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Showing posts from 2010

Pension Seizure Precedents

One of the problems with out of control government spending is the way it affects the behavior of government itself. Like any other junkie, the government convinces itself it needs "just one more" fix and will do anything to get it. Again like a junkie, the government will prostitute itself and steal from friends and family to keep the drug supply coming.

We see a glaring example of the later when governments simply grab private property in order to pay off their own debts. We have already seen the precedent for pensions being seized by government. Just last week in Hungary the government grabbed $14 billion in private assets. Over the weekend, the Irish government decided to take 15 billion Euros from the future pensions of its citizens to give to the banks. Now France is taking 36 billion Euros from the pension fund to keep its bloated and unsustainable welfare state afloat for just a little while longer.

People need to understand that the United States is not immune t…

The Shadow Knows

Today's topic is Shadow Inventory - the foreclosed or soon to be foreclosed properties that banks are stuck with and which are not listed for sale. As a result, they are not found in any formal listing of housing inventory when existing home sales are reported. This has been a problem for a long time, as we mentioned many months ago in Household De-formation.

The media's silence on this issue has been almost total. Probably because any reasonable discussion of the topic would severely undermine the illusion of stability they are trying to project. This weekend, the Wall Street Journal took a stab at estimating the damage. Their conclusion is that it would take 107 MONTHS to clear the shadow inventory at current sales rates. Obviously not a number that the bankers and their apologists in government and media are anxious to publicize.

Over the summer, banks appeared to be making some headway. The government’s mortgage-modification program helped some people get current on their pa…

The Harvest of the Incredible Front Yard Edibles

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Call it editable estates, urban agriculture, reducing your carbon footprint, or a throwback to the American ‘Victory Garden’ of World War II -- Last year, we decided to plant at least one surprise edible in every garden plot in our back and front yard. Among the many fruits and vegetables, we had peppers beside are day lilies, strawberry plants as ground cover lining are front walk under the yews, and sweet potatoes climbing the fence as a back drop to the zinnias.
Not only have we been rewarded with the playful fun of edibles interwoven across the landscape, we have relished (no pun intended) in the harvest. We have feasted on fresh vegetables and fruits all summer and have been canning and freezing to carry us well past Thanksgiving with home goodies. Who knew that three cucumber plants would give us enough to can dozens of quarts of dill pickle spears and bread and butter pickles? This fall, our pepper jelly has been a huge hit at gatherings. We found a very simple, step-by-step re…

The Flywheel of Finance

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You have probably heard it said before, “the first million dollars is the hardest to save.” As I continued teaching from Jim Collin’s book 'Good to Great', he speaks to how disciplined thought and disciplined action brings about disciplined results. It is like a  flywheel -- like starting a lawn mower, where it is hard to get started and then through continual little pushes (disciplined action) the flywheel begins spinning faster and faster until you reach breakthrough (the engine's running).
As I am reading this, I keep thinking about how hard it is to make your first million dollars (I’m a long way from my first million) and how the flywheel provides a great analogy to saving your first million. It takes disciplined thought and disciplined action to start saving on a regular basis. If you start out saving $25 a month, you are starting your million dollar flywheel moving. Every time you get a raise, receive a bonus or a cash gift, you can add more to your monthly savings a…

Leadership and Personal Finance

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In my Senior Seminar class at Mount Mercy University we are reading "Good to Great" by Jim Collins. Chapter 2 is on Level 5 Leadership. As I read this chapter, I couldn’t help but to think how each one of us can be a leader in personal finance and how we can take some of the principles from Jim Collins and apply them to our daily lives. Collins describes a Level 5 Leader as someone who “builds enduring greatness through a paradoxical blend of personal humility and professional will.” We all want our families to be successful and I want my kids to be more successful than me (building enduring greatness).
A central theme of this chapter is setting up the company for future success and not worrying about individual success. Our last blog entry was on how much money it will take to retire so I naturally put the two together. I want my kids to be able to retire and live successful lives, so I want to set them up for future success. The questions are how do I do that and am I doing…

What is it Going to Take to Retire?

