September 24, 2013

My Uncle’s Living Expenses

Credit: Stuart Miles
Throughout the course of my blog, I have frequently suggested that you take the time to gather some data and take a good, hard look at the sources of your living expenses. The results of such an exercise might be shocking, concerning, enlightening, comforting, or something in-between. Whatever the results, today I thought we’d practice this exercise together as we take a look at my uncle’s living expenses.

Looking at the chart below, you can see that my uncle spends a significant amount of his money in several categories. Now all these numbers are rough, but it looks like around 21% goes to medical expenses, 20% goes toward paying off a note payable (he owes some people some money they gave him a long time ago), and 20% goes toward his security system. I can’t believe more than 60% of his expenses are allocated just to those three categories! Continuing on, I can see that he has some sort of debt, since he spends 6% of his total yearly expenses on interest payments. He also gives around 13% to charities or to people less fortunate than he is, so I guess that’s nice. He’s only spending 3% of his total expenditures on transportation, and only 2% on education. That seems a little low to me, but what do I know? Finally, I guess the other 15% is all meshed together into other, smaller categories of living expenses.

Now be nice to my uncle because I really do think he means well, but I also think he could benefit from looking at the sources of his living expenses as a whole a little more often. When I break down someone's living expenses like this I try to help them figure out where their money is going if they aren’t sure, I try to help them figure out where they can cut back if they need to cut back, and I try to figure out ways to improve their overall financial standing by addressing specific expense categories such as my uncle’s interest payments. As you might imagine, this process can be personal and painful, but it can also be eye-opening.

So if you were my uncle’s financial planner and you knew he was spending too much, what would you advise? Would you solely go after his debt? Would you tell him to cut back on his giving to charity? Would you have him try to cut back on his enormous medical, note payable, and security system expenses? I’m serious, what would you do?

By now, I hope you know I would never share my uncle’s financial information with you or anyone else I am not authorized to speak with. After all, always keeping my clients’ personal and financial information strictly confidential is part of my job. That being said, I was able to share the details of my uncle’s expenditures with you today because you’re related to him, too, and his expenses are a matter of public record. In other words, he’s my uncle, he's your uncle - he’s our Uncle Sam!

I don’t want to wade into the ballyhooing of politics, but I do think some of you might find the pie graph above a little more interesting now that you know it was from a CNN report covering the United States government’s 2011 fiscal year. Switch out my uncle’s “medical expenses” for Medicare, Medicaid, and some children’s health insurance programs, my uncle’s “note payable” for Social Security, my uncle's "security system" for defense spending and international assistance, and my uncle's "charity" for safety net programs, and our government’s living expense picture should become a little more clear. It could just be me, but I imagine clamoring for more military spending or more health insurance versus spending more on education, for example, might give people pause when they look at the government’s federal budget as a whole, and keep them from getting so caught up in an impassioned speech or a fiery, late afternoon news show.

You may have caught on to my ploy from the very beginning, but I hope some of you are a little surprised and maybe even flabbergasted. Sure, take a look at Uncle Sam’s spending and reflect quietly on the sources of expenditures for our country if you’ve never done that before, but let me reiterate that the main purpose of this post was to demonstrate to you the true value and potential impact that looking at your living expenses as whole can offer.

I don’t claim to always have the answers for your budget, and certainly not Uncle Sam’s, but if you take the time to figure out the sources of your living expenses and look at their relative percentages, I bet we could get off to a really good start!


September 17, 2013

This Diamond Ring

Credit: David Castillo Dominici
Over the last two years, a number of people have asked me to devote a blog post to engagement rings. As you know, I’m happy trying to help with any financial question, but to be honest, I’ve always shied away from this request. I’ve known what I wanted to write for a while, but I’ve been hesitant to put pen to paper because I have friends and family members with all sorts of different rings and rocks, and I didn’t want to make anyone mad with any of my candor. Well last weekend, my wife told me she could hear something when she shook her left hand, and when we took a close look, we quickly realized her ring’s center stone was loose! If that’s not a sign, I don’t know what is. It’s time to talk diamond rings.

