Thursday, August 16, 2012

Home economics: Thermos vs. IRA

When you hear people talking about "investments", you probably expect to see words like "Roth" or "NASDAQ".  You probably don't expect words like "freezer" or "thermos".  And that's too bad, because active frugality gets a bum rap in the world of finance.

There are a lot of ways to be frugal that don't cost any money:  walking instead of driving.  Drinking tap water instead of soda.  Playing cards with friends instead of going to movies.

But some kinds of frugality involve shelling out dough.  Twenty years ago, I bought a sewing machine that I still use to mend clothes today.  Two years ago, we bought a chest freezer so we could bulk-purchase meat.  Five years ago, my sister bought solar panels for her California home.  Last year, when our old thermos broke, we bought a new thermos.  Different amounts of money, different payback times.  Are these good investments?

Let's take a look at the goofy little purchase:  that thermos.  Every morning as soon as our coffee is brewed, I pour the pot into the thermos and turn off the coffee maker.  If we didn't have a thermos, we'd leave the coffee maker on for an hour.  The little silver tag on the bottom of our coffee maker says (among other things) "1100W", meaning it uses about one thousand watts, or one kilowatt.  We pay about 15¢ per kilowatt hour, so if we didn't have the thermos, we'd pay an extra 15¢ each day for electricity.  Doesn't sound like much, I know, but multiply by 365 days, and that's $54.  The moral of the story: a $20 thermos pays for itself in less than half a year.

There's more.  If the thermos lasts 10 years, that initial $20 "investment" nets $520 ($540 in electric savings less the initial $20 investment).  That's a ten-year annual rate of return of 38%, something any stockbroker would die for.  And, unlike stocks, it's there's no risk (if by some miracle we stop drinking coffee or if electricity becomes magically free, we save even more on our electric bill).  Also, unlike stocks, this money doesn't get taxed.  Wins all around.

Another way to think of this is that, if I wanted to invest enough money in a savings account to earn $54/year (after taxes, etc), I'd have to figure out a way to fork over more than $800 today.   Once again, the thermos beats the stock market.

Unfortunately, there are few investments with the same bang-for-the-buck as our thermos.  Our freezer cost a lot more, and the payback time is longer, not to mention much more dependent on the vagaries of how we use it.   My sister's solar panels have been beating the market during the past 5 years, but that says more about our economic climate than the climate climate (so to speak).

There's also the truth that frugality has built-in upper limits.  I know for a fact I can't "invest" in my home in ways that allow me to save more than $700/year in electrical costs, because that's my current (heh) annual bill.  I can't save more on the electric bill than I already spend.  But someday, for retirement, I'm going to want to generate (oog-sorry) more money than $700/year.  Stocks and bonds are a crucial part of my financial long-term planning.

But so is my thermos.  And also my sewing machine.  Not to mention many of those other little (and big) purchases I've made to help me live a low-impact, frugal, and sustainable lifestyle.  I'd say "power to the people!", but I've turned the power off and bottled it all up in a sealed container.  Heh.


  1. I’ve so far stuck to this, though on certain mornings it’s been nothing short of miraculous that I’ve managed to stumble out the door with a mug in tote. However, I will also say that in this time span, I have spilled coffee in my car three times.

  2. I don't know what you mean by "thermos" (English is not my mother tongue) but if it's the metal container of hot water with an electric heater inside that keeps the setting temperature, I have something to say.
    These devices are not perfectly isolated, so they need to consume some energy from time to time to keep the setting temperature.
    I think you haven't considered that consumption in your calculus. It reduces the rentability of the "thermos".
    There are some cheap kwh-meters that you plug on the wall socket and then you plug your device ("thermos" or whatever) to its own socket, so the kwh-meter can total your device consumption in, let's say, 24 hours.
    There is also a loss of heat when the water pass through the plumbing to your tap. (I don't know how you make coffee, just guessing).
    All in all, and without calculus, I'd say that a coffee machine is a saving money device if you compares it against a "thermos" (although I don't know if we are speaking about the same thing). Also, you can buy an 'expresso' coffee machine that heats up in a couple of minutes. It works under pressure (~15 bar) and produces very high quality coffee. Costs about 60€ in my country.
    I agree about your analysis of rentability of household investments (if they are well thought) against the same amount in Dow Jones. Also, the main capital in DJ maybe never get back...

    1. Sorry, the word "thermos" comes from a company that makes these objects. It's not electric at all. A thermos is "a container (as a bottle or jar) with a vacuum between an inner and outer wall used to keep material and especially liquids either hot or cold for considerable periods". Just a sealed jar.

      I hadn't thought about whether the espresso machine uses less energy than our coffee pot; I do have a kwh meter, so I might check that out! --MM

    2. Ok, now I get your way of proceeding. Then, I don't think your coffee maker would be heating up the jar of coffee all the time (~1 hour). It has some kind of electric thermostat that switches off the heater when the coffee is warm. So, maybe 50% of time or more of that hour the resistance is off, saving some of those 54$.
      Good thing you have that kw-meter, so can experience what I mean. As well as the espresso machine, if you have one.
      Let us know!

    3. Also, mention that those thermos (I think that the word is an abbreviation of 'thermostat', meaning in greek 'heat keeper') are very fragile, so maybe your estimated 10 years of duration would be less. Of course, it also depends on how careful you (I'm sure very careful) and your family are.

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