Party Planning

Tomorrow is our son’s first birthday party, and my wife and I (mostly my wife) have been busy with the party arrangements. Food has to be prepared and/or purchased, cupcakes need to be baked and decorated, and it seems like a hundred other things have to be done as well.

On the one hand, I can’t help but think how the traditional 1st birthday party is kind of overdone. The birthday boy doesn’t even know how to say the word “birthday” let alone comprehend its meaning. In the grand scheme of things, Tyler isn’t going to remember this birthday.

On the other hand, I know that this party is as much for my wife and me as it is for Tyler. Looking back, it’s hard to believe it’s already been a year. It is definitely something worth celebrating.

Having A Good Party On A Budget
Now, this post wouldn’t be complete with at least a little bit of personal finance mixed in. So let’s discuss how to put on a good first birthday party without breaking the bank.

1. Avoid party stores and pre-made party supplies.
Have you looked at the price of birthday party supplies at the store recently? First of all, if you already have a theme in mind it can be difficult to find what you want at the store. Second, themed party supplies at the store are expensive.

We wanted to have a “Very Hungry Caterpillar” party since that is his favorite book. Stores simply don’t carry party supplies with that theme, and party supplies online were outrageously priced. But if you do a google search you can find hundreds of do-it-yourself party ideas that are very inexpensive.

So I designed invitations on the computer and printed them myself. We printed some neat decorations and found lots of neat ideas, including how to make a caterpillar out of cupcakes.

2. Buy paper and plastic products at dollar stores.
We’ve found that our area dollar store is the place to go for colored table clothes, napkins, plates, utensils, etc. The same items at Hobby Lobby or Michael’s always cost at least two or three times as much.

3. Work with friends and family to prepare the food.
This is another thing where it pays to go the do-it-yourself route. Buying an already-made meat or veggie tray at the grocery store is quite expensive. It costs a lot less to buy the individual items and do the arranging by yourself. I understand that this would be a lot for one person to do alone, so ask friends and family to help out.

4. Keep in mind the purpose of the party.
Too many people obsess over party details and try to make everything absolutely perfect. But the point of the party isn’t about the detail of your decorations or the way the cake looks. It’s about family and friends getting together to celebrate a special occasion.

Our Cake
This morning we made our caterpillar cake, and are quite pleased with how it turned out. I thought I’d share a picture.

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Your Party Tips
Do you have any party planning tips? Share your story in the comments section below.

Have You Bought Your Mega-Millions Ticket?

It’s been all over the news lately that the “Mega-Millions” lottery jackpot is over $500 million dollars. That’s right, half a billion dollars. With this being a record high jackpot, people everywhere are buying tickets for their shot at hitting it big. With the odds of winning at 1 in 176 million, you’re a lot more likely to get struck by lightning.

I’ve had a lot of people ask me if I’ve bought my ticket yet. I can’t say that I have. I’m not opposed to buying a lottery ticket on moral grounds or anything, and I would consider buying a ticket as any other entertainment expense. The drawing is today at 11:00 pm, so I would have several hours to dream about why I would do with that much money.

How Much Would I Really Get?
But let’s look at some numbers first. If you choose the lump sum payout, you would really receive only $359.4 million. Keep in mind also that is pre-tax. After taxes of around 40%, you’d be left with around $219 million. This is also assuming no one else picks the same numbers as you, in which case the jackpot would be evenly divided among the winners. Even so, that is a lot of money… more than any person or family would ever need.

Get Rich Quick
People love the idea of getting rich quickly. They could quit working and live on easy street. Now, as I said before, I have nothing against buying a lottery ticket as entertainment. But if you’re in a situation where it’s a struggle to make ends meet, then playing the lottery every week hoping to “win big” definitely is not the thing to do. Too often you’ll see people at the gas station on Friday after getting paid spending a big chunk of their pay on lottery tickets. Or you’ll hear them talk about going to the casino every week or so. Instead of working on improving their financial situation, they’re actually making it worse.

For example, if you spend $20 a week on lottery tickets, that adds up to $1,040 a year. That’s the start of an emergency fund, a good extra payment toward credit card or loan debt, or a nice contribution to an IRA.

Final Word
If you haven’t already spent all of your entertainment budget for the month, go ahead and buy your mega-millions ticket and dream for the next several hours of what you’d do with that kind of money. Just know that it’s just for fun.

Don’t cut back on groceries, debt repayment, or retirement savings thinking that it won’t matter because you’ll win the lottery.

What is a Mutual Fund?

We’ve discussed some of the most common types of investments (stocks, bonds, CD’s and savings accounts). Each investment type has its advantages and disadvantages, and ideally you should have funds in each type. Retirement savings should be in stocks and bonds, and your everyday savings and emergency fund should be in savings accounts and maybe some CD’s.

But just knowing what these various investment instruments are isn’t enough. For the average Joe/Jane investor, what is the best way of actually building an investment portfolio? There are basically two ways of doing this: you can pick out and buy individual stocks and bonds or you can invest in what are called “mutual funds.”

