The HSA

High deductible insurance.  Yuck.  We’ve had high deductible insurance for the past 3 years, and it’s been so stressful.  We have to spend $2700 out of pocket before the insurance actually kicks in, and even at that point, we still pay 20% of all costs until we hit some stupid-high annual “out of pocket max.”

Last year, I started to wise up.  I put $1500 into the HSA but blew through it and still ended up with another $1100 coming out of my pocket, post-tax.

This year, we were quickly approaching our $2700 out-of-pocket max with only $1500 earmarked for the HSA when I finally fully woke up.  I changed my withholding for 3 paychecks and fully funded the account.

The HSA (health savings account) is the FSA (flexible spending account) of the high deductible insurance world.  The stressful part of the FSA — use it, or lose it — is removed from the HSA.  All money rolls over to the next year, then the next and the next.  HSAs are only available to high deductible plan holders.

2016 HSA limits: $3,350 for individuals, $6,750 for families.

The money is “triple tax advantaged” – it goes into the HSA pre-tax (it lowers your taxable income), it grows tax free, and it comes out tax free when it is used to cover medical expenses. You’ll also save on FICA taxes when it goes in. “Worst case scenario,” you are healthy, and take it out without penalty at age 65 as if it was an IRA.

Some folks like to take the tact of using the HSA as a second IRA from the beginning.  They fully fund the account and pay for deductible out of pocket. Here’s a link to a list of HSA-allowable expenses.

Not us.  We’re on a rather tight budget in our household.  A $400 bill for blood work or whatever other nonsense is difficult to absorb into our week-to-week operating budget.  We use our HSA money to pay for bills as they come in.  I particularly like that it lowers our taxable income.

Two side comments:  one effect of high deductible insurance plans is that it makes you hesitate to call the doctor.  The second effect is that you start to hate doctors, fast.  All they seem to do is order tests and bill, bill, bill.

Update, 10/7/16- we’re grateful for putting aside the money pre-tax this year for the HSA, but holy smoke is this health insurance stuff eating us alive.  We are healthy people with minor problems!  $4,713 out of pocket so far this year, NOT including the bi-weekly paycheck deductions for the plan itself.  We have another round of big bills coming our way.  At this point we’ve hit the deductible for the year, but not our “out of pocket max,” so we will continue to pay 20% of the negotiated insurance rates until we hit the “out of pocket max.” 

$4,713 for out of pocket medical expenses through October 7, NOT including bi-weekly paycheck premiums.  I miss the old system.
$4,713 for out of pocket medical expenses through October 7, NOT including bi-weekly paycheck premiums. I miss the old system.

Will a Pedicure Derail me Financially?

Around here, a pedicure costs $28 (before tip).

I was looking at my consolidated annual credit card spending report last week – it was extremely illuminating!

Most of the charges ranged from $30 – $70, but to a quick eyeball analysis, the numbers that seemed most frequent were in the $30-range.  Tens of thousands of dollars spent $35 at a time.

This summer I finally changed my mindset from “it’s just a pedicure” to “what a damn stupid way to waste my money, I can paint my ugly toes myself.”

I struggle with beauty-related spending.

On the one hand, I don’t wear much makeup, I don’t buy perfume (but I sure try to grab samples whenever I can!) I don’t get massages, I don’t wear fancy clothes or have a shoe addiction.

But on the other hand, I’ve been known to get my hair highlighted and low-lighted and glossed and cut for up to $190 and pay $60 for a few ounces of skin cream from the department store.  I love pedicures and botox and acupuncture.  I did Crossfit for two and a half years ($140 – $190/month).  It never occurred to me that any of the costs were excessive.

But now that we’ve set a goal – to pay off the house as quickly as possible – I’m re-evaluating things.

I switched to a different stylist and tried Nice’n Easy the last time I colored my hair.  I haven’t gotten a pedicure this summer.  I’m not currently Crossfitting.  I’ve been using up all the half-full bottles of fancy shampoo and conditioner and soap and mascara and given up my Venus razor for the Dollar Shave Club.  I have more laugh lines this year than ever before.  I’m plain old running outside instead of burpeeing and squatting and kipping (“that’s the kind of stuff they do in prison,” my husband mused, puzzled, when I started CrossFit.).

