Search Results for “three-alternatives-to-a-budget/budget-lesson-part-5/subscribe-by-email/debt-burnout/4-ways-we-keep-wasting-money/money-problems-day-1-setting-goals/medical-costs-and-choices”

Make a Budget

: Image by r.lovewell via Flickr

In the past, I’ve gone through a detailed series of budget lessons demonstrating how to make a budget and showing my personal budget spreadsheet template. If you weren’t here to see them develop, you probably haven’t seen them at all. I’ve never built an actual index for those posts.

This is the master index of my budget planning resources. As I develop more, this will grow.

Budget Lesson #1 – In this lesson, I go over how we handle discretionary income and I explain our modified envelope system. The discretionary budget contains things like our grocery bill, or the clothes we buy. We have near-total discretion over what is purchased, hence the name.

Budget Lesson #2 – Lesson #2 contains the details of our monthly bills. These are the ones that are consistent, predictable, and actually due each month. Most people take these for granted as the bills they have to pay, but it’s not true. You can get almost all of your regular bills reduced just by asking. You would also be surprised what you can do without, when properly motivated.

Budget Lesson #3 – This is where I explain how we deal with the non-monthly bills. That is, the bills that have to be paid, but are not due on a monthly basis. I also share the personal budget spreadsheet template I developed. I am working on a few sample templates to match various imaginary scenarios. If you’d like to be an anonymous case study, and get free help setting up a budget, let me know, please.

Budget Lesson #4 – In this lesson, I describe our “set-aside” funds for things that will need to be paid eventually, but not on a set schedule. Sometimes, they are never actually due. We set aside money for the parties we throw, for car repairs and for a number of other things. A few of these items are outright optional, but they are part of what makes life fun. You can’t make a budget without including some of the extras.

Budget Lesson #5 – This is the companion piece to lesson 2. Learn how I’ve reduced–or attempted to reduce–each of these bills. For the better part of two years, I called Dish Network every few months to ask for a discount. For almost 2 years, it was granted. Then one, day, they told me they were putting a note on our account to keep us from getting any more discounts, so I canceled. 100% discounts help us save more.

Budget Lesson #6 – This is the reduction companion to lesson 3. These bills are harder to reduce. Have you ever successfully gotten your property taxes lowered?

Budget Lesson #7 – This is the reduction companion to lesson 4. Notice a pattern, yet?

Budget Lesson #8 – Here, completely out of order, is the reduction companion to lesson 1. Watch as I magically reduce–or rationalize–our discretionary budget.

So, dear readers, what part of budgeting should I address next?

Debt Burnout

Finance

You’ve got a budget. You’ve got a debt repayment plan. You’ve been paying off your debt. You’ve even paid off a few of your smaller debts. Now you’re staring down the barrel of your big debts: your mortgage, a $30,000 credit card, maybe a car payment. You’re looking at months of payments with no quick wins; no more watching your debts die every few months. You’re in the middle of a very long slog.

All of the easy milestones have been reached and the next one is a year or more away. This is when debt repayment gets hard. How can you avoid getting burnt out doing the same thing, month after month, with no major visible progress?

1. Keep your eye on the prize. Try focusing on the end result, while ignoring the time it takes to get there. Do you have a reward planned for when you pay off your debt? If not, consider that to be your new shining goal-post. My wife and I plan on taking an Alaskan cruise when our debt is repaid.

2. Ignore the prize. If #1 doesn’t work for you, try focusing on just the current month’s progress. How much did you pay off this month? Was it more than last month?

3. Make micro-goals. Try breaking the long slog into bite-sized pieces. How fast can you pay off the next $1000? How many months will it take to pay off that TV you bought last year? Sometimes, meeting a smaller goal can make the whole works feel like it’s going by faster.

4. Take a snowball vacation. For just one month, take every dollar you would normally apply to your debt–except your required payments–and have some fun with it. Take a weekend trip, have a fancy dinner, or pick up that video game system you’ve been eying. Something. Anything to take your mind off of your repayment plan for a while. Be careful not to make this a habit or you will never get out of debt.

