Ways to Cut Wedding Costs

I’m getting married this year, and I couldn’t be more excited . . . about getting married, not necessarily about planning the wedding. The process can be stressful and overwhelming – the organization, details, responsibility, and not least of all, cost.

As a financial planner I’ve thought a lot about the cost of this important day. A quick Google search reveals that the average amount of money spent on a wedding in the United States is over $30,000. It’s not like the old days where fathers paid men a dowry to marry their daughters (thankfully). While both of our families are helping us on wedding cost, we still need to pony up quite a bit of cash on our own. I did not want to start off this next phase of my life in debt.

Through my planning I’ve come across a number of ways that people have saved money on their wedding. While I didn’t choose all of these options, I think they’re all worth considering.  If you know someone who’s planning on tying the knot soon, you may want to share these ideas with them: 

  • Cut the guest count.I’ve experienced night sweats on who to invite to my wedding. I wake up thinking: “They invited me;” “She’s my second cousin twice removed;” or “What about my best friend from kindergarten?” A recent survey by theknot.com shows that it costs over $200 per guest at a wedding. That’s right – over $30,000 for just 150 people! Try to limit your guest to friends, immediate family, grandparents, close aunts and uncles, and close cousins. People will understand you can’t invite everyone.
  • DIY.This isn’t for me, but it is for a lot of people. I’m not overly handy or creative, nor do I have the patience for doing anything myself on my big day. However, if you are that type of person, you should do as much as you can on your own. Try printing your own invites and save-the-dates cards. Research sites like Etsy to get ideas. Pick a creative family member to help decorate for your rehearsal dinner; have a girlfriend do your hair. Every little bit that you can do yourself (or others can do) will save hundreds or even thousands of dollars. Maybe a friend’s participation could be given in lieu of a gift.
  • Don’t be so traditional.More of my friends are not getting married on Saturday. In most cases they are moving to Friday and Sunday where wedding vendors and venues don’t charge the same premium as a Saturday wedding. Also, think lunch reception and maybe not a sit-down, four-course evening meal.  Or, you could just do a champagne toast and appetizers and cut out early for the honeymoon 😉.
  • Pick a season and stick with it.Try to purchase decorations, flowers, and food that are in season. If you are trying to get Birds of Paradise or sunflowers in the dead of winter, you will pay for it. You can save a lot by having a Christmas wedding because most venues are already decorated. Another option is to try for a spring wedding when everything outside is blooming. If you are planning your meal options, do a sautéed veggie option with items that are in season.
  • Bundle. Try bundling items to cut down cost. For example, instead of having a cake and party favors, maybe have a candy station for people to grab something on their way out the door. This way, you still have sweets and favors, but you’re cutting the expense down by really having one.  If you have something around the house that you can use as your guest book, do it! I’ve seen people use globes from a bookshelf to sign, as well as old corn hole boards that were painted with the wedding colors.
  • Keep it casual. Buffets may not give the same vibe as a plated meal, but it’s a lot cheaper. If you really don’t want people to wait in line for food, then try doing family style. This is a bit more expensive but doesn’t come with the extra cost of servers.
  • Hire a coordinator.  This goes against the DIY bullet, but you can save money in the long run. Most wedding planners have discounts and perks arranged with partners and vendors… but be wary and do your research before hiring someone to plan for you.
  • Do everything memorable early. Try to get the bouquet toss and cake cutting out of the way early. If you do everything memorable first thing, you can let your photographer and videographer leave early to cut down on their hourly time. Your guests will continue to snap pictures throughout the night.
  • Buy someone else’s wedding. This may sounds crazy, but sadly, many people cancel their wedding every day. Most deposits are already put down and can’t be returned. Decorations have been bought, and gifts have been purchased.  Check out http://www.bridalbrokerage.com/to purchase someone else’s unfulfilled day.

Finally, the number one way to save money… ELOPE! Have a quick wedding, a potluck in the backyard, good conversation and s’mores by the fire, and call it a good day!

Good luck on planning your special day!

