Yes that’s right! GE needs to grow sales this year that are valued the same as Kenya’s total value of goods and services. Exxon’s story is even more impressive (or overwhelming). Exxon needs to find $44 billion in new sales this year. That’s about the same as Slovakia’s gross domestic product. Amazing!

So how do these companies continue to grow at these rates? To be honest I don’t know. There’s probably not one single reason these companies continue to find and expand businesses at double-digits. That being said, I’m pretty sure there is one defining attribute; great people. And if I was to copy one thing these companies did, I’d hire great people.

A few years back I read Jim Collin’s book “Good to Great.” I’ve read a lot of business books and from what I can remember, most of them are pretty boring. Not “Good to Great” though. It’s by far the best business book I’ve ever read, and I’d be so bold to say it’s one of my top ten books of all time. Mr. Collin’s is in pretty good company given I’ve read almost all of Bill Bryson’s books, who may be the greatest writer who ever lived. Any way, my favorite chapter in “Good to Great” is the section on getting the wrong people off the bus and the right people on the bus. I’m guessing GE and Exxon have the right people on the bus, which helps them define where they need to drive to find all these new sales. The top notch talent they have are able to help the company continue to grow the businesses at these incredible rates.

In conclusion, if you’re looking to grow your large conglomerate at double-digit rates, make sure you start buy hiring great people who hire great people. If you can do this, coming up with new sales ($17 billion) that surpasses the gross domestic product of 83 countries (as of 2006) is trivial.

Friday, March 30, 2007

Should you write a book?

April 2007 - I'm thinking of writing a book. If you're my wife and reading this posting please settle down as I don't plan on quitting my day job. In all seriousness I'd like to someday take all the thoughts bouncing around in my head and put them to paper. Would anyone read it? I'd like to think so, but honestly it's more of a hobby than anything.

But let's say someone did like the book and wanted to buy it. How much would it sell for? And more importantly how much would I make from that sale? I'd like to think that if the book sold for $24.99, I'd get at least 75% of that. If you're a publisher you're starting to laugh off your chair. After a bit of research I can understand why. The writers of fine literature are paid for their work, but certainly not at the insane rate I'd like to see. So how much do writers make?

From what I can gather authors are paid in a number of ways, but all income is centered are around royalties. For a break down of retail, per book, and wholesale royalties see Stephen Nelson's posting ( For the purpose of this discussion, let's just assume my prestigious publishing house is using retail royalty payments. Retail royalty rates can range from low single digit percentages (e.g. with my luck 5% or lower) to lower double digits for well known authors (e.g. maybe 15-20% for Stephen King).

Using 5% and a book price of $24.99, each book sold earns me $1.25 in profit. Alright! Didn’t Dan Brown's Da Vinci Code sell over 20 million copies? I'm guessing he quit his day job. Realistically though, I'm guessing my first book won't be nearly as popular so let's say I'm able to sell 1000 copies to threatened friends and family members. While $1,250 is nothing to write home about, it's a start. How much is this an hour though?

If you don't count my long "deep thought" walks, I estimate writing a book would take me 1000 hours. This might be high or low, but since I've never written a book before I don't have anything to base it on. Dividing my estimated income by the total number of hours, I make $1.25 an hour. That is slightly less than I made pumping gas as a 15-year-old.

So it looks like I'm not going to be rich. Back to my question; Should you write a book? Yes and No. If you're planning on quitting your day job to start writing, make sure you're ready to move in with your parents. I talked it over with my wife and this is not an option. If you're planning on writing the book for nothing more than a hobby, then write away. If you make $1.25 and hour then great for you. At least you're published!

Thursday, March 01, 2007

Should I upgrade my health club membership?

March 2007 - In November of 1998 a good friend and I drug ourselves into Life Time Fitness for a membership sales pitch. It was an easy sale for the testosterone filled bulky back sales rep we talked with. In addition to looking forward to a good game of racket ball, my friend and I were young college grads who weren’t afraid to surround ourselves with pleasant looking gales. The salesman knew this and proceeded to tour us through the aerobics room (twice) and sealed the deal. Once members, we found that although there were plenty of well shaped females, there was plenty of competition from better trained and wealthier men.

The first month’s membership bill showed up on my credit card bill for $33.50. I remember thinking that $402 a year ($33.50 * 12 months) for weights and a Stairmaster is ridicules. That was until I watched the repairman open up an out-of-service stepper and found out how difficult it is to fix one of those buggers. There were chains, gears, and wires that could confuse Einstein. The assurance that I never had to fix an electronic bike, treadmill, or wax a basketball floor made the $402 worth every penny.

