"Cheap" Dates

Credit: David Castillo Dominici

So I was talking to a buddy of mine (who happens to occasionally read this blog), and he was complaining to me about how expensive it is to take a girl out. He was telling me about the restaurants he had taken girls to, the expensive chick flicks he had suffered through, and the amount of money he had spent on flowers and gifts. He then made the comment that it was “too bad I couldn’t write a blog on cheap date ideas that actually work.” I couldn’t, could I?

Now I’m pretty much the opposite of tall, dark, and handsome (well at least the tall and dark parts), but I’m going to give my friend’s joking request a go. You see, my friend is a great guy and I have no doubt that he will one day find that special lady, but what he doesn’t realize (that I now do after being married for a little over two and a half years) is that you should never really stop going on dates. So today, we’re going to take a look at some less expensive date ideas that could simultaneously serve mingling singles and couples well in their relationships and wallets/purses. Better still, some of the ideas below (you’ll have to guess which ones) are based on my own personal romantic escapades over the years!

• Go for a hike
• Watch the sunset
• Play board games
• Play Frisbee golf
• Go for a swim
• Make a picnic
• Play putt-putt
• Go to the farmer’s market
• Go bowling
• Make a bonfire (sneak in a starter log and she will never know!)
• Go to a karaoke bar
• Volunteer somewhere
• Watch a community play/musical
• Go to a flea market or thrift store
• Go ice skating
• Give each other a massage (date for a while first!)
• Tour a winery or brewery
• Go to one of those parking lot carnivals
• Put together a puzzle
• Go to an art show
• Go to a museum
• Go to a local sporting event
• Work out together

So the next time you’re sitting around wondering whether to hit up that same Mexican restaurant on a Friday night or watch The Hunt for Red October for the eighth time with that special someone, I hope you will remember this list. The next time you finish an enchanted evening that will take you a week’s pay to financially recover from; I hope you will print out this list and put it in your billfold!

Don’t get me wrong; you can, and you should, have really nice dates with your significant other from time to time, but you shouldn’t always have to break the bank for a good time. In my case, I found a girl who was as happy to be with me having a Frosty at Wendy’s as she was when she had a filet mignon at Longhorn’s. I asked her to be my wife!

-Tom

Autopilot

Credit: David Castillo Dominici

Do you pay any of your bills electronically? If so, have you set up automatic bill payment, where you give a particular vendor (like your utilities provider) the authority to charge your checking account or credit card whatever amount you owe for a particular month? Perhaps you have set up an automatic distribution from your checking account to pay off your credit card monthly or even automatic distributions from your checking account to make your mortgage payment? Using automatic bill payment has its perks and its drawbacks, but if you are a fan of this common payment feature, you still need to keep an eye on things…

Let’s say there was this guy who had his credit card set up for automatic, end-of-the-month, balance-due payments from his checking account. Let’s say an evil little larcenist from Michigan was somehow able to charge more than $200 for a purchase from Zappos to the guy’s account. How would the guy know about the fraudulent charges if he strictly relied on automatic bill pay and didn’t check his statements closely?

Let’s say there was this guy who had a television provider sign him up for a special, initial monthly price that went away after six months. Rather than the channel selection automatically being reduced to the package the guy originally wanted, the special package was mysteriously automatically retained, and the price promptly soared when the introductory period came to an end. How would the guy know if he strictly relied on automatic bill pay from his credit card to cover his family’s television bills?

Finally, let’s say there was this guy who made a payment online to his water and sewage company, but for whatever reason the payment was not recognized by the company despite their e-mail confirmation. Now in this case, the funds never left the guy’s account, so it wasn’t quite as big of a deal as it could have been, but how would the guy know he had a late fee that he could easily explain away if he strictly relied on automatic bill pay and did not keep an eye on things?

Now I know that automatic bill pay can be great because it is convenient and practically ensures you will pay your bills on time, but you should still be careful. The examples I mentioned above do not happen often, but when they do, you want to catch them. If you don’t believe me, you should, because the examples I used above all happened to “this guy” (yeah, me) in 2012! I caught them and want you to do the same.

Those first bills of 2013 should be about to start trickling in if they haven’t already, and now would be a perfect time for everyone to take a closer look and make sure their “autopilot” bill payments are still working.

