Cutting the Cord

How I cut the cord to save over $900 annually.

I have to admit that I love new technology.  Anything that makes daily tasks simpler, more convenient,  or more accessible, I am on board.  At the same time, early adoption of technology can clash with my general nature to be frugal, especially when new technology hardware, software and services fees begin to add up. In some cases, technology can actually save money.  Coming up on my first year of kicking the cable habit, I am sharing my story of how I dropped my pay television cable services and replaced it with less expensive streaming video services.

My decision to drop my cable TV service did not come easily.  I am a sucker for convenience.  I expected some trauma, especially with the loss of my on demand DVR.  My motivation was the continuously increasing monthly cable bill stuffed with add on fees such as the HD Technology Fee, DVR Service Fee, and Franchise Fees.  After a couple weeks of adjustment, the switch was fairly smooth and I am ready to call it a success after a year.

The Math

In my last month of TV service in September of 2012, my total cable and internet bill was $135.75.  My internet package became slightly more expensive with the bundling loss, now at $49.95/month.  As discussed below, I added Hulu Plus service at $7.99/month but already had Netflix.  This makes my total monthly savings $77.81/month or $933.72/year.

In terms of hardware, I outlayed $58 for a Roku (slightly more than current retail), $39 for an antenna and $35 for a Chromecast (which included two month of Netlfix streaming free, saving $15.98).  This is a net total hardware cost of $116.02, but a payback period of less than two months.  

Hardware

Making the switch required minimal outlay in new expenses, partly because I already owned some equipment already.  Here is a list of what I own and what I purchased:

Sony Playstation 3 ($320): Before dropping cable, this acted as my primary DVD/Blue-ray Disc player.  Paired with subscriptions, I use this to stream TV Episodes and Movies from Netflix and Hulu Plus (as discussed below).  With the dual capabilities of streaming and DVD/Blue-ray, this is my primary TV hardware.  I run it through my A/V Receiver, which allows for HD video and 5.1 Audio Channels.  For those who might be interested, many options also have subtitles available through streaming as well.  If I had not already owned this unit, I would have opted for a cheaper alternative such as the Roku (described next), Smart TV with WIFI, or DVD Player with streaming capabilities.

Roku ($49): For my secondary TVs, I just needed something that could stream content at a much lower cost.  The Roku is an excellent choice.  Much like the Playstation, you can download "apps" (Roku calls them channels) to stream subscription services such as Netflix and Hulu Plus.  However, their app selection is much more extensive and adds channels such as PBS, CNN, Vudu (movies) and hundreds more.  Often these channels are free, if you are willing to watch ads.

Chromecast ($35): This is my newest addition.  Sometimes content I want to watch is only web-based.  I previously hooked my laptop directly to the TV using an HDMI output, but this allows a similar functionality through a wireless connection.  Essentially, almost any video I can stream through a browser on my phone, tablet or laptop can be "beamed" to my television wireless through this device.

Antenna ($39): Of course, I cannot leave out the fact that a ton of content is available over the air through broadcast networks.  With a digital signal over the air, the quality is oftentimes better than the compressed data coming through cable or online streaming.  The main downside is content is limited to a broadcast schedule, which means my main use is the morning news while getting ready each morning.  Choosing an antenna will depend on how far away and direction of the signal you are trying to receive. Antennaweb.org is a good website to check out when trying to determine what antenna to buy for your area.

Services

A lot of content is available online for free, but subscriptions open up more content.  More importantly, subscriptions add convenience of centrally locating content and longer period of access to that content.  In some cases, it will reduce advertisements and increase picture and video quality.

Netflix ($15.98/month): Netflix is one of the most popular streaming services.  Their streaming library is impressive, boasting a huge selection of classic and fairly current movies.  New movie releases will not likely be available in their library.  Additionally, they have a huge library of TV Shows.  For shows currently in production, you may find past seasons, but not likely to find the most current season.  They have begun to offer series they produce and make available exclusively to their subscribers.  I am subscribed to their DVD Services, expanding the available of shows and newly released movies. This feature can be dropped, reducing the monthly cost to $7.99/month.  Note: I was already paying for this service before dropping cable, so I am not considering this as a "new" cost.

Hulu Plus ($7.99/month): Where Netflix has mastered the movie and past TV episode streaming, Hulu Plus has the newer TV shows.  Generally most major broadcast TV network shows are available the day after airing as well as many cable network shows. You can access much of their content through your computer browser for free.  The paid subscription service expands the library of content and allows from streaming through more devices including the Playstation and Roku discussed above.  One downside is even their paid subscription includes advertisements, but their library is expanding all the time.

Looking for more options?  There are lots of other services available, such as Amazon Prime Instant Video or buying content through services such as iTunes and Google Playstore.

Caution...

Cutting the cord is not for everyone.  Sports fans might be weary as a lot of content will not be available through streaming services.  Additionally, Luddites (technology haters) may not enjoy the learning curves of making the switch.  Watch out if you have restrictions on your internet service.  Those on cell networks will want to be aware of their data caps.  It is not unheard of to use 80+ Gigabytes of data in a month by just streaming at home.  You will also need a reliable internet connection with at least 5-7 Megabits/Second of bandwidth.