My feeling is this:  we’ve set a weekly budget for ourselves.  If I decide that one of those things is super duper important to me, my husband and I will have a discussion and maybe make room for it within our weekly budget by cutting out something else.

But for now, I’ve been getting along well enough without pedicures.  I haven’t even bothered to paint my toes myself.

The biggest take away that’s come along with all of my beauty “downgrades” – no one has noticed!  No one has noticed that my toe nails are naked, or that my hair cut is less expensive, or that I’m using Oil of Olay.

The most important factors in looking nice – eating well, and not too much; staying active; keeping out of the sun; avoiding sugar; staying hydrated; avoiding alcohol – don’t cost money.  That said, I do miss the botox, not gonna lie.  But I just can’t justify it right now.  It doesn’t make any sense.

Instead of losing our money $35 at a time, we’re paying off the mortgage $35 at a time, and that feels really good.

 

My Cell Phone Costs $15/month

My husband and I switched from Verizon Wireless to Republic Wireless about a year ago.  We have Moto E 2nd Generation phones, currently $99.

Our Verizon bill was $128/month.

Republic Wireless charges us by our usage, and our combined monthly bill hasn’t yet cracked $30.

I have trouble understanding why anyone would pay so much more for essentially the same product, but it’s a pattern that’s repeated over and over and over again (cars, clothing, wine, computers, etc, etc).  I’m embarrassed that it took me so long to make the switch

Absolutely no complaints.

Brunch is Stupid

We used to go out for breakfast once a week or so.  We didn’t think of it as a big deal.  But it was expensive.  For just the two of us to go to the Watertown Deluxe Diner, the price was regularly north of $30 including tip – that’s crazy!  We weren’t ordering anything out of the ordinary; tea, toast, eggs with cheese, bacon, pancakes… all things that we could whip up in our own kitchen for well under $5 (and with better service at our house, too!).  Even the cheap-o place down the street costs over $20 with tax and tip.  The one time I went to Cinquecento in Boston with a bunch of girlfriends, fuhgetaboutit.  Drinks, pastries, fruit, eggs.  $50 for just me.  I sobered up fast.  Ouch.  We were spending $120+ / month on breakfast.  It just didn’t make any sense.

Once I started focusing on paying off the mortgage, cutting back on restaurants in a big way was low hanging fruit – and cutting out breakfast and brunch entirely was an easy adjustment.

After all – I really like the breakfasts I make at home.

For the past few years, my husband and I eat egg breakfasts during the week.  Our eggs are always exactly how we like ’em.  Our food is always hot (well, my food is always hot.  I don’t think he always heats up his egg muffins in the car on the way to work).  My latte comes out perfect every time (I use Lavazza Perfetto, the Bialetti moka pot and a battery operated milk frother and serve myself in a beautiful ceramic mug.  No crappy, not-hot-enough, wasteful, expensive Kurig taking up my counter space!).

On the weekends we add bacon, which is always crispy.  Or pancakes, and occasionally french toast or breakfast sandwiches and tater tots.  We don’t have to rush to get somewhere before the crowds hit.

Breakfast at home is so easy to dress up – add a saucer for the tea or coffee, put that cute cream and sugar service on the table (if you’re like me, you bought it, so you might as well use it, right?  Here is the opportunity!), sprinkle powdered sugar on the pancakes, put out the real maple syrup (no $1.50 upcharge) and cut up strawberries.  Think of all the stuff that impresses you at a restaurant, and make it your breakfast reality (or at least, your weekend breakfast reality).  Eat on the dining room table you never use – or on the deck, or set up chairs in the grass.  Play music.  Take your time, because no one’s waiting on your table.  Best of all, don’t look at your credit card charges the next week and wonder what you were thinking.