Ashley Woodring, CFP®
Financial Advisor

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THE GREEK MESS WON’T HURT THE US ECONOMY

The International Monetary Fund (IMF) has performed a valuable public service by publishing a detailed “Debt Sustainability Analysis” for Greece on July 2. While this document is written in typically dry “bureaucratese,” it lays bare the failure of the strategy of “kicking the can down the road” that the other Euro Zone countries have been using with Greece for the past five years.

Dr. Carl Weinberg is Chief Economist at High Frequency Economics and a veteran of the mostly successful Brady Plan debt restructuring program of 1989-1992. Those negotiations took debt loads that were impossible and restructured them, in a manner similar to the way failing corporations are restructured in the US. Brady Plan deals were worked out for Argentina, Brazil, Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Ivory Coast, Jordan, Mexico (the first one in 1989-1990), Nigeria, Panama, Peru, the Philippines, Poland, Russia, Uruguay, Venezuela and Vietnam.

Dr. Weinberg suggests that the €323 billion ($358.3 billion) Greek debt be restructured into bonds with a maturity of 100 years, a coupon (interest) rate of 5.0 percent and a 25-year grace period before the first payment is due. This would give Greece “breathing room” and would keep all its creditors (primarily the European Central Bank (ECB), the European Financial Stability Facility (EFSF) and the IMF) from having to take a “haircut” on their holdings of Greek debt.

Not very surprisingly, the IMF analysis does not go this far. However, it rather drily suggests that extending the grace period to 20 years and the amortization period to 40 years (an effective doubling of each) together with new financing, would barely be adequate.

Greek voters went to the polls on July 5 in a hastily arranged referendum to vote “yes” or “no” on accepting terms from the creditors that were withdrawn on June 30. Thus, it’s not really clear what they were voting on. The wording in the ballot was also very confusing. It read: “Should the draft agreement submitted by the EC, ECB, IMF to the eurogroup on June 25, which consists of two parts that make up their full proposals, be accepted? The first document is titled, ‘Reforms for the Completion of the Current Program and Beyond’ and the second ‘Preliminary Debt Sustainability Analysis.’”

Despite that convoluted wording (it can’t possibly be any clearer in Greek), the 62.5 percent of voters who turned out gave a victory by a 61.3-38.7 percent margin to all those wishful thinking people who believe that reality won’t triumph. Greece is being kept afloat by the ECB. If they stop doing that, the banks will all be bankrupt. No one knows where this disaster will go.

Now the creditors need to follow the IMF recommendations, which include another €60 billion ($66.5 billion) of new money through 2018. This is in addition to the restructuring of all the existing debt.

Like so many economic problems in the world, the Greek mess will be finally resolved when there are no other options. If Greece were to leave the Euro Zone (a terribly complicated exercise), it would be hit with horrendous inflation and an even bigger collapse of the economy that the 25.0 percent decline it has already experienced since 2009.

Greece needs debt relief. It also needs to reform its ridiculous pension system to conform to those of the rest of the Euro Zone and figure out ways to collect taxes that are owed.

The Greek economy is about $200 billion a year in real GDP. That’s close to Alabama ($199.4 billion in 2014) or Oregon ($215.7 billion). Both are 1.2 percent of the US total.

A failure to follow something like the prescriptions of the IMF or Dr. Weinberg will condemn the Euro Zone to remain mired in a recession that began in the first quarter of 2008. Some people would argue that a recession lasting that long ought better be called a depression.

Either way, whatever happens to Greece is mainly a problem for the Euro Zone. It is simply too small an economy to have a major impact on the US. Most of whatever impact there might be would come through damage done to overall Euro Zone growth, rather than directly from Greece itself.

Dr.  James F. Smith, Chief Economist.

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The Pitfalls of Maximizing Shareholder Value

According to Ibbotson data, the US stock market has delivered a 10.1% annualized return from 1926 to 2014. I mention this data, which includes two significant market corrections, because the numbers speak for themselves. The US entrepreneurial spirit, along with a vibrant capital markets system, is alive and well. We see this today in the slew of new technology startups, healthy corporate profits even in the face of a strong dollar, and record foreign investments in US companies. That being said, there’s something I believe investors have gotten wrong, and that’s the virtually unquestioned tenet that a company’s main responsibility is to maximize shareholder value.

