Amateur Asset Allocator

Frugal Ways To Lose Weight

Kyle — Mon, 07 Jul 2008 11:00:34 +0000

It’s summertime. Do you know what that means? It’s time to get in shape so you look hot on the beach! Few things in life are as important as looking good in a bathing suit. Sure, Bill Gates is one of the richest men in the world, but do you think he turns heads on the beach? Doubtful. Unfortunately for the rest of us, we aren’t as rich as Bill Gates and weight-loss products are expensive. A gym membership can cost upwards of $50 per month and Weight Watchers? Jenny Craig? They all cost too much for what they’re worth, which is zero since you can get the exact same results without them. Without further ado, here are some ways to maintain a healthy weight, stay in shape, and still have enough money left over to afford a beach vacation to strut your stuff. And it’s not like most of these suggestions even require you to do any actual work, so you have no excuse.

Eliminate Soda - At around 150 calories per serving, you could do your waistline a lot of good by drinking water at meals instead of soda. Eliminating two cans of soda per day, you could shed over 31 lbs in a year (there are about 3500 calories in a pound of fat, FYI)! As an added bonus, you would save $365 assuming $0.50 per can. Of course, you’d probably have to use most of that savings to buy new pants, but all in all I’d say it’s a fair trade.
Park As Far Away As Possible And Walk - Do you hate those people who will drive around the parking lot 20 minutes looking for a close spot just to avoid walking an extra 100 feet? Me too. It’s no coincidence most of these people are fat. Park as far from your destination as possible and walk. An extra 10 calories here, 18 calories there, and before you know it you’ll drop a pants size. It adds up.
Always Take the Stairs - Do you know what an elevetor is? An escalator? Not anymore. Always take the stairs if at all possible. Even if you’re climing 4 or 5 floors. It’s really not all that bad and as an added bonus, you’ll help sculpt your buns as you burn calories. Taking the stairs is often quicker than waiting for an elevator and trust me, even the most out-of-shape among us can climb five stories without much trouble. Just do it.
Snack, Snack, Snack - Never be caught without a healthy snack. My favorite snack is either trail mix (try to stay away from chocolate) or mixed nuts, but fruit is also a good choice. Whenever you start feeling hungry, have a mouthful. You should be snacking lightly 3 or 4 times per day to keep your hunger at bay between meals. That way, when you do sit down to eat, you aren’t starving and are far less likely to over-eat. Again, never let yourself get hungry because let’s face it, if you had the will-power to resist an extra helping of mac ‘n cheese at dinner you probably wouldn’t be overweight to begin with. Of course, this doesn’t work if your snack of choice is Doritos.
Take The Hundred Pushup Challenge! - Like many other bloggers, I am currently taking the hundred pushup challenge. I’ve found the first two weeks to be relatively easy thus far, but weeks four, five, and six look like they will be fairly difficult. Resolve to do this if you can. It only takes 10-15 minutes three days a week and push-ups are a great multi-muscle workout. They work your chest, shoulders, abs, arms, and back. In fact, you could get an effective total-body workout doing nothing but a few varieties of push-ups and some squats, and you don’t even need any equipment for this. At the end of the program (six to eight weeks for most people) you will be more toned than you ever thought possible.

For more on inexpensive ways to work out, check out my post on exercising at home.

Pros And Cons Of Getting A Roommate

Weekend Link Love And Carnival Roundup

Kyle — Sun, 06 Jul 2008 18:33:01 +0000

Than’s to Lisa at Greener Pastures for including my post about logical fallacies in the financial media in this weeks Carnival of Personal Finance #159. Some of my favorite posts of the carnival:

How The Rich Spend Their Time by Smart Money Daily. Surprise surprise, wealthy people spend less time being idle and more time being productive. The poor, on the other hand…

Big Toys For Top Dollar: 5 Reasons People Spoil Their Kids by The Digerati Life. I can’t even comprehend why anybody would spend $5,800 on a Monopoly board game!

Fifty Frugal Date Ideas by Money and Fitness Blog. My favorite is number 11: make your date pay for the meal/activity. This is a great money-saving technique because non-existant second dates are free!