The technology is constantly getting better, so be sure to thank an early adopter for clearing a path to convenience and cost savings for the rest of us.  Feel free to comment below if you have questions or strategies I have not mentioned.

Detroit and Public Pensions - Kiplingers

This past month, I spoke with Anne Kates Smith of Kiplinger Magazine on how those in public pensions should react to the the ongoing news regarding the Bankruptcy of the City of Detroit.  She posed the question, what should pension participants expect? Before addressing this concern, I would first start by cautioning everyone to put the Detroit crisis in perspective.  Municipal and Government bankruptcies are rare, and though they do happen from time to time, focusing on the outlier makes us believe this is more common than it really is.  This is a common mental bias we should be aware of.  This is why I always remind clients, focus most of your energy on what you can control because it will have the biggest impact on your future.

Given there is some risk, how should you respond?  I answered:

"Relying solely on your employer is never a good move," [...]

If you can contribute to a supplemental savings plan, such as a 403(b) or 457(b), do so. [...] If you're not offered a savings plan outside a traditional pension, set up your own individual retirement account—even if you don't qualify for tax-deductible contributions. Kuebler tells clients to aim for savings equal to 15% of income, which means that if the state requires you to contribute, say, 8% toward a pension, you should sock away another 7% elsewhere.

Your actual rate of savings may vary based on your own goals and resources, but each employee needs to take some responsibility towards their own retirement.  The State University Retirement System (SURS) for Illinois University Employees and the Teachers' Retirement System (TRS) for public school teachers are a great component of a retirement plan, but needs to be integrated with outside sources of retirement funding as well.

Be sure to check out the complete article in the October issue of Kiplinger or online.

Same-Sex Marriages Recognized For Federal Tax Purposes

Yesterday, the US Treasury and IRS ruled same-sex couples legally married in a jurisdiction that recognizes that marriage will be valid for federal tax purposes.  This applies whether or not the couple is currently living in a jurisdiction that recognizes the marriage.  This ruling clarifies tax filing and benefit questions following the Supreme Court striking down the Defense of Marriage Act (DOMA) in June of this year.  You can read the complete ruling here.

What about Illinois Civil Unions?

This ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law, thereby excluding Illinois Civil Unions.  However, if you were married in another state or foreign country recognizing same-sex marriages, you may still qualify.

What benefits does this include?

The ruling applies to all federal tax provisions where marriage is a factor.  This includes:

• The ability to file a joint tax return and the ability to take personal and dependency exemptions
• Taxation of employee benefits, such as tax free receipt of same-sex spousal health insurance
• Estate and gift taxes, allowing for unlimited tax-free gifts and unlimited marital deduction for estate tax purposes to your same-sex spouse

Can I Amend Prior Tax Returns?

Yes, if you previously filed single or head of household in a year in which you were legally married, you may be eligible to amend the return to change marital status. There are limitations to be aware of.  For instance, the statue of limitations general restricts amendments of returns to three years following the original due date of the return.  For most couples, this would restrict them to amending only 2010 and beyond.  Exceptions may apply for specific circumstances.

What are the next steps?

For our clients who are affected by this ruling, we will be discussing how this applies to you directly and how to adjust your financial and tax plan accordingly.

If you are not a client, but interested in finding more about how your tax situation integrates into your entire financial picture, contact us today!

Bluestem Launches our Blog!

Welcome to the inaugural blog post of our newly redesigned website!  I am particularly excited about this new site.  It tells the story of our planning process, and is designed to be more interactive!  With the launch of our Blog, we hope to keep you up to date on what is happening in the firm and add short discussions and articles of interest in between our quarterly newsletter. If you want to follow this blog, you can subscribe by email in the right hand sidebar.

In my first post, I am excited to announce a two milestones in my own education and experience you might be interested in.

Master's Degree

This past summer, I have completed my Master's Degree through Kansas State University.  I started this journey 4 years ago to meet the educational requirements to becoming a CERTIFIED FINANCIAL PLANNER™.  My degree is in Family Studies and Human Services, specialized in Financial Planning.  Like my Bachelor's Degree from the University of Illinois, this program is based on family and consumer research and theory.  My Masters courses beyond the CFP® courses included studies of quantitative issues such as real estate and consumer law issues, as well as qualitative applications such as financial counseling, family dynamics, and behavior biases.

Enrolled Agent

As part of my Master's program, I was able to use self-study coursework to become an Enrolled Agent (EA).  Enrolled Agent status is granted by the IRS after showing a high level of competency in the areas of Personal and Business Income Taxes, Tax Ethics and Procedures, and passing a background check.  Like a CPA or Attorney, EA's are afforded unlimited rights to practice in front of the IRS.  After a long process of studying, testing and application, I was granted the Enrolled Agent status in May of 2013.   This means that as part of Bluestem's audit protection services, I now have expanded rights to defend or represent our clients in the event of an audit.

These items both represent the completion of two large significant personal and career goals.  Though I have no immediate plans for additional degrees, I look forward to continuing my lifelong education and development.