Paul Heinz

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Filtering by Tag: savings

Cost Savings Techniques

Last week I referenced a New York Times article by Alina Tugend about finances and how many of us compare what we have to those around us and may even be bewildered by how others can afford things we can’t.  In this article, Tugend referenced a website I had never heard before called Mr. Money Mustache.  This website is a rabbit hole of mega proportions, throwing you into a world where every decision you make has financial repercussions.  It’s also a helluva lot of fun, with fantastic advice for people of all income levels, and I particularly love to read the forum where people chime in on various topics, ranging from the sensible to the absurd. 

Mr. Money Mustache is all about achieving financial independence by making smart decisions, and it’s just one website that’s proliferated the F.I.R.E. movement, which stands for “Financial Independence, Retire Early.”  There’s even a new documentary available on-line called “Playing With Fire,” which summarizes the trend of people eschewing mainstream habits in favor of gaining freedom from the spending treadmill. It’s great stuff, and even if you don’t go in whole-hog the way some disciples have, there’s plenty of advice to get you on your way to saving more, borrowing less, and giving yourself a better chance to pursue what you want in life rather than what you have to do due to your financial situation.

I’ve written before about my family’s philosophy when it comes to finances, but I’d like to highlight a few things we’ve done over the last twenty years or so that made an impact.  True, we still have spending weaknesses (for me: records, musical instruments, concert tickets and eating out), but by and large we’ve been able to put our family’s money where it matters most to us (namely, retirement, college savings, trips, and charity).  Here are a few things that have worked well for us:

1)     I cut my own hair.  Yes, I’m fairly bald, which makes this a lot more doable, but it’s an option for many of us.  Savings: about $250 a year over the past 15 years.  Total:  $3750.

2)     My family hasn’t had cable TV for 19 years now.  This is a much more doable proposition today than it was in the year 2000, and if you haven’t already done so, I urge you to cut the cord.  Savings: about $1200 a year for 19 years.  Total: $22,800.

3)     My wife and I have used Republic Wireless for our cell-phone service since 2014, spending on average about $250 per phone verses the iPhone or Samsung Galaxy that cost upwards of $1000.  Additionally, we spend about $25 a month each for phone service.  Today, that’s not a huge savings, but in 2014 it was.  All told, I figure we’ve saved about $3000 in phone costs and about $1200 in service costs since 2014.  Before then I didn’t even have a smart phone, so the total savings is even greater.  (NOTE: I’m ashamed to admit that some of this savings has been offset by my family still having a landline.  My wife won that battle, but family harmony is worth every penny!).

4)     We cut our own lawn, shovel/blow our own driveway, and don’t pay for any kind of landscaping except for tree removal.  At the low end, I figure I’ve saved about $60 per month for six months a year, and maybe another $150 a year for snow removal.  Let’s call it $500 a year, or $9500 savings since 2000.

5)     During my children’s school years, they were allowed to eat one hot lunch per week.  Every other lunch had to be made at home.  Cost savings: not much, really, as school lunch prices are very reasonable in Illinois.  But I feel like over the long haul this rule taught my kids to be more self-sufficient.  My now-adult daughters pack their own food most days and don’t go out to eat as often as they might otherwise.

6)     I save a lot on purchasing cheaper wine at my local liquor store, which often sells overstocked or older wines at huge discounts.  I often buy $15-$30 bottles of wine for $4 each.  Savings?  Well, let’s face it.  Wine isn’t a necessity, so the real savings would be giving up drinking altogether, so I’m not adding this in my calculation.  But it is another example of approaching purchases with a little more wisdom.

7)     My family hasn’t purchased a new car since 2007, and we still own it.  Our other car was purchased used, and that’s the only way we’ll go in the future.  If there are two rules to follow when it comes to spending: always, always pay off your credit card debt each month, and keep your car for as long as possible (and by slightly used cars).  Savings?  Hard to calculate, but let’s figure $100 a month for the past 12 years.  Total: $14,400.

8)     Keep your appliances and outdoor equipment for as long as possible.  I just broke down and purchased a new lawnmower after 17 years of using the old one.  And here’s the real miracle: our kitchen refrigerator is now older than our 22 year-old daughters.  How?  Well, for one, we’ve been lucky.  But also, we don’t particularly care what our refrigerator looks like (it’s not exactly pretty at this point), and I vacuum off the dust from the coils a few times a year.  Who knows if this was the difference, but it’s nice not to have to purchase another one!  Total savings: about $2000 minus the electricity we’re undoubtedly paying for a terribly inefficient appliance. 

9)     We do a lot of home maintenance projects ourselves, outsourcing only when necessary.  And it’s important to understand that I didn’t grow up handy in any way, shape or form.  I’ve simply read, watched videos and asked lots and lots of questions from my friends who are better equipped for this sort of thing.  In the end, we’ve managed to do a few things well, including all interior painting, changing electrical outlets, installing a new circuit board for our boiler, installing our own ceiling fans, installing all of the toilets, sinks and faucets, repairing drywall, etc.  It all adds up.  Also, don’t forget to change/clean those filters on your air conditioners, humidifiers, etc. and stay on top of your auto maintenance.  Savings?  A helluva lot, but hard to measure.  I think conservatively at least $20,000

10)  We put our non-investment savings into an on-line account that earns (currently) around 1.8% interest and we locked our mortgage in at a really low rate (2.8% I believe).  Smarter still would be to not have a mortgage, though opinions vary on this. 