Happy 4th Of July!

Kyle — Fri, 04 Jul 2008 17:24:37 +0000

Don’t forget to drink plenty of American beer!

Pros And Cons Of Getting A Roommate

Kyle — Thu, 03 Jul 2008 11:00:13 +0000

Plenty of people leave shared housing behind forever after college. I was not one of them. For several years, I lived in a few places with different roommates: some good, some not so good. The last 2 roommates have been people I didn’t know so well before letting them move in, which can obviously cause problems. It’s hard to judge how well you’ll do living with somebody if you don’t know them very well. On the other hand, sharing a 2 bedroom apartment or renting out a spare bedroom in your condo (in my case) is the frugal choice. I charged my last roommate $450 per month, including utilities. Even allowing that my electric and gas bill was higher than it would have been, I was still netting at least $400 extra per month. That’s enough to almost fully fund an IRA every month. The alternative would be to turn my spare bedroom into a home office and take the deduction, which I calculate would come to about $100 per month in tax savings. Clearly, the financials clearly point towards getting a new roommate, but I’m not so sure. I really don’t need the money, but having an extra $400 per month to invest would help me reach my financial goals that much easier. I’ve compiled a list of the pros and cons of having a roommate.

Pros Of Having A Roommate

Extra Booze Money!
Split the work on household chores like cleaning, doing the dishes, etc
Somebody to feed the dog while you’re gone
Automatic drinking buddy

Cons Of Having A Roommate

Lack of privacy
Your roommate may not keep the common areas as clean as you’d like
Some roommates are annoying
It’s a pain tracking down late rent every month if your roommate is unreliable
Noise

I’m leaning towards just turning the spare bedroom into an office and maybe brewing beer in the corner. Actually, add that to the cons column: you can’t brew beer in the house if you have a roommate.

What would you do in my situation?

Frugal Ways To Lose Weight

Create An Artificial Scarcity To Save Money

Kyle — Wed, 02 Jul 2008 11:00:18 +0000

I hate to budget. Budgets seem restrictive to me. It’s totally psychological, but for some reason the mere act of making a budget makes me feel like I’m depriving myself, and nobody likes being deprived: it’s depressing. Inevitably, I would end up breaking my budget. I wouldn’t go into debt, of course, but I would end up saving significantly less than I would have liked. Budgets do not work for me.

Get Off The Treadmill

Modern Americans (most westerners, actually) are conditioned to spend. From the moment we’re born to the day we die, we are bombarded by advertisements for goods and services nobody needs but yet nobody can seem to live without. For me, budgeting doesn’t work primarily because it relies on my own will-power. While I have plenty of will-power when it comes to some things, such as training for a marathon or finishing a project, it’s not so good when it comes to depriving myself of something I want when I know I have money in the bank to pay for it. The solution? Make sure I don’t have money to pay for it.

Artificial Scarcity

I’ve been doing this as long as I can remember, but apparently there is a name for it: artificial scarcity. If you transfer money out of your checking account as soon as you’re paid, it’s not there to tempt you. For most people, money in a checking account is “current spending” money while money in a savings or investment account is psychologically different. Where most people wouldn’t think twice spending money out of a checking account, they would cringe at the thought of transferring money out of savings or selling a stock to make a purchase. My strategy is simply to transfer a fixed percentage of my income to various money market and investment accounts as soon as my paycheck hits. Having met my savings goal for the month, I simply spend whatever’s left. That way, I never have to budget or track my spending because as long as I pay my credit card off every month with what’s in my checking account, I know I’ve met my savings goal. If budgeting doesn’t work for you, and they don’t for many people, try something else.

My Personal Finance Confession

Kyle — Tue, 01 Jul 2008 11:00:20 +0000

This post is in response to the personal finance confession project started by Are You Going To Be This Way The Rest Of The Time I Know You (long name). I ran across it over on Mrs Micah’s blog earlier today and thought it might be fun to share. Admitting you have a problem is the first step to recovery, right? Here goes:

My Personal Finance Confession

I don’t comparison shop. Ever. I am not a very frugal person in general. Rather, my saving schedule is to create an artificial scarcity. I transfer a certain percentage of my income into various IRA, money market, and brokerage accounts every month and spend freely with what’s left. So long as my credit card is paid off every month, it means I’ve met my savings quota and I don’t worry about it. this works very well for me most of the time, but it tends to backfire when I make large purchases that span multiple months.