This seemingly obvious truth is surprisingly, a new idea, conjured up in the early 1970’s by economist Milton Friedman who wrote a scathing rebuke of corporate social responsibility in an op-ed piece for the New York Times Magazine. Shortly thereafter, two business school professors ran with the notion and published multiple journal articles extolling the virtues of maximizing shareholder profits. The idea stuck and today most in the financial industry agree that this is the primary, if not only, responsibility of a corporation.

Perhaps because I started out as a high school science teacher, followed by a stint at a local zoo, I came to my first financial position at an institutional money management firm with a slightly different perspective. My first year as a stock analyst was confusing. I quickly learned that companies reported two sets of financial data, one based on GAAP or Generally Accepted Accounting Principles, and another set called “pro forma” that excluded a lot of recurring “one-time” expenses. Then I realized that while my Chartered Financial Analyst (CFA) studies helped me gauge the health of a company and its growth prospects (among other things), it became clear that the stock market game had more to do with beating Wall Street’s expectations for the upcoming quarter.

What was going on? Roger Martin in his book titled “Fixing the Game” suggests that a misguided focus on maximizing shareholder returns is incenting companies to boost earnings per share in the near-term at the cost of important, and often uncomfortable, investment decisions for the long-term. He notes that executive compensation is now more closely tied to stock and earnings per share (EPS) performance than ever before. This might be one reason why companies in the S&P 500 Index bought back shares at almost record levels in 2014. While reducing a company’s share-count provides a short-term boost to EPS growth, it leaves less cash on a company’s balance sheet for the critical business investments needed to drive shareholder value for the long-term.

So if maximizing shareholder value is not what company management teams should focus on, then what is? As with most pursuits in life, I find that fixating on a certain result often ends badly. No one can know the future, let alone deliver a certain outcome in perpetuity. Sure we can do it here and there in the short run, but in the grand scheme of things, our jobs – as individuals and companies – is to serve our clients and our communities. I believe that when companies focus on their customers, their employees, and their vision for the future, they are much more likely to maximize shareholder value – with the added benefit of contributing to society along the way. But when management teams and investors alike focus on profits for the sake of profits, the whole system becomes twisted and warped. We’re seeing this today in the rampant short-termism on Wall Street, outsized executive compensation packages, and subpar business investment levels – the lifeblood of our economy and capital markets.

While all this may sound discouraging, the good news is that more and more well-regarded financial professionals – among them, Warren Buffet, Jack Welch, and Blackrock’s CEO, Laurence Fin – are speaking up. One of our industry’s leading organizations, the CFA Institute, hosted a distinguished investment professional at its latest annual event whose presentation was called, “Shareholder Value Maximization: The World’s Dumbest Idea?” His research found that companies that focused on responsibility to customers, employees, and communities tended to outperform those that did not. All this to say that investors are starting to wake up the outdated and erroneous notion that corporations exist only to maximize shareholder value. We’re finally starting to put the cart back behind the horse, where it belongs.

Carrie A. Tallman, CFA
Director of Research

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Starting on the Right Foot

In the spirit of college graduation season, as Milliennials contemplate their careers and financial futures, I thought I’d share a bit of perspective that’s helped me find career contentment and at the same time, put me on a course towards financial independence. While those of you who recently earned your bachelor’s degree (congrats!) may feel pressure to find your life’s calling, as society often tells you you should, I would suggest a different approach. Instead of trying to figure out your purpose or your true career calling, I advocate a low-pressure alternative; something I call “following your thread.” More on that in a bit. In addition to focusing on your career, which is admittedly very important, I would recommend giving some attention to your finances at this point in your life. Even if your income is paltry, carving out just a small amount of time and energy in this area will pay off in spades.

As it turns out, identifying a single line of work that will lead to perfect career bliss is a tall order. As a young college student I didn’t have that hindsight. Had I known to pay attention to the classes that really interested me and followed that thread, I might have arrived at career contentment sooner. While I’m finally happy in my financial vocation, the point is that few of us discover our life’s passion in college. For the rest of us, learning to identify important career sign posts, setting ourselves up for financial success, and tuning into our intuition are much more useful.

