Another Dollar

Well, as some of you may know, I opted for a High Deductible Heatlhcare Plan (HