Late last week, the Wall Street Journal published an article on how Comcast was doing with regards to their telephone VOIP and internet service rollout. While the article stressed how investors were concerned about them spending too much cash on capital expenditure, I was more interested in the number of sign ups they have had for these services.

The reason I was interested in their numbers was because I felt that their VOIP and Internet Connection Service did not really offer as much value as their competitors. In the fourth quarter of 2006, Comcast added 481,000 new phone subscribers for a total of 2.5 million. The company’s high-speed Internet business also grew sharply, adding 488,000 customers for a total of 11.5 million.

Having subscribed to Comcasts’ cable service (rather than Direct TV – which I should have), I constantly get mails and calls to try their other services. For a while, I used Comcast as my internet service provider. I was paying about $45.00 a month for the highest speed connection – about 5mbps (I think). However, I was not really satisfied with the connection because at times, my connection would slow to a crawl or my VOIP phone would just hang! This, I was told, was due to the fact that I was “sharing lines”.

When Verizon came knocking on my door offering a dedicated fibre optic line to my house for $45.00 a month, but with a download speed of 15mbps, I switched immediately.

For my phone, I have always used Vonage, as they are cheaper than any land line around. But once again, I keep getting mails from both Verizon and Comcast asking me to sign up for their own VOIP service. For comcast, the rate will be $33.00 a month for their Comcast VOIP service if you bundle it with their cable and internet service. If you do not bundle it, the price will be $44.99 a month. To me this is simply ridiculous. Even when you bundle it, it still cost more than Vonage!

Verizon’s VoiceWing is much more reasonable. For 500 minutes a month, the rate is $19.95 a month. For unlimited calling, the rate is $24.99 a month, the same as Vonage. For multiple lines (ie 2 lines), the rate is $44.95 a month. Since, I Verizon will not beat my Vonage, I see no reason to change.

But what puzzles me is that existing comcast customer are willing to pay about $9.00 more on a Comcast VOIP phone (or $108 a year) when cheaper alternatives like Vonage are around. I just don’t get it, there are lower alternatives around and still these companies have the cheek to tell you what great value their service is. In just one quarter, Comcast gained 481,000 in new phone subscribers even though Vonage and Verizon offer a much cheaper alternative! Don’t these consumers do any research?

Is bundling your service and having just one statement worth $100 a year? I don’t think so.

One of the juggling acts we have with our personal financial life is juggling our mortgage payments, our need to save for our kids college education and our need to save for our retirement. Yet we have only finite resources and income to fund these requirements. Where do our priorities lie?

My friend (let’s call him Mr X) recently confided in me about his mortgage payments. He has a mortgage that he is very comfortable with, but he wants to pay them off as quickly as possible. His accountant obviously has told him that you get tax deductions on your mortgage interests and that he should not be in a hurry in prepay it.

However, Mr X does not like the idea of being in debt. He had seen his parents get in debt troubles and close to financial ruin when he was a kid. It had left a sour taste with him and his attitude regarding debt. He had to take a mortgage when he bought his house because he did not have enough to pay for a house outright! As far as Mr X is concerned, he wants to be debt free (as in free of his mortgage burden) as soon as possible. Yet at the same time, he does realize that any extra cash that he pays to reduce his mortgage principal every month can be used to save for his retirement or his kids college education. His financial advisors have told him that saving for his retirement is very important and he knows he needs to set aside a certain amount every month for that and also his kids college savings. But Mr X told me he would sleep better if he knew his mortgage would be paid off in 10 years rather 20 years.

What should he do, he asked me? Well, my opinion is that if he sleeps better if he has a lesser mortgage burden, then he should make the extra effort to reduce his mortgage. I outlined the following alternatives to him.

1. Take some of your retirement savings and reduce your mortgage immediately. Pros – Mr X sleeps better and his mortgage burden is reduced. Cons – He is taking away his retirement savings from his no IRA or 401k account.

2. Allocate more money each month to repaying mortgage principal – Pros – he will pay off his mortgage faster. Cons – that money can be used for his retirement savings.

3. Cut his expenses even more! and use the extra savings for his mortage principal prepayment every month. Pros – he will pay off his mortage faster and his retirement and college savings plan is “on track” and unchanged. Cons – he has to live an even more frugal lifestyle.