5. Start a blog to share your pain.

A debt snowball is a long, intense process. If you’re not careful, you can burn out and let the whole thing collapse. How do you avoid burnout?

Three Alternatives to a Budget

Finance

the envelope system: day one — Image by J. McPherskesen via Flickr

Budgets aren’t for everyone. For some people, the very idea of trying to track where their money going is painful. And that’s just the idea of tracking the money. It gets far worse when you’ve got $10 budgeted for coffee, $12 for fast food, $66.50 for gas, and $0.75 for entertainment. It’s can be hard to follow a strict budget for long.

If you know you need to track your money, and you also know that a strict, zero-based budget won’t work for you, what can you do? Luckily, there are alternatives.

1. Hope and Pray. This is otherwise known as the “Call my bank everyday and see how close I am to over-drafting” system. To fully embrace this system, you need to not only abandon a written–or even organized–budget, but you should also throw your checkbook register in the garbage. Make sure you’ve got a good overdraft protection account attached to your checking account and let your money take care of itself. This is the ultimate zen of personal finance. Don’t stress or worry, just hope for the best. This system works best if you make more money than Oprah and have modest tastes. For those of us who have to watch our money a bit to make sure the month outlasts our money, this probably isn’t a great plan.

2. The Envelope System. To implement this system, you do need to create a basic budget so know what you are obligated to pay. Once you have that done, take a stack of envelopes and label them for each item you have to pay. Add another envelope for food, another for entertainment, and another for miscellaneous because there is always a miscellaneous. Divide the money among the envelopes. Now for the magic. When you have to spend something, take the money out of the appropriate envelope and spend it. That’s it. If, however, there isn’t enough money in the right envelope, but you still need to spend the money, you have to take it out of a different envelope and spend less on the category that lost money.

3. Percentages. This is the simplest of the non-budget budgets. Take 50% of your money and spend it on necessities, like the mortgage, food, and utilities. The next 30% goes to savings and retirement. The last 20% is for fun or any other thing you want to spend it on. This naturally works best if you are out of debt, but if not, just make sure most of the 20% fun money goes to repaying debt. This system works best if your bills are automated and you will need to set up a basic budget first, so you can make sure your necessities come in under 50% of your income.

Not every budget plan will work for everyone, but there are always alternatives that can still help you manage your money.

How do you track your money?

Money Problems – Day 1: Setting Goals

Finance

Today, I am starting a series, Money Problems: 30 Days to Perfect Finances. The series will consist of 30 things you can do in one setting to perfect your finances. It’s not a system to magically make your debt disappear. Instead, it is a path to understanding where you are, where you want to be, and–most importantly–how to bridge the gap.

I’m not going to run the series in 30 consecutive days. That’s not my schedule. Also, I think that talking about the same thing for 30 days straight will bore both of us. Instead, it will run roughly once a week. To make sure you don’t miss a post, please take a moment to subscribe, either by email or rss.

In this, the first installment, we’re going to talk about goals.

First, we’re going to ask 3 questions.

What is your financial goal?
Why?
How can you get there?

The first question is “What is your goal?” Of course, in this series, on this site, we’re only going to be addressing your financial goals. Losing 300 pounds, growing wings, and flying to the moon may be an admirable goal, but it’s considerably outside of the scope of this project.

So, what is your financial goal? Do you want to retire a millionaire, or become financially independent? Do you want to pay off your debt, or save enough money to see the world? Do you want to learn how to retire by 40?

Your goal does not matter…to anyone but you. To you, though, it is terribly important. Without a goal, how can you measure you progress and see what you have accomplished? It’s easy to get frustrated and give up when you can’t look back and see what successes you have actually accumulated.

Whatever your goal, you have to do two things:

Don’t let anyone tell you it is stupid or impossible. There is a quote that I can’t find attribution for, other than as an old Chinese proverb: “Those that say it can’t be done should get out of the way of those doing it.”
Write it down and hang it up. This lets you see your goal every day. It will be impossible to forget and difficult to ignore. I have Dave Ramsey‘s Baby Steps hanging on my refrigerator where I see it a dozen times per day.