I bought my current car new in 2004 (I know I know, but I was just out of college and didn’t know what I know now). My car-buying process was basically do some cursory research on various automotive sites such as Edmunds and Autotrader to get an idea of how much I should pay. I then went to the nearest Toyota dealer, told them what I wanted and what I was willing to pay, and bought it on the spot. I realize I probably could have gotten a better price by playing a few dealerships against each other, but I suppose I’m just too lazy for that. I usually can’t bring myself to do much comparison shopping for big-ticket items I don’t care much about, like a car. Once I get to an acceptable price, I usually pull the trigger even if I know I’m leaving a little money on the table. Of course, if it’s for a big-ticket item I enjoy, like a guitar, I will spend endless hours obsessing over ever tiny detail, but most consumer products just don’t interest me all that much. I guess it’s a good thing I don’t buy many of them.

It’s embarassing.

Investment Costs Matter

Kyle — Mon, 30 Jun 2008 11:00:00 +0000

Last week, I wrote that from a modern portfolio theory perspective, stocks actually become more risky with time (Obi-Wan Kenobi was right). Because even small differences in returns can have monumental consequences to the eventual size of your nest egg, every little bit counts. Mutual funds with high expense ratios are an unnecessary and outright harmful drag on returns.

The main reason I like index funds is their rock-bottom expense ratios. Low expenses means you keep more of your investment returns to compound for you over the years. A cost drag of just 1% (about average for an actively-managed fund vs a low-cost index fund) can amount to a nearly 50% hit to your next egg over 40 years. That’s huge.

A Reliable Predictor Of Future Returns

In an attempt to isolate factors most likely to lead to superior portfolio returns, a 2002 study by the Financial Research Corporation analyzed 10 potential predictors of future performance. The conclusion? Low expenses are the one and only reliable predictor of future success. That is, mutual funds with low expense ratios tended to have above-average returns relative to their peers while funds with high expenses tended to have below-average returns. Statistics such as Morningstar ratings, alpha, beta, and manager tenure all had dubious value in predicting future winners. The solution? Allocate at least 80-90% of your portfolio to low-cost index funds. If you insist on trying to beat the market, limit this to a small percentage of your overall wealth.

Friday Link Love And Carnival Roundup

Kyle — Sat, 28 Jun 2008 01:26:32 +0000

First off, let me announce that apparently I’m a “known spammer”. A few weeks ago, a spammer sent out tens of thousands of spam emails from bogus email accounts using my domain. Consequently, it looks like I’ve been placed on Akismet’s “spammer” list even though I had nothing to do with it and no way to prevent it. I’ve noticed my comments on blog posts have been getting caught up in the spam filter, so if you’re reading this and run a blog, I would appreciate if you could put me on your white list. Otherwise I can’t post comments. Thanks!

Carnival of Personal Finance

Thanks to Mrs Micah for including my post The 8 Levels of Passive Income in this week’s Carnival of Personal Finance #158. It’s sad to admit, but I used to watch Buffy The Vampire Slayer when I was younger. Buffy was hot! This week’s carnival was a monster, but here are a few of my favorite posts.

Is It Frugal Or Stealing by Passive Family Income. Have you ever ordered water at a fast-food restaurant and filled your cup with something else? That looks a lot like stealing.

When To Sell Your Dividend Stocks by Dividend Growth Investor. Knowing when to sell a stock is usually much more difficult than knowing when to buy.

Should You Blog Anonymously? my My Small Cents. I don’t feel comfortable revealing any personal financial information outside of broad portfolio allocations.

Do Stocks Get Less Risky With Time?

