Finance 102: Financial Categories

We can categorize financial savings into common groups based on different types of expenses:

  • Hard Savings: Short-term variable expenses, which fall under expense management (Hawley, 2018). It is also known as Cost Savings (Dawson, 2018). In other words, savings that have a direct impact now, like cost reduction or revenue enhancement (WarehouseBlueprint, 2017). Here we want to have proactive disciplined spending to help fund investment opportunities down the line (Hawley, 2018). For instance, if you reduce your outside dining experience over the next month or two, to save money.
  • Cost Avoidance: Consumption of resources, this falls under part of optimization (Hawley, 2018). Another way to look at cost avoidance is to lower your potential incurred future expenses by reducing the gap in financial losses (Dawson, 2018;, n.d.). You will need to be managing and planning for your needs and wants (Hawley, 2018). Here, this reminds me of using everything you got in the kitchen before you buy a new set of groceries. Find new recipes and reduce your costs of buying more food, while older food gets unused and expires. The avoidance of expiring food is cost avoidance.
  • Potential Savings: Consumption of resources, which also falls under part of optimization. You should be identifying new opportunities and offerings to meet your needs and wants (Hawley, 2018). This is usually longer-term savings, like finding ways to cut your budget for the long-term, like reducing your phone bill to just a cell-phone bill or removing an unused gym membership expense from your budget. Another example is when you begin shifting your energy use to off energy peak hours.
  • Write-downs: Amortization and Depreciation, which is essentially debt that needs to following financial compliance and to adjust the balance sheet numbers (Hawley, 2018; Investing Answers, 2019). This is the reduction of the book value of an asset-based (Investing Answers, 2019). For example, the mortgage on your house and the tax write-offs associated with it. Also, there can be the value of your car which depreciates when you drive it off the lot and is based on fundamental changes like mileage, age, and condition.
  • Delayed Savings: Extrapolated values for investments and funded projects, which could depend on a variety of factors (Girosi, et. al., 2005). We should be asking ourselves here if the investments are aligned to our objects, risk profile, and goals (Hawley, 2018). For an illustration, buying solar panels now may incur a cost today, but the eventual savings on the electric bill will be realized in the future.
  • Future Debt: Debt to be incurred when undergoing investments and funded projects (Hawley, 2018). It is a debt that will be created or is created but will not be due today (The Law Dictionary, n.d.). For instance, future rental properties one finances to create cash flow, where a portion of the money will go to paying the mortgage and the rest goes elsewhere.

None of this can come into fruition without periodic reviews of your budget, expenses, and other data points so that you can adjust your plan of action.


Decluttering & Recycling

Last year I mentioned that I am a minimalist, though I do not subscribe to the 100 item challenge.  However, there is value in disposing of items that are no longer providing any value in your life.  Rather than trashing them, why not recycle them for cash.  Here are a few places that accept gently used and sometimes roughly used items, in an effort to create a more sustainable economy and the planet.  For really old devices, they extract the precious metals to be used in new devices.

Note: Shop around all these sites and programs to get the most money for your product. Also, one site or store may not take it, but another might so keep shopping around. Also, if you are getting store credit make sure it’s at a store you will actually use.

Note: This is not a comprehensive list.  Comment down below if you know of any other places or apps that have worked for you really well.  Some apps work best in the city versus the suburbs.

  1. Trade-In: They will give you Amazon gift card, for Kindle e-readers, tablets, streaming media players, BlueTooth speakers, Amazon Echos, Textbooks, Phones, and video games.
  2. Best Buy: Will buy your iPhones, iPads, Gaming Systems, Laptops, Samsung mobile devices, Microsoft Surface devices, video games, and smartwatches for BestBuy gift cards.
  3. Game Stop (one of my favorites): Will take your video games, Gaming systems, most obscure phones, tablets, iPods, etc. and will give you cash back.
  4. Staples: Smartphones, tablets, and laptops can be sold here for store credit.
  5. Target: Phones, tablets, gaming systems, smartwatches, voice speakers for a target gift card.
  6. Walmart: Phones, tablets, gaming systems, and voice speakers can be cashed in for Walmart gift cards.
  7. Letgo app: A great way to sell almost anything.  Just make sure you meet up in a public place to make the exchange, like a mall or in front of a police station. Your safety is more important than any piece you were willing to part with in the first place.
  8. Marketplace: Another great way to sell almost anything. The same warning is attached here as in Letgo.
  9. They pay you back via check, PayPal, or direct deposit.
  10. Gazelle: They will reward you with PayPal, check or Amazon gift cards.
  11. Raise: This is for those gift cards you know you won’t use.  You can sell them for up to 85% of its value, via PayPal, direct deposit, or check.
  12. SecondSpin: This is for those CDs, DVDs, and Blu-rays, and you can earn money via store credit, check, or PayPal.
  13. Patagonia: For outdoor gear and it is mostly for store credit.
  14. thredUp: This is for your clothes. Once they are sold via the app you can receive cash or credit.
  15. Plato’s Closet: Shoes, Clothes, and bags can be turned in for cash.  Though they take mostly current trendy items.
  16. Half Price Books: Books, textbooks, audiobooks, music, CDs, LPs, Movies, E-readers, phones, tablets, video games, and gaming systems for cash.
  17. For your books and you can get paid via PayPal or credit in your account.