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In reading the Sunday, September 26th Cedar Rapids Gazette, there was an article “From Boom to Bust” by Susan Tompor that got me thinking what it would take for me to retire. Susan also wrote the article “How to Prepare for Retirement” to help you plan. One of the things she stated in her “How to Prepare” article is “that you want to spend 4 percent or less each year from your retirement saving.” So….how much is it going to take? Other experts say that you will need 80-100 percent of your pre-retirement income in retirement.
If we put together all of this, and for ease of numbers, say you make $100,000 before you retire, you want 100 percent of your pre-retirement income, and you are only going to spend 4 percent of your retirement per year, you would need $2.5 million in retirement savings.
Now this does not include your Social Security income. Right now, you can start collecting Social Security at ages 62, but if you want to receive your full Social Security benefit, you must wait un…

Bank Debt Spiral

The zero interest rate policy (ZIRP) will kill the banks. Falling interest rates help banks by increasing the value of their bond and loan portfolios. This is the well understood inverse relationship between discount rate and present value of a future sum. But you see keeping interest rates at zero does virtually nothing for the banks as rates cannot fall further. There is a short window where ZIRP is a positive but an "extended period" (in Fedspeak) is just slow death for the banks.

During that short period, the banks are still collecting on portfolios constructed when rates were higher but as those higher-yielding assets mature, there is nothing comparable to replace them. We hear constantly how banks can just borrow at zero and invest in Treasuries - pocketing the difference. That would be fine if yields on Treasury debt were not low and falling along with everything else. The other problem is that this simplistic formula assumes that banks' operating expenses are neg…

Fraud and Failure

Recent news on the housing front confirms what we have been saying about that market since the inception of Financial Jenga. In sum, there is no real stabilization much less recovery, the costs of attempting to maintain the illusion continue to rise rapidly and any cessation of government interference and manipulation results in rapid breakdown of the fake "market" which was created by those policies.

In the first instance, we now see the failure of HAMP as redefault rates among those "helped" by the program soar. An absolute majority of the government-sponsored loan modifications have now re-defaulted but they did give utterly baseless hope to debtors, thus trapping them into making continuing payments on a hopeless mortgage.

The ongoing cost to prop up Fannie Mae and Freddie Mac continues to rise. Last week the NY Times reported that the cost of those bailouts has now reached $148 billion and will likely total $389 billion. Bloomberg cites a "reasonable worst …

THe Keynesian Comeuppance

During the current economic crisis, most of the major countries have tried to spend their way out - either with government programs funded with new debt or by forcing debt directly into the private economy through guarantees, regulations and action by quasi-government bodies. We discussed the implications for China in Command and Control and for the US in The Federal Funhouse. These initiatives were based on Keynesian economic theory - that government should make up for any shortfall in private demand by spending (likely
incurring deficits) sufficient to stabilize aggregate demand.

This is a temporary band aid at best and the governments and central banks were hoping to buy time and convince everyone that things were OK so they should go out and spend. This was doomed to fail as prior private demand was based on nearly universal lending at suicidal risk levels. One of the key objectives of Financial Jenga was to document the extent of the madness in credit. Enough people have seen …

The Visible Fist

The Visible Fist of government that is. The Visible Fist is about to crush the property market in China, exploding one of the most egregious bubbles on the face of the planet. The specific blow will take the form of imposing a property tax nationwide - in guidelines recently approved by the State Council. It was reported earlier this week in China Daily.

Although the measures have been considered for some time, the recent push has been given urgency by the dangerous levels that China's property bubble has reached. One of the key contributing factors has been the number of speculators buying property and then holding it off the market to profit from the price run up. Morgan Stanley's Andy Xie estimates that such properties number in the 10-20 million unit range.

Some of his other comments portray a China going through the same stages of economic madness that the US has over the last 20 years. But China is passing through each stage much faster as the (well-deserved) lack of…

Lies, Damn Lies and Statistics

This morning, the Bureau of Labor Statistics release triggered news report to put up a huge headline:
431,000 Jobs Added in May
That sound impressive on the surface but the reality is much less than it seems. When you dig down into the numbers you can see just just how little really is there. First, the Census Bureau hired 411,000 temporary workers who were counted as part of the 431,000. The BLS claims 41,000 private-sector jobs were created, with the discrepancy likely coming from net layoffs at state and local levels of government.