The second major question to ask yourself is “Why?” Why is this goal important to you? Why do you care?

If you can’t answer that, it’s time to sit back and think about it for a while. Without a solid reason to succeed, you’ll lose motivation and fail. Are you getting out of debt to give yourself a secure retirement? Do you want to save to travel the world because you’ve been dreaming about it since you were in diapers? Do you simply want to provide a secure future for your family? Whatever your reason, it is–and should be–uniquely yours.

The third and final question is “How can you make it happen?” That question has an extremely simple answer: read the rest of the series.

4 Ways We Keep Wasting Money

Finance

: Image by Getty Images via @daylife

MSN Money has an article up on common ways money is wasted. Here is my spin.

We(as a species) tend to do a great job of wasting money. Between inertia and the emotional pain of cutting off something we have gotten used to–whether it be Netflix or a 3rd arm–it’s hard to kill wasted costs. As Robert Heinlein said, “Man is not a rational animal, he is a rationalizing animal.”

MSN listed 4 ways to make your money go bye-bye:

1. Credit cards

According to the article, in the US, the average rate of interest is 15% for a total nation-wide debt of $850 billion-with-a-B. That’s insane. I lucked out and quit using my cards before the CARD act forced all the issuers to send their rates to the moon. I’ve opted out of every agreement change since then, while I pay off the remaining balances. 15%! If you buy something for $1000 and pay it off in a year, that’s $1150. What could you do with an extra $150? It’s time to get out the torches and pitchforks and drop by Mr. Debt’s house.

2. Overdraft fees

I set up an overdraft protection account years ago, because it was a heckuva lot cheaper than bouncing checks. It came with a 25% interest rate and a $2 fee per use. A couple of months ago, they boosted the fee to $10 per use. Jerkface, you’re already cashing in on my interest, do you have to touch me like that at the beginning of the date, too? Thankfully, we haven’t used our overdraft protection since we went on our debt-killing crusade in April of 2009. Oh, Mr. Debt! You’re going to have a really bad day when I get to your house. There will be a smoothie à la Otis when I get there. Side note: If you’ve got a dark sense of humor, rent Otis. Not only will you love it, you’ll get the smoothie joke.

3. Unused memberships, gift cards and rebates

Gym memberships are the big example here. People buy a membership because they set some awesome New Year’s resolution, use it for 2 months, then spend 6 months telling themselves they’ll start using it again soon before they finally cancel. At $30 per month, that’s $180 that could have been spent sending me presents. If you must get a gym membership, wait until spring. That’s when people tell themselves they don’t need a membership because it’s so nice out, they can just exercise outside. When people tell themselves that, the gyms cut membership costs to lure people in to start their own 6 months of denial.

Take a look at your other recurring costs, too. Do you use the cable package you have, or could you be just as happy with the next one down? Do you need the donkeys-and-kneesocks-around-the-world channel? You’ve gotten your 10 CDs for a penny, can you tell Columbia House where to go with their $20 per CD commitment?

4. Airline fees

This one is easy. Forget the 3 hour lines, fees for showing up, Pervo-Scan™, and minimum-wage molestation agents masquerading as cops. Drive whenever possible. If it’s not possible, show up in a kilt, regimental-style(assuming you are a guy!). Don’t check a bag, just ship if overnight to your hotel. Most of the time, that’s cheaper than $50 per bag, anyway. Avoid the fees as much as possible.

What other ways have you wasted money?

Money Problems: Day 9 – Health Insurance

Finance

Today, I am continuing the series, Money Problems: 30 Days to Perfect Finances. The series will consist of 30 things you can do in one setting to perfect your finances. It’s not a system to magically make your debt disappear. Instead, it is a path to understanding where you are, where you want to be, and–most importantly–how to bridge the gap.

I’m not running the series in 30 consecutive days. That’s not my schedule. Also, I think that talking about the same thing for 30 days straight will bore both of us. Instead, it will run roughly once a week. To make sure you don’t miss a post, please take a moment to subscribe, either by email or rss.

