1. Buy a used car. “I recently got a chance to put into practice one of the lessons from your book,” writes Tom Grady. “The $28,000 1999-model-year car that my wife had her heart set on was also available as a ’98 lease-return for $17,400. I’m sure my teenagers will put the $11k we saved to good use.”
What an easy way to “make” an extra $20,000 or so before tax! (To keep $11,000 after tax, you may have to earn an extra $20,000. And even if you’re combined tax bracket is not that high, remember: Not only is the car cheaper, so are the finance payments, if you have to finance it, and the insurance premiums, if you insure it for collision and theft.) That “new car smell,” as you must by now be very tired of hearing me say, is the most expensive fragrance in the world.
2. Buy a cheap watch. I was reminded of this today when I looked down at my wrist and realized — oh, my Gosh: I am wearing a watch. For decades I enjoyed not having to do so. Now that I am, temporarily, at least, attempting to pass for a grown-up (I have this dollar-a-year job with a well known political party), I have begun to wear a watch.
I have three of them, actually. One is a Denver International Airport watch, given to me free by the Denver International Airport when I was out there on a junket. Where you may have Mickey circling the dial of your watch, I have what appears to be a 727 circling the Denver airport, waiting hour after hour to land. So far, it has never run out of fuel.
My other two precision timepieces are from Absolut vodka. One of these I got as a party favor at a benefit luncheon. I am not a big drinker, but I like the Absolut ads, and love the Absolut watches, which look expensive and surely cost Absolut (which donated them to The Worthy Cause) twenty bucks apiece. Made in China, which as you know has become the Geneva — indeed, the Schaffhausen — of cheap Asian watch fabrication. One of the cool things about the face of the Absolut watch is that it has no numbers. Just a silver “Absolut” from the center of the dial out to where the “3” might ordinarily be. And into the silver edge of the watch-casing, running around in a complete circle, are engraved the 12 letters: A-B-S-O-L-U-T-V-O-D-K-A. All this with a stainless steel mesh metal band, with the only catch being that the clasp does not catch very well. The clasp quietly unclasps and by the time you realize it, your cab, plane, sloop or rickshaw has long since disappeared. So I lose these watches. Which is why I have two. After I lost the first one, I called The Worthy Cause and asked if I could buy three more. “Buy?” they laughed, sensing further Worthy Contributions someplace down the road. They sent them to me free, and I have thus far lost only one of them. Leaving me two.
I have saved a minimum of $2,000, and by some lights $10,000 or more, by wearing cheap watches. Charles, needless to say, scoffs. His watch is a proper status watch. It costs $300 to clean, which seems to need doing fairly often; it produces near panic when mislaid; and it tells precisely the same time as my own.
3. Buy and hold. The way to make money in the stock market is not to trade in and out. That takes time and eats up commissions (small ones if you use a deep discounter, but still). It chips away with spreads (a stock that’s “16 bid, 16-1/8 asked,” costs one-eighth of a dollar — $125 for each 1,000 shares — more than it fetches). And it subjects you to a very rotten tax deal: high ordinary income tax rates on your short-term capital gains in years when you emerge with a profit, but an annual limit of just $3,000 in losses that may be written off against ordinary income. So if you made $100,000 day-trading in 1999 you might have to pay Federal and state taxes of, say, $40,000. But then if you lost $100,000 in 2000, only the first $3,000 of the loss would reduce your taxes — saving you about $1,200 in this example.
(Yes, the remaining $97,000 in losses would be carried over to cancel out gains in future years, and to cut your taxable income by another $3,000 each year, until exhausted. But the day could come that gains weren’t such a foregone conclusion. There was, for example, the 16-year stretch from 1966-1982, over which the market actually fell, leaving relatively few people with gains at the end of each year.)
In short: heads, the tax men win; tails, they lose very little. Better, for the most part, to buy and hold — sometimes even until after you die. That way, under current law, income taxes need never be due on the capital gains that have accrued as of the time of your death. (I told you to wear your seatbelts. But did you listen?)
Tomorrow, a Fourth Way to Save Money: Priceline.com (the Good Experiences)
Quote of the Day
The test of our progress is not whether we add more to the abundance of those who have much, it is whether we provide enough for those who have too little.~Franklin D. Roosevelt
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