My advice, I try to sell first to a retailer, because they are going to always be there, it’s their job, it’s safer, you can do it at your own schedule, and you will get what they promise you.  No hassle of no-shows, fear of meeting a stranger, getting further bargained down when you are there and they conveniently forget to bring the full amount, or them arriving way late.

Another piece of advice is to hold on to at least one old phone (usually the latest one), for two reasons: (1) if your current phone breaks, you can use this as an interim phone, (2) international travel, if the phone is unlocked.

Subsequent advice is to make sure you turn off and clear out all our old data from electronic devices.  The last thing you want to do is have your data compromised when doing something positive for the earth.

Also, Look for Consignment shops, local book stores, and ask around. You never know who you may be able to sell stuff to.  At a consignment shop, you deposit your items there, and if they sell, you get a part of the earnings. When all else fails, what you cannot sell, recycle it by donating it to goodwill, habitat for humanity, etc.

Financial Hacks

The last post, I talked about cyber hacking, but this month let’s talk about when Equifax credit report data was hacked in 2017 when names, social security numbers, birth date, driver’s license and addresses were taken from millions of people (Smith 2017; Oliver, 2017).  Smith (2017), knew of the breach that started in late May and ended in Early June 2017 but didn’t advise the public until 2017.  In that gap from all affected consumers being hacked until public release, multiple people’s lives could have been ruined.

This breach means that when the data is sold in the black market or dark web, thieves can open lines of credit for the rest of your life.  The only way to combat this is to freeze your credit from all three credit bureaus:

My journey in doing so means going to each of these sites and setting this up.  When I wanted to pull my credit for housing, a new credit card, etc. I would have to unfreeze the account for less than a few days and refreeze it so that my credit can be checked.  Unfortunately, this has become an inconvenience, as it can mean a delay in many major life situations, like getting a new job.  However, this is a minor inconvenience as opposed to finding out you were hacked, proving your real identity, and recovering if you can your life.

The advice to freeze your credit report is one way to protect yourself.  Another is to check your credit report.  Every year you get 1 free credit report from each of the three credit reporting agencies.  Things that appear in one report may not appear in another, so it is key to routinely check all three credit reports.  A link to do so can be found here:

or by phone:

  • 1-877-322-8228


Storytime:  The Hacker!

Systems and companies get hacked.  The biggest one in the tech sector is Yahoo back in August 2013 where 3 billion accounts were targeted. and again in 2014 where 500 million accounts were targeted unrelated (Larson, 2017). As reported vital information that was compromised from the yahoo hacks was the sign-in information, most importantly, passwords.

Now fast forward to December 2019, and I got an email saying that there was an attempt to get into my personal social media accounts.  Not saying that the Yahoo incident is at all related since it could have come from multiple other sites I use.  However, it illustrates a key aspect of living a digital life… Are we really safe from hackers?  Thankfully they didn’t succeed to access my account, but that won’t stop them in the future from trying my accounts again or yours.

Mark Goodman (n.d.a.), explains that there is an asymmetry in cyber threats, where the white hats (good guys) have to explore every possible corner to prevent a hack, whereas the hackers only have to find one weakness to hacking into a system.

Goodman (n.d.a., n.d.b.) in the Art of Charm podcast and Lewis Howes podcast proposed the following acronym: UPDATE, as one of many ways to protect yourself.

  • U – update frequently. (LastPass, 1Password)
  • P – passwords. Use a different password for every site and get a reliable password manager. Don’t use your Facebook account to login to other site.
  • D – downloads. Watch your downloads and be cautious about what you install. Download from authorized sources only.
  • A – administrator. Don’t run your computer using the administrator account (unless necessary).
  • T – turn off your computer. If it isn’t fully turned off it’s still accessible, especially when not in use, or at least the wifi.
  • E – encrypt. This scrambles your data unless you have the password and proper computational keys. There are 2 types: you can encrypt the data on your computer and encrypt the data as it is sent out using a VPN.