I actually managed to persuade him to go for choice number 3 because that seems to make the most sense to me. I even adviced him to get the Citi® Home Rebate Platinum Select® MasterCard®. This card would allow him to earn 1% rebates which will be automatically used to pay off his mortgage principle every month. (talk about paying off your mortgage faster on autopilot!).

But this conversation I had with him led me to think that sometimes, the most financially sound advice may not be the right choice for a particular individual. In the case of my friend Mr X, he simply hates being in debt. Had he taken choice number 1 and used a portion of his savings to pay off his debt, you cannot really say that was the wrong decision. After all, that is why we call personal finance “personal”. It simply has to suit you, your particular circumstances and your personal values.

What would you have done if you were Mr X. Take part in this poll and share your comments with us.

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When I first graduated from college, the key money issue that concerns me was the student loan that has to be paid. But as I approach my late 30s, my financial situation is very different than when it was years ago.

How so? Well, firstly, I have a family. I have to think of college education savings. I have a monthly mortgage payment. Insurance needs becomes an issue once you have a family or a partner. Retirement planning becomes increasingly important. Finally estate planning is now an issue.

How am I juggling all these competing needs? Afterall, saving for college takes away the money you could save for retirement and other insurance needs. How should one approach personal finance when you have these competing needs? This is how I am presently looking at my own finances.

Survivorship Needs and Plan

Let’s face it, the best portfolio in the world will mean nothing if you predecease your family. Do they have enough to maintain their present standard of living? The way I figure this is to look at how much I need in after tax dollars a year for your family to maintain their present standard of living? I then have to figure out the amount you need to pass to your family that will give them an annual cash flow (interest, dividend, whatever you want to call it) that will maintain their present standard of living. Subtract the amount of assets that you will leave (post estate taxes). This shortfall is the amount of insurance you have to purchase.

Other Personal Risk Insurance

As I am the sole bread winner in the family, I had to make sure I have enough disability insurance in case any thing happens to me. Some of my previous company had them, some don’t. Long term care insurance is something I eventually have to look at, but haven’t. I know people who have parents needing long term care. Trust me, it ain’t cheap – a live in nurse can cost up to $10,000 a month! To qualify for medicare requires that you run down your assets, or have them properly structured in a trust. Eventually, I have to take care of this.

Juggling College Savings and Retirement Savings and Paying off my Mortgage

This is the toughest thing that is occupying my mind right now. Firstly, how do you fund and save for your kids’ college education. Use current cash flow? Save now? Enroll in 529 plans? How much do I need to save for my retirement? This is actually not an easy answer because I have different ideas of how my retirement should be and when I want to retire. What I have done is to set a minimum standard on how I want my “worse case scenario” to be and how I want my “ideal scenario” to be. At worst, my plan has to have a high probability of letting achieve my “worst case retirement scenario”.

How to really boost my wealth?

The irony about personal finance and financial theory is that while portfolio diversification is touted as an essential element in your portfolio building and construction, most of the really wealthy people accumulated their wealth by taking massive risk or by concentrating their portfolio or time in building one successful business. Their portfolio was totally undiversified when they were in the phase of building wealth. Yet, we are told all the time to build a diversified portfolio. I have given this issue some thought and my conclusion and view is that unless you are a superstar in the place you work and are given tons of company stocks and options, you have to set aside a certain portion of your savings to either invest, improve your career prospects, or attempt to build a business that will eventually build you faster wealth than your present career.

This is just a brief introduction on some of the things going through my mind right now. I will be updating these thoughts going forward.

When you have credit card debt which you are trying to pay off, everybody will tell you to set up a debt reduction plan and budget and stick to your plan. But when you look at your budget, how do you decide which items to reduce? Here is how I would look at it.

I would first separate your budget and expenses into 3 groups.

Necessary Expenses

The first group is what I’ll call the necessary expenses. Your mortgage, auto loans, credit card debt, essential utilities, education expenses, groceries, gasoline fall under this category.

Expendable Expenses

The second category of expenses is what I would call expendable expenses. These are expenses you can actually do without. They include cable tv, netflix, gym memberships, club membership etc. These expenses tend to be recurring. These items in the past would have been considered luxuries, but are now considered essential!