My advice to those of you just starting off is to start tuning-in exactly where you are. If you’ve landed your first job, congrats! Now is time to dive into your work and also pay attention to what energizes you and what drags you down. I call this “following your thread”. Move towards tasks that interest and energize you and over time, reduce those duties that sap your energy. While any job will often have some unpleasant assignments, moving towards a better work mix will ultimately lead to greater career satisfaction.

Once you get the hang of following your thread – and it is a life-long process – making a commitment to excellence will take you to the next level. This may sound like a tall order, but I’ve found that it’s not my job that gives me meaning but it’s the meaning I bring to my job that matters. Granted, we’ll fail often (I do regularly), but a commitment to excellence imbues our work and everything we do with meaning and value. This flips the notion that career bliss comes from finding our passion or figuring out what we want to be when we grow up. It seems that working with what’s right in front of us at our current job, digging in, and brining our passion and commitment to our current task is actually what brings lasting career contentment, which overtime should pay off in financial rewards.

And last, but not least, I believe that setting yourself up for financial success is the bedrock of a bright future. Without stable financial footing, including saving regularly for retirement, money stress can hang over the happiest of careers and lives. A stable financial situation can free up your innate creativity, which then helps open you up to new opportunities. It’s a virtuous cycle that paves the way for a rewarding and meaningful life. Where to begin? Start small and simply. Track your expenses and set a reasonable budget that allows you to save a regular amount monthly, but with wiggle room to still have fun with friends and family. The power of compound returns will grow your money significantly over time and can better help you weather market and career downturns. Financial education is key and there are plenty of great financial planning books out there. If you’re not a do-it-yourself-er, consider contacting a fee-only independent financial planner who can help get your started.

Wishing you a bright and fruitful future!

Carrie A. Tallman, CFA
Director of Research

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Using Brief Everyday Moments to Teach Kids about Money

More than once my nine year old daughter has asked “Why don’t you quit your job so you can be home more?” After I remove the knife from my heart, I tell her that we would not be able to afford to live in our house if I didn’t have a job. “Daddy could get a job,” she says. After my stay-at-home husband removes the knife from his heart, he tells her that my job pays more than a job that he could get. These are the few and small lessons we teach our kids about money. I hope they’re enough.

As a working mother with three small kids, and a busy stay-at-home dad, there’s not a lot of time for my husband and I to have protracted discussions with our kids about money. We want to teach our children how to work hard, spend wisely, and value the things they have. But with so little time, I find myself having far fewer conversations about the money than I thought I would before I had kids. I also thought I would never let them eat in the car, but you know how that goes.

Because my time, focus, and patience are so limited, I try to model behavior in my daily actions and conversations. When the kids ask why we can’t have something or do something that is not in our budget, we explain that we have to make priorities about how we spend our money. If we buy that toy, then that would be one less pair of pants we could buy, and you need a certain amount pants for school. Recently, my daughter overheard the grocery store clerk tell my husband how much the groceries were. “One hundred and fifty-three dollars!?” She was shocked. He explained that yes, it was crazy expensive, we were lucky to be able to afford it, not everyone can, and that’s why it drives us nuts when she doesn’t eat the edges of her sandwich. It’s like leaving a dollar on your plate!

My daughter has asked us to pay her money for chores around the house. When it comes to allowance, each family must decide what works best for them. We have decided not to pay allowances or to pay for chores. I explain that it is her job to help out in the house. As a family, we all have a duty to make the household run better. She puts the dishes in the dishwasher every night because she is part of the family. I do, however, pay her to “babysit” my two year old sometimes when I have a household chore that I have to tend to, and I need someone to distract my toddler. I tell her that as the mom, it’s my job to watch the baby, but she can earn some money by helping me with my job. I distinguish between her household duty as a member of the family, and an extra job to help me out with my job. In doing this, I hope it helps her to grow up not feeling entitled, with a strong work ethic, and the knowledge that in life, you just have to work. That’s the deal.

We also try to scale down Christmas and birthdays. I believe that if I only ever gave the kids two gifts for Christmas they’d be just as excited as if I gave them ten. But once they expect ten, they are let down at two. I’ve tried very hard each year to keep it minimal. Unfortunately, that may be a battle I’m losing, because it becomes uncomfortable when grandparents lavish more gifts than Santa Claus. What’s a Santa Claus to do?

