Eat This, Not That; Spend This, Save That!

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When I graduated from high school (and was playing tennis, basketball, ultimate frisbee, and soccer), I weighed x. When I graduated from college (and was playing tennis, racquetball, and football, but had the dining hall and tailgating), I weighed x + y. As of January 1, 2012, after working full-time for a few years (and primarily getting my exercise walking to the copier from my desk), I weighed x + y + z. I’m happy to say I’m almost back down to x + y, but it has been hard.

Part of my wife’s morning routine usually involves the Today Show being on in the background, and you can imagine my recent interest one morning when they did a special segment called “Eat This, Not That.” It turns out that the segment was based on a book series written by David Zinczenko and Matt Goulding that attempts to help people avoid unhealthy menu items and, instead, select similar, healthier alternatives. Not only were their findings shocking and surprisingly entertaining, but they were exactly what someone like me trying to shed a few pounds needed to hear! Then I had an idea on how to take their work to the next level…

• 1. The Whopper vs. The Big Mac
• The Whopper: 760 calories, 47 grams of fat, $3.52
• The Big Mac: 540 calories, 29 grams of fat, $3.49
• VERDICT: Eat the Big Mac, Save $.03 (Okay, just do this one for your health.)
• 2. Taco Bell’s Steak Burrito Supreme vs. Chipotle’s Steak Burrito
• Taco Bell’s Burrito: 390 calories, 14 grams of fat, $3.02
• Chipotle’s Burrito: 1,033 calories, 40 grams of fat, $7.12
• VERDICT: Yo Quiero Taco Bell, Save $4.10
• 3. Chili’s Chicken Caesar Salad vs. Panera’s Chicken Caesar Salad
• Chili’s Caesar Salad: 1,010 calories, 76 grams of fat, $9.60
• Panera’s Caesar Salad: 560 calories, 34 grams of fat, $7.41
• VERDICT: Panera it is, Save $2.19
• 4. Corona Extra vs. Miller Lite
• Corona: 148 calories, 14 grams of carbohydrates, $5.13
• Miller Lite: 96 calories, 3 grams of carbohydrates, $4.12
• VERDICT: It’s Miller time, Save $1.01
• 5. Dairy Queen’s Banana Split vs. Baskin-Robbins' Banana Split
• Dairy Queen Banana Split: 530 calories, 14 grams of fat, $4.23
• Baskin-Robbins Banana Split: 1,030 calories, 39 grams of fat, $6.56
• VERDICT: Split at DQ, Save $2.33

* Prices based on calling restaurants in the Atlanta area.

I hope you find these comparisons as interesting as I do, but I recognize these suggestions won’t save you that much dough. I also know from personal experience that dieting can be really expensive “having” to purchase those fancy microwavable meals, “having” to purchase additional fresh fruits and vegetables for all those salads and snacks, and “having” to pay for a gym membership. Paying an arm and a leg for those little bars of nuts and bran that are supposed to fill you up can really break the bank!

Money cannot buy health, so looking after yourself should take precedence. But, you can successfully save money and diet at the same time! Smaller portions should mean less food to purchase. Fewer sodas should mean more, “free” water. Dieting, by definition, should probably mean buying fewer snacks, splurges, and desserts. You might try a regiment of walking, jogging, push-ups, and sit-ups on your own, without having to pay for a trainer or a gym. You can also successfully diet without the overpriced berries, I promise! Whatever you do though, buy the name-brand healthy soups; the additional savings you would get by choosing the brand your mother did not feed you as a child are simply not worth it! Trust me.

I think I’m going to go have some celery.

-Tom

Pop Quiz!

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One of the many ways financial analysts and investors value the financial strength of a potential investment is by looking at ratios. Auditors frequently look at ratios when trying to determine the overall financial condition of companies or organizations. I consider ratios when I’m playing poker or trying to make a late-round fantasy sports draft pick.

Today, I thought we’d do something a little bit different. I thought I’d give you some homework. I’m going to share with you three, simple math problems that will generate ratios. If you actually take the time to calculate your own, personal ratios, I can almost promise you will be able to gain some valuable insight about your financial situation.