• Be vigilant- If you are going to use automatic bill pay, make sure the services are free or charge very minimal fees, make sure your payments are being made on time with no late charges, and make sure you are paying entire balances due, not just minimum payments due (if possible).
• Double-check accuracy- If you are going to use automatic bill pay, make sure the services you are paying for are the ones you wanted, and make sure the expenses you are paying for are truly yours.
• Look for savings- If you are going to use automatic bill pay, make sure you aren’t paying more than you need to. Do you need high definition for all your television boxes? Do you need that 5 GB data plan for your smartphone if you’ve never used more than 2 GB? Do you still need a landline? Do your children realize what taking an hour-long shower means? Take a look and you may surprise yourself. If you find even one way to save more per month, it will be worth your time. Even if you don’t find any new ways to save per month, it will be worth your peace of mind.

Now this post may sound like I’m being a little harsh on automatic bill pay, but keep in mind I sometimes use this payment feature myself. If you have sufficient funds and spending self-control, but just have trouble getting your bills in on time, I might even recommend automatic bill pay to you! I’m not trying to scare you away from using automatic bill payments (and certainly not from the convenience of electronic bill payments), I’m just trying to help you find some monthly savings and protect yourself.

Autopilot can be great, but don’t fall asleep in the cockpit.

-Tom

The Risks of a Fixed-Income Portfolio

Credit: Stuart Miles

You know how most beaches have those ocean flag warning systems? Well even if you don’t, let me summarize: a green flag flying usually means calm conditions (go ahead and jump in), a yellow flag usually means moderate waves (be careful), a red flag usually means The Perfect Storm-type waves (don’t even think about it), and a purple flag signifies that there is marine life of some type nearby (you might want to see what it is, but you don’t want to be lunch). Well if I personally were a flag warning system for a fixed-income portfolio, I’d be yellow. Chances are you, or someone you know, currently has an investment strategy in place that is heavy on fixed income, and today I want to tell you to be careful, and that moderate waves are probably coming!

First of all, what do I mean when I say "a fixed-income portfolio?" I mean money that is being invested specifically in money market funds, Certificate of Deposits (CDs), and bonds. I’m not talking about your day-to-day checking account or your emergency fund savings account because those accounts should be viewed separately, and should be part of your financial plan and investment strategy regardless of the current market situation or forecast.

Fixed-income investments can be a sound strategy, and in my opinion, should be a portion of any well-diversified investment portfolio. Fixed-income investments are great because they are much less volatile than stocks, and theoretically, they offer a probable positive return (as long as the bank, company, or municipality in which you are invested doesn’t fail). On the other hand, fixed-income investments are not so hot historically because they do not keep up with inflation, and more importantly, a bond’s value typically goes down when interest rates increase. It’s inflation and interest rates that have my flag yellow.

From 1914-2012, the inflation rate (increase in prices) in the U.S. has averaged just a bit lower than 3.5%. What interest rates are you currently getting on your money market funds and CDs? For many of you, I bet the answer is less than 3.5%. Now the question I raise is this: even if your fixed-income investments are fairly stable and will likely offer a positive investment return, do you really want to invest a lot in something that will not grow as fast as prices have historically increased? Sure, inflation has been lower than average in recent years, and bond returns have been pretty good too, but over the long term, I’m not sure fixed-income investments will allow you to keep up with the Joneses. Fixed-income investments should still be a part of your prudently diversified portfolio, but if you have a lot of your assets invested in fixed-income investments, be careful; you could be on a path that will slowly erode your purchasing power.

As I alluded to earlier, a bond’s price and interest rates have an inverse relationship. Let’s say you previously bought a 7% bond for $1,000: you would expect to receive a coupon payment of $70 (7% of $1,000). Well what if interest rates go up 1%? Then, people buying a new $1,000 bond would expect to receive a coupon payment of $80 (8% of $1,000). Would someone still be willing to buy your previously purchased 7% bond for the $1,000 you originally paid when they can now get 8%? I don’t think so! In recent years, people holding lots of bonds have typically fared pretty well because the value of their bonds has been steadily increasing as interest rates have continued to decline to almost zero. The immediate problem for bondholders is that interest rates can’t mathematically go down much more. The bigger problem for bondholders is that interest rates will eventually go back up, and that means the value of bonds will have to go down. This concerns me because it really isn’t a matter of if interest rates go back up; it’s a matter of when. Bonds should still be a part of your prudently diversified portfolio, but if you have a lot of your assets invested in bonds, “waves” of interest rate increases are eventually coming; the bond investment return you have enjoyed in recent years will be hard-pressed to continue.