Let's drill down a bit farther and take a look at the Birth-Death model that we have written about before. When we look there, note that the "model" has added 215,000 private-sector jobs for May. By backing out this estimate, we can conclude that the actual survey measured a net loss of 174,000 jobs in the real economy.

We can also dissect the Unemployment Rate in the same fashion. This statistic is based on the Household Survey, where th…

Perspectives

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On Monday, our oldest son returned back to Colorado Springs from Afghanistan after being deployed for 13 months. We were able to meet him at the Denver International Airport after his 72 hours of travel from Kuwait. It was so good to get the hugs and see him face to face. We helped him get settled into his apartment, pick up his new Jeep and took him out for non-army food, complete with non-disposable tableware and actual glass goblets.
As we sat eating dinner at the Blue Star Restaurant in Colorado Springs, Nate said something that really stuck with me. “Everyone should be required to spend a few days in Afghanistan. They would really appreciate what we have here in the United States a lot more.”
Our army captain has been deployed 25 of the last 30 months, first to Iraq and then he volunteered for Afghanistan. He enjoys the little things a lot more; like a shower that he doesn’t have to walk 200 meters to, a bed that fits his 6’5” frame, with more than a 2” mattress, no sand or dirt in…

Fitness and Financials

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Four weeks to my bucket-list triathlon sprint. It is the last hour panic of must get healthy, must get fit activity. I had forgotten how good you feel when the endorphins kick in after a run. What’s so great is that you can do it all so cheaply. 
You don’t need to spend money on a gym or buy equipment to get fit. Running outside beats the tread mill for cost and keeping you fresh and inspired. Public Television broadcasts workout programs you can record and follow. The internet has a great yoga videos you can follow along for free. Staying healthy- staying fit helps keep your healthcare cost low and keeps you feeling great.
If you are paying a gym membership, now might be the time to suspend it and spend your time outside running or riding a bike. Grab friends to join you on the run or bike ride and make a day of it. Not only will you be saving the cost of your gym membership but you are building a tighter community of friends; all getting healthy together.

Tax Time – The Psychology of Taxes

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Okay, so I have my MBA in finance and I know that we should have our tax withholdings set from each paycheck so that come April 15, we still owe $1,000 or more on taxes. My propblem is that I really like getting a tax refund. Financially I know that if we get a tax refund, we have just given the government an interest-free loan. We could have invested the money or paid off debt instead of having a “forced savings of 0%” by overpaying taxes.
If we owe money come tax time, I REALLY dread doing my taxes, put it off until the last minute, get moody and am generally no fun to be around. I feel that the government is taking way too much of my salary for taxes and look for every possible deduction that I can find.
 When I know that I’m getting money back on my taxes, I look forward to getting them done to see how much I get back. I’m in a much better mood and feel good that I’ve done my civic duty of paying taxes. I then put the money towards debt reduction, investing, savings or vacation. It…

A Jewel in the Rough

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We found another mini-vacation site only 35 miles from where we live. It is the Ladora Bank Bistro, in no other place than Ladora, Iowa, population 286. Proprietors, Brad Erickson and Colleen Klainert purchased the 1920-built “jewel box” style bank and turned it into a bistro of fine wine, phenomenal food and an atmosphere that an old banker loves.
The structure maintains its marble teller windows and the iron teller cages, original wood floors and the two original vaults, now being used as a wine cellar and a kitchen storage closet. Engraved in the wall, next to the 24 foot high ceilings are four pillar statements that warm my heart:
“Frugality is the the Parent of Fortune” “Integrity in the Companion of Success” “Wealth is the Achievement of Thrift” “Diligence is the Mother of Virtue”
On the outside of the bank, above the entrance etched in stone reads “The wealth of this community embodies the richness of her soil, the integrity, frugality and diligence of her people.” On the first vis…

Save Energy -Save $$$

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If you have a primary residence in Iowa and are served by MidAmerican Energy, then you are most likely eligible for a free energy inspection audit. We had our EnergyAdvantage® HomeCheck this past week. Not only was it FREE, but they made energy-saving improvements to our home during the audit. Outcome of the visit:
A FREE report of the condition of our home's insulation, heating and cooling efficiency, water heating equipment and windows Replaced bulbs with FREE energy-efficient light bulbs Swapped out two FREE shower heads with energy-saving, massaging shower headsInstalled a FREE energy-saving faucet aerator on the guest bathroom sinkProvided us with a 70% rebate for additional insulation in the attic (value of $750!)There were a number of other things that they would have done, had our home needed it (such as water pipe insulation, water heater insulation blankets and programmable thermostats).