1. The Current Ratio: Current Assets / Current Liabilities
• a. Add up how much cash you have in your bank accounts and CDs.
• b. Add up what bills, credit card balances, and other debt you will have to pay within the next 30 days.
• c. Divide a. by b., and see what you get. A ratio greater than 1 means you have enough readily available assets to pay off your short-term expenses. A ratio less than 1 means you could be in some financial trouble really soon. Strive for a ratio between 3 and 6.
2. The Savings Ratio: Savings Per Year / Annual Gross Income
• a. How much money did you save last year?
• b. What was your gross income (salary, pension, Social Security, investment income, etc.) last year? (Get your tax return if you need to!)
• c. Divide a. by b., and let’s see how you’re doing. Consider that your savings strategy should be based on your financial goals and stage in life. A ratio of .1 or better is admirable in my book. If your ratio is below .1, see what you can do to raise it. If your ratio is negative (you didn’t save anything), start saving now!
3. The Housing Cost Ratio: All Monthly Fixed Housing Expenses / Monthly Gross Income
• a. Add up your monthly rent/mortgage payment, monthly homeowners association fees, and monthly homeowners insurance costs.
• b. Take your annual gross income from number 2b., and divide by 12.
• c. Divide a. by b., and take a look. Lenders generally want to see a ratio less than .28. If your ratio is above .28, your potential lender may feel uncomfortable, and that in turn should make you feel uncomfortable. You can also use this ratio if you are considering renting or buying a new place and you’re trying to figure out what you can realistically afford.

If you didn’t like your results, don’t be discouraged. There's always room for improvement - trust me. Keep in mind that these ratios are not hard and fast laws, but they can be good indicators as to the quality and strength of your financial situation. If you did like your results, do as my granddad used to say, and “Keep on keeping on.”

Ratios are not mathematically difficult and can provide some profound data. If you take the time to figure these financial ratios periodically, you will actually be doing some very basic financial planning yourself. Well done!

-Tom

Robin Hood

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I often got harassed in college for wanting to be an accountant. I had my reasons, and believe me, none of them had to do with cubicles, ten keys, or green visors. I wanted to become an accountant and, in turn, became a financial planner so I could “do” the math that I love, follow the news and investments that have always interested me, and get to know new people and hopefully help them. I’ve always been motivated by helping others, and that’s because helping others makes me feel like Robin Hood. You read correctly: Robin Hood. Now I don’t wear Sherwood green, and I’m certainly not often a “man in tights,” but I do view my job’s purpose as being eerily similar to the path chosen by Sir Robin of Locksley. I promise you can trust me with your deepest financial concerns and your largest investment portfolio, but I should probably tell you that I frequently help my clients rob from the “rich” and give to the “poor." Let me explain…

I get to be Robin Hood because of tax planning. As an accountant and a financial planner, I frequently work with clients on ways to lower income taxes and reduce estate taxes. This allows my clients to give less money to the government and direct the destination of more of their money. One of the biggest arrows in my quill of tax planning opportunities is charitable giving, and charitable giving lets me take my Robin Hood complex one step further. By making charitable donations, my clients give less to the government and get to help a lot of worthwhile organizations; many that benefit the sick or less fortunate. That’s why today, I want to briefly discuss charitable giving.

People make charitable contributions for a variety of reasons: some feel religiously obligated, some feel socially obligated, some donate out of the genuine goodness of their hearts, and some people contribute solely for the tax benefits. I know people who fall under all of these categories, but I never judge my clients’ reasons. I only look at the fact that charitable donations are win-win situations, because the donor is not only getting a tax benefit, but is also helping a good cause or several causes.

How can you donate? As you probably know, you can give cash. You can also give property. I would like to point out that, while you won’t be eligible for a tax deduction for the value of your time or services given to a nonprofit or charity, that doesn’t mean you can’t still donate your time or services.