Fixed-income investments can be very solid investment positions. The problem is that fixed-income investments are like many other things in life - too many of them might not be good for you. My fixed-income flag is yellow, but I should tell you that not everyone shares my opinion. There are a lot of people much smarter than me out there whose fixed-income flags are proudly flying green. Of course, there are also a lot of people much smarter than me out there whose fixed-income flags are proudly flying red...

Great Tom, what should I do? Well, it all depends on your stage in life and your risk tolerance, but (1) make sure you have an adequate emergency fund, (2) make sure you have a prudent amount of diversified fixed-income investments to protect against market volatility and provide a stream of income, and (3) make sure you also have a prudent amount of diversified stock investments to protect your purchasing power against inflation and interest rate changes. Please talk to your financial advisor about your specific situation if you have any questions or concerns.

Well sorry to be a bit of a “Debbie Downer,” but I think it’s always important to tell you my true thoughts and concerns. In happier news, even with a yellow flag, the beach sounds pretty nice right about now!

-Tom

Out of the Mouths of Babes

Credit: stockimages

A few weeks ago, I had a pretty neat experience.  I had the opportunity to go with some of my coworkers to a local middle school and teach a group of seventh graders for four hours. The program was sponsored by Junior Achievement, a nonprofit organization that teaches students about money management and how business works, and featured a basic curriculum that covers the different ways people can pay for things, the importance of budgeting, and the relationship between different jobs, their required levels of education, and their average salaries. I hope the students learned a thing or two from their substitute teacher, but I actually heard some refreshing things from them that I think are worth sharing with you today.

The lesson on mechanisms people can use to pay for things was primarily designed to teach the kids to be careful using credit cards. I figured this would be a tough sell, but I was wrong. One kid told me that his mom told him never to use credit cards and to pay for everything with cash. (Now that’s a little extreme, but it’s better than piling up credit card debt.) Another kid told me that her parents always pay off their credit cards every time they get a bill because “the interest is bad.” Impressed, I asked her what interest was, and she told me that “it’s the extra money people have to pay for spending too much.” (Well I don’t know many people who haven’t paid some interest towards a student loan, a car, or a house, but when it comes to credit cards, the girl had a point.) For the record, they all thought writing a check was really cool.

I thought the concept of budgeting would be pretty complex for a group of seventh graders, and I was right, but sometimes it even takes me quite a while to come up with appropriate budget proposals that are sustainable and can achieve most or all of my client’s goals. I’m proud to say that by the end of the activity, every single kid was able to make a budget that saved a little money or at least broke even, but they left me with two specific takeaways. First, every student except one put something on the charitable donation line without me even having to explain the potential tax benefits or discuss the moral and religious obligations many people feel towards giving charitably. (Wow, maybe there is hope for the world!) I should also tell you that the one kid who did not budget charitable donations wanted to, but could not, because his randomly-drawn “occupation card” did not make enough money for him to look after his family’s needs and give to others. Second, I got to see our country’s ongoing philosophical debate about taxes that we hear about every day on the news through the eyes of seventh graders. When I asked the students to define taxes, one kid told me that taxes were “money the government takes from your check to give to the army and other people.” Another student waving her hand quickly told me that taxes were “money everyone gives to the government to help those who need it.” I thought I was in a room with middle schoolers, but what I heard sounded a lot like the differing views of many opinionated adults I know. (I guess you start forming your political beliefs at a young age!)

The last lesson also featured the “occupation cards” I previously mentioned. Essentially, every kid drew a card that had a profession on it and an average monthly salary before and after taxes. While I had an improbably high number of doctor and lawyer “wannabes” at first, we had a surprisingly diverse workforce by the time I was done. Some of the kids were more interested in higher education, some were more driven to do something they were good at, and some were more focused on doing something they enjoyed. Sure, I gave them the lines about being whatever you want to be and doing something you love, but we ended up having a fairly deep conversation about the importance of balancing your interests and skills with your capability and probability of making a living. I knew I had delivered my assigned message of teaching them to balance interests, skills, and financial practicality in planning for the future when the most outspoken girl told me she was going to “do her favorite thing that paid her enough money to buy a BMW.” Mission accomplished, sort of.