I have a couple of thoughts to share, but I know what you really want to know: How much should you spend on an engagement ring? Some people and jewelers will tell you two months’ salary. Some will tell you three months’ salary. I’d tell you it depends. It depends on the girl’s style and her expectations if you’ve talked about it together. It depends on your salary and whether you are a corporate lawyer or an animal balloon maker. It depends on what you (and your bride-to-be) can afford after you consider any upcoming housing needs, wedding expenses, and honeymoon expenses, in addition to the financial pressure of any other debt you may already be facing. The average diamond engagement ring costs between $3,500 and $5,000 depending on which study you go with, but personally, I think that statistic is meaningless. I know plenty of girls with engagement rings that were below-average in cost who have, as best I can tell, above-average marriages. I also know plenty of people with above-average cost engagement rings who have below-average or even failed marriages. I’m not trying to step on any toes, but I am pretty convinced that the color, cut, clarity, and carat size of the diamond ring you decide to go with shouldn’t influence the answer to the popped question. If it does, Houston, you’ve got a problem, and it’s probably not the ring.

You should also consider the ring’s future costs when choosing a jeweler. Does your jeweler have a warranty or a lifetime guarantee on your purchase? Is maintenance, polishing, re-sizing, and re-dipping (if you have white gold) covered? How much does it cost to, let's say, re-tighten a center stone? All of these things are worth considering, and you should ask your jeweler about them before you become married to a particular ring. I know these considerations may not be enough to change your selection, but if it’s a tie between a jeweler with great customer service and a lifetime guarantee and a jeweler who’s going to charge you every time you and your bride come in, you can probably guess who I’d recommend you go with.

Finally, you may think I’m crazy, but I would strongly suggest adding a small rider on your renter’s or homeowner’s insurance policy specifically covering your engagement ring and any other valuable jewelry you may have. I say this because I know people who have had to dive into pools to recover a lost ring or even secretly replace a lost ring. I even know one person who decided to go through a Porta-John to retrieve an engagement ring that was lost at a most inconvenient time. Seriously though, for a small amount per year, you can have the added security of knowing that if your diamond ring is stolen (or with some policy coverages, lost) it can be replaced without you having to fork out a hefty, unexpected amount of cash. My wife and I were both unhappy that her center stone had become a little loose, but my reaction was much calmer knowing we had the proper insurance in place for one of our most valuable and sentimental possessions.

As Gary Lewis and the Playboys so eloquently put it, “A diamond ring can mean something beautiful. A diamond ring can mean dreams that are coming true. So if you’ve got someone whose love is true, let it shine for you.”


September 10, 2013

Prudent Presents

Credit: phanlop88
Remember when you were a kid and you’d wake up on Christmas morning and excitedly run down the stairs or hallway to see what Santa Claus had left behind? Think about the excitement you felt the year you got that long-awaited and coveted basketball goal, dollhouse, or bicycle. Don’t get me wrong, I do believe it is more blessed to give than receive, but let’s be honest; there is probably at least one occasion you can think of where you received a gift that was pretty, epically awesome.