Kyle — Thu, 26 Jun 2008 11:00:56 +0000

Do stocks get less risky with time? That’s actually an interesting question and the answer, as with most things, is “it depends.” For most of our investing lives, it’s been beat into our head by the more responsible financial gurus that stocks are for the long term. That is, if you value your wealth you don’t buy a stock hoping it will go up tomorrow. Rather, you buy a broadly diversified portfolio of stocks and hold them for years if not decades. Over 20 years, we’re told, the stock market has never lost value. This is true. But does that necessarily mean stocks become less risky with time?

Not According To Modern Portfolio Theory

It is absolutely true that stocks become less risky in an absolute sense. That is, you probably aren’t going to lose money in the market over a 20 year period in nominal terms. Your account balance will at least be larger than it was at the start. That’s a good thing and for most people, that’s probably good enough. They, quite rationally, look at risk as the chance of permanent loss.

But modern portfolio theory measures risk differently. To the portfolio manager, risk is simply the degree to which returns differ at the end of any given period i.e. risk is volatility of returns. In portfolio theory parlance, this is measured by standard deviation. If returns are more or less normally distributed, there is approximately a 66% chance that next year’s result will fall within one standard deviation of the average return (arithmetic mean, in this case) and a 95% chance it will fall within two standard deviations of the average.

For a real world example, take Vanguard’s Total Stock Market Index Fund (VTSMX). Over the past few years, it’s had a mean return of 8.6 %and a standard deviation of 9.15% which means there is about a 66% chance next year’s return will be between -0.55% and 17.75% and a 95% chance next year’s return will be between -9.7% and 26.9%. Not bad odds. What this means for long-term investors, though, is that due to the long-term affects of compounded returns, the variability of outcomes can be monumental. Over 40 years, $10,000 will turn into $361,100 at 9% per year but over $537,000 at 10% per year, a difference of almost 49%! And that’s only a 1% per year difference. Run the numbers with 2 or 3% and the differences are truly mind-boggling. From a portfolio perspective, the volatility and thus risk of these returns are very high so in a very real way, time actually INCREASES the risks of the stock market. The real-world takeaway from all this is that investment costs matter! Even differences of as little as 0.5% per year can have a dramatic impact on the value of your portfolio at retirement. If you don’t believe me, run the numbers yourself.

Should The IRS Allow The Mileage Deduction?

Kyle — Wed, 25 Jun 2008 11:00:38 +0000

Doing my usual rounds reading various personal finance blogs yesterday, I discovered the IRS has raised the business mileage deduction to 58.5 cents per mile, up 8 cents per gallon over the past year. Obviously, as a small business owner or somebody who spends a lot of time driving for work, you’d be a fool not to deduct as much as the IRS allows. But I got to wondering…with the current budget deficit and our dependence on foreign oil what it is, should this mileage exemption even exist?

Double Dipping

From an accounting standpoint, it’s important to match revenue with the expenses required to generate them as much as possible. If generating revenue for your business requires driving a motor vehicle, depreciation of the vehicle must be accounted for to arrive at an accurate profit figure. No arguments here, but I have to wonder if a mileage deduction is the best way to accomplish this. A mileage deduction basically subsidizes driving and encourages excess gas consumption (and the resulting environmental pollution). With gas at $4 per gallon, this strikes me as a silly thing to incentize. It’s also unnecessary. Instead of allowing a per mile deduction, business owners should be required to depreciate their vehicle (or a portion thereof if used for business only part of the time) according to more traditional straight-line depreciation schedules and deduct the price of gasoline directly. By allowing a per mile deduction, the government is effectively subsidizing the cost of operating a motor vehicle far beyond the point where the true residual economic value of the asset has reached zero. A business owner who continues to drive a motor vehicle beyond its average life span is effectively driving for free on the taxpayers’ dime. Such deductions actively encourage waste at a time when we should be focusing on conservation. Many would argue that ditching the mileage deduction would unfairly penalize small businesses and discourage economic growth and they have a point. But I would argue the existence of the deduction to begin with has unfairly penalized the general public in the form of lower air quality and higher gas prices for decades now. And it has to stop sometime. There’s no time like the present. The tax code should not encourage harmful behavior.

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