Budgets pt. 2: Check out how your budget stacks up to the US average

As a follow up to the budgeting post from Tuesday, a reader recently sent me an interesting dashboard her company had created. They used data from the Bureau of Labor Statistics to create a visual app of how Americans are spending their money, and how education influences those buying decisions.

retale

The dashboard was created by Retale, an app that shows you coupons at retailers in your area. The app may be worth checking out if you are looking to shave some dollars off your spending.

I found the results of the dashboard to be enlightening. Housing and transportation costs alone comprise about 50% of average household spending. Add in healthcare and food and you’re looking at about 70% of household spending being chewed up by relatively fixed costs.

What was even more interesting was that in almost all categories, a higher percentage of household income was taken up for those with less education. For example, spending on housing takes up 39% of income for those with no high school diploma, vs. 33% average nationally. This issue is compounded by the fact that most in the lower education bracket likely are renting and not buying, so they don’t get the tax benefits and equity home owners do.

Unsurprisingly, groups with less education spent less of their household income on entertainment, reading & education, and “other.” With so much of their household income spent on fixed costs, there is little left over for discretionary spending.

This analysis felt particularly poignant today given that Wal-Mart (WMT) just announced second quarter earnings. Results were not great and Wal-Mart cut its earning guidance amid flat sales and a seventh straight quarterly decline in U.S. store traffic.

By the way, I have no idea why the stock isn’t trading down; sometimes the market makes 0 sense to me too.

Wal-Mart’s struggles make sense in light of Retale’s dashboard. Wal-Mart’s core shoppers – those with lower income and less education – are focused on supporting core household expenses, like rent. As a result there’s less to spend on non-necessities at stores like Wal-Mart.

I’m pessimistic about Wal-Mart’s future. Due to the economic discrepancies the dashboard illustrates, I stick by the comment I’ve been making on the blog that retail growth will lie with higher end retailers.

How to set a budget and track your spending (plus a free template!)

There is a great Forbes article coming out in the August 18th issue (on web now) on how millennials are changing money management. Apparently, millennials are more practical and focused on saving thanks to the recession, but want technology to make it easier for them to do so. The article profiled a few companies catering to these needs.

Unsurprisingly, millenials are also interested in being budget conscious. One company profiled, LearnVest charges you $19/month plus an initial fee of $89-$399 to advise you on making budgets and managing your money. While I applaud LearnVest in its goal to educate women on their finances, I find it a bit counter-intuitive to pay money to learn how to save money. That’s why this post is dedicated to free budgeting advice.

The first key is to set a rough budget. Two popular guidelines are to spend around 30% of your take-home pay on rent (this will go up if you live in a city like San Francisco or New York) and to follow the 50/30/20 rule. The 50/30/20 rule advocates you spend 50% of your take home pay on “fixed” expenses (rent, cell phone bill, utilities, cable, car payments, groceries), 30% on discretionary spending (shopping, vacations, eating out, basically anything else), and 20% on savings or paying off debts.  With this guideline you’ll also be following Ne-Yo’s fantastic life advice:

“Cause she work like a boss play like a boss
Car and a crib she bouta pay em both off”

The thing is, you can’t just set a budget, assume you roughly follow it, and forget about it. Once you set your budget, tracking your spending regularly is absolutely key to managing and building your wealth.  Knowing exactly what you spend helps in three ways:

  1. It lets you know how much is going out the door each month, for what reason, and whether you need to cut back your spending in any key categories
  2. If you pay on a credit card it keeps track of all your bills and cash spending in one place, so you always know that you’ll have enough to pay what you owe
  3. With all of the cyber security and credit card breaches, it keeps you aware of whether what’s on your credit card was really purchased by you or by an identity thief going on a spending spree

I track all of my spending in an Excel spreadsheet which has formulas to tell me how much I spend in each category, and how much each category takes up as a % of my take home pay. I track my spending by month and update the spreadsheet every week or two.

I lump my spending into the following categories and sub-categories:

  • Home
    • Rent
    • Utilities
    • Cable/internet
  • Car (why I miss New York…)
    • Car payment
    • Gas
    • Insurance
    • Parking
  • Discretionary
    • Cabs
    • Eating Out
    • Groceries
    • Gym
    • Shopping
    • Alcohol (turns out those bar tabs add up, even if you don’t remember them)
    • Beauty (i.e. haircuts, manicures)
    • Misc.

Now comes the fun part, analyzing what you spent over the month. I have formulas built into my spreadsheet that tell me how much each category makes up of my take home pay. If anything gets out of whack I can easily spot where the issue lies.

There are lots of ways you can track your spending, and there are even sites that do it for you like mint.com. I personally prefer to track it manually because I think it is more accurate (Mint doesn’t always pick up the right categories), it makes me think more about what I spend, and it lets me check for a credit card breach or incorrect charge since the items aren’t aggregated together.

I would love to send you a copy of my budget tracker template for FREE (take that, LearnVest). Just shoot me an email at thedaytradette@gmail.com.