Much to the dismay of my bill paying wife, over the course of the next nine years I’ve watched the $33.50 monthly fee turn into $53.00. That’s a 58% increase in just over nine years. According to my finance professor, 58% in nine years is slightly more than inflation (at 3% inflation, $33.50 is $43.71). Is the $53.00 we pay today still worth a membership?

I typically get to the club eight times a month which means each trip costs me (actually my wife) almost $7. Typically I use the elliptical machine, racket ball courts, treadmill, some weights (light ones I might add), lockers, and occasionally the cheesy stationary bike. In addition, I watch their TV, weigh myself once a week, and shower periodically. For the most part, I’m willing to pay $7 a trip for these services.

Just down the road from us, Life Time Fitness is building a new 150,000 square foot club that dwarfs the modest establishment I typically patronize. Always one interested in new retail, I inquired about the new club and found my $53.00 was a mere drop in the bucket for what an upgraded sports membership at the new club costs. Apparently the Fitness Membership I carry isn’t sufficient. In reality a sports membership is only $10 more ($63.00), but for a guy who brags about saving 10 cents at the coffee shop for getting the trivia question correct, $10 is a big deal.

Among a new construction scent and automatic paper towel dispensers, the new club includes an outdoor water park, complete spa and salon, and poolside bistro. I hear they also have tennis courts, but didn’t see that posted on their website. So back to our original question, should I upgrade my membership so I can attend the new club?

Although I’m sure some will find the added amenities worth an extra $10 monthly, I’m sticking with my Fitness Membership. The current stopping grounds provide the necessary resources to keep me just within the boundaries of average fitness. This all being said; since I had to park in a different zip code recently, I’m hopeful a majority of people disagree with my opinion and flock to Lakeville and enjoy the zero depth entry pool. That way the economical folks can enjoy less traffic at our current club. Good luck with your own assessment!

Wednesday, January 31, 2007

Which gas option should I use?

February 2007 - In retrospect the question of which gas option you should purchase while renting a car in Hawaii is painfully obvious. However, when suffering from jet lag and caring for a hungry, tired, and not to mention pregnant wife, making such a decision is overwhelming to say the least. A few weeks ago, Mrs. No and I headed off to the south pacific in search for rest and relaxation. We started off with a day and a half in Oahu and then jetted off to the Big Island.

The Big Island is an amazing rock out in the middle of the ocean. More impressive than its rich array of volcanic activity and wild life is the kind and speedy service offered by the rent-a-car companies. While I don’t rent a car very often (I dislike cars in general and when on vacation like them even less) when I do, it’s typically an hour of unfriendly, slow, and egregiously overpriced displeasure. Our experience was different than normal though. On the Big Island our vendor Dollar Rent-a-Car, which I found out upon arrival didn’t offer any “dollar” cars, provided the type of service only expected at the finest of steak houses. The shuttle service was prompt, rental line short, and service representative pleasant.

Before signing three sections and initialing another five, the smiling representative asked me which gas option I’d like. She pointed across a lively waiting area to a small sign stating “A – $2.95 per gallon, B – $4.25 per gallon, C – $3.15 per gallon.” Below each lettered section contained unreadable small print which I found out later explained the difference between the options in gory detail. Now remember I’m tired and caring for Mrs. No, who is in little mood for me to crunch numbers like I typically do with presented with financial options. So with little haste, I picked letter “A” and signed my life way.

As it turned out, “A” was the right choice for us. In the small writing below “A,” Dollar explains they’ll sell you a tank of gas for a 15-20 cent discount per gallon if you purchase the tank ahead of time. What they don’t explain in writing, but will when you ask them, is that there are no refunds. You pay the same whether you use one gallon or the entire tank. Our “economy” class car held around 13.9 gallons. With option “A” we drove around the entire island and broke even after using 12.9 gallons. Drivers who use more than 12.9 gallons, come out ahead.

Option “B” is a rip off for most of us. “B” says use as much gas as you’d like and just bring back the car. Then we’ll fill it up for you for a modest 35% markup over retail. There are only two times you should use “B.” You’re late for a flight or using an expense account for a company that just pissed you off. Use option “C” when you plan on using less than a tank of gas. For example on Maui we used option “C” and saved around $12 verses option “A.” That’s because we spent most of our time in Maui laying on the beech and reading fine literature.

You should wonder why option “A” turned out to be the right choice for us on the Big Island. Mathematically both option “A” and “C” turned out the same as both cost us around $41 (give or take a few cents). Time is money though and option “C” would require an inconvenient stop at the gas station before a 9AM flight. Mrs. No likes to arrive at the airport with days to spare, so any amount of time saved sooths her nerves and lengthens my beauty sleep. All other variables equal, the time saved using option “A” worked best for us. Happy travels!