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Will you be one of the many that rushes out to the malls the day after Thanksgiving in search of amazing deals? I for one will not be joining you. From the sounds of the news these days, it looks like I will not be the only one making this decision this year. I will add though that I have never gone to the malls the day after Thanksgiving. Fighting the masses for a couple extra dollars off just doesn’t seem worth it to me.

Many stores are viewing this holiday season as one that will make or break them. I would be on the lookout for some bad earnings from the retail sector in comparison to previous years. Roughly guesstimating, I would assume that I will spend about 20% less on Christmas this year. I am managing to do this by spending less on a per person basis. I am making up for this by buying more smaller things that are typically lower priced. In the past I had bought a few more expensive items. I am hoping that this strategy will save me some money this year. According to my Microsoft Money data from last year, I spent $696.30 on gifts between 10/01/2007 and 12/31/2007. For the entire year 2007, I spent $904.33 on gifts. 20% less would put me at  $557.04 for the holiday months. As of now I have spent $217.30. I will try to keep a running total of my holiday spending for the year. I think it will be frightening to find out how much I spend.To date I have spent $1,234.65 on gifts for 2008. This puts me on pace for spending $1,363.42 for the year. My total ballooned from last year because both of my parents turned 50 this year. Because of this, I got them much more expensive gifts than I normally would have.

Maybe this is me, but this seems like an extraordinate amount to have spent on gifts for a given year. I know that it is better to give than receive, but still.

Personal Finance gifts, holidays, shopping, thanksgiving

This weekend my girlfriend and I went down to Portland, Oregon to visit some friends. It is always nice getting away from all the hustle and bustle of Seattle and going somewhere different. Portland is a nice city that seems to be quite a bit smaller than Seattle, but is not lacking in any of the amenities of a larger city. One of the main draws for people to the Portland area is the fact that Oregon does not have a sales tax. According to Taxadmin.gov, there were only five states that had no sales tax as of 1/1/2007. Those states were: Alaska, Delaware, Montana, New Hampshire and Oregon.

The sales tax in Seattle is roughly 9%. When we go down to Portland, we like to take advantage of the fact that there is no sales tax. I got to thinking on the way down that there is probably a decent population that drives from Seattle to Portland and back in one day just for shopping. These people have no other reason to visit the city (ie: visiting friends/family, sightseeing etc.) They only make the trek to save some money. I started to think about how much money a person would need to spend in Portland so that their tax savings would equal what they spent on gas to get there.

The trip from Seattle to Portland is roughly 175 miles. This would make the round trip (175 x 2 = 350 miles). Let’s also assume that the car being used is fairly economical and gets 30 miles to the gallon and gas is $3.10 a gallon for regular (which it currently is in our neck of the woods). It would take the car (350 miles/30 mpg) 11.67 gallons of gas to make the whole trip. At $3.10/gallon, it would cost (11.67 x $3.10) $36.16 to make the trip. In order to save $36.16 in taxes, one would have to spend ($36.16/.09) $401.77. At this spending level, you would be no better off than shopping in Seattle. Anything spent over this amount, and your trip would be a success. If you spent any less than this amount, then it would actually cost you more to shop in this tax free environment. If you decided to carpool with a friend, then you would only have to spend half as much to break even.

Let’s take a look at a chart that shows how much you would need to spend based on the mileage of your car in order to break even.

Obviously, the worse the gas mileage, the more you would have to spend on goods to break even. Here is something else to think about. The lower the differential between tax rates, the more you would have to spend to break even. Lets go back to the 30 MPG example. Imagine if the tax rate in Seattle was only 6%. Here is how much you would have to spend. 350/30 = 11.67 gallons of gas x $3.10/gallon = $36.16 to make the trip. Now, we divide $36.06 by .06 rather than .09, and we get $601. With a change of only 3 percentage points, a consumer must spend almost 50% more to break even!

The lesson learned in this story is that although tax free purchases may sound good on the surface, you must spend a lot to make the trip worth it.

I have attached to this post a graph I created in Excel that shows how as MPGs decrease, one must increase their spending to make the tax free savings worth it.

Uncategorized fuel, fuel economy, gas, mgp, portland, Savings, seattle, shopping, taxes