37,500 Miles and One Robot

I fly for business fairly often, say 6 or 7 times a year. Not enough that it becomes a chore, but enough so that I accumulate substantial amounts of frequent flyer miles, especially since I take long international flights about twice a year. My airline of choice is United and it got to the point that I had over 300,000 miles languishing in my account. It's not that I haven't been trying to use them for my personal travel, it's just that it seems impossible these days to get an award ticket on the dates that you want, even if you are a Premier member of the frequent flyer club.

A couple of years ago many of the airlines started offering merchandise for miles. Those programs started out with some really low quality stuff, but in recent months the products offered have become much more interesting. Stuff that you would actually want to buy yourself.

Anyway, last week I went on the United frequent flyer shop and ordered a Roomba - a high tech vacuuming robot - for the price of 37,500 miles. Let's say that the average domestic flight on United costs $300, with advance purchase. The number of miles that I spent could have bought me a trip and a half to anywhere in the country, so essentially I bought the Roomba for about $450.

You can buy the Roomba model that I purchased for $279 directly from the manufacturer. Given those numbers it looks like I made a really bad deal, by paying about 60% more for the robot than I needed to. However, what good are my miles if can't spend them? As far as I am concerned, unspent miles are useless, and real dollars left unspent are worth their weight in... pennies.

Regardless, I am excited at the prospect of getting this new robot. For one thing, I am a gadget freak. If it's robot, I want it. Second, the prospect of leaving home in the morning and returning to a freshly vacuumed house without having to do anything about it is... appealing. With three small kids who get food all over the floor, every day, that's one fewer annoying chores we need to worry about.

What is a Credit Crunch?

And more importantly, why should you care?

Unless you have been under a rock these past few weeks, you are sure to have heard the term "credit crunch". Let's take a minute and explain what it is, and why everyone is talking about it these days.

Credit is the fuel that makes the financial system go. Just as individuals borrow money, whether through mortgages, credit cards or student loans, so do companies. Like individuals, companies use the loans that they take to finance their operations and growth plans. In recent years, financing was pretty easy to come by. Interest rates were low and borrowing was inexpensive - you know this yourself from all the refinancing SPAM you have no doubt been receiving. However, all of a sudden the financial climate has changed and lenders are much less eager to part with their cash.

Why is this happening? Enter our good friends from the sub-prime mortgage market. When money was cheap to borrow and house prices were booming, lenders made all sorts of questionable loans to people who are now unable to repay them. Many banks and other financial institutions that owned large portfolios of such questionable loans all of a sudden found themselves holding the bag, and the bag is sort of... empty of cash.

So what happens next? As we all remember, financial markets tend to over react. All of a sudden lenders become more cautious. Where before they would throw money at anything that moved, now they may be reluctant to give out loans even to well qualified borrowers and to solid companies. When there are fewer lenders willing to hand out the dough, the price of taking out a loan goes way up. This is because interest rates, like every other commodity in a free market, are subject to the law of supply and demand.

All of a sudden even people with good credit find it harder or more expensive to borrow money, and even companies with solid plans cannot find money to finance their growth. This is known as a credit crunch. When that happens, less money gets invested in the economy, companies hire fewer people because they are not growing, and the economy itself may sink into recession. So even though you may not be a sub-prime borrower yourself, the sub-prime crisis may impact you directly. It may be tougher to find a job, more expensive to buy a house, and much more difficult to start a business. Fun times may be ahead.

So, are we there yet? Has the economy slipped into recession? The experts say that no. Me, I think that we are headed in that direction and we are in for some tough times ahead. For now, people are expecting this to be a short, temporary bump in an otherwise solid economy. I don't believe that is the case. Humans have a tendency towards optimism. This sort of downturn has a nasty habit of starting out small and picking up steam on the way down. It's been a while since our last recession, seems like we may be due for one right about now.

Alternatives to Zillow

This is just a quick post on my lunch break. I just found this excellent post on The Dough Roller, regarding alternatives to Zillow.

Shows you what I know. Apparently there are several other sites that offer free appraisal tools for your house. I tried a couple and none were as simple to use or offered as many features as Zillow, but interestingly, they all offered different appraisals for our house.

Anyway, check out those sites and be sure to check out The Dough Roller while you are at it. It's a good blog.

How to (NOT) Ask for a Raise

Last week I wrote a post about How to Ask for (Another) Raise, which explored my strategy for increasing my compensation and my discussions about the topic with my boss. Today's article is a mirror image of that other post. It's about one of my team members asking me for a raise. This article may seem a little heartless to some of my readers, but I assure you, what I describe below is the way that the vast majority of managers think about the topic of salary discussions with their team members.

Here are some of the things that you should never do when asking your boss for a raise. Believe it or not, the team member that I am referring to has made every one of these errors:

1. Don't Give Me Ultimatums - making statements like "it's now or never", give your boss an incentive to say: "OK, never". Do you seriously think that threatening me is going to increase the chances that I will fight for your raise? If you want to leave, leave. Don't tell me you are going to do so.

2. Don't Bug Me - do you think that you are helping your case by bringing up the topic of a pay increase every time you get me alone for 3 seconds? Instead of making your case, you are simply antagonizing me. There is a time and a place for everything, and compulsively raising the issue twice a week is not the way to go.