Eating breakfast at home has not negatively impacted my life one iota.  We save money.  We eat more healthy food.  We eat less.  Win-win.

 

My buddy Dave Ramsey

No one likes to talk about budgeting, or spending less money.  No one likes to hear about it if you’re doing it.  I think it makes people feel guilty.

It’s hard to find people to cheer on your journey to financial freedom.

That’s why I like Dave Ramsey.  I don’t agree with everything he says (his financial projections are based on wildly optimistic growth rates, for example), but a whole lot of it serves as a daily pat on the back – “Good job, Nicole!  You’re on the right path!”

I usually listen to a 45-minute Dave Ramsey podcast each morning while I eat breakfast and get the day started at work.  It’s a nice little boost, and a good way to feel confident when faced with eye-rolls and unhelpful comments from coworkers and friends.  I like hearing people’s stories, mostly.

I also read several personal finance blogs.  More good company to keep.  Some are more extreme than others.  I consider my methods middle of the road.  My money saving “strategies” come from low hanging fruit — don’t go out to eat so damn much; don’t buy things on credit; pay off the mortgage asap; take care of the stuff you already have; don’t be so quick to pull the purchase trigger; set a budget and live within it.  I’m not advocating extreme couponing or buying 50# sacks of rice or only vacationing in a tent (nevermind skipping the vacations altogether).

People spend loudly.  They post pictures to Facebook and Instagram of all their amazing new crap, and their fancy vacations, and every stupid pumpkin beer they’ve ever drunk.  But they don’t post the details of each purchase.  The new car with the caveat, “$380 per month for 60 months” or the $12 martini with a note “will be piled on top of my $4,500 credit card debt which accrues interest at 17%.”  That’s the stuff that interests me.

People don’t advertise their saving so much.  People save quietly.  It’s not exciting.  Finished paying off your student loan?  Reached a savings goal?  Post that to Facebook!  Budgeting can feel downright anti-social.  We’re supposed to be cool enough to spend profligately AND do everything that needs to be done behind the scenes to retire comfortably.

I love talking about saving, and making smarter choices day-to-day with budgeting and money.  But most people don’t want to talk about it because mostly, they consider it private and it causes discomfort.

I can’t recommend surrounding yourself with loud, positive financial voices strongly enough.  I first started listening to podcasts and reading blogs a year and a half ago, and it changed my life and made me realize that I can do better.  Some of these voices are super extreme, and some will be way off base with your value system.  Some of the voices might be good, but just not relevant for you.  My husband and I are DINKs (Dual Income, No Kids).  That’s nice and all, but if you have a handful of kids, and need someone to relate to that, there are plenty of voices from that perspective.

At the heart of it, personal finance boils down to a few mathematical and emotional maxims:

  • Spend much less than you earn.
  • Don’t buy things on credit.
  • Don’t buy so damn much stuff.
  • Put away a goodly chunk for retirement.
  • Stop measuring your worth with someone else’s yardstick.
  • Contentment is the crux to financial and personal happiness.

 

I love rich people (aka, Leveraging Craig’s List)

When we moved in to our rather huge home, we didn’t have a whole ton of furniture.  I did buy a new mattress.  But for everything else, I turned to Craig’s List.

It’s amazing.  I can buy things that are still in the store for dimes on the dollar from Craig’s List.  It still blows my mind.

IMG_3729
Crate & Barrel’s Belmont Kitchen Island

Take, for example, the Belmont Kitchen Island.  $499 plus tax at Crate and Barrel.  Mine works just as well, and looks just as nice, and was $200.  So far as I could tell, it hadn’t seen much, if any, use.

By the way: my mother and I made the window treatments you see in these pictures.  All fabric was less than $4/yard at Marden’s Surplus and Salvage.  As for the labor, I’ve put my mother’s retirement to good use 😉

Ethan Allen's Berwick Chair! Accompanied by a $65 Craig's List floor lamp, and framed by roman shades made with Marden's Surplus and Salvage fabric.
Ethan Allen’s Berwick Chair! Accompanied by a $65 Craig’s List floor lamp, and framed by roman shades made with Marden’s Surplus and Salvage fabric.