Finance/Accounting 101: Capital and Operating Expense

Capital Expenditure – CapEx (Finance/Accounting): Includes all spending on an asset that is supposed to last for over a year (Apptio, 2018).  Usually, it is used to undertake a new project, but it can be used for purchasing or changing equipment, buildings, etc. (Investopedia, n.d.b.). CapEx contains depreciation, look at my previous post for that (Apptio, n.d.; Investopedia, n.d.b.). A car is a great example for your personal CapEx, given that it depreciates over time and you purchase or lease it typically for more than a year.

Operating Expense – OpEx (Finance/Accounting): Includes all the ongoing costs for running as normal (Apptio, 2018; Investopedia, n.d.a.). For instance, OpEx could include rent, equipment, inventory costs, marketing, payroll, insurance, and funds allocated for research and development (Investopedia, n.d.a). Essentially, if you look at the rent you pay for living or for driving, that can be considered your own OpEx.  If you also consider your health, dental, vision, disability, housing, car, etc. it can also fall under this category.  Even gas to fuel up a car, given that it is used to make your asset operable fits under this category.  According to Apptio (2018), bills like electricity, water, etc. can fall under this category as well.

You can be more CapEx or OpEx heavy in your budgets.  Each with their benefits.  For instances being more CapEx heavy, your costs are more predictable in the long run and you can easily calculate your net worth. In that scenario, you may not have enough cash to continue to pay for some opportunities.  If you are more OpEx heavy you tend to save more money for investment purposes.  Here you have more flexibility to take on an opportunity, but its harder to show/calculate your net worth.

Another way to look at this is OpEx is like the cloud service on your phone, you pay for what you use, be it 5 gigs, 25 gigs, 50 gigs, etc. Whereas, CapEx is steady and saying I rather pay for the entire asset and enjoy as much or as little as I want.


Finance/Accounting 101: Sunk and Opportunity Costs

Opportunity Cost (Finance): Is the cost one misses out on, when you go with one option over another (Investopedia, n.b.a.).  This usually occurs when you have limited resources.  If you have little money to budget, if you factor out all your needs, you only have so much left for your wants.  You cannot buy all your wants and therefore when you buy one want you may not be able to afford another.  The biggest limited resource we have is time, and time is usually associated with money.  When I did my doctorate, I couldn’t use that time to go to law school, so my opportunity cost was law school during my doctorate.  However, going to law school now will mean that the opportunity cost I have to pay is time with family, friends, and pets.  As Ursula from the little mermaid said “You can’t get something for nothing,” even free things have their cost.  You can get a free cookie, cake piece, ice cream, or pizza slice, but that may mean more time in the gym to burn those unneeded calories.

Opportunity cost can be calculated in dollars, time, or any other metric, but since you forgo that opportunity in exchange for another, you cannot claim it in accounting purposes. However, calculating it can be extremely useful for decision making.

Sunk cost (finance/accounting): It is the cost that has already been incurred to date that cannot be recovered, especially when deciding whether to continue to invest or divest (Investopedia, n.d.b.).  There is a fallacy that we as humans tend in include sunk cost when making our decision to continue moving over.  For instance, if you had a major in college, let’s say physics and you are on your senior year, and you realized you want to be a biologist instead.  The decision you have to make is to finish physics as a double major with biology, finish physics and stay in that field, or stop studying physics and pursue biology.  The sunk costs are all the classes that won’t count towards a degree in physics.  Some people may look at the problem and say they are 3-4 classes away from the degree, I might as well suck it up.  Or others may say, I have enough for a minor, and I should cut my losses.  When making a decision, like this, we should look at the problem new, without looking at what was already invested, because if you hate physics, but are 23-4 classes away, you will hate those three or four classes and your future career.  It makes no sense to continue.

In sunk cost, it doesn’t mean that you cannot try to claim some value from what you invested in.  For instance, claiming a minor in physics, or seeing which of those credits can transfer to lessen the load of classes you want to take for a biology major.  That is a smart way to minimize sunk cost.  But, if there is a sunk cost, it is ok.  The problem is not to keep wasting resources towards a lost cause and increasing the sunk cost.

Personally, I fall victim to this sunk cost fallacy a few times, when it comes to being a life-long learner.  Especially when reading a book.  Just because I checked out a book in the library doesn’t mean I have to read it from cover to cover, especially if I don’t like it after a few chapters.  But, again we have a tendency to want to see things through to the end.  The letting go of a book exercise is a great exercise in building resilience against the sunk cost fallacy.  Give it a try.  Has there been a book on your nightstand that you just don’t want to read anymore? Then let it go.  Donate it to a library, to a school, etc.  Relish in the fact that you didn’t give in to the sunk cost fallacy to keep reading that book to the end.