3. Your Financial Issues are Not My Concern - a manager's job is to manage his team. One of his responsibilities is making sure that his team members are well compensated, in accordance with their performance. Notice I didn't say in accordance with their financial challenges or personal needs. Happily, we are living in a capitalist society, not a communist one. The fact that you decided to buy a house, are thinking of buying a new car or are planning to have another child, are completely irrelevant to me when we are discussing your compensation. I don't hand out raises to those that most need them, I award raises to those on my team who perform best and that I most want to retain.

4. Do Your Homework - before you ask me for a raise do your homework and figure out your market value. Seriously, have you heard of salary.com? Also, before we talk turkey, do you have a good sense of what I think of your performance? Are you considered a star performer or are you scraping by? If you are asking for higher than average market pay for your level of responsibility and performance, all I see is someone who has an inflated and unrealistic self image.

5. Don't Gossip - if another manager comes to me and tells me that you have been speaking to him about your salary negotiations, you are not going on my list of "people to help". If my boss tells me that you have been going directly to her to ask about your compensation, you are not winning me as an ally. In case you missed it, the previous sentence was an understatement.

Here is the bottom line. Finding, recruiting and training a new employee to replace a perfectly good team member is a huge headache for a manager. If your manager has come to rely on your expertise and advice, he will do everything he can to keep you on his team. That means he is very likely to fight for the raise that you are requesting. Moreover, your manager may have a personal stake in getting you the highest raise possible. If my team is well compensated, I am likely to be even better compensated. I have some skin in that game.

Simultaneously, employees should recognize that managers never have enough budget for everything they want to accomplish or for all the pay increase requests they receive. As such, managers need to make some hard choices. When given the choice between giving a raise to a star-performer, who has made a good case for his salary increase; and giving a raise to a complaining, threatening employee who goes above your head or gossips with other managers, who do you think will be getting that increase?

Recommended Articles

Well, it's Tuesday again and that means it's time for my weekly recommended articles post.

Let's start with this week's Festival of Frugality, hosted by Frugal for Life. Check this out, Dawn has my post about The Real Price of Cheap Books categorized under the section of the Festival titled Blogs I Have Never Seen Before, which is cool with me except for the fact that FoF was on Frugal for Life last week too, and I had a post in that one as well. No biggy.

Anyway, here are my picks from this week's Festival:

The Happy Rock posted this excellent article about the best times on the calendar to buy certain products. The source for the information is Consumer Reports. According to the article, the best day of the week to buy a flight ticket is Wednesday, since that is when unsold tickets for the next week go on sale. Then again, if you are like me you buy your business trip tickets at the last minute (because you don't have a choice), and if you are going on vacation you buy your tickets waaaay in advance, so the Wednesday rule doesn't help me much.

FitBuff has an article about not buying bottled water any more. He figures that this move will save him $60 a month. I think the bottled water industry is nothing but a sham. The water in this country is safe. In addition, from an environmental perspective, bottling and trucking all those millions of gallons of water per day, means a lot more CO2 in the atmosphere. Bottled water is not only a bad idea financially, it is also bad for the environment.

Money and Values offers an article about a zero cost star gazing adventure. As an amateur star gazer, I think Penny's idea is an excellent one. I would also like to add a couple of suggestions of my own. A decent pair of binoculars really enhance a star-gazing experience. If you want an even more interesting experience, in pretty much every region of the country you can find an amateur astronomy club. Most of these hold public star-parties in which the public is invited to participate free of charge. Many of these clubs also allow members to borrow some pretty impressive telescopes, and joining a club in my expensive area of the country costs something like $20 per year. Finally, if you are going to venture out at night, take a star map with you. Here is a link to a really good one.

This week's Carnival of Personal Finance is hosted by My Open Wallet, and my article titled Asking for (Another) Raise was selected Editor's Pick #4. I am honored. Anyway, I must admit that many of the entries in this week's Carnival just seemed repetitive to me. How many articles about growing your savings or credit card arbitrage can you read before you get bored? Given the option, I always read the original articles and skip the rest. Here are a few pieces I found original and fresh:

Sid from The Money Well gives excellent advice about how to decide whether to do something yourself or hire somebody else to do the job. Ask yourself the following question: as an unbiased third party, would you hire yourself to do the job? Very well put. In my case, that's exactly the reason I let an accountant do my taxes, let a mechanic change my oil and let a professional clean our carpets (my laziness is also a strong component of that last decision).

Breaking the Shackles comes out against the buy and hold strategy of investing. I am strongly on the opposite side on this one. A host of academic studies show that the average trader has a lower return than an investor who buys and holds an index fund. In addition, other studies have shown that the more you trade the LOWER your return - trading less is one of the reasons that women investors tend to show higher returns than their male counterparts. Here is one of my previous articles, arguing for a long term buy and hold strategy based on index funds. In fact, this was the first post I ever wrote...

Finally, Financial Reference has this great article titled simply Causation. This is my favorite article of the week. It's short and to the point. It also shows you how much garbage financial advice you can find out there.

Also, the Carnival of Home Owners posted this morning. It includes my article How Much is Your House Worth?