I decided I have a thing for Ethan Allen furniture.  High quality and all that.  The Berwick Chair seemed nice, but man was it expensive, $1,479 depending on the basic upholstery choice.  A few months of diligent Craig’s List searching, and voila! That Berwick chair was mine for $150.  A retired couple in Marblehead was downsizing. Like the queen size cinnabar colored Ethan Allen Kingston Bed, but feel $1,899 is a little pricey?  I got this bed for $350 from a beautiful custom built craftsman home in Natick.  I got the Turner Coffee Table, in like-new condition, for $150 because it didn’t fit in with the loft style of a Revere man’s new condo.  It’s mind blowing.  People around here decide they need to redecorate, and they can’t get rid of their old stuff fast enough.  If you like that pillow cover, it can be yours for $4.85.

Lamps and lighting fixtures are another great thing to buy on Craig’s List.

Yes it's true, I have a thing for stained glass.

Yes it’s true, I have a thing for stained glass.

I’ve lit my entire house for $300.  A couple in North Reading “updated” their kitchen countertop from granite to marble, and replaced their pendant lights with Edison style lights.  Boom! New dining room and front hall fixtures for us.

Given Craig’s List, I struggle to understand how anyone would buy full priced furniture and fixings for their dwelling.  I understand the appeal of New, but I have gotten plenty of like-New things from Craig’s List, and I get the added benefit of feeling smug about the price.

Ethan Allen pineapple lamp atop solid wood children's dresser, total price $100.
Ethan Allen pineapple lamp atop solid wood children’s dresser, total price $100.

I’m proud of my purchases.  There’s a lot of snobbishness about Craig’s List stuff.  Some of my coworkers make a face as if they’re smelling something terrible when they explain to me that they could never buy secondhand furniture.  You know what?  Less competition for me.  My husband and I walked around the Natick Ethan Allen store a few weeks ago and high-fived each other whenever we saw a piece we owned (he hates to high-five, but at this point, he’s given up).

There are a few “tricks” to Craig’s List and the second-hand world.

#1 – Don’t buy stuff willy-nilly.  Just like stores.  If you go in to Home Goods without a mission, chances are you’ll leave with $200 less in your bank account and only 2 throw pillows and some Easter themed dishes, and a “Live Love Laugh” wall decal to show for it.  No one plans to buy a “Live, Love, Laugh” decal.  It’s one of those crazy-tragic things that happens when you don’t have a plan.  Don’t just browse Craig’s List and buy whatever catches your eye, because a ton of stuff will catch your eye.  Look for something specific.  Be patient.  It may take a few months to find exactly what you’re looking for and negotiate the price you want.

Another (!) heavy-as-hell stained glass lamp sits on a British Classics collection side table that was thrown in for free with our coffee table purchase.
Another (!) heavy-as-hell stained glass lamp ($40) sits on an Ethan Allen British Classics collection side table that was thrown in for free with our coffee table purchase.

#2 – You win some, you lose some.  Nine times out of ten I put in a lowball offer that doesn’t even get a response, or that offends the seller.  But without asking for a lower price, I wouldn’t get a lower price.  I think of the “no’s” as saving me money.

#3 – Budget.  When I was furnishing the house, I would set aside a Craig’s List budget.  I enjoyed hunting for things within my budget.  One of my strongest negotiation responses is along the lines of, “unfortunately I cannot meet your asking price because my Craig’s List budget this month is $65.  If you have trouble selling x, please don’t hesitate to contact me.”  Sometimes it works, sometimes it doesn’t.  But it’s imperative to stick with your budget!  New furniture is a luxury item.  No one deserves a new couch.  All furniture and household goods should be very low on a list of spending priorities.  Furniture should only be acquired by households with only mortgage debt or less.

Happy Craigslisting!

 

 

$92 Evaporates without a Plan

I read recently on the Pretend to be Poor blog that the chic pretending to be poor doesn’t budget because “budget” is code for “license to spend,” or something along those lines.