To whom can you donate and receive a tax benefit? Per the IRS’s latest publication, you can donate to religious, charitable, educational, scientific, and literary foundations or organizations. You can also make a donation to organizations working for the prevention of cruelty to children or animals, war veterans’ organizations, certain non-profit entities, or to the United States (or any individual state) itself. Under tax treaties, there may also be tax-deductible donations you can make to Canadian, Mexican, or Israeli charities. Just be sure to check with the organization and your CPA or financial planner to make sure your donation will yield the tax deduction you are expecting (as always, there are specific tax laws).

To whom should you donate? I would say to whatever cause(s) you feel the most passionate about. Perhaps that means you donate to a church, to your alma mater, or maybe to an organization looking for the cure to the disease that took your grandmother from you way too soon. For what it’s worth, some of my favorite organizations are: The Salvation Army, Epworth by the Sea, the Alzheimer’s Association, the Arthritis Foundation, and the Rally Foundation.

Before you make any charitable donations or increase your charitable giving, please note that you must look after your financial security first. You are by no means the Sheriff of Nottingham by doing that; you are just being realistic. I also want to emphasize that you are never making money with charitable donations; you are simply shifting who gets what percentage of money by making a donation or donations that happen to change your effective tax rate or get you below an estate tax exemption. A charitable donation may not make you better off, but you will have the satisfaction of knowing you made a cause, or the people who benefit from the cause, better off. An added bonus is that you might just feel like Robin Hood, or at least Little John.

-Tom

Financial Advice From 1796

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Leader of the Constitutional Convention, the commander of the Continental Army, and the first American president, George Washington is considered by many to be one of our nation’s greatest heroes, renowned for his character and leadership. In his 1796 Farewell Address, Washington masterfully articulated his reasons for not seeking a third term of the presidency and offered an eloquent argument for the importance of patriotism and protecting liberty. He also offered some prudent financial advice in a portion of the speech penned as “Warnings of a Parting Friend.” I believe these points still hold true, and I thought I'd share some of them with you today.

Quote #1: “And there being constant danger of excess, the effort ought to be by force… to mitigate and assuage it. A fire not to be quenched, it demands a uniform vigilance to prevent its bursting into a flame, lest, instead of warming, it should consume.”

Washington seems to be speaking about the danger of political parties, departments within the government, and individuals who try to seek more power and riches for themselves. He indicates that the spirit of always wanting more is good to a certain extent (a fire not to be quenched); however, if not vigilantly watched or kept in check and balanced, it could destroy (consume). This lesson can still apply to both personal and government spending and the importance of living within our means.

Quote #2: “As a very important source of strength and security, cherish public credit. One method of preserving it is to use it as sparingly as possible…, but remembering also that timely disbursements to prepare for danger frequently prevent much greater disbursements to repel it...”

Washington appears to be emphasizing how important having good credit is. He was advising the nation and its citizens to be careful how often they use credit and for what purpose. Washington also seems to acknowledge that for a prudent purpose, credit could and maybe even should be used if the benefit ensures stability and offers a hedge against potential risks. These important financial lessons should jump out of history books and into our personal and government spending habits!

Quote #3: “…avoid likewise the accumulation of debt, not only by shunning occasions of expense, but by vigorous exertion in time of peace to discharge the debts which unavoidable wars may have occasioned, not ungenerously throwing upon posterity the burden which we ourselves ought to bear. … You should practically bear in mind that towards the payment of debts there must be revenue…”

Washington warns against going into debt unless the expense is absolutely necessary. In today’s times, many people incur debt to go to school, to purchase a car, or to buy a home, but that does not necessarily mean you should go into debt if you don’t have to. Washington also points out that debt incurred during hard times should be repaid during times of peace and prosperity; if not, the debt will likely not get paid off. (He has definitely been right about that on a national level!) On an individual level, the takeaway is to consider paying off debt when you have extra cash available, and ideally to pay it off sooner rather than later.

Washington was a truly legendary leader, and in his Farewell Address I believe he was speaking to the nation as a whole and to its people as individuals. I also believe Washington’s advice is as timely and true in 2012 as it was in 1796. With such powerful and still-applicable words, it’s no wonder why reading Washington’s Farewell Address has been an annual tradition in the U.S. Senate since 1896. And remember, we know Washington’s words must be true because he could not tell a lie!

-Tom