Finance/Accounting 101: Direct and Indirect Costs

Direct Cost (Finance/Accounting): Can consist of fixed and variable costs, but that is 100% dedicated to a service, an asset, etc (Apptio, 2018; Investopedia, n.d.a.).  Imagine you buy a new laptop.  The cost is fixed direct cost to acquire it.

Indirect Cost (Finance/Accounting): Are costs that are shared amongst a service, an asset, etc. (Apptio, 2018).  Let’s look at the laptop you just bought above.  Even though the price of the physical laptop is fixed and direct, you have indirect fixed and variable costs associated with it.  Some of the indirect fixed cost will come from purchasing software, OS license, virus and malware detection software, etc. While some of the indirect variable cost will come with how much electricity you will spend to keep your laptop’s battery charged. Indirect costs can be hard to find if your budget isn’t transparent (Apptio, 2018).


Finance/Accounting 101: Fixed and Variable Costs

Fixed Expense (Finance/Accounting): Are expenses that remain the same over time (Apptio, 2018; Investopedia, n.d.a.).  If you have a gym membership, you are charged a flat membership fee each and every period.  Thus, you know how much you can and should budget for.

Variable Expense (Finance/Accounting): Are expenses that change over time (Apptio, 2018; Investopedia, n.d.b.).  A great example is for those people who don’t have unlimited talk, text and data plan on their cell phone.  Given that we are measuring the exact minutes we spend each month talking, or the amount of text we send or receive, or how much data we download, this person’s cell phone bill will be variable. Here, you don’t know how much you can budget for.  Things happen.

Variable expense isn’t necessarily bad nor is fixed expenses good.  It depends on context, asset, service, etc.  Therefore, one should regularly evaluate their budget and see if what they have as fixed or variable expenses are justified. The benefit of a variable expense is you have the most leverage on how much you can consume or spend, giving you greater control over your budget rather than a fixed expense.  This leverage gives you budget flexibility (Apptio, 2018).

A healthy budget would take into account fixed and variable costs and will have an appropriate mix of the two.


Finance/Accounting 101: Amortization and depreciation

The Matching Principle (accounting): Expenses are matched to and recorded in the period where you have realized the benefits (Accounting Coach, n.d.).  It doesn’t matter when you received or sent an invoice out, it matters only when you get paid or you pay the invoice (Apptio, 2018).  In other words, I get my credit card statement on the 23rd of the month (a weird date, but it is what it is).  The credit card company cannot realize the benefit/payment of the invoice until I pay it, therefore it is a liability for them (Accounting Coach, n.d.).  Usually, people have about a month or less to pay back their balance in part or in full.  Until I decide to pay them the credit card company cannot account for the money, which means the credit card company cannot say it is Revenue (Accounting Coach, n.d., Apptio, 2018).  This is because, how can the credit card company say I paid them for the service rendered if I haven’t cut the check or e-paid my bill? However, when I do pay, I can pay it on the 23rd, 24th or the 2nd of the month. Once I pay my bill, either in part or the full amount, the credit card company can say they realized the benefits for the service rendered (in this case, me borrowing money on credit).

Depreciation and Amortization (accounting/finance): This refers to how money is spread throughout the lifetime of the product or service (Apptio, 2018).  The best example we have for amortization is a mortgage on a house.  When I bought my house, I got a long printout (excel sheet style and a waste of trees) of how much I will be paying for my mortgage, how much of that will go to escrow, how much of that will go to the principle and how much of that goes to the interest.  The mortgage schedule shows that over time I will pay more into my principle and less into the interest, which tends to lower the book value of my housing loan (Investopedia n.d.a.).   If I were to sell the house, and it losses value during a housing bubble, then I will be in a budget shock (Apptio, 2018). The reason is that the entire amortization schedule is due in full at the date of closing, and I will be on the hook for the difference.

So, let’s look into buying a new car! When we buy a shiny new car and drive it off the lot, it is said to depreciate over 20% in a matter of seconds.  Over the course of the first two years, the cost of the car will further depreciate, therefore the best advice usually is to wait 2-5 years after the car has been manufactured to keep most of your money, given that the most depreciation occurs in the first 2-5 years (2 Cents, 2018).  Thus, depreciation is not necessarily the loss of intrinsic value for car usage, just a loss of financial value over time (Apptio, 2018).  Depreciation is accounted for in taxes or in accounting books, it can be used to illustrate the loss of value of an asset over the life of the asset (Apptio, 2018; Investopedia, n.d.b.).

Note that in business, assets can be tangible, usually a physical server, a building, etc., or intangible, like patents or copywrites, etc. (Apptio 2018).