My son, Matthew, is quickly approaching his 16th birthday and so I've been giving him a few driving tutorials.
I haven't let him get behind the wheel just yet -- that's on next month's agenda -- but it's gotten to the point now where every time ...
Continue reading The Unconventional Wisdom of Household Strategic Planning
Save Money: In-School or Going Back
Whether you're starting college for the first time, or going for a different degree years later, you should look for ways that you can save money during college. College is a great expense and many people incur thousands of dollars of debt in student ...
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Essential Tips for Lowering Your Grocery Bill (Part 2)
Food isn't cheap.
Want proof? Then chew on this: I spent almost $12,000 in groceries last year for my four-person family, including two teenagers.
And what's really scary is that I work very hard to keep my food bill as low as possible every ...
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I Just Made the Biggest Impulse Purchase of My Life (but It’s OK)
Yesterday I did something I rarely ever do: I threw all caution to the wind and, as a result, I made the biggest spur-of-the-moment purchase of my entire life.
Believe it or not, I spent $2462.35 on a pair of tickets to see a hockey game.
Yep; ...
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What Goes Around Comes Around: Rising Interest Rates Are Inevitable
Last summer my 12-year-old daughter, Nina, was extolling the fashion virtues of her hot pink Converse Chuck Taylor All-Star high-top sneakers, better known to many as simply, "Chucks."
What I found amusing was while Nina really thought she was on ...
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The Apocalypse Can Wait: My State of the Household Report for 2012
As the old saying goes, knowledge is power.
When it comes to tracking personal finances, one of the most important pieces of information in you can have in your knowledge database is a detailed summary that highlights where your household income ...
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A Simple Trick to Get iTunes Songs at a Significant Discount
I've written before about my insatiable addiction to iTunes; it's one of the biggest money leaks I have to deal with on a monthly basis.
Believe it or not, some months I'll spend upwards of $100 on iTunes songs for my iPod, although I'm trying my ...
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How Being Absentminded Resulted In A $2750 Year-End Windfall
At least I'm calling it a windfall. Let me explain.
You see, if I leave a twenty dollar bill in a winter jacket only to rediscover it after it has been hanging in the closet for nine months, that's a windfall.
Now I can hear a lot of you out ...
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Why Marriage Makes It So Hard to Control Remodeling Costs. (Well, Kinda Sorta.)
As I've previously mentioned, the Penzo household is in the middle of a long-awaited home renovation project with a reliable contractor.
Originally, it was supposed to be a fairly modest kitchen renovation that involved replacing our porcelain ...
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Evaluating The Costs of a Longer Commute: When It’s Better to Just Suck It Up
As many of you know, I live in Southern California; cars are king here. Most of us who live in Los Angeles can't even spell "public transportation."
That's why it was big news when I found out my employer was moving 21 miles down the road, ...
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My Store-Brand vs. Name-Brand Blind Taste-Test Experiment #2
Are name-brand groceries really worth the extra cost when alternative cheaper store-brand groceries are available? More specifically, when it comes to edible products, does the quality and taste of name-brand products always justify the price premium ...
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Flexible Spending Accounts Provide Free Money. Why Pass It Up?
The relentless rise of health care costs can really put a strain on your household budget. Even with an insurance plan, health care expenses can add up when you consider most people still have to pay deductibles, copayments and other items not covered by insurance.
A great way to offset these rising costs is through the use of flexible spending accounts (or FSAs). FSAs are employer-sponsored accounts that allow employees to make pre-tax contributions. FSAs provide tax savings that help offset health care and dependent day care expenses.
Any contributions you make to your FSA can be used to pay for out-of-pocket medical expenses that are not covered by your health insurance plan - so by taking advantage of FSAs you are, in essence, allowing the government to subsidize a portion of your unreimbursed medical expenses.
How FSAs Work
Let's say after sitting down and thinking it over, you estimate all of your unreimbursed medical expenses for the coming year will be $1000. At enrollment time, you instruct your employer that you wish to put $1000 in your FSA. Your employer will then deduct a portion of that amount from your paycheck each week (in this case, $19.23) before taxes.
At anytime during the year, you can tap the money in your FSA to cover your qualifying unreimbursed medical expenses, even if your account isn't yet "fully funded." In other words, if your FSA contribution for 2010 is $1000, you can withdraw all $1000 to pay for qualifying unreimbursed expenses incurred during the first week of January, even though you've only contributed $19.23 into the account.
How do you "tap" the money? I pay the fees in advance and then submit the receipts to my plan administrator who then issues me a check. But I also have the option of using a special FSA debit card as well that will make the payments in real time.
The higher your marginal tax rate, and the more you put in your FSA, the more money you'll save. Somebody that puts $3000 into an FSA and sits in a 25% tax bracket is essentially saving themselves $750 every year.
That's $750 of free money - so why would anybody pass that up?
Fear is a Lame Excuse for Leaving Free Money on the Table
As this New York Times article shows, most people fail to take advantage of FSAs because employee contributions to an FSA are "use-it-or-lose-it.” What that means is if you fail to spend the money in the account before the coverage period ends, any unused funds are lost.
What a lame excuse.
Actually, it's a pitiful excuse - but a lot of people use it anyway. The Times article notes that although 85 percent of companies offer FSAs, only 22 percent of employees take advantage of them.
How sad.