On this, Day 9, we’re going to talk about health insurance.

The first thing to understand is that there is a difference between health care and health insurance. Health care is what the doctors do. Health insurance is when the insurance companies pay for it. Or don’t. They are not the same thing. I won’t be addressing who should get care or who should be paying for insurance. That’s political and I try to avoid that here.

I won’t spend much time discussing health care as a “right”. It’s not. If a right requires somebody to actively do something for you, it’s not a right. It can’t be. The logical conclusion of requiring somebody to provide you care gets to be a intellectual exercise to be completed elsewhere. That, too, is political.

What I will discuss are the components of a health insurance plan is the U.S. and what to watch out for when planning your insurance coverage.

Premium

This is the amount you pay for your health insurance. For people with employer-sponsored insurance, this is usually paid out of each paycheck, deducted pre-tax. For those with an individual plan, it’s almost always a monthly payment. There generally isn’t much you can do to lower this much. Most employers offer, at most, 2-3 options, ranging from a good plan for a high premium to “we’ll mail you leeches if we think you’re dying” for a much smaller price.

Copay

This is a flat fee paid out of pocket when you get medical care. Depending on your plan and the type of visit, this could be $10-50 or higher. For example, with a plan I participated in recently, the copay was $15 for an office visit, $25 for urgent care, and $100 for an emergency room visit. The office visit and urgent care visit were billed the same amount to the insurance company, so the price difference was entirely arbitrary. Currently, all health insurance plans are required to pay preventative care visits at 100%, meaning there is no copay.

Coinsurance

This is the payment split between the insurance company and the insured. 80/20 is a common split for plans with coinsurance. That means the insurance company will pay just 80% of the bill, until the insured has paid the entire out-of-pocket maximum. After that, the coverage is 100%.

Deductible

This is the amount that an insurance company won’t pay. It has to be covered by the insured before the insurance company does anything. For example, if you have an insurance plan with a $25 copay, 80/20 coinsurance and a $100 deductible, and paying for an office visit costing $600 would look something like this: $25 for the copay, followed by $75 to max out the copay, leaving $500 to be split 80/20 or $400 paid by the insurance company and $100 paid by the insured. That office visit would cost $200 out-of-pocket. The next identical visit would be cheaper because the deductible is annual and doesn’t get paid per incident. That one would cost $115 out of pocket.

HSA

Health Savings Account. For people with a high-deductible plan–that is, a plan with a deductible of at least $1200 in 2011–they are eligible to open an HSA. This is a savings account dedicated to paying medical expenses, excluding OTC medication. It can be used for vision, dental, or medical care. Payroll contributions are taken pre-tax, which makes it a more affordable way to afford major medical expenses. Unfortunately, there are annual contribution limits. Currently $3050 for an individual account and $6150 for a family account. HSAs do not expire, so you can contribute now, and save the money for medical expenses after retirement.

FSA

Flexible Spending Account. This is similar to an HSA, but the contributed funds evaporate at the end of the year. It’s “use it or you’re screwed” plan.

Individual Plans

If you’re not getting health insurance through your employer or another group, you are on an individual plan. These cost more because they A) don’t benefit from the economy of scale presented by getting 50 or 100 or 1000 people on the same plan, and B) you don’t have an employer subsidizing your premium.

Employer-Sponsored Plans

If your employer provides health insurance, you have an employer-sponsored plan. Possibly the fastest way to correct problems with the health insurance industry would be to make individual plan premiums tax-deductible, while eliminating that deduction for employers and letting insurance companies work across state lines. That would eliminate the mutated pseudo-market we have right now, and force the insurance companies to compete for your business. Honest competition is the most sure way to increase efficiency and service while reducing costs. It beats “one payer” or “socialized” care which add overhead to the process and hide the premiums in increased taxes.

Open Enrollment

Most employer-sponsored plans only allow you to make changes at a specific time of the year, unless you have a “life changing event”, like marriage, divorce, death, or children.