Fast forward to now. Batman and Teenage Mutant Ninja Turtle figurines don’t quite mean to me what they used to, and for me at least, I’ve seriously got enough clothes. I’m still genuinely appreciative and always happy with any gift I receive for any occasion (well, most of the time…), but somehow, receiving presents usually isn’t quite the same as it was when I was a kid. Occasionally though, a moment like those times from childhood Christmases and birthdays of yesteryear repeats, and a glorious gift breaks through. Based on some recent conversations I’ve had with a few friends and co-workers, I’ve concluded that glorious, break-through gifts don’t have to be expensive, and quite frequently, are less expensive than standard gifts. What if on the next occasion you gave…
  • For a Wife’s Birthday: An IOU - Cook her dinner, fix her breakfast in bed, or take her to a chick-flick and promise not to complain. The list of possibilities is endless, and she can look forward to cashing in when she wants to.
  • For a Wife’s Anniversary: A couple’s massage - I wouldn’t have been caught dead getting one of these until a few years ago, but look for a coupon, go for a basic treatment offer, and enjoy the rain forest and ocean waves sounds. It's still a gift for her, but it's not too bad for you either!
  • For a Wife’s Christmas: Flowers for a year - I’m not talking about three dozen roses every day, but what about a $9.99 bouquet every month?
  • For a Husband’s Birthday: Cheap tickets to a sporting event - There’s no shame in being in the upper deck and watching your favorite team steamroll a “cream puff” opponent.
  • For a Husband’s Anniversary: Make his favorite inexpensive meal, favorite dessert, and serve it with his beverage of choice - With many of the guys I know, there is a little something to be said for the notion that one of the ways to a man’s heart is through his stomach!
  • For a Husband’s Christmas: A few lottery tickets, a pocket knife, or a quality watch that happened to be on a sale are all good choices - Guys like excitement, gadgets, and gifts they are comfortable telling their buds about. Most men, me included, are fairly simple creatures; we don’t want that tight-fitting, maroon turtleneck that some of you females out there think looks chic!
  • For Mother’s Day: Cook her brunch perhaps, but mainly, just spend most of the day with her - Most moms will treasure your time more than another gift!
  • For a Mom’s Birthday: Take her out to dinner somewhere reasonable that she has never been - It gives her something to look forward to and tell her friends about, and it gives her a night off if she’s the main chef of the household. The restaurant doesn’t have to come with a wine list or require a reservation, but the lasting memory of quality time together doing something new, exciting, and different will outlast any flowery knick knack.
  • For a Mom’s Christmas: Get her something she wants, but won’t get herself - Maybe it’s that new book she keeps mentioning on the phone, that movie she didn’t get to go see, or that stylish bracelet she always looks at that just happens to be on sale.
  • For Father’s Day: In line with Mother’s Day, grill out - Most guys love being outside and breathing in the faint aroma of charbroiled beef. Dads can beam with pride as they get to make their famous burgers again for their family, or if they prefer, they can watch their children make the burgers just like they taught them!
  • For a Dad’s Birthday: An expanded sports package for the television, an outdoorsmen magazine subscription, or even an XM Radio subscription are all possibilities if you can get a good deal, and if you keep your eye out far enough in advance, you probably can! As they say, “Boy’s don’t grow up; their toys just become bigger!”
  • For a Dad’s Christmas: A box set of an old, favorite television show or movie series with a nice pair of slippers - It’s kind of a cool combo and can be purchased for a reasonable price, and your old man will be appreciative every time he slides into his chair for a little nod...I mean television, while he "rests his eyes."
  • For a Grandmother’s Birthday: Family pictures - Whether it’s pictures of you and her, pictures of you and your parents, or pictures of you, proud grandmas love having new photos to show off. Get one of those nifty family tree things where you can slide in pictures, get a fridge magnet picture frame for one really good photo, or take the time to make her a small, old-fashioned album. It won’t cost a lot, and she’ll love it!
  • For a Grandmother’s Christmas: Cookies in a jar - I’ve come across these several times and have enjoyed seeing them and eating their contents. Basically, you take all of the ingredients needed to make a certain type of cookie and pour them artistically into a big glass jar. If you and your grandmother ever baked something sweet together over the years, what a sentimental, useful, and frugal way to give a gift that will almost certainly generate a smile and a laugh!
  • For a Grandfather’s Birthday: Afternoon Fishing - Your granddad probably likes to fish, garden, walk, or hunt. Depending on the weather and his health, see what you can do to give him one of these experiences. The two of you will enjoy it, and it probably won’t cost you much more than some time and insect repellent.
  • For a Grandfather’s Christmas: Several of the people I talked to mentioned this as good clothing territory, so why not see if you can’t find your granddad a nice, crisp, new dress shirt, a tie that doesn’t remember the 70s, or maybe even a sporty-looking baseball cap that’s at a reasonable price? Who says grandparents can’t dress super swank?
  • For a Girl’s Birthday/Christmas: This is the category I have the least personal experience with, so according to the people surveyed and based on some Internet research, I’d recommend art supplies, board games, and stuffed animals. Be careful not to get drawn into pricy clothes that will be outgrown and expensive jewelry meant for a slightly older princess.
  • For a Boy’s Birthday/Christmas: Baseball equipment or a football - One of my all-time favorite activities growing up was playing toss with my dad, and I’d still be up for a game right now, come to think of it! When I think of a football that will generate good times for years, it sounds more like an investment than an expense.   
In my book, there are two kinds of gifts: good gifts and nice intentions. Gifts also have two costs: expensive and practical. If it’s a big anniversary, a birthday that ends in “0,” or you truly have one of those rare, “perfect” gift ideas, I say go for it as long as it won’t inhibit next month’s mortgage payment. If it’s just another overpriced item that has her favorite label on it, a golf club that will still, somehow hit all golf balls to the right, or a pair of argyle socks, I say you can do better. Some of the above gifts have actually worked well for me and people I know whether we were the givers or the recipients. The next time you are struggling to cook up a good gift idea for a friend or family member, I hope you’ll think of this list. At best, they will be glorious, break-through gifts; at worst, they will be prudent presents.