Parents, your time is limited and you are exhausted. But you don’t have to summon loads of energy to teach your kids about money, just show them with your everyday actions and conversations. As parents, we have to work hard, spend wisely and value what we have. We have to be vocal about it with our kids. Let’s hope they get the message, because I don’t have time for a bigger discussion on the matter – I have to leave right now to get to my six year-old’s soccer game.

Harli Palme, CFA, CFP®
Partner

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The “Who” of Earning More

While we’ve all read the articles about the gender pay-gap in the US, I’d like to discuss why it’s important that women start earning more and provide one perspective on how we can go about doing that.

First I’d like to mention that despite earning more college degrees than men, and now, more advanced college degrees, women still make on average 27% less than their male counterparts. That’s a glaring disconnect and it’s significant considering that most women outlive men by roughly five years in the U.S. We’re also the sole or primary source of income for 40% of households with children. That’s up from only 11% in 1960. Thus, a higher income in our working years is crucial if we want to adequately provide for both our children’s and our futures.

While it’s clear the female gender has the intelligence and discipline to master higher education, what isn’t clear is why we don’t reach the same levels of success in the workplace. I can’t claim to know the answer for all women, but I can speak from my own experience. As the first of my sisters to go to college I had little guidance. Fortunately, once I learned the system, established good study habits, and got clear about why I wanted a degree, I started to excel. In college, succeeding meant knowing the material, acing tests, and generally holding myself accountable. I didn’t necessarily need strong interpersonal skills or external confidence. I simply needed to know the subject matter and master tests and assignments.

My first job in finance was a very different experience. In comparison to school, the working world – particularly in the male-dominated world of finance – was much more about confidence, speaking up, and did I mention confidence? Yes, intelligence and a job well-done were important, but I noticed that those who had the confidence to take on challenging projects, talk to the executives with ease, and court clients with swagger seemed to get ahead. Interestingly, I had this confidence outside of work, but in the office my voice cracked, my brain froze up at inopportune times, and my words were often awkward. It was doubly painful to watch myself make blunder upon blunder, all the while knowing that in other environments I was relaxed, confident, capable – in a word, myself. What was happening? Where did I go?

It’s been twelve years since landing my first financial job and since that time my confidence has grown. I believe the biggest contributors to bridging the gap between the outside-work me and the at-work me were awareness, compassion, and trust. Although at times I felt insecure, incapable, and frustrated on the job in those early years, having awareness of the confident, capable version of myself was an important touchstone in the office. It allowed me to notice what triggered my nerves or caused my thoughts to freeze up, instead of believing that that was who I was. With awareness, I could proactively prepare for those moments, give myself a break when I did have a blunder, and trust that in time, I would grow more confident. It wasn’t always easy, but having an image of who I wanted to be at the office spurred me on. So did identifying role models at work, both male and female, and reaching out to those people. Knowing where I wanted to go, what that looked like, and most importantly, who I wanted to be at work were my guideposts.

There were certainly bumps along the way, including raises that were not granted, wrong career turns, and staying in some positions for too long. Despite the setbacks and challenges, I remained focused on my “who” at work and had a willingness, and perhaps a penchant for embarrassing blunders. Money was important to me, and although I aspired to grow my income, it wasn’t my main focus. Surprisingly, my commitment to being more myself and a willingness to work with new, uncomfortable situations had the happy side-effect of promotions and pay raises.

Money is important. Considering that we women often outlive men and are shouldering more and more responsibility for our dependents and ourselves, it’s even more important. The good news is that while money is not always our first priority, from my experience, it doesn’t have to be. A commitment to being more fully ourselves in any environment and a willingness to stretch ourselves with uncomfortable, yet meaningful challenges frequently has the happy side-effect of higher earnings.

Regardless, becoming more fully ourselves brings with it the capacity to weather any financial situation and is, in the end, its own reward.

