In my previous post I gave some examples of ways we’ve been able to save money in our pursuit to pay off the house. One month in and things are going well. We were under budget on everything except gift giving. We’ve really got to get our generosity under control. Here are some more money saving ideas, these require potentially major life changes, time and effort, or the ability to accept some risk. For those reasons I’m calling these “advanced.”
When Lianne and I graduated from college our dream was to have a large house. Nothing ostentatious, but something large enough to set aside rooms for specific purposes. I remember going to my friend’s house and
he had a room with wood floors and a full sized grand piano. That’s it. That was their piano room. We wanted that. How great would it be to have a craft room, a game room, a music room, plus a living room and bedrooms! That was our dream. We could probably afford it now, but we’d rather not go deeper into debt. Our current house is perfect for us, and we even looked at downsizing to pay it off. It’s a radical step, but maybe it is worth downsizing to get your (financial) house in order.
Insurance is a large expense for many of us. We insure everything, from our lives and health, down to our cell phones. Statistics tells us that on the average we will lose money on insurance, but we purchase it anyway for peace of mind and as a hedge against the unexpected. Lianne and I have insurance for our cars and house, but we have high deductibles. We are willing to take the risk on minor damage in exchange for the savings over time. Here is another benefit to a smaller house and older cars, our insurance bills are lower. We also have a moderate term life insurance plan, and I’ve got a very inexpensive disability plan through work. Those cost us about $25 per month, combined. We never buy insurance on everyday purchases, with one exception. We buy road hazard insurance on our new tires. We travel a lot, but we don’t have AAA. Tire insurance that covers us anywhere in the country is worth it to us. We don’t get insurance on our electronics, and I think that’s a good move. However, right this moment Lianne has her $200 cell phone sitting in a bowl of dry rice hoping that it will recover from a short bath it took yesterday evening. If you’ve got the latest phone, and a tendency to drop it or take it for a swim, some insurance might be worthwhile.
The last big insurance expense for most of us is health insurance. I don’t think there is a right or wrong here, but I do think many people spend more than they need to spend. Similar to our other large item
insurance plans, we have opted for a high deductible health plan (HDHP) that includes a Health Savings Account (HSA.) Most employers offer this option and it is a great way for relatively healthy people to save some money and to get control of their health care dollars. The HDHP typically has a high deductible, maybe $3,000 for a family, and then you can save up to $6,750 (in 2016) in an HSA account to be used for health expenses. The money is tax free, belongs to you, and rolls over year to year. The monthly premiums for an HDHP are much lower than standard plans, plus you have more freedom about how and where you spend your health care dollars. It may not be the best option for folks with chronic health conditions, or for those planning to start a family, but for us it is perfect. We eat and live healthy. Lianne shouldn’t be getting pregnant anytime soon, as far as I know. Jaron plays video games inside all day, so his only risk of injury is a sprained thumb. We’ve been using our HSA money to pay for braces, and the tax savings is a huge plus (more on that below.) The next time your employer does open enrollment, at least crunch the numbers to see if this would work for you.
For this next paragraph, a disclaimer, I am not an accountant or a certified tax professional. Ok, with that in mind, read on. Tax credits and deductions are a huge, overlooked area of savings for many. Our effective income tax rate is between 3% and 5% each year. (Thanks kids.) A credit is a dollar for dollar return on your taxes. Some common credits are for higher education and for energy efficient appliances and improvements for your home. For example, we upgraded our hot water heater to an efficient, tankless system and got a $300 credit on our tax return. Since it is a credit, we got all of that $300 back. For deductions, let’s say you are in the 25% tax bracket. That means, for every dollar you deduct, you get 25 cents back. We’ve started using this for all of our thrift store donations. In fact, a few years ago I calculated that it was better for us to take items to the thrift store than to sell them at a garage sale. You may sell that gently used shirt for $1 at a garage sale, but the thrift store value is $4. At 25%, that $4 donation gets you a $1 back when you file your taxes, plus you don’t have to deal with the hassle of the garage sale. Here’s how I itemize thrift store donations. I only donate individual items that are under $500 in value, and I only donate groups of items that are under $5,000 in value. This means, according to the arcane IRS guidelines, that I don’t have to itemize or provide appraisal values for the individual items. 
I get a receipt with the date and a brief description of the donation from the thrift store, I take a picture of the donation, and then I give my best guess as to the value of what I donated. There are some tools out there if you want to do more than guess, but I’m prepared to answer for my guesses if I ever get audited. We net hundreds of dollars in tax breaks through thrift store donations every year. We’re also deduct charitable donations to our church and to other non-profits.
The other big tax credit we get is for Jaron’s college education. Fortunately, most of his tuition is paid for with an academic scholarship, but for the rest, we use the American Opportunity Credit. Again, this is a dollar for dollar credit of up to $2,000 (plus another $2,000 with a 25% credit) which covers tuition, books, and any other expenses required for classes. Speaking of college, it is a great idea to go to college, not as great to go into debt to do it. Many millennials are choosing to go to community colleges, work part-time, live at home during college, and take other steps to reduce their college expenses. Student debt can be financially and psychologically brutal. Use with caution.
There are many other credits and deductions. Whenever I’ve got a major expense I always check for a tax deduction before making the purchase. You never know when you might be able to get a little bit of your hard earned money back into your own pocket.
Another way to lower your taxes is through tax deferred retirement accounts. It is a given that you should invest in your 401k (or similar plan) at work. Many employers will match a certain percentage, and you should at least invest up to that amount. In addition, there are some benefits to investing in a Roth retirement account instead of a traditional account. This decisions depends on your tax burden, and your plans for retirement. However, I want to bring up one little know fact about Roth IRAs. You can remove your principal, that is the amount of your contribution, at any time, without penalty. This means your Roth IRA could serve as a backup emergency fund although there are downsides to this approach. It’s a neat perk, that we used when we bought our property.
The last tip is about household and car repairs. My Dad was pretty handy, more so than me. I did manage to learn a few things from him though, and thanks to the Internet, we’ve saved thousands of dollars on simple repairs. This does take time and effort up front, but the more you do it, the easier it gets. There are YouTube tutorials for almost every repair, and the parts are available as well, even if you aren’t a licensed repairman. If you don’t have the tools for the job it is usually much cheaper to go out and buy the tool than it is to call someone to have it fixed. This goes for household
appliances, plumbing, car repairs, and even electrical work, although I typically call for help if there’s an electrical problem. Our washing machine was flooding a few years ago. Some Google-fu helped us determine it was a clogged drain, as this pictures shows. I have countless stories of these types of repairs. Just last week I assigned Jaron the task of fixing the dishwasher. It wouldn’t start. He found some info online that indicated it was probably the latch mechanism. It has a switch that prevents it from starting if the door is open. He found a Youtube tutorial for bypassing it. He cut and stripped the wires, bypassed the switch, and it starts! The door still latches, but now it can start even when the door is open, so we have to be aware of that. We could buy a new latch switch online, which we may do at some point. A service call would have cost $70 for the visit, plus the part and any additional labor. Jaron’s two hour fix didn’t cost us a penny. It doesn’t hurt to do a quick Google search before calling for repairs or replacing something that’s broken.
Those are just some ideas. I hope they help. Like I mentioned, I’m no expert, but I am passionate about being in control of my family’s finances and not letting the money control us. I read recently that our ability to forecast the future is what sets human consciousness apart from the rest of the animal kingdom. Hopefully these tips will help us make use of that ability and create a better financial future for ourselves and our families.