I can understand being afraid of leaving free money on a table if it is being guarded by an angry rattlesnake. But to throw away free money simply because you're afraid you might not meet some silly little requirement is really inexcusable - especially when you consider all it takes for most folks to avoid that scenario is 30 minutes of their time so they can plan out and estimate in advance their unreimbursed medical expenses for the following year.
With two kids currently wearing dental braces, my unreimbursed orthodontia bills more than cover my $3000 annual FSA maximum limit imposed by my employer. But even when the kids weren't in the midst of their current orthodontia program, we had little trouble covering the maximum. When you consider eye glasses, contact lenses, saline solution, dentist and doctor copays, unreimbursed prescriptions, cold and other off-the-shelf medicines, band aids, and other qualifying expenses for a family of four, it didn't take much effort to get there.
Coverage periods depend on your employer’s specific plan, although most plans follow the calendar year. My company's plan even offers a very generous three-month grace period for filing claims.
If you are still worried about losing money, I would recommend you start slowly and gradually increase your FSA limit each year until you feel more comfortable with the process.
That's what I did.
The first year I took advantage of an FSA I only signed up for $500. That year I had reached $500 in unreimbursed expenses by June and I remember wishing I had signed-up to put more in my account. The following year I upped my contribution to $1000. By the third year, I doubled it again. I am now contributing $3000 to my FSA and it is a very important benefit I count on every year to help me save money.
Another benefit of the FSA is it acts as a quasi-savings device. We usually compile all of our receipts in a special file and then request our entire reimbursement check all at once sometime in the latter-half of the year. The $3000 check makes for a nice "windfall bonus" that we use to pay for big purchases.
What Are Qualifying Expenses?
Although there are exceptions, the list of qualifying expenses is usually big enough to drive an ambulance through. For a complete list of deductible medical expenses, check out IRS Publication 502. But, as cited in that Times article, here is an example of how varied the expenses are:
- Over-the-counter medicines of all types
- Cough drops
- Calamine lotion
- Mental health therapy
- Lab tests
- Dental braces
- Lasik surgery
- Aids to help you stop smoking
Just keep in mind that, as of 2011, over-the-counter medications must accompany a note from your doctor to qualify as an allowable expense.
Keep in Mind Your Employer Can Make Exceptions!
It is important to know that employers are free to choose what their FSAs will cover. The Times notes that while the vast majority of firms simply follow the IRS rules, some do make exclusions, so check with your employer's benefits department to see how your company varies from the IRS list of approved expenses.
In Conclusion...
FSAs are something to be embraced, not feared. They not only reduce your tax liability, they also can act as a de facto quasi-savings plan. Yes, if you fail to plan, you may end up losing a portion of your contribution - but that is a poor excuse for passing up one of the more valuable benefits that your employer provides to you.
All it takes is a small amount of planning on your part. :-)
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Evaluating the Cost of Extreme Frugality
Earlier this month one of my favorite personal finance bloggers, Bret Frohlich, wrote a terrific piece where he declared war on frugality and explained why frugality doesn't always pay.
In fact, Bret's post got me thinking about those who choose to take on a life of extreme frugality. Keep in mind that I'm not referring to people who dutifully cut coupons and grow their own vegetables.
Instead, I am talking about people who bring home roadkill for dinner, read by candlelight, and/or eschew heating regardless of how cold it is outside.
Why would anybody ever choose such a punitive lifestyle?
As I see it, there are three predominant reasons:
1. After living far beyond their means for too long, they discover themselves to be deeply mired in debt, like this college student who chose to live out of a pick-up truck.
2. They are committed environmentalists that are determined to try and "save the Earth", like this lady.
3. They are fanatical, committed anti-capitalist knuckleheads that are determined to try and "save the Earth" - like the Freegans.
By the way, on their website, the proudly-unemployed Freegans unabashedly proclaim to us uninformed working-class sheep that not only does "working suck," but it is "dehumanizing" as well.
Interestingly enough, in the very next sentence the Freegans go on to espouse, without the slightest hint of irony, the joys of dumpster diving. Go figure.
Just Remember...
Those who practice extreme frugality do not have a monopoly on making life harder than it has to be.
And while it is important to invest in your financial future by doing everything you can to stick to a strict budget and stay out of debt, please don't go so far overboard that you forget to invest in your quality of life as well. :-)
Life really is too short to live like a refugee if you don't have to.
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Kids and Money: Our Decision to Let Our Impulsive Spender Fail
I've written in this space before about just how difficult it is to teach kids financial literacy. For every kid, that seems to have a natural ability to grasp the value of a dollar and a real determination to save as much as they can, there is ...
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Inflation: Your Four Best Defenses For Preserving Your Wealth
I kicked off this series on inflation with a warning about why all of us should fear inflation and why the US government needs it to take root in our economy. But I'm not the only one who thinks so.
Forbes posted an excellent article on the coming ...
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What It Really Feels Like To Be A Millionaire
Yesterday my family and I got in the car and drove to Arizona for the day to see my beloved Los Angeles Dodgers play a Cactus League game against the Chicago White Sox at their new spring training complex known as Camelback Ranch.
The Dodgers lost ...
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Budgeting to Meet the Household Strategic Plan
A household budget should be based upon a well-thought strategic plan for the future. I've already discussed how to establish your household strategic plan so you can begin to build a household budget that meets your long-term strategic plan. ...
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