Mutual Fund Basics

A mutual fund is an investment that allows you to invest in a multitude of stocks or bonds all at once. These funds are typically operated by large investment firms, such as Vanguard, Fidelity, T. Rowe Price, and others. Individual investors such as you and me can then buy into the fund, hence the name “mutual fund.”

Mutual funds come in a number if varieties. There are bond funds for government bonds, municipal bonds, corporate bonds, and combinations of each type. There are stock funds for large companies, midsize companies, small companies, specific industries, international companies, etc.

Mutual Fund Advantages

An important feature of mutual funds is that these funds are managed by investment professionals at the sponsoring investment firm. You see, the problem with individuals like you and me buying individual stocks is that, in order to have a diverse portfolio (lots of different companies, of different sizes, and in different industries) you have to have a lot of money to invest. Not only that, but you have to spend a lot of time researching the companies financial data before investing in them. Personally, I have no doubt that I could do the research and build a nice, well-diversified portfolio of stocks and bonds. But it would take me a lot of time to do that research. This is despite the fact that I have a strong financial background with a bachelor’s degree in accounting, an MBA with a concentration in finance, and having worked in corporate accounting and banking for my entire working career. The point is that the averge investor simply doesn’t have the time and resources necessary to successfully pick individual stocks on a consistent basis. I know there are exceptions to every rule, and most of us know someone that has done very well buying individual stocks. But again, that us the exception rather than the rule.

How Do I Get Started?

If your primary source of investing is through your employer-based 401k plan, your investment choices most likely already consist of mutual funds.

However, if your employer doesn’t offer a 401k or you are self-employed, you can open an IRA at any of the investment firms I mentioned earlier and invest in mutual funds. You can also invest in mutual funds through any brokerage firm (online or through an actual broker).

As far as choosing individual funds, I highly recommend stock index funds for the bulk of your investing. An index fund is representative of the overall stock market as a whole, so it is pretty well-diversified. Additionally index funds typically have very low fees, so you get to keep more of your investment returns.

A good idea is to invest in several different types of mutual funds to stay diversified and minimize risk. For example, you could invest in a stock index fund, a bond fund, and an international stock fund. This would give you exposure to U.S. stocks, foreign stocks, and more conservative bonds.

An even easier option is to invest in what is called a “target date retirement fund” that automatically adjusts its investment holdings to become more conservative as you approach retirement. So basically you would only need to invest in one fund. Not all 401k plans offer target date funds, though.

The Costs of Raising Baby: Medical Care

Today’s post is the fourth in the ‘Cost of Raising Baby’ series. So far, we’ve covered formula, diapers, and clothes. This post will cover the costs of medical care, from the moment you find out you’re pregnant to your child’s first birthday. We’ve actually spent more on medical care than anything else.

Insurance

What you end up paying for medical care is going to depend almost entirely on your health insurance plan (if you have insurance). I’ve heard some people talk about how their delivery cost $250, and I’ve heard some other people talk about how their delivery cost $5,000. I’m not sure what the “average” insurance is like, but it’s probably somewhere between those two figures.

We have health insurance through my employer. There is a $300 deductible per person, after which insurance pays 75% of the medical bill. There is also an out-of-pocket maximum of $2,300 per person. So, say I break my arm and the doctor bill comes to $800. My out of pocket cost is the $300 deductible, plus another $125 (25% of the remaining $500) for a total of $425. If the bill was a lot higher, say $5,000, my out of pocket cost is $2,300 (the maximum amount). I’m assuming that many health insurance plans are similar to this structure.

Our Medical Costs

The total of all our medical costs relating to the pregnancy, childbirth, and first year expenses has come to right around $3,500. Basically all of this represents pregnancy and delivery. With this being our first child, I had no idea what to expect. There are quite a few rounds of bloodwork and doctor visits throughout pregnancy that really add up. Then there were the prescription pre-natal vitamins. However, none of those came anywhere close to the bill for delivery. As expected, that was the largest expense. (For comparison, the total bill would have been around $23,000 without insurance.)

One positive is that since he was born, the out of pocket expenses have been very minimal. Insurance covers 100% of his well-visits and immunizations, which would cost an additional $2,800 without insurance. I’ve heard of other insurance carriers not covering these, which is a scary thought.

How To Soften The Blow

Insurance limits and deductibles work on a calendar year basis. Since our pregnancy started in July, delivery was in April of the following year. So our out of pocket expense was higher than if the entire pregnancy and delivery were in the same calendar year. We not only met our deductible and some additional costs at 25% of the bill for 2010, but we also met our deductible and out of pocket max of the full $2,300 for my wife in 2011 (due to the cost of delivery). Granted you can’t really control when you conceive, but, if you could, it would definately save money to conceive in the early part of the year and deliver that same year. (There are also tax advantages starting the year of birth, such as the additional exemption and child tax credit.)