11)  We only pay for a fee-based financial planner, rather than asset-based.  I wrote about in-depth earlier this year

12) We clean our own home - not a given where my family lives. I have no idea how much a service costs, but let’s conservatively say $50 a month or $600 year. Total savings over the past 19 years: $9500.

13)  Here are a few examples of ways to save a bit, but more importantly, to reduce waste.  We do these more for the environmental impact than anything else.

a)      This is my favorite: instead of using Swiffer sheets to dust our hardwood floors, we use pieces of fleece leftover from family blankets we made some time ago.  Simply dust, shake the fleece outdoors, and wash.  We’ve been using some of these pieces for over a decade.

b)     We’ve used almost exclusively cloth napkins and real dishes, even when entertaining, for the past 20 years or so.  I abhor using paper and plastic products when avoidable, and cloth napkins look nice and are easy to throw in with the laundry.

c)      I’ve started to use my own utensils and napkins when going to eat at a fast-food restaurants.

d)     We’ve used cloth grocery bags for the past 25 years or so.

e)     We print on both sides of sheets of paper.

f)     For our cats’ litter boxes and our dog’s poop bags, we use the bags that come with products we already purchase: cereal boxes, toilet paper or paper towel packaging, insulated envelopes that come in the mail, etc.  Of course, not having cats and dogs to begin with would provide even more savings – both financially and environmentally – but how to you say no to this face?

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There are undoubtedly a lot of other things I could mention.  If I add up all the above highlights, we’re looking at around $85,000 in savings plus the interest earnings and savings from a low mortgage rate.  Not bad, but these days, that can be wiped out awfully quickly just through a kids’ college education.  Crazy, isn’t it?  But it all adds up.  The website Mr. Money Mustache, along with the good counsel of people like Clark Howard and Dave Ramsey, can do a lot to get you on your way to cost-savings.  I hope some of my aforementioned examples speak to you as well.  Happy savings!

Yes you can: Open an IRA for your Child

Money seems to be a preoccupation of mine these days, which is ridiculous, as there are more important things to consume one’s time, like albums, ping-pong and baseball.  But one aspect of money management I’ve embraced recently is one that every parent should at least consider: opening Roth IRAs for your children. 

Back in college, when my friend Mark announced that he’d just opened an IRA, not only did I not know what an IRA was, but once explained to me, I didn’t understand what the hurry was.  After all, I was still visiting the TYME machine (ATM to those of you from outside Wisconsin) three times a night to buy “just one more” pitcher of Hamm’s; the only foresight I possessed was drinking a glass of water to minimize the inevitable hangover the following morning.

Over time, I learned about saving early and saving often, and by now my family has reaped the benefits of this strategy, but I could no doubt be in a better position had I started saving prior to obtaining a full-time job after college graduation.  As a father of three, I’ve looked for ways to get my kids on the right track earlier than I did, particularly since debt accumulation is higher than ever and wages for many careers are stagnant.  Saving money might be more important for those currently in their teens and 20s than it ever was for those currently in their 40s and 50s.

Enter the custodial Roth IRA.  Yes, your kids can open an IRA (or, more accurately, you can open one for them if they’re under age 18).  Any money your kids earn up to $5500 this year can be put into an IRA.  That doesn’t mean your child can’t spend or save the money she’s earned this year; my two daughters earned small amounts in 2013, and they were allowed to spend or save that money as they saw fit, but I matched their amounts and put it into their respective IRA accounts.  Some companies don’t allow you to open up a custodial IRA – Fidelity is one example – and some brokerage firms require minimums that my 16 year-olds couldn’t reach, but there are several options to fit most people’s needs.  I ended up opening accounts through E*Trade, though I could just as easily have opened accounts at TRowe Price, Vanguard, Charles Schwab or TD Ameritrade. 

The idea of course is twofold: get your kids to become accustomed to saving (even if they’re currently not flipping the bill, they’re learning that saving for one’s retirement is important), and start growing their money.  My daughters only earned $900 and $1500, respectively, in 2013.  But if they manage to earn 7% for the next 50 years, that money will grow to $26,511 and $44,186.  Not a bad start.

If you can’t afford to match your children’s income in total, perhaps come up with a compromise and have your kids save a portion of their savings and you match that portion.  Even a couple of hundred dollars is better than nothing, and there are funds that will allow you to open an IRA for as little as $100.

One note: you can only invest legitimate earnings, so keep good records of your child’s income and file a tax return even if they don’t have any withholdings to recoup.  One of my daughters earned all of her income by babysitting and doing other odd jobs that didn’t require a W2 or generate a 1099, but I still had her fill out a tax return (form 1040EZ only took her 5 minutes to complete).  Throughout the year, I kept track of all of her earnings on an Excel spreadsheet and included it with my tax records.

There are great resources to get you up to speed on opening Roth IRAs for your children.  Three than I perused before taking the plunge are below:

http://www.forbes.com/sites/baldwin/2011/04/18/make-your-kid-rich-with-a-roth-ira/

http://www.investopedia.com/articles/personal-finance/110713/benefits-starting-ira-your-child.asp

http://www.kiplinger.com/article/saving/T046-C001-S001-give-the-gift-of-a-roth-ira.html

Now start keeping track of your children's savings, open up an IRA, select an index mutual fund, and watch it grow.

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