Long-term stock I have my eye(wear) on: Luxottica Group

There is something exhilarating about short term trading. I love watching the cents tick up or down over a few hours, deciding at which second to get in or out, and (hopefully) ending the day with a chunk of change. That said, any Warren Buffett disciple will tell you that it’s not the most intelligent strategy for long term wealth growth. So I am trying to focus more of my money on long term value plays while still leaving aside some playing cash for short term trades.

One company I have my eye on for this long term value investment is Luxottica Group (LUX). Luxottica is the world’s biggest eyewear company, which owns brands such as Ray-Ban, Oakley, and Persol and controls retail stores LensCrafters and Sunglass Hut.  The company controls a staggering 80% of the world’s major eyewear brands.

Oh, and you know all those designer sunglasses from Chanel, Prada, and Burberry you shell out hundreds of dollars for? Turns out those are just licensed from the designers and made by this company. (I know, I’m disappointed too.)

What makes the company so brilliant though is its masterful use of vertical integration. Not only does the company manufacture almost every pair of sunglasses you would want to buy, it also owns almost all of the stores you buy them in! So essentially, the entire end-to-end of the glasses market is owned by this one company. And owning the whole market means you have quite the flexibility in what prices and margins you command.

Unsurprisingly, the company’s financials are rock solid. The company reported 2nd quarter earnings in July and sales were up 7% over the prior year. Even more impressive, net income was up 15% for the second quarter and free cash flow was at an all-time high. Their biggest concern is an unfavorable exchange rate (not even a big deal). Their price to equity ratio is at the upper end of retail but reasonable at around 34.

This company’s business model commands a buy on its own. But ideally, you’d like to invest in a company with growth potential on top of its solid present state. Good news is, Luxottica is that type of company. Back in March, Google (GOOG) announced a strategic partnership with Luxottica to create “innovative iconic wearable devices.” In other words, Luxottica will design, develop and distribute new versions of Google’s Web-connected eyewear.

There hasn’t been too much to report since the partnership was announced by my hunch is that recent market developments will spur action between the two in the near future. Designer wearables are now hitting the market, with Tory Burch designing Fitbit covers and Diane von Furstenberg designed Google glasses sold on net-a-porter. And I think the Apple iWatch hype ramping up will force Google to step up its wearables presence.

Luxottica’s current business model, combined with potential market expansion from its Google partnership, make it a solid buy choice for me. I don’t currently own shares but plan to buy in very soon.

What Indian Toilets Remind us About Doing Business

Perhaps this toilet would appeal

Happy Monday everyone, hope you each had a lovely weekend! I just moved into a new apartment so mine was an interesting mix of home goods shopping and Ikea furniture building (fine, watching my boyfriend’s Ikea furniture building), plus a bridal shower. It was probably one of the most grown-up weekends I’ve ever had.

Today I was all set to write a stock analysis piece and headed to Bloomberg for a little inspiration. While perusing the site I stumbled upon one of the most interesting articles I’ve read in a while, regarding India’s issues installing toilets.

If you were to ask me what I think are the greatest inventions of all time, a toilet would be high on the list. Apparently, that opinion is not shared throughout India. The Prime Minister is attempting to solve the nation’s serious sanitation issues by building 5.3M latrines by the end of his first 100 days in office. Turns out the toilets are getting built but not one wants to use them.

Instead, people head outdoors, to fields and jungles to do their business. Apparently it’s a great gossip spot as well. Their reasoning? “Feces don’t belong under the same roof as where we eat and sleep.” That pleasure is reserved for India’s lowest caste.

Perhaps this is a marketing and education issue, and pamphlets or lessons should be distributed along with the toilets. Although when such a thought is ingrained in a culture’s psyche, it is hard to imagine a few educational materials or a lecture will change their mind. Perhaps instead this is a product design issue, and toilets should better accommodate fears of trapping filth inside.

I thought this article was worth sharing as a fascinating insight into how other cultures think. I love the idea that something that seems so normal to us in the developed world, and which we often take for granted, can be seen as so abnormal by someone else.

On top of that, the situation with India’s toilets reinforces a key business principle: know your audience. This is a principle promoted in The Lean Startup, and one which I whole-heartedly agree with. The author, Eric Ries, argues that a start-up should operate as a bit of a testing model for a while in order to understand market demands.

He saw companies spend a ton of time honing a product and making it as perfect as can be before they release it to the masses. The issue with this is that they are assuming what customers want rather than asking them. Instead, businesses should release the first viable product they can, get customer feedback, and adjust to meet customer demands. This creates a better product for the market with less development time.

This concept is particularly true when a product is being developed for a foreign market. We saw dominant US companies like Starbucks (SBUX) struggle when they expanded internationally because they needed to better understand and adapt to the new culture (in Starbuck’s case, the European café culture). The same concept can apply for toilets; the Indian government clearly needs to better understand and adapt to the needs of its target “customers.”

One company they may want to take a note from is Apple (AAPL). Apparently, the rose-gold iPhone color that came out with the 5s was developed because gold is a prestigious color in China. The gold iPhone turned out to be a hit in the country, exceeding even Tim Cook’s expectations and nicely boosting earnings.

