What can $5 get you?

Mesh costume bracelet, $5 at a vintage sale

What can you buy for $5? A Nokia research team is asking people around the globe to take pictures and submit them to http://fivedollarcomparison.org

Submissions so far have ranged from a woman’s blouse in Bangkok to the price of admission to a movie in Lima, Peru. The campaign is a fun, clever little marketing exercise to start people thinking about a future of global connectivity that will be possible when the price of a mobile phone is dramatically lower than today.

Their campaign gives the rest of us something to think about, as to the way we value objects and services. A makeup artist friend was just complaining that, having set up a table at a shopping event, she discounted her usual brow-shaping rate from $35 to $5, causing one woman to dismiss her outright, as if a $5 job would not be as good as a $35 job, even though this was not the case.

Some people assume a high price equals quality, but smart shoppers know that good value can be found at every price point if you’re willing to keep your eyes and mind open.

Good advice won’t fit every situation

I recently helped a woman buy a condo. It was a tough decision for her to make because she had little savings and high debt. 

Although I am a licensed Realtor Associate in Hawaii, my primary profession is journalism, so I am neutral when it comes to making a home sale. In this case, I tried to talk her out of buying now, and waiting a bit longer for housing prices to come down and she had time to build up more savings. But she was adamant that this was the time.

When I added up her monthly expenses vs. income, I learned she was paying out more than she was earning. She didn’t know this because she doesn’t keep any kind of register. Money just flowed in and out of her accounts electronically. 

Knowing your monthly cash flow is key to establishing a budget you can live on. Yet, so few people take this first step in gaining control of their finances.

A vast part of your budget will be spent on necessary outflows such as rent/mortgage, food and utilities. Everything else is extra, things considered “nice to have,” rather than “need to have.”

Now, more than ever, is a time to save. This is something I’ve been telling friends for two years when I saw a real estate debt crisis looming. At the time, I saw a repeat of the late 1980s and early ’90s, when the housing bubble led to foreclosures and depleted equity. I certainly didn’t foresee the depth of the financial mess we’re in today. The speed and breadth of the crisis took me by surprise because I failed to see the domino effect of the concurrent securities debacle. I realized many financial institutions would be left holding bags of bad mortgages, but I never imagined their collapse.

We don’t know what the future will hold, so I urged my client to build up her savings. Standard financial advise recommends building a reserve of six months pay. In this economy, with rising prices everywhere, I’d suggest building up savings to a minimum of a year’s salary. So I was taken aback when my client said she would be making extra payments to her mortgage instead.

As an example of good advice gone awry, she had read that making extra payments would reduce her total loan cost over time. That is true, but there’s always a BUT for particular individuals. In her case, that advice would have to be, “Make extra payments to reduce your mortgage cost, BUT NOT AT THE EXPENSE OF BUILDING YOUR SAVINGS RESERVE AND PAYING OFF HIGH-RATE CONSUMER DEBT.

In her case, it is more important to pay off her credit card, auto and school loans, and build up savings, rather than to have her 30-year mortgage paid off 22 years from now. Given the job losses that have been piling up, or any other costly emergency that may arise, that money may come in handy in the near future.

Making extra mortgage payments is a smart idea, but only after the rest of your financial house is in order.

Shop local to help locals

On Wednesday, I went shopping at Sephora and bought nearly $80 worth of cosmetics, $25 of it from a redeemed gift card. What is important to note is that I didn’t shop online, but at my friendly, neighborhood Sephora.

So what’s the big deal, you ask?

The Internet has made it easy, and often, cheaper to shop online than down the street. In Sephora’s case, shopping on line will net you extra samples that you don’t often get by shopping the local stores. A lot of Web sites offer such extras to entice people lured by bargain prices and bonus gifts.

I’m supposed to be telling people how to save money, yet by suggesting that consumers shop local, I am asking people to give up goods and services. Huh?

I make it a point to, at least 99 percent of the time, shop local. Living on an island, it’s clear there’s a circle to our exchanges with others, and Hawaii’s economy is a microcosm of what goes on in the wider financial world.

Clearly, tourism dollars are not coming in as rapidly as they were in the past, so it’s money that locals spend locally that is keeping our economy afloat. This is true of every community, but most evident in the small ones. Our fortunes are dependent on our neighbors, and if they are losing their jobs, we could easily be next. Only by supporting one another will we get through this crisis with any sort of dignity.

Beware of high numbers

Those afraid of the market’s mood swings are no doubt looking for a safer place to stow the little remaining cash they have. 

It’s so strange how we’ve gotten to this point. There was a time I considered a 25 percent annual return on the stock market was meager when I was pulling in 200 percent returns. Bank dividends were ridiculous at 4 percent. Today, I’d be dancing if I could find a 4 percent return.

For the time being, it looks as if the safest place you can be is in CDs, but be careful before committing your hard-earned dollars. High numbers may not be all that if you read the fine print.

First, you need to be careful about how long you’re willing to park your cash. A 3 percent rate may look great at this point, but if that locks you in for 18 months, you may be kicking yourself in a year if rates go up to 5 percent. You’ll want to look for the shortest term at the highest rate possible.

Then, don’t let high numbers lure you into doing something you don’t want to do. Some of the 4 percent rates I’m seeing come with a catch, like opening minimum-balance checking and savings accounts, which will also tie up money you may need elsewhere. Before opening any account, check if there’s a fee involved in closing it before a certain amount of time.

One more come-on is the Climbing Rate CD with a top, teaser rate of 5 percent. I’ve seen one offer where the rate climbs every 91 days, from 2 percent, until it reaches 5 percent in nine months. The term of the CD is a year, but for a good part of that year, you’ll only be making an average of 2.25 percent.

Now, more than ever, read the fine print to know what you’re really getting into. A lot of our troubles today stem from people not knowing how to read financial documents.