Getting more with less at the grocery store

Like most people surviving in the current economic situation, I have decided that I am going to further tighten the belt of my budget for the sake of my investments.  I have reduced a lot of my re-occurring expenses by switching from DirecTV and AT&T DSL to bundle my TV and Internet with Comcast.  In addition to that, I have reduced my electricity usage and natural gas usage.

I am looking to further reduce the amount of money being spent due to the fact that I have now taken on an investment property.  In my current budget, I have allocated $130/month for groceries.  I am looking to reduce this amount drastically.  I have given myself the goal to live for three weeks off of $50 groceries.  Although I feel like this was an arduous task, this type of pressure requires one to get creative.  Also, using the principles of "P.I.E", I feel that any task is quite manageable.

To proceed with accomplishing this task, I do what I usually do before going to the grocery store, checking the weekly ads.  Fortunately with Kroger, they list all of their "weekly ads" on their website.  After getting an idea of the items with the best value, I make a small list of my needs.  This list is typically comprised of items that I have already decided on cooking for the day/week as well as some staples that I can create a meal from in the pantry.  

As a side note, below are some of the "staples" that I require in my pantry:

• Rice
• Beans
• Corn
• Barbeque Sauce
• Brocolli
• Sweet Peas
• Bread

Now taking on this goal requires that I draw a very distinctive line between what I want and what I will need to accomplish this goal.  It just so happened that this week at Kroger, there was a special on meat at Kroger, so I definitely had to take advantage of this by stocking up on high value items.  Although meat typically has a short shelf life, you can easily extend it by freezing those items immediately and using them at a later date.

During this whole experiment, I am hoping to eat healthier as well as learn to get a bit more creative in the kitchen.  I am also hopeful in learning to discipline myself in my consumption of food and find other things to do beside eat and lounge around my home.

If you have any suggestions on how to stretch your groceries a little bit further than usual, please leave them in the comment section below.

Stay Disciplined!

The Rule of 72

“The keys to patience are acceptance and faith. Accept things as they are, and look realistically at the world around you. Have faith in yourself and in the direction you have chosen.” ~Ralph Marston

Earlier this week, I was asked the question, "Do you know what the rule of 72 is?"  I thought about it and promptly responded back with "of course", followed by my rendition of the answer to that question.  However, the person I discussed this with stated that over 90% of the people, he asked that question, did not know the answer.  This is quite staggering to me due to the fact that this is a very simple idea and it is very valuable to know in terms of investing.  

The definition for the rule of 72 is listed below:

The rule of 72, is a method for estimating an investment's doubling time. The number, 72, is divided by the interest percentage per period to obtain the approximate number of periods (usually years) required for doubling.  (Source)

For those who understand formulas, it looks like the following:

(Years to Double) = 72 / Interest Rate

View the following example for further clarification:

HSBCDirect offers you an unlimited length Certificate of Deposit (CD) for 4% Annual Percentage Yield (APY).  If you just deposited $10,000 and wanted to know how long it would take to double into $20,000, you could use the following formula below to calculate it:

72 / 4 = Approximately 18 years to double.

To get a more exact amount of time to use for doubling, you can use the "Future Value" (FV) formula.  

FV = Present Value x ((1 + Interest Rate)^N)

(Where N is the Number of Years)

To calculate the number of years, you can use the following formula (just solving for # of years):

ln(FV/PV) / ln(1+I) = N

(Where PV is Present Value)

Using the numbers from the previous example, you get the following:

ln(20000/10000) / ln(1+.04) = N

17.673 = N

As listed above, the interest rate is represented in terms of the actual decimal number rather than the whole integer value.

As you can see from the two formulas, there is a lot more complexity to get a more exact estimate of time.  However, using the "rule of 72" can give you a quick estimate when weighing your investment options and correctly balance the amount of risk you take with an expected return.

If you have anymore comments or any other shortcuts or rules you know about in regards to investing, please leave them in the comments below.

Stay Disciplined!

Flexible Spending Accounts vs Health Spending Accounts (Part Two)

“The first wealth is health.” ~Ralph Waldo Emerson

As mentioned in the previous article, there are many different requirements for a person to meet in order to qualify for a Health Spending Account.  One alternative to the Health Savings Account is a Flex Spending Account.  Below is the definition for this type of account:

Flexible Spending Account: one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer in the United States. An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. (Citation)

Flexible Spending Account (FSA): is a tax-favored program offered by employers that allows their employees to pay for eligible out-of-pocket health care and dependent care expenses with pre-tax dollars. By using pre-tax dollars to pay for eligible health care and dependent care expenses, an FSA gives you an immediate discount on these expenses that equals the taxes you would otherwise pay on that money.  (Citation)

Unlike a Health Spending Account (HSA), the FSA can be used with most health insurance plans provided by the employer.  Typically the employer offers this plan in conjunction with their current health plans and allows the employee to pay for medical expenses not covered by insurance.  Some examples of these types of expenses are listed below:

• Dental
• Vision
• Over-the-Counter Drugs
• First Aid Kits

For a general list of the different expenses that can be covered by an FSA can be found in the Publication 502 citing medical expenses recognized by the government.