Celebrating a win from Inovio Pharmaceuticals

30 Rock

My reaction after checking INO’s price yesterday morning (Image courtesy of Tumblr, csulaadmissions)

Back in March I wrote about my purchase of shares in Inovio Pharmaceuticals, Inc (INO).  Inovio is a clinical stage pharmaceutical company (meaning it’s in the early stages of developing new drug treatments and vaccines).  I bought in March after the company raised cash to fund expansion.

Since then the stock underwent a 1 for 4 reverse split (for every 4 shares of stock I owned I got 1 share worth 4 times its original price).  The stock had been trading lower for the past few months and I’ve been waiting out what at times was a serious dip in value.

Yesterday though, I finally saw a pop in price thanks to the announcement of a successful step in their drug trials.  In official terms, the company announced “successful results from its randomized, double-blind, placebo-controlled phase II trial of VGX-3100 in women with biopsy-proven cervical intraepithelial neoplasia 2/3 (CIN2/3) associated with human papillomavirus (HPV) types 16 or 18.”

In terms my non-med school educated brain can understand, their drug shows effectiveness in treating cervical effects from HPV.  This is key because there are not currently treatments for HPV on the market, just vaccines.  A successful treatment would be amazing for purely social reasons given the high percentage of the population affected by HPV, plus the very scary diseases some strains can lead to (cervical cancer).  But on top of that, it would be a huge money maker for the company, with estimated sales at $540 million.

This positive announcement makes me even more bullish on the company.  After the jump from yesterday’s announcement I sold my shares for a 20% profit.  Then today I waited for a small dip and bought back in at $12.60.

While I’m pumped about my big gain yesterday, this stock is a long term hold for me.  I expect to see the stock rise significantly over next few years as treatments are brought to market.

Time to buy Apple after earnings report comes in solidly boring

Apple (AAPL) reported earnings after the market closed yesterday, and the report was solid but boring.  Apple posted earnings of $1.28 per share vs. analyst estimates of $1.23 per share, and revenue of $37.4 billion vs. estimates of $37.98 billion.  Apple is up a moderate 2.7% today after the earnings announcement.

The revenue miss was likely due to declining iPad sales, with units down about 9%.  IPhone sales were up 12.7% from the prior year but still short of analyst estimates of units sold.

I stand by my statement that I would wait until after earnings to buy, since I was concerned hype was already priced in.  Yes, Apple did fine on earnings and is up a bit.  But all of the articles on Apple going into earnings were hypothesizing huge numbers that blew past analyst estimates.  That didn’t really happen.

This could be a good thing for you though.  Strong gross margins and earnings mean Apple is in a good place financially and operationally.  And I am still cautiously optimistic that the iPhone 6 and iWatch will come out before the end of the year.  The fact that iPhone sales didn’t meet analyst estimates may mean that there are consumers holding out on a purchase until they can get the iPhone.

The fact that there wasn’t a huge pop after earnings means the stock is still low enough to buy in now and profit off of the new product releases later in the year.  I’d wait until the stock comes down a bit in the next few days and get in.

Turning Yahoo’s Earnings Lemons into Lemonade

Yahoo! Inc. (YHOO) reported 2nd Quarter earnings last night and results were worse than expected. Earnings per share were $0.37, 1 cent worse than analyst expectations. Revenue was $1.04 Billion vs. estimates of $1.09 Billion. The stock is down about 5% from yesterday.

Yahoo was hit by display revenue decline, which was down 7% over the same period last year. An even worse sign: Yahoo has been having to slash ad prices to compete with competitors. Search revenue is up slightly, but still not in line with competitor growth (i.e. Google’s). On a more positive note social and mobile are up nearly 90% year-over-year. Unfortunately, these areas don’t translate to big portions of revenue yet.

While this earnings miss is bad news for Yahoo, it could be a great opportunity for investors. Yahoo made one other big announcement yesterday: it plans to return at least 50% of the cash it obtains from the IPO of Alibaba to shareholders.

In addition to sounding like something from Aladdin, Alibaba is a Chinese e-commerce company. Alibaba is one of the hottest names in Tech currently. For example, Alibaba’s version of eBay features nearly a billion products and is one of the 20 most-visited websites globally. The company is set to IPO (start publicly trading on the stock exchange) on August 8th.

Currently, Yahoo owns about 24% of Alibaba. The company is valued at around $130 Billion according to their IPO filings, and Piper Jaffray even predicts they could be worth $214 Billion. Plus, revenue growth continues to be strong for Alibaba, which saw 39% top line growth last quarter. This all means Yahoo is sitting on a huge potential chunk of change.

Yesterday, Yahoo announced that it had negotiated a deal to keep more of its Alibaba shares, selling 140 million in the IPO vs. the originally agreed upon 208 million. That leaves more money in Yahoo’s pocket and more money for Yahoo shareholders.

I bought 100 shares of Yahoo today because of the chance to get in at a lower share price. I don’t like it as a long term prospect, and will likely only hold through the Alibaba IPO. But, it could be a nice way to get a short term gain from Alibaba’s IPO success.