Explanation of Benefits

After you use your health insurance, the company will send an EOB, showing you what was billed, what they paid, and what you’ll be responsible for. It’s fascinating to see the difference between what gets billed by the doctor and what the insurance company is willing to pay, by contract. You should read this, to at least understand what you are consuming and how much is getting paid for you.

Maximum Dollar Limit

If your insured care cost more than your maximum dollar limit, or maximum annual limit, the insurance company stops paying. this was supposed to be going away under the Patient Protection and Affordable Care ~~Fraud~~ Act. Unfortunately, if an insurance company offers a crap plan, they have been allowed to apply for waivers based on the fact that they offer a crap plan. The deciding factor in whether the waiver is granted seems to be the amount of the political contributions the insurance company has made to the correct political entities, but maybe I’m just bitter.

Out-Of-Pocket Maximum

This is the most you will have to pay directly with coinsurance. After you pay this amount, the insurance company will cover 100% of expenses, subject to the maximum limit.

COBRA

The Consolidated Omnibus Budget Reconciliation Act of 1985 is, in short, an opportunity to continue your employer-sponsored health plan–minus the subsidy–after you have left the employer. It’s expensive, but it keeps you covered, and will eliminate issue with pre-existing conditions when you get a new plan.

Catastrophic Health Insurance

This is an extremely-high-deductible plan, typically $10,000 or more. For the people who can’t afford coverage, this is insurance-treated-as-insurance. It’s coverage when you absolutely need it, not when you feel a bit ill. $10,000 isn’t a bankruptcy-level bill, while $100,000 usually is. This plan prevent medical bankruptcy for a small monthly fee. For the people who got screwed by a PPAACFA waiver, it bridges the gap between a plan that’s useful for minor things and protection when something goes really wrong.

Things to Watch Out For When Applying For Health Insurance

Now that we’ve looked at the terms you need to understand, we’re going to talk about some things to check before deciding what coverage is right for you.

Individual, Individual + 1, Individual + Family

Do you need coverage for yourself, or yourself and your family? If you and your spouse are both working, make sure to run the math for every possible combination that will cover everyone. Is it cheaper to have one of you cover yourself and the kids, while the other just gets an individual plan?

Maximum annual coverage

It’s really easy to blow through a $3000 annual maximum. If you’ve got a low annual max, look into a supplemental catastrophic plan.

Primary and Secondary Coverage

For years, my wife paid for insurance that covered herself and the kids, while I covered myself. When we were expecting brat #3, I added her to my insurance plan, without having her cancel hers. When the bill came, my insurance plan covered the coinsurance and deductible, which saved us thousands of dollars when the baby was born.

Pre-Existing Conditions

If you’ve got a pre-existing condition, it can be difficult to get insurance if you don’t already have coverage. This makes sense. It prevents someone from corrupting the idea of insurance by waiting until something goes really wrong before getting a plan. Without this, all of the insurance companies would be bankrupt in a year. This is one of the biggest benefits of COBRA. It’s a short-term bridge plan that eliminates the idea of a pre-exisiting condition deadbeat. If you’ve got insurance, you can transfer to a different plan. If you don’t, you can’t.

Homework

Your homework today is to get a copy of the details of your health insurance and look up all of the above terms and situations. How well are you covered? Did anything surprise you?

Search Results for: three-alternatives-to-a-budget/budget-lesson-part-5/subscribe-by-email/debt-burnout/4-ways-we-keep-wasting-money/money-problems-day-1-setting-goals/medical-costs-and-choices

1. Credit cards

2. Overdraft fees

3. Unused memberships, gift cards and rebates

4. Airline fees

Premium

Copay

Coinsurance

Deductible

HSA

FSA

Individual Plans

Employer-Sponsored Plans

Open Enrollment

Explanation of Benefits

Maximum Dollar Limit

Out-Of-Pocket Maximum

COBRA

Catastrophic Health Insurance

Things to Watch Out For When Applying For Health Insurance

Individual, Individual + 1, Individual + Family

Maximum annual coverage

Primary and Secondary Coverage

Pre-Existing Conditions

Homework