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Question:  Why is the President tapping the oil reserves?  Will it help the price of gas?

Answer: The President is tapping the oil reserves because it makes great political theater and he is working on his re-election bid.

Did he tap them when the oil supply was disrupted by nature in the middle of a freezing winter?  No, and he shouldn’t have.

Shou. ld he tap them during the summer driving season and gas was at $4 a gallon?  No, he shouldn’t have for the same logic.

Tapping into the 30 million units we have saved is not even a drop in the bucket of the demand.  So it is like a band aid on a gunshot wound to the belly.  Even a pretty Hello Kitty bandaid isn’t going to do jack diddley squat, other than let him say “well, we did do something”.  Oh, and what if we need that oil for what it is intended for, like defending the country with the now THREE fronts (Libya, Afghanistan, and Iraq) we are fighting on.

It was nothing more than a bold faced attempt to curry favor and buy votes by weakening the country.  Yes, I am pissed off over it.  Not because I subscribe to any particular party, but because it was done to try and get him re-elected and directly negatively affects our security while doing NOTHING about the situation he was supposedly addressing (high oil prices).

FQOD: I have to get on a budget, but every one I have tried sucks.  What do I do?

Answer: Budgetting is exactly like dieting, with all of the negative connotations and misperceptions.  And generally it is about as much fun.  But look: within each there is a limited reesource (money, or calories you are allowed to consume) and some things that need to happen (pay rent and taxes, consume enough protein, etc).  There is room for creativity, and if done right there should be very little negative impact to your life style while having a bunch of positive ones.

One way to go about both  is the “big thing” approach (which can also be applied well to budgeting your time).  Start with your overall constraint (total calories or cashflow), then allocate to the important things first (taxes, savings, debt reduction, fixed expenses, etc).  You will have some remaining asset (money, or calories or time), so then chose something small that is important to you (a daily piece of chocolate or that little splurge for really good beer) as we are not completely draconian.  Then see what is left of your asset and what you still want, and allocate it to the “little things” (which tend to really add up, even more so then the big things).  When you run out of asset you need to stop and start re-evaluating: which is more important, doing the laundry or reading those funny emails from your friend?  Eating a big desert or having a few snacks throughout the day so as not to be ravenous?

This is your life, not mine.  So I can’t tell you what you need to do and prioritize your concerns, but I can help you figure it out.

If you want some real budgetting tools that don’t suck, check out Budgets are Sexy from J Money.

FQOD: Why is beer so expensive now?

Answer: One, you are no longer drinking Piels 40’s.

Two, it is basic economics.  Supply and demand.  There has been a shortage of hops over the past few years, and there is no elasticity in the curve as there is no substitute for hops (even if Bud tried).  So limited supply with inelastic demand (try taking beer away from baseball or football if you doubt me) results in increased prices.

Third, in tough economic times people flock to relatively inexpensive entertainment of all forms, but most of all alcohol.  This is the reason why Sin Stocks do well in poor economic times. 

So drink beer, it is good for the American Econommy!

Question: What should I get my Dad for Father’s Day?

Answer:  Maybe He should give you some backbone to make decisions!  Whay are you asking me?

Beyond that though, don’t get him a tie unless you are six years old.  Cash from an economics point of view has the highest marginal utility (gift cards essentially the same), and anything that saves time of headache (like mowing his lawn or getting someone else to do it) is appreciated.

Try to create an experience though, something that you will actually talk about because you remember it in the future.  It doesn’t have to be sky diving or anything nuts like that, but something that he has wanted to do and would appreciate.

Question: Should I buy or lease a new car?

Answer:  This is actually relatively straight forward of a question.  First you should understand the mathematics and economics of leasing.

Basically whe you lease you are renting the vehicle.  So you have nothing left when turning it in.  That nice big down payment is paying off the decline in value for driving it off the lot and using up the new car smell.  The monthly payment then covers the monthly imputed decline in value  (plus some profit for the firm).  And that nice big “return payment”?  That cover the rest of the decline, some maintenaince, and profits.  Oh, and then they get you for all the dings, and overages, and little things that add up on the bottom line for them.

Car companies make money on leases because they know people like the shiny new things.  And they know people like new vehicles every two to three years if they can afford them.  So it creates turnoverf of inventory, and then they can have their dealerships re-sell the returned vehicles.

Contrast this with a purchase that you hold for five years or so.  You typically need a down payment too (unless you get zero percent down, not so common these days), and you have a higher payment per month, but on the far side you have residual value.  You can then use it as deposit on next vehicle (instead of paying for the joy of getting rid of the car).  Or you can hold the vehicle for well past the time it is paid off and save the cash flows (other than maintenance costs).  My 9 year old Volvo (hey, it only has 175k on it!  It can go another 75.  It’s a Volvo!) is needing some repairs but hasn’t had a payment in four years and will still be worth over 10% of the cost of my next car.

Now also remember that unless you are self employed you can not deduct the costs of your vehicle.  This can make leasing more attractive financially, especially if you need to show some flash because you are in sales.  But outside of that, leasing is generally NOT the right financial move.

Question: Should I pay off my student loans ASAP?

Answer: Generally not, for a number of reasons.

One, the interest rates on student loans tend to be fairly low, much lower than credit cards or other debts.  As such they should be fairly far down the list in terms of which debts to attack.  Add to it the fact that the interest is usually deductible, so the rate is actually even further down the priority scale.

Secondly, you need to compare the rate of the loan with the opportunity cost of paying it off.  Using a conservative rate of return (even 6%, a good assumption for 10 year returns in accumulation.  Add 1% per full decade thereafter assumption up to 9% for retirement oriented savings), it is pretty easy to see that paying off the loan quicker actually sacrifices the returns, thus creating negative wealth by paying off the debt faster.  Yes, it might FEEL good, but looking at the numbers it is the wrong move.  Paying off 5% faster than earning 8% is a net LOSS of 3% per year, which is actually fairly substantial over an extended period.

So hopefully those student loans got you an education where you learned enough to think about the situation before gut re-acting.  If it did, than my logic is intuitively obvious and you will make the right move.  If not, maybe you should get a refund for college.

Why do companies like Stewarts have things like milk clubs and other loyalty programs?

Because they work!  Let’s say that you could buy essentially the same milk or coffee or gas or airline seat someplace else for the same cost.  As long as you feel like the place you are getting it is taking care of you right (treat you with respect, don’t leave you on the tarmac for five hours, stuff like that), everything else being equal you will tend to use the same provider because you (and I, and everyone else) are lazy and creatures of habit.  If a company can then only spend a little bit to get you to use their stuff religiously as opposed to someone else’s, it makes good economic sense for them sense even though they are getting a slight decrease in profit margin, they make it up in volume.

My local coffee shop (Coffee Planet) has a loyalty program that is pretty typical: buy 10 cups get one free.  I swear I get a free one almost once a week!  These benefits can really add up if you actually pay attention to them.

OK, for the month of June we are going to introduce the Financial Question of the Day (FQOD, pronounced Eff Quad, not what you are thinking you cheeky monkey!).

So every single day for the month we are going to answer a question dealing with finance, no matter how boring or mundane or insane.  I am going to poll people I know between the ages of 21 and 31 to get a chunk of these, and some I am going to make up myself.  And if you have a question you want answered just email headgeek at unique-minds dot com.