Self Improvement Expenses

These expenses include spending on books, seminars, networking events that will help your career.

3 Ways to Deal with Each Type of Expense

There are three different strategies to deal with each type of expenses. For the neccessary expenses, you cannot do without them. But there are ways to reduce these expenses. You can refinance your mortgage, save on your groceries and utilities etc.

It is in the “expendable expenses” where you can actually save the most. Or at least sacrifice them temporarily until your finances improve. Stop going to the gym and work out at home or run outdoors. If you really wanted to, getting rid of your cable tv may lead to a more productive life. Netflix forces you to watch lots of movies where time can be spent at perhaps “money generating activities”.

While, it is tempting to trim all the fat, make sure you do not cut any muscle off! Activities like business networking and self-improvement may help you in your business or career and if anything, you should invest more in yourself.

Conclusion

When I graduated and just started work, I had very few “expendable expenses”. It was only after I had a few salary raises did I start adding some of these expenses. I did not have cable tv for a couple of years. I also stopped paying for my gym membership when I realized that me paying a monthly fee did not force me to work out regularly!. For what it’s worth, looking at my budget this way early in my working life has helped me tremendously in my finances.

With so many Americans deep in credit card debt, I was fortunately enough not to fall into the trap of spending beyond your means. Part of the reason was my upbringing. My parents always told me not to something if I cannot afford it. Looking back, I cringed that how I saved when I was much younger. So I have decided to write a series on my frugal ways (and not so frugal ways) when I was much younger in college. I shall call this series the “Turn Back the Clock” series.

Today, I start with my recollection of the days when I went backpacking. When I was in college, I saved enough from my summer jobs and together with Mrs Credit Card (she had graduated and started work), we took a couple of budget backpacking trips together. Our first trip was to New Zealand and Australia and the second one to Europe (Italy for the most parts).

Given that we had a strict budget, we had to plan everything in detail. We knew how much we could spend for meals a day, our budget for youth hostels and sight seeing. If we had to rent a car, we had to take the cheapest one, period. We also had to plan in advance where we were going to stay.

We used travelers checks rather than cash or credit cards (though occasionally we had to use our credit cards). We also learned to guard our belongings very carefully. We locked our backbacks before we went to bed and locked them to our beds. We carried our travelers checks in a small “travelers checks pouch” that we hung around our necks tucked underneath our shirts.

Being on a tight budget also meant some sacrifices in terms of the quality of the place we stayed. I remembered when we were in Sydney, all the youth hostels was at King’s Cross, the red light district. We stayed for two nights and got the cheapest room. When we got to the room, we found one double deck bed and a room full of cockroaches on the wall! We had to room the bed to the middle of the room. But since we were on a budget, we lived with it. We got up as early as we could and came back as late as we could. For some reason, the roaches did not come to our bed, they only hung around on the wall!

Another interesting phenomenon when we were backing was how many ideas other backpackers had up their sleeves. I remembered discussing how to get very low fares if you volunteered to be the person to look after the overnight mails on DHL or UPS! How to get free food at various restaurants!

In fact, looking back, those trips were an eye opener in terms of how to budget and the sacrifices you have to make when you have monetary constraints. As a matter of fact, since those days, we have not been as diligent as we ought to be. But those were good memories.

One of the reasons why I think we managed to get our act together during those backpacking trips was simply because we had no choice. We had a strict budget. We simply could not afford to overspend and be caught with no money overseas!. Back then, credit card use was not really prevalent. We also wanted to avoid any international transaction fees.

One of the key lessons from these experiences was that if you were set to committing to spend only a percentage of your income and save the rest, it can be done. I think the reason why most people get into debt is because credit is so easy! Just charge to your credit card. If you have a problem with overspending, perhaps keeping your card at home is the best solution. Write checks and carry cash.

Another reason that we did not mind traveling on such a tight budget (and kept ourselves sane) was we were enjoying ourselves. We were in love and enjoying each others company (we still are in love and enjoying each others’ company!), so living in budget youth hostels and eating cheap meals did not bother us one single bit. Every once in a while, we also gave ourselves a treat, a little nice gelato.

So here is my two cents worth with regards to saving and not getting into debt.