Carrie Tallman, CFA

Director of Research

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GREAT NEWS ON INCOMES, SPENDING AND INFLATION

The Bureau of Economic Analysis (BEA) hit a trifecta in its March 2 release, “Personal Income and Outlays: January 2015.” As the chart below shows, the first piece of wonderful news was that real disposable personal income (DPI), which is what you have left of your income after taxes and inflation, hit a new record in January of $12.246 trillion at a seasonally adjusted annual rate. That finally eclipsed the old record of $12.214 trillion at a seasonally adjusted annual rate set in December 2012. That old record was an unsustainable outlier at the time, which was caused by many people who had the ability to bring income such as bonuses and special dividends forward to avoid the higher tax rates of 2013, doing exactly that.

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Conversely, the January 2015 record was driven by a seasonally adjusted increase of $42.4 billion in wage and salary income from December. That accounted for a very healthy 83.5 percent of the total increase in personal income of $50.8 billion, seasonally adjusted. That strong performance of wages and salaries suggests that, driven by ever-growing employment, disposable personal income will set many more records in 2015 and 2016.

Even more astonishingly, real disposable personal income rose by 0.9 percent in January from December. That was the biggest increase since—you guessed it—the 2.84 percent spurt in December 2012, which was on top of a very strong increase of 1.44 percent in November 2012. Of course, real DPI plunged by 5.9 percent in January 2013, the biggest drop in over 50 years. That is most unlikely to occur this time, as we will see when we get the data for February 2015 on March 30.

This 0.9 percent increase in real DPI in January is even more amazing, because January wages and salaries are hit every year by increases in Social Security taxes on both employees and employers. Every employed person who exceeded the $117,000 taxable maximum in 2014 before December 31 had to start paying again on January 1. This year the tax covers wages and salaries up to $118,500. That change subtracted an additional $7.9 billion in January.

Note the phenomenal growth in real DPI in the previous chart. It is now six times higher than in 1959, triple the 1973-1975 level and double where it was in 1987-1988. It’s up more than 20 percent since 2009. Most countries would be delighted to have such terrific growth in DPI over comparable periods.

The second piece of great news in the report was the fact that real personal consumption expenditures (PCE) set a new record in January of $11.164 trillion at a seasonally adjusted annual rate, as shown in the following chart. That was up 0.3 percent from December and a very impressive 3.4 percent from January 2014. Because real PCE makes up by far the largest share of real GDP (68.2 percent in 2014), this strong beginning to 2015 reinforces the consensus forecast that this will be the first year since 2005 to see real GDP growth of 3.0 percent or more.

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The third piece of wonderful news was the continued low rate of increase of so-called “core” inflation, the implicit price deflator for PCE less food and energy. The chart below shows how this measure rose in the late 1970s and early 1980s hitting a peak of 4.02 percent in January 1981. It is probably not a coincidence that that was the month when President Reagan took office, as his first official act was to deregulate oil prices. While both energy and food are excluded from this index, the impact of that decision had far-ranging consequences in reducing inflation.

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The overall PCE deflator fell 0.5 percent in January from December and was only 0.2 percent above January 2014. That was primarily because “Energy goods and services” registered price declines of 10.4 percent in January from December, and fell a whopping 21.2 percent from January 2014.

This very small increase in the overall PCE deflator made a big contribution to the 0.9 percent jump in real DPI. The rest came from the large increases in nominal income.

This BEA report is one of the best ones we’ve had in many years. It should be followed by much more good news on income and spending by consumers in coming months.

Dr. James F. Smith
Chief Economist

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Living Healthier – Better for your Wallet, Not Just your Waistline.

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A couple of years ago I made a significant lifestyle change. After gaining post-college weight, I realized that the carefree metabolism of a 20-year old went out the window at 21. I made the decision to stop eating unhealthy food and develop a workout regimen that I could stick to. At first I worried that I couldn’t afford to live “healthy.” I believe that this is a normal and reasonable reaction. $120 for a gym membership? WHAT! $10 for organic breakfast? HUH? Thankfully, what I realized was that I was incorrect to think that “healthy lifestyles” and “expensive lifestyles” were synonymous. I actually saved money! Here are just a few ways that you can get healthy, save a dollar or two, slim down and be happier.