Check with your energy provider to see if they are offering the same service. Not only…

Rebalancing

It’s the end of the month and time to assess how we are tracking fiscally into the new year. As we continue to reassess our spending habits and values, we still crave for a more simplified lifestyle. Not so much about spending less time at work, we both love our careers. But we both feel the need to spend more time with our family, our extended family and our friends. We love meals at home, movie night with homemade pizza and popcorn, playing dominos, cards or watching the boys take on marathon nights in the game of Risk, soccer games and story-time with our grandchild. Those times are starting to seem more few and far between.

It is difficult to keep a healthy balance between work and time for family and friends. There is always one more report to write, another meeting to prepare for and another e-mail to answer. We have to consciously make family and friends a priority. We know that balance is important in reducing stress and maintaining our health. How convenient that doing the si…

Triathlon

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Staying healthy and fit is one of the best things you can do for your bottom line and your waist line. You get to that point where a little voice in your head starts to think that if you don’t get going, you’ll be too far gone to ever be fit again. How to get there? Aim high. Isn’t a triathlon on everyone’s bucket list? Are you in the Midwest? Check out the June 6th Pigman Sprint Triathlon in Palo Iowa. Not in the Midwest? Find a USA Triathlon sanctioned event near your hometown.
Yes, we are recruiting first-time participants, preferably over the age of 50. We like good company and would be thrilled to have some still with us at the finish line. This year, it’s all about finishing and all the endorphins between now and June in prepping for the big event.

A Phenomenal Alfredo

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Yes, Bob did it again. You must try this! Friday night we had Chicken Alfredo for 4 for $12. (Cost of paired wine excluded).
We followed the Alfredo recipe from RecipeZaar with the addition of ½ cup of shredded Asiago cheese. This sauce went over a bed of thin egg noodles from Kalona and was topped with chicken (cubed) browned in olive oil and 1 cloves of garlic. For a wine, we paired it with Mayo 2008 Sauvignon Blanc. If you are a die-hard red fan, then a pinot noir will work very well. Mighty fine dining at a mighty fine value!

Linen Liners

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Have you ever received a gift where the wrapping paper is so beautiful, you can’t bear to toss it? I love to upcycle beautiful gift wrapping as linen linings in my dresser drawers. A special treat is to sprinkle them with lavender oil. Even if the paper only stretches for one drawer, I love the mix and match of each drawer having it’s own characteristics. Seeing the lovely paper when I root to the bottom of the drawer reminds of the event's special celebration day. 

Valentine's Day Panic

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It is almost Valentine’s Day and with all the other chaos, you have yet to prepare for how you will let your loved ones know how much they mean to you. Short on time or money, the following action plan will save you:

1) Relatives and parents for whom you have not yet mailed a valentine: Take a picture of yourself/family blowing a kiss from your phone; and then send off to their cell phone their ‘Happy Valentine’ picture-card.
2) Write tons of little notes to your kids/husband/wife and hide them everywhere they will pass that day. Example places with sample messages:
a. For your kiddos: coat pockets “Pocket full of love for you”, toothbrush “Your smile lights up the room”, math book “1-2-3, my love for you will always be”, I-pod “Your voice is like music to my heart”, steering wheel of car “Even when you drive me crazy, I still love you”.
b. For your hubby or wife: in their shoe “You are my soul-mate” , bathroom mirror “ lip-stick kisses”, remote control “You turn me on”, light switch “Y…