Finally, I have to tell you one last thing I learned during my experience: Being a teacher is hard work! Even though I believe Junior Achievement’s program is much-needed and a great idea (and I plan on volunteering again), I was exhausted, a little low on patience, and had a splitting headache by the end of my four hours with twenty-four crazed twelve- and thirteen-year-olds . Go find one of your old teachers, tell them thank you, and by all means, give them a bottle of ibuprofen. They deserve it!

-Tom

Year in Review

Credit: Danilo Rizzuti

Assuming the Mayans are wrong, and thankfully we know they are (leap year wasn’t a part of their calculation, so the apocalypse date has already passed), it’s time to start thinking about New Year’s resolutions. I love coming up with resolutions, and frankly, I think it’s important to periodically consider aspects of your life and reflect on how they could, and should, be better.

I have 3 resolutions for 2013:

1. Lose the remaining 14 lbs of my 2012 goal- Hey, I lost 11 lbs. this year, but I didn’t quite make my goal of 25 lbs. Comfort food is so good, and exercising in the cold weather is so hard…
2. Do less- Many of my friends and family often compare me to the Energizer Bunny, but I saw the bottom of my fuel tank a couple of times in 2012. I need to get a little more rest and set aside a little more time to do what’s important with the important people.
3. “Attack” the mortgage- My wife and I are going to still contribute to our retirement plans, but we are going to make a conscientious effort to pay as much extra principal in 2013 as we possibly can. This will strengthen our financial position, give us a guaranteed rate of return (our mortgage interest rate), and allow us to work towards lowering our fixed monthly expenses.

I wouldn’t begin to tell anyone (well, at least most people) what their personal resolutions should be, but I thought I’d take this last 2012 blog post and offer a few financial resolutions that might help you in 2013:

• Attack any long-term debt you may have by making an “extra” payment in 2013. As this example shows, if you make this resolution a habit, you may be able to cut substantial costs and shorten how long you will be in debt by more than you might think. I’m talking like $56,000 and 6 years off a $200,000, 30-year mortgage!
• Save an extra amount from each of your paychecks. Maybe this is $50 a paycheck, maybe it’s $500. The amount does not matter; the action does. Do something as simple as putting this extra money in an envelope or as complicated as setting up an automatic deposit to a different account, but give this a try. If you keep this resolution, you will have a nice, little sum set aside at the end of 2013 that can create or strengthen a “rainy day fund,” be used to fund an IRA contribution, or be used as a “jump-start” towards a major purchase.
• Increase your contributions to your employer’s retirement plan. You are probably having to fill out a lot of 2013 enrollment and benefit election forms anyway, so you might as well adjust your retirement plan contributions and add 1% to whatever you are already contributing. 1% more coming out of your check probably won’t hurt much now, but 1% more invested compounding year after year in a tax-deferred account could end up being a pretty sweet sum when you finally head towards your retirement home on the beach.
• Collect your change. It depends how often you pay with cash, but if you throw all your spare change in an old shoebox, a chic-looking jar, or even a very manly looking piggy bank, you may be surprised what you end up with by the end of 2013. It sure would be nice right about now to have a jar full of change to help buy that perfect Christmas gift for my wife…

I hope you will try one of my suggested resolutions or come up with at least one financial resolution on your own, but before I sign off for 2012, there are a few more things I want to mention:

First, I’d once again like to thank Kenny Wuerstlin for designing my banner and logo, Andrew Davis for helping me edit my content, and my lovely wife, Lindley Presley, for her grammatical editing and blog expertise.

Second, I’m very proud that, in its first year, 2MuchCents.com had a little more than 6,600 page views from 10 different countries. Let me assure you though, we’re just getting started! In 2013, we’ll unravel technical topics like family gifting, long-term care insurance, and the risks of a fixed income portfolio. We’ll also take a look at how rational investors are (or aren’t), why I don’t think you should always let a “tax tail” wag your dog, and how you can spend everything (though I don’t advise trying).

Finally, let me thank you for checking out my weekly ramblings. I appreciate your questions, your ideas, and your encouragement. I hope that at least a little of what I have shared has been interesting, educational, and maybe even helpful. Please continue to let me know how I can use my training and experiences to try to help, please keep telling me what financial topics you are interested in, and pretty, pretty please keep sharing your favorite posts with your family and friends. There’s no telling where 2MuchCents can go in 2013!

I hope you and your family have a healthy, happy, and financially successful 2013!

-Tom