I pshaw’d that as ridiculous.

Yesterday morning I realized that we had $96 left in our weekly budget!  Hoorah!  That doesn’t happen too often.  Our weekly budget resets around Thursday/Friday, and no bills in sight.

It was like this money was burning a hole in my pocket.  Maybe that fake poor woman is on to something afterall.

So I went to Chipotle for lunch (only $8.35 – that’s not bad, right?).  And I stopped at the wine store on my way home, and bought not 1 but 2 bottles ($27).  I usually drink Bota Box wine, but I was feeling fancy, and why buy a box of wine when you can get half as much volume at 150% of the price.

Then I didn’t feel like cooking, and it was cheap burger night at a restaurant.  So we went!  We deserved it, right?  $18.13.

Then on the way home, we picked up a few household things at the grocery store.  $37.56.

And by the end of the day, our $96 surplus shrunk to $4.  And wouldn’t you know it, when I opened the mailbox, there was the quarterly water bill for $89.80.

So this week my budget starts $90 lower than usual.  Yuck.  It didn’t feel like I spent much yesterday, but I blew through $100 in a flash.

This budgeting stuff is not easy, particularly day after day, on a long term basis.  It takes chutzpah!  I didn’t even technically fall off the horse yesterday, but I certainly slipped sideways in the saddle.  The important thing is to take account of things, not avoid the numbers, and do better next time 🙂

 

The State of the Mortgage – June 2016

My husband and I went under agreement on our house two and a half years ago.  We felt like we had hit the jackpot – a beautiful house in great shape, no foreseeable need for any cash outlays, a nice yard, a big driveway (trust me, this is an asset in our area), and walking distance to the grocery store, the wine store, the library, a movie theater, restaurants and bars, the dry cleaner, the track and the elementary school (I believe everything is listed in order of importance!).

The house was listed at $449,000 and we offered $440,000.  The sellers came back at $444,000, and — brilliant negotiators that we are — we took it!

We immediately went about locking in our 30-year fixed rate.  There were rumors that the Fed was about to do all sorts of things, so it was priority #1 to lock in that rate!  We worked with an awesome mortgage guy and locked in at 4.25% with no closing costs.  We put 20% down, and our 2014 projection looked something like this:

We were $355,000 in debt!  That was a shock.  From positive net worth to super negative in a single day.  When I saw the breakout of our first payment, it was a major bummer, to put it mildly.  Only 28% of the payment was going towards the principal – AAAAAAGH!  The screenshots above are from an awesome mortgage calculator website, by the way.  This website was quickly added to my favorites.  I started playing with different extra principal payment scenarios and quickly realized that we could easily shave a number of years off the mortgage term with rather small extra monthly payments.  “OK,” I reasoned with myself, “this isn’t necessarily so bad.  There’s no reason we need to wait until we’re 64 years old to make our final mortgage payments.”

So it went, for the rest of 2014.  We’d make some extra payments here and there, and meanwhile we got married, and also bought a car (with cash, definitely with cash!).  The mortgage was annoying but it wasn’t my primary concern that year.

As the weather started to get colder, my thoughts turned back to the mortgage.  Sure, we had made a few extra payments here and there.  But could we do better?  I started to run more extra payment scenarios.  It was around this time that I started looking at personal finance blogs and listening to podcasts, and taking a more critical look at our spending.

Well, my spending.

My husband really didn’t spend much money.  He’d agonize over a $10 purchase, then leave the store empty handed.  If he found a pair of shoes he liked, I’d suggest buying 2 pairs (or even 3), and he’d go nuts, “Nicole, I don’t even know if I’ll buy this one pair – I’m not buying 2 pairs.  And 3?  No, absolutely not, that’s crazy.”  And the shoes would go unbought.

His big expenses were gas and the gym.  $10/month for Work Out World.  I didn’t even bother checking with him on his upcoming expenses when I’d lay out our weekly and monthly projected expenditures.  I still don’t.

So it was me, all me.  I was the one frittering away our money on Rue La La and who knows what.