Snowy Sundays

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It’s Sunday afternoon, there's a lot of snow on the ground, it’s cold and we have no energy to do all the things we need to do. Solution: Escape on a mini 4-hour vacation. Last Sunday, we went out with another couple to chase away the winter day and take a time-out from our overwhelming list of 'not-done's.
We landed at Fireside Winery, located in Marengo, Iowa about 30 minutes from our home. We had great fun browsing through their gift store and sampling their wines. Who knew Iowa could produce such lovely reds? Levi, our host, shared warm brie and bread with everyone in the tasting room.
Our favorites? The Frontenac and Hearthstone, which pared well with the artichoke spinach dip, our meat and cheese plate, the good conversation and wonderful company. The scenery of the snow covered field was peaceful and relaxing. You don’t always need an expensive vacation to escape. There are discoveries to be made in your own backyard. 

Household De-formation

One of the themes we have alluded to repeatedly at Financial Jenga is trends and sustainability. When a trend is not sustainable, reliance upon it can cause massive errors in analysis. The old adage "there's nothing more dangerous than an analyst with a ruler" illustrates the danger of extrapolating such trends. In our very first blog entry we mentioned one unsustainable trend:

We are at the front end of the suffering now. It was easy to see it coming when new houses were adding 2% or more to the existing supply for years and the population was growing at half that rate or less. The Census Bureau confirms that the number of empty houses has never been higher.

The only way that such a wide disparity between housing demand and population could be supported was for the average household size to shrink constantly. This is obviously unsustainable since you eventually reach an average household size below 1.0. Calling that eventuality 'unlikely' is a tremendous understat…

The Non-Comparison

It seems quite popular in these days of crisis for certain commentators to compare struggling individual states within the USA to the troubled EurozonePIIGS (Portugal, Ireland, Italy, Greece and Spain). ECB President and Apologist in Chief for the Euro Jean-Claude Trichet (and boy isn't that a bunch of Capitalized Words strung together) is a prime example. A couple of weeks ago in a speech about the Greek Financial Crisis his remarks were summarized by Business Week:
He [Trichet] also played down the importance of Greece's economy on the euro region, which he said represents less than 3 percent of the bloc's GDP, especially when compared with the size of a U.S. state such as California. A number of news outlets and blogger have echoed these sentiments so it behooves us to examine the validity of the comparison. On the pure surface level, Trichet is correct: California had a GSP of $1,850 billion in 2008, whereas Greece's GDP was less than one fifth as large at $343 bill…

Ties that Bind Us

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Our office moved into a new location. With cutbacks this year, there was no budget for art. Our solution was to create our own artwork. To start, most everyone contributed at least one old necktie from their household.
This past Sunday, volunteers pulled together and created the tapestry for our reception area, titled ‘Ties that Bind Us’. The backing, stuffing and neckties were all repurposed from previously discarded items. Our work of art is a great example of “Upcycling”, where you repurpose discarded items to give them a new life. Turning trash into useful items goes a long way in saving you money and the environment.
Not only do we have a lovely work of art; the pride, joy and teaming together to create the work of art is priceless. Wearing the remaining portion of the clipped neckties will add to the fun during our open house next month. :)



Less-Stress Investing

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New Bank Rules Sink Stocks”,“Turn at the Capitol Rocks the Market”,“Stocks Set to Bounce” -The stock market and individual stocks are susceptible to headliners, rumors and speculation. Daily monitoring of the ups and downs can be disheartening or exhilarating. Remind yourself that stock market fluctuations are relatively short-run and investment in stocks should be for the long haul. Historically, prices recover over time. If volatile stock investments are too stressful for you, consider growing your investment portfolio through low-cost index funds (i.e. check out Vanguard 500 Index at Vanguard.com). Index funds reduce the effects of individual stock fluctuation by diversifying your portfolio and have performed comparably well.
In order for your savings to outpace inflation; you will need to take on a certain amount of risk with your investments. Low-cost index funds are an option for the road-weary.