One thing we were able to take advantage of was the flexible spending plan from my employer. This plan (also known as a Flex Spending Account, or FSA) allows you to set aside a certain amount of money from your paycheck on a pre-tax basis to pay for medical expenses you incur that year. The annual enrollment period for this in the fall, so we knew by then that we were pregnant and would be delivering the following year. I knew we would incur significant medical expenses with having a baby, so I elected to contribute $2,000 of my 2011 pay to my FSA. This worked out wonderfully.

My biweekly paychecks were reduced by around $77 ($2,000 / 26 paychecks), but when the hospital bill arrived in April I received the full $2,000 in funds from my FSA to go towards the bill. So one perk is that the full $2,000 was available to cover my bill in April, but I had the entire year before my payroll deductions came to the $2,000. Effectively, I was able to spread out the hospital bill over the full year rather than paying it all out of pocket at once. As a note, you can contribute up to $5,000 annually to an FSA.

Additionally, because FSA contributions are taken out on a pre-tax basis, my taxable income was $2,000 lower. If you are in the 15% tax bracket this is a $300 savings, and a $500 savings if you are in the 25% tax bracket.

Regarding immunizations once your child arrives, if your insurance provider does not cover these be sure to check with your local health department. Typically, they will provide immunizations at a very affordable price.

A final strategy is to plan in advance. My wife and I knew that we wanted to start our family, and that we wanted her to stay at home with the baby. So, before we started trying to conceive we worked hard (both her and I) to save up enough money to cover all the expenses we would run into with having a baby. I am so glad we did, because it makes things so much easier to deal with. Even if you don’t start saving that early, you still have 9 months after you find out you’re pregnant. You can save a lot of money in 9 months if you really work hard at it.

Your Stories
How much did your childbirth cost and what were some strategies you used to help cover the cost? Share your story in the comments section below.

Decide What’s Important

This morning’s post over at Becoming Minimalist was really good, so I thought I’d share it with everyone. Josh talks about remembering what’s most important. Several of my posts refer to focusing on what is important to you, both in terms of your spending and in terms of your time. He does a really good job of getting the point across in terms of identifying your main values using the following steps:

1. Grab a piece of paper and pencil.
2. Across the top, write “What I Most Want to Accomplish with My Life.”
3. Write down whatever comes to mind.
4. When the moment feels right, stop.

I know that personally, the single biggest factor in getting me to remember what’s important was having a child. From that point on, life was no longer about me or even me and Amanda. We were now completely responsible for another living, breathing person. His needs have to be met, regardless of what Amanda or I have planned or would rather be doing. It really makes us stop and think, “What were we doing with all our time before he arrived?” I can’t think of anything that we no longer do that I truly, deeply miss. We still have our time in the evenings when Tyler is asleep to talk and just spend some quality time together. It’s true that now we have less time for that, but we’re aware of that and make sure to enjoy the time we do have.

Not that there aren’t areas that I’d like to improve on. I know I can be a better husband, and I need to work on that. I’d like to do more community-service related activities, and I need to work on that. I know I can manage my time better and get important things done, and I need to work on that.

Take some time and read Josh’s post and complete the exercise he mentions. We only get one life. We need to make the most of it.

What Does Being Frugal Mean?

Much like the word “budget,” the word “frugal” and all its forms seems to have a negative connotation for many people. Much like using a budget, being frugal forces people into making choices with their time and money that they’d rather not have to make. Being frugal means you think twice about it before eating out, buying that newest gadget, or buying that new car. However, it doesn’t necessarily mean that you can’t do any of those things. If your finances are in order and those are things you really value and truly bring happiness to your life, then go for it. Being frugal is more about the thought process behind your purchases.

I looked up “frugality” on Wikipedia, and it defines it as:
The tendency to acquire goods and services in a restrained manner, and resourceful use of already owned economic goods and services, to achieve a longer term goal.

The part of that definition I like most is that the purpose of being frugal is to achieve a longer term goal. It’s about doing what is really important to you. I’ve read quite a few posts about something called “intentional spending” that is very similar.

Our spending paints a picture of what our life’s priorities are. For example, in our family the largest monthly expense is for housing, which is obviously very important. Following that, the next two things are groceries and baby, also very important. And number three is savings for retirement, very important to us as well. For us, entertainment and eating out are probably close to the bottom of our list. Spending on our dog is a lot higher. Cell phone and Internet use is somewhere in the middle.

It’s a neat exercise to go through, and It doesn’t take very long if you’re already keeping track of your expenses. If you’re spending more on your monthly cable bill than you’re putting away for retirement, one way of looking at it is that your daily television watching is more important than your future living conditions. That may be a bitter pill to swallow, but it makes sense.

I understand that those just starting their financial journey will see some scary things with this exercise. Your largest expense could very well be interest on your debt. Now I’m not saying that interest is the most important thing to you, though the education/vehicle/purchasing that created the debt was obviously pretty important to you. But whatever the amount of interest is, paying off those debts is pretty important. Once those are gone you can put your money to work on other things; things you may not be able to spend much on now.

The point is to really think about your spending choices because they reflect what is most important to you. I’m not saying to stop and think over every item at the grocery store before putting it in your cart (that would be major overkill and take hours). Just be conscious of where your money is going.