  1. Get rid of your expensive bad habits:
  • Do you pay $10 a day for a double pump, venti, skinny, salted caramel mocha frappuccino? Stop it! First, whoever told you that this was “skinny” was lying to you. Second, these things add up. What bad habits do you have? Is it the lunch time soda? The mid-afternoon candy bar from the vending machine? The two packs of cigarettes a day? Once you write down your vices, tabulate them to see how much those bad habits cost over a week, a month, a year, a lifetime.
  • Example: A pack of cigarettes in North Carolina costs $4.45. You could spend more than $49,662 on smoking a pack a day for 30 years. According to the American Cancer Society, each pack of cigarettes on average will cost you $35.00 in health care costs. That’s $383,250 in health care costs due to smoking for 30 years. Is it worth it?
Vice Per day Per 30 Years 30 Yr Health Cost Total 30 Yr Cost
Cigarettes $4.45 $49,662 $383,250 $432,912

 

  1. Reduce your medical bill:
  • It’s impossible to ignore the fact that eating healthy and exercising can reduce visits to the doctor. There are a plethora of studies out there that prove a healthier diet can reduce your risk of heart disease, lower your cholesterol, reduce stress on joints from excess weight, etc. To give you a personal example, I have always had trouble with stress management. I’m a worrier (#shegetsitfromhermama). Since I was a child I have racked up numerous medical bills related to anxiety, including medications, sleep studies and doctor visits. Had I known much earlier that by slapping on a pair of running shoes and going for a jog, I could eliminate a lot of my stress, I would have saved myself and my parents a lot of money. Running is a much more affordable way to blow off steam than medication. With my routine, I was able to ditch the expensive medications and doctors’ visits.
  1. Waste not:
  • I’m marrying a Dutchman soon… literally. One thing I learned from him and his Dutch family is to waste nothing and use everything. When I first started dating Chris I couldn’t understand how he would eat 2-3 times more food than I did and spend 2-3 times less money than I did. The answer simply was he didn’t waste anything. Now, this was a bit harder for me to do. Chris could sit down and eat hummus with a spoon, but if I didn’t have crackers to eat the hummus I’d let it sit there, go bad, and then I’d throw it out. So how did I fix this little problem and save hundreds of dollars doing it? Planning! How did I shed some pounds? Planning! Sit down at the beginning of the week and plan out all your meals. When you plan ahead of time you’re more likely to make healthier choices. You also are less likely to go out and eat when you have already planned, purchased and prepped your healthy food choices. Once you realize the savings potential you start using the “waste not” mentality in other facets of your life.
  • Tip: when planning your meals ahead of time, leave yourself a day to go out and splurge. Without the occasional “cheat” you may go crazy and give up.
  1. Cut on transportation cost:
  • Now this isn’t possible for everyone, but for a lot of people you can quickly save some money, cut cost and your waistline by switching up your transportation methods. Bike and walk to work. Is there a train nearby? Then walk to the train rather than driving to your office. If you are eating out for lunch, pick a restaurant that you don’t have to drive to. A lot of people say that the time spent walking is a great way to meditate, and reflect on their day. This can offer a peace of mind that can’t be achieved with the stresses of the road.
  1. Create healthy family outings:
  • Skip the $30 movie, popcorn, and 2 hours of inactivity and do something active with your family. Spend $15 on a soccer ball and go to the park on Sunday afternoon. Take the dog on a hike or a walk. This brings up another point… working out and being active is always more rewarding and sustainable when you have a support group or community of people that you workout with. If healthy outings cannot be accomplished with busy family members, then join a running club, a biking group or a community gym.

I could write an entire blog series on ways to be healthier and save money… but the key is to start small! Pick an area that needs improvement in your life and manage it. Use the momentum of a small change to snowball into an entire lifestyle change. Fatten up that wallet by trimming up the love handles!

Ashley Woodring, CFP®

Financial Advisor

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Why Not Use Margin?

Recent data indicate that margin debt has increased significantly over the past 12 years, although it is currently below the peak levels seen in 2000 and early 2014.

Margin is a feature that you can add to a taxable (non-IRA) brokerage account that enables you to borrow money against the value of your investments in the account. Initial margin, or the amount that you can borrow, is generally 50% of the value of the account. On a $100,000 account, you could borrow up to $50,000. The money can be used to buy more investments, or it can be taken out of the account and used for some other purpose.