Typically, users of an FSA incur the medical expense and then submit documentation to their FSA provider to receive reimbursement for the expense.  However, some providers are beginning to provide FSA debit cards that can be used withdraw FSA funds immediately for a qualifying expense, rather than waiting for reimbursement.

Although it is mostly dependent on the plan on the exact stipulations on whether there is a maximum or minimum that can be contributed to the FSA, the government requires a maximum dollar amount or a maximum percentage of the salary to be specified in the terms of the account.  (Citation)  This is due to the fact that the government allows contribution of pre-tax dollars to the account overall reducing the employees gross income and tax burden.

To assist with calculating how much this provides a benefit to the employee who takes advantage of this plan, refer to the previous article about maximizing deductions.

To provide a complete review of this type of account, one must take in account the negative aspect of a Flexible Spending Account.  FSAs require special planning due to the fact that they are a "use it or lose it account".  What this means is that the if account holder does not use all the funds that are in the account by the end of the coverage period, the money is returned to the employer and the employee loses that contribution.  

The coverage period is typically the calendar year (starting on January 1st and ending on December 31).  However, the government allows for a 2.5 month grace period after the calendar year to further incur anymore expenses that can be used to deduct from the remaining balance on the FSA.

Overall, this account is a good idea for someone who does not qualify for an HSA but still has medical expenses not covered by their employer's health insurance plan.  As long as the employee conservatively plans for their medical expenses, this account will be beneficial in allowing the employee to pay for their expenses as well as provide a tax break.  Please leave your comments below in your thoughts about HSAs, FSAs, or any other savings plans you may know about.

Stay Disciplined!

Flexible Spending Accounts vs Health Spending Accounts (Part One)

“It is health that is real wealth and not pieces of gold and silver.” ~Mahatma Gandhi

One of the big points that was discussed in the previous presidential campaign that was mentioned was the idea of health insurance. One of Obama's platform is to make health care "affordable and accessible to all". (Citiation) Well, I for one, am a proponent of taking care of yourself without relying on the use of any one (or any entity) for that matter.

I believe that one should use all the tools available to be responsible for ones health care and fortunately there was one tool that was made available by the previous administration if you qualify. The "Medicare Prescription Drug, Improvement and Modernization Act" signed by President George W. Bush in December 2003 created the "Health Savings Account". Below is the definition for this account:

A health savings account (HSA), is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a High Deductible Health Plan (HDHP). (Link to Definition)

A Health Savings Account (HSA) is a special account owned by an individual used to pay for current and future medical expenses. (Citation)

This particular account is somewhat similar to a tax-sheltered account (such as a 401(k) or IRA) that allows you to contribute pre-tax income to spend on health related expenses. Like the 401(k), there are contribution limits imposed annually. In addition to that, these funds can reside in an investment vehicle such as mutual funds and stocks. Although this sounds like a very good product to take advantage of, there are certain requirements that have to be met before you qualify.

In order to be able to contribute to an HSA, the person must be the policy holder of an HSA-eligible high deductible health plan (HDHP). An HDHP is basically a policy that does not cover first dollar expenses (unlike Medicare , Flexible Spending Accounts , etc.) which basically provide benefits as soon as the medical expense is incurred. HDHPs usually have a high deductible (i.e. $1100+ for self coverage, $2200+ family) but a lower premium since they require the policy holder to pay a higher deductible than most other health insurance plans.

For the year of 2008, the maximum contribution to the HSA was $2900 for a person who is single. For 2009, the maximum contribution was increased to $3000 for a person who is single. The money contributed to this account can be withdrawn for any medical related expense. The method of withdrawal is highly dependent on the agreement that the account holder has with the HSA provider. Some HSA providers give their account holders checks or debit cards to use with medical related expenses. Although purchases can be made by these methods, it is good practice to keep documentation of each medical related expense in case the IRS wants to make you prove that the expense qualified for a withdrawal.

Some of the benefits to use a HSA are the following:

• Premiums for HDHP are generally lower.
• HSA provides flexibility to pay some expenses not covered by traditional health insurance such as over the counter drugs, orthodontics and vision.
• Money from the HSAs can be rolled over year after year and available for withdrawal without penalty after age 65.
• Some employers match an employees contribution to the HSA.
  

There are some associated disadvantages with the HSA listed below:

• Non medical related HSA withdrawals are subject to a 10% penalty as well as a standard income tax.
• Qualified medical expenses can only be incurred on the date of or after coverage has started, it is not retroactive.

As you can see, there are advantages to having an HSA. Hopefully you feel a bit more empowered to know your options to take control of your health care coverage if you qualify for this particular product. The next article that will follow up this particular topic will be about "flexible spending accounts" which are easier to qualify for than HSAs.

If you have anymore information about the topic of Health Spending Accounts or want to discuss this issue, please leave that information in the comments below.

Stay Discplined!

Sources
http://www.ustreas.gov/offices/public-affairs/hsa/pdf/all-about-HSAs_072208.pdf
http://en.wikipedia.org/wiki/Health_savings_account