advertisement
Article Tools
Would a $2.99 guarantee save you money?
Now that inflation is nipping at our heels again -- and threatening to take a big bite -- the idea of locking in today's prices holds new appeal.
But concern over the rising cost of living shouldn't lead you into making deals you'll later regret. Here are four different offers to lock in prices that aren't quite what they seem.
The $2.99 gas deal
Best for: someone who was already in the market for a covered car, who is convinced gas prices won't drop and who drives enough to make the gas deal a better pick than other incentives.You've got to hand it to Chrysler's marketing department. Its offer to lock in gas prices at $2.99 for three years is getting a lot of attention.
And that's mostly because consumers are so shell-shocked by the soaring cost of fuel.
"There's a real psychological impact to paying a lot for gas," said Karl Brauer, editor-in-chief of Edmunds.com vehicle research site. "Standing at the pump and watching that gas ring up is so powerful for people."
But you shouldn't let your emotions dictate a purchase as large as a new car. Keep in mind:
- Incentives should never drive your purchase. If you've narrowed your choices down to a couple of cars, you can use an incentive -- cash back, 0% financing, $2.99 gas -- to help you decide between them. But an incentive should never drive you to pick a car you otherwise wouldn't have chosen. After all, the benefits of the incentive will quickly fade, and you'll be stuck driving the darn thing. "Some of the people who are trying to get out of their vehicles now," Brauer said, "who are trying to trade SUVs and trucks for economy cars, are the ones who let an incentive decide their last purchase."
- You may be better off with another incentive. You could get up to $3,500 cash back on certain Chrysler models instead of taking the gas deal. (You can see a full list of current rebates on MSN Autos.) Depending on the car's gas mileage, how much you drive and the future cost of gas, that could turn out to be a better choice. (If you drive at least 12,000 miles a year, you can use the calculator to determine how much the $2.99 gas deal would be worth to you over three years, and compare that to available incentives.)
- Gas prices could drop. Hey, it could happen, and that would lessen or even erase the deal's benefit. "If gas is $2.35 in a year, you're going to feel pretty silly with your $2.99 gas guarantee," Brauer notes.
- You're probably better off in your current car. Even if it's a gas guzzler. That's because it takes a heck of a lot of driving to offset the costs of buying and insuring a new car. If you're in the market for a replacement, buying a two- or three-year-old car that gets good mileage and then driving it for another 10 years or so is often the most cost-conscious choice.
Lifetime subscriptions
Best for: committed fans.Contemplating a lifetime subscription to a gym or a service such as TiVo or satellite radio? You've got to ask yourself two questions:
- How much are you going to love it?
- How stable is the company and/or its technology?
The break-even point of many "lifetime" subscriptions is somewhere around three years. (A $399 lifetime TiVo subscription, for example, is a better deal than the $12.95 monthly subscription after 30 months.) So if you're not already a committed user, a one-year or even month-to-month subscription is a better way to find out if you and the service are a good fit.
Also understand that "lifetime" typically refers not to your lifetime, but to the lifetime of the business and, more specifically, to whatever receiver or unit you're buying in the case of TiVo or Sirius. TiVo occasionally runs promotions that allow lifetime subscribers to transfer their subscriptions to new units for a $99 fee, but in general you're not a good candidate for locking in the price if you like to update to the latest and greatest.
More from MSN Money
One last thought: "Lifetime" subscription offers tend to come and go, as businesses balance their needs for immediate cash with their desire for long-term profit. So if an offer comes up and it's a good fit, you should jump on it.
Forever stamps
Best for: technology-averse folks who are prolific correspondents.The cost of a first-class stamp increased three times between January 2006 and May 2008, leading many to applaud the post office's introduction of the "Forever Stamp" with a Liberty Bell design that allows you to lock in the current price, well, forever.
Here's the problem: Although the price of a first-class stamp has increased 13 times in 30 years, from 15 cents to 42 cents, the rise has trailed the overall inflation rate. A stamp would cost 50 cents if the Post Office had kept up with the Consumer Price Index, according to the Federal Reserve Bank of Minneapolis' handy inflation calculator.
So why would you tie your money up in an "investment" that's likely to lose value over time?
Perhaps you expect the U.S. Postal Service to toss off all restraint and jack up its rates with abandon. Even if it does, though, you've got to ask yourself: How many stamps are you likely to use in the future? I know our household's consumption has sharply declined thanks to online bill pay, PayPal, cell phones, texting and e-mail.
Video on MSN Money
Successful complainingWhat to do when things go wrong. Here are tips for getting satisfaction without blowing your top.
You can mourn the decline of the well-crafted personal letter -- and I do -- but that won't boost the number of stamps we're likely to need.
In my view, the best rationale for buying Liberty Bell stamps isn't locking in the price. It's saving the hassle of buying makeup stamps on those increasingly rare occasions we still need to send a first-class letter.
Prepaid tuition
Best for: conservative investors with young children.Prepaid tuition plans allow you to buy blocks of future tuition at today's prices. Offered by several states and by a consortium of private colleges, prepaid plans are cousins to the more popular 529 college savings plans.
Unlike college savings plans, though, you don't have to worry about making the right investments and hoping you get a big enough return to cover college costs. Prepaid plans are designed to take the investment risk off your shoulders, much the way a traditional pension plan does.
Sounds good, right? Except there are some drawbacks:
- You probably would do better overall in a college savings plan. Although college costs continue to rise at rates that exceed overall inflation, they're still likely to rise less than the expected returns on a moderately aggressive portfolio. In other words, investors willing to take moderate risks likely will end up with more money by investing in a 529 college savings plan or other portfolio that invests in stocks.
- They're best for young families. Many plans charge a premium over current tuition rates, and that typically requires a few years of tuition increases to offset.
- There are more restrictions on how you use the money. State plans typically require that the beneficiary attend an in-state school, for example, although you may be able to transfer the money to another state's plan.
If you're interested in learning more, you can read more about these plans in "Pay tomorrow's tuition at today's prices."
Published June 19, 2008
Rate this Article
High