Say you have an account that contains $100,000 in stocks. You write a check for $50,000 to purchase a new car. You still have stocks worth $100,000 in the account, but you owe the brokerage firm $50,000. Your net equity in the account is $50,000 (the $100,000 market value of your investments minus the $50,000 you owe).

Maintenance margin is the level of net equity which must be maintained in the account. If the equity in the account falls below this level, usually 30% of the account value, then a deposit must be made to the account or investments will be sold to reduce the margin loan balance.

Say the stock market experiences a correction and falls 15%. Your $100,000 in stocks are now worth $85,000. However, you still owe $50,000 to the broker. Your equity in the account is $35,000, or 41%. If the stock market continues to decline and your equity falls below 30%, some or all of your investments will be liquidated by the broker to reduce your margin loan. This is not good timing because you are being forced to sell stocks when they are down.

There are several other disadvantages to borrowing on margin that investors should be aware of. Interest rates are high; particularly when you consider that the lender is fully secured. Currently, the interest rates at major custodians are in the 5.5%-8% range, depending on the amount borrowed. Also, the interest rates are floating, so there is no protection against rising rates. Tax deductibility of margin interest is complex and more restrictive than other interest deductions such as on your home mortgage.

Using margin always increases your portfolio risk, particularly if you use the proceeds to buy more stock. Let’s go back to the previous example of the $100,000 account, but this time you take a $50,000 margin loan and use it to increase your stock holdings. You now have $150,000 in stock and owe the broker $50,000. Your net equity is $100,000. Say the stock market falls 20%; your stocks are now worth $120,000. You still owe $50,000 to the broker, and you’ve lost 20% of 150,000 instead of 20% of 100,000. In other words you have a $30,000 loss instead of a $20,000 loss. You’ve lost 30% of your initial $100,000 on a 20% market decline. Your loss was 1.5 times that of the overall market, plus you paid interest on the margin loan. Not a good outcome.

There are some situations where margin can be appropriate, say for short- term needs where the amount borrowed is a small percentage of the account value. We generally advise against using margin on a longer term basis.

Bill Hansen, CFA

Managing Partner

Bill

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Gift Stock Yields Better Returns Than Gift Checks

 This article was originally published on NerdWallet.com

When thinking of giving a gift, most people immediately consider writing a check, giving a gift card to a favorite restaurant, or ordering something online.

However, from a financial planning perspective, this is a very inefficient method of giving. Unfortunately, the method that gets you the biggest bang for your buck is usually the most complex, impersonal and inconvenient, as is often the case in financial planning.

Let’s take a look at a few ways to get a little more “bang for your buck” with a gift.

Consider what the alternatives to giving cash might be. It is pretty hard to think of ways to give a gift without using cash.

One way to do so is to gift stock, preferably appreciated stock. It is very common for the individual giving (grantor) to be in a higher tax bracket than the individual receiving the gift (grantee). For this reason, the grantor is able to give more to the grantee because they don’t have to sell the stock, pay the taxes, then give the cash. To make the situation even better, the grantee may not even have to pay taxes when they sell the stock, if they are in the 0% to 15% tax bracket. This isn’t your traditional heart-warming gift from Grandmother, but the tax savings sure are heart-warming to me.

Another play on the same technique is to gift appreciated stock to young children in a custodial account. This allows either the grantor or a parent to act as a custodian over the account until the child reaches age 18 or 21, depending on state law. Appreciated stock can be directed into this account and sold over time with minimal tax consequences. However, you have to be aware of the “Kiddie Tax” for unearned income over $2,000 attributed to the child. Any amount over $2,000 is then taxed at the parents’ highest tax bracket! To extend this gifting strategy, cash produced by dividends and sales from this account can be transferred to a 529 savings plan in the name of the beneficiary. Just don’t forget to give the child something useful or fun at the same time.

Although these techniques are not as easy and straightforward as writing that check, there are some significant tax savings available for those who choose to use them. For individuals who are trying to play catch up on funding 529 plans or gifting to children or grandchildren, the annual gifting limit is $14,000 per year per person for 2014 and 2015.

Daniel Johnson, III CFP®

Financial Advisor

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