1. You have to enforce a budget and live by it.

2. You have to enjoy life. – If life is miserable simply because you do not have the 50 inch plasma which your fellow neighbor has, then you are in big trouble. That is because you will always be tempted to spend on things you want but cannot afford.

3. Be around people like yourself. – Because we hung out with people who were also backpacking, people who were also on a budget, we were never caught in a situation where we had to overspend. If you are always hanging out with friends who spend freely (either because they have more money or that they like to eat out often etc), then you will find it much harder to stick to your budget.

With that, I shall end my first “Turn Back the Clock” series on money lessons I learnt when I was younger.

My oldest son is now 7 years old and Mrs Credit Card and myself have started to think about educating him about the value of money. Our aim is to instill discipline in him and to educate him that money has to be earned and spent wisely. This is what we have done.

We give him a weekly budget. But we only him to lunch from school twice a week. It is on those days that he chooses. Here are also several things we have done.

1. Explain why we do not want him to food from school everyday (cos he does not finish them most of the time). We take the time to explain that the prices charged for certain food offers little value and that Mommy can cook a better dish at lower cost!.

2. Insist that he save most of the weekly allowance we give him and we ask him how much he has saved every week.

3. Encourage him to save for things that he wants to .

4. We tell him that he cannot something unless he has saved enough. This we think is one of the most important lessons we want him to learn. I think many people have got into credit card debt trouble simply because they never had the concept that “you only what you can afford”. It’s pretty elementary, but we want to make sure he understands this concept.

5. One thing have not done and will not do is to reward him for doing household “chores”. We feel that it is his duty to clean his room and help with the household stuff and that he should not be expected to be “paid” for this.

I was thinking of making him to a little “spreadsheet” every week to highlight what he has spent, how much he has saved and how much does he have at the moment. But we both felt that we should hold that off for a while, perhaps until next year. Educating our kids about finances is something both my Mrs Credit Card and myself will do because it can only be taught at home. Schools do not teach them. I will periodically update all of you of our process and observations.

Did you know that Costco sell diamond rings? Even Amazon.com sells them. Around christmas time last year, CN8 (Comcast in Philly) showed a report where they asked a diamond expert to check out 2 diamonds, one from Costco and one from Tiffany’s. These 2 diamonds had identical specifications. After examining these 2 pieces of gems, the expert concluded that they are genuine (obviously) and matched their specs.

But there was obviously a huge price difference. The diamond at Tiffany’s cost $8,000 more than the identical piece at Costco’s. So, when you that bling bling from Tiffany’s as your engagement ring, you are obviously paying a “Tiffany Premium”.

The interesting part of this story is that I found out about this at a party that I was attending. Then, we decided to take a little poll from the ladies. Question is will you accept an engagement ring from Costco? Or must it be from Tiffany’s (or any well known jeweller)?

The answers varies among different ladies. For some, an engagement ring from Costco’s is simply unacceptable. There was also an interesting answer from another friend, who said that her original engagement ring must be from a reputable (at least well known) jeweler, but that for her 10th wedding anniversary, a second diamond ring from Costco would be ok. I did not find a single lady in the party who said it was ok if their engagement ring was from Costco!

This topic brings up an interesting issue. When we read articles and advice columns about personal finance, one of the hottest topic is about how buying a new car is one of the worst investments you can ever make because your car depreciates the moment it is driven out of the showroom. Well, aside from cars, I would think that an engagement diamond ring has to come up as an item that (though may not depreciate as much), certainly adds no economic value to one’s family finances or life. At least with a car, you get to go from point A to B.

The diamond engagement ring though, is a tradition. I am not advocating that this ritual be abandoned. Mrs Credit Card obviously has a diamond ring from me years ago. But everyday, I read blogs about how to save money? how to reduce debt? who is the cheapest discount broker? why pay high fees for managed mutual funds? Why not just invest in a low cost index? How to do a 0% apr balance transfer arbitrage? which online bank has the highest interest rate? How to shop for the cheapest car?

But nowhere do I see any article on where to get the best value for a diamond engagement ring? And hey – this gem cost a least a couple of thousand dollars.

So to all you personal finance readers and bloggers out there, I would like to know what you think about this issue. Ladies – would it be OK for you if your diamond engagement ring was from Costco? And guys – would you even consider getting an engagement ring from Costco?

I am taking a poll below. Would be interested in looking at the results!

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