I read one article advocating a 15-year mortgage and then I hopped over to my trusty mortgage calculator website:

I was sold.  From the Very First Payment (as opposed to year and years and years down the line) our monthly principal payment would be waaaaaaay more than the interest payment.  $643 more per month wasn’t chump change, but it also wasn’t really that much.  When I analyzed our spending, we were spending that (and more) each month on all sorts of unnecessary stuff.  Restaurants alone ate up hundreds each month!  It wasn’t uncommon for me to meet up with a girlfriend for an appetizer and 2 glasses of wine and end up plunking down $50.  There was no reason I couldn’t do that sort of thing on the comfort of my own front porch, without negatively impacting my lifestyle.  We had just plunked down $88,000 for the house – time to start taking advantage of the house!

We could do this.  Easily, truth be told.

I called up trusty mortgage guy Keith and said we wanted to make the switch.  “15-year mortgage – that’s a sexy little package.  Sounds good,” Keith said, and by the end of the phone call we were locked in to a 3.125% rate.

Hoorah!  Over the course of one 15 minute phone call, we had evaporated 14 years from our home payments!  This was living!

We were happy enough with the 15-year mortgage.  For a few days.  But then I jumped over to the mortgage calculator website again.  And again, and again.  And I kept analyzing our budget.  What else could we do??

Thus began my quest to put as much money as possible towards the mortgage each month.  Each time we make an extra payment, I think about the time that gets lopped off the back end.

It’s HARD to keep it all in perspective!  I don’t know who the hell these other personal finance bloggers are, getting so much satisfaction out of living on $250 groceries per month and never doubting their ascetic living.  Ack!  I want all kinds of things!  It is a daily struggle not to buy stuff, all sorts of crazy, wonderful, stupid, delicious stuff!  But I try hard to keep the big picture in mind.  It also helps that my husband is such a rock.  I don’t even think he notices that we’ve/I’ve cut spending by a TON over the past year.  His spending is unchanged.

So here’s the “state of the mortgage” in June, 2016.  In the graph below, you can see that we were making some extra payments in 2014, but then the real drop off starts when we started to fine tune our focus.  It’s a struggle.  I can’t even say that it’s getting easier :/

We paid off $50K of mortgage principal in 2015.  Our goal is the same for 2016, although we might not quite hit it because we maxed out our HSA (more on that later).  The graph doesn’t look quite so awesome when I zoom out, but still, it’s so much more encouraging than what would have been, with the 30 year mortgage

I just looked it up.  If we had chosen to stick with the 30-year mortgage course, and forgo extra principal payments, our balance going in to June, 2016 would be $341,704.28.  OMG.  Here’s a graph giving a better idea, showing that we’ve already shaved off nearly 3 years of the 15 year mortgage:

Plenty of folks advocate 30-year mortgages, and put the rest in index funds, earn more than the mortgage interest rate, blahblahblah.  That’s fine for them.  But we are extremely conservative.  Basically, we are financial wusses.  We LOVE the idea of being mortgage-free.  Realistically, we wouldn’t put money that we don’t throw at the mortgage into index funds at this point.  We’d probably spend it on $30 entrees and $14 glasses of Barbera on Thursday, Friday, and Saturday nights.  For us, this course makes more sense.  So we’ve been throwing it at the mortgage and maxing out retirement and HSA accounts.  For now, that’s enough.

One important thing to note is that before we made the mortgage our priority, there wasn’t much money left over each month.  We managed to spend whatever we brought in.  While our income has increased marginally over the past two years, the real change has been setting a mortgage goal each month, and setting a budget each week.  We’re now tracking our money, and making it work for us.

I cannot recommend the 15-year mortgage strongly enough.  And then make extra payments whenever possible!  If we hold steady on the track we’re on — which is never, ever a good thing to assume, but let’s just suppose all things remain constant — we’ll have this puppy paid off in another 5 years.  BOOM.  From a 30-year mortgage to 7 and change in under 2 years.  That’s my kind of personal finance!