Never Shop Hungry

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Yesterday I stopped at the store on my way home from work to pick up a few items on a list. Being close to dinner time, I was hungry. I ended up filling my cart with junk food. My intent was to pick up a battery, laundry detergent and milk. While I did get the items on my list, such items as Tostitos, Velveeta cheese, salsa, crackers and Oreos also populated my cart. Bad move to grab a cart vs. a basket which further enabled caving into my hunger cravings. The kids at home were happy to see the junk food but it was not what we needed. I ended up spending over $50 on what should have been a $20 trip. Lessons learned:
Don’t go grocery shopping when you are hungry. Food and low prices (I’m always looking for a deal) were just too hard to pass up.
Stick to the list. Even though I had a list, all the end caps, large stacks of food and low prices were too good to pass up. Even though I got a great deal on all the extra munchies, it cost me twice as much as I should have spent.
Use a baske…

The 28-Day Challenge

Feeling cash strapped? Trying to dig out of debt from December? February is the shortest month of the year and is a good time to challenge yourself to simplify. Experiment with cutting out non-necessary expenses for 28 days to see the impact on your cash flow and your happiness. What would happen if you made most your meals at home with your family and friends; If you invited your friends over to make a meal together instead of going out on the town; If you didn’t watch the cable add-ons for the 28 days; If you packed your lunches and not buy anything from a vending machine?
Only you can decide what your wants are, what makes you happy and what is worth the cost. Try the 28-day experiment. See how much money you can churn toward reducing your debt, build up your emergency fund or give to a cause like Haiti. The challenge is on… go for it!

An Elegant Solution

The heads of the global banking cartel are currently gathered for their annual meeting in Davos, Switzerland. They have received enormous subsidies and bailouts at the expense of taxpayers in many nations all around the world. Those nations that possess representative governments are now beginning to respond to the outrage of their citizens at this gross injustice. In Britain, this has taken the form of a proposal to tax financial transactions. In the US, President Obama recently proposed regulations to limit the risk-taking activities of banks and to force the "too big to fail" institutions to shrink. The bankers' response is a proposal to take regulatory power away from national governments according to a British Press outlet.

This of course would be precisely the WRONG action. National governments in representative systems are forced to respond to the concerns of their citizens. The bankers' proposal would push the power even further away from the people and…

Trembling Pillars of Fraud

Over the last two weeks we have seen a series of indications that some of the key elements supporting manipulation of market pricing mechanisms are beginning to tremble. We have seen equity prices rise despite the lack of any significant increase in profits. We have seen commodity prices spike without much increase in real demand. In our opinion the key institutions behind this mess are the major Wall Street (TARP) banks, government agencies and the Fed. They have all played a major role in creating credit inflation, with subsequent asset bubbles and debasement of our currency. But understand this: if you 'look through' each of those institutions you will find the US government backstopping each and every one of them. Each of those has come under increasing attack and as the supports have begun to shake, the fraudulent pricing they have promoted has also begun to unwind. As politics has supported bubble dynamics, so it can destroy them - live by the sword, die by the sw…

Home Maintenance

Last week, a broken kitchen faucet led to an accidental remodel of our first floor bathroom. We love home improvement and a trip to Lowell’s is like a visit to the candy shop. The bathroom remodel was part joy and part good ongoing upkeep.
Home repairs play an important part in protecting your investment. Doing it yourself can be a fun challenge and a source of pride. In taking on the task, it is important to do your homework. Taking advantage of the free classes at your local home improvement store is a great way to build skill and befriend an expert. We believe we cut our remodeling costs by more than half in doing it ourselves and are very happy with the outcome.
‘Labor of love’ or just plain ‘labor’, doing it yourself is a great way to keep your maintenance cost low and your home value up.

Dieting and Dollars

Has January always been plagued as diet month? Ads plaster the newspapers, commercials are everywhere and we hear of the excessive holiday weight complaints throughout the day-from ourselves as well as others. Our excess weight is a sign of how we spend our money. Over 10% of American's disposable income is spent on food. This is twice what the typical family spent in 1929.
We know we don’t need to join a club or start a fad diet to lose weight. We could cut two-thirds of our fat, shave 700 calories and save at least $7 a day (> $2,500/person this year), simply by selecting healthy food options compared to eating processed fast junk food. If we eat healthy, we will lose weight, save money and live a longer, healthier life.
Diet and dollars – may both our weight and budget reflect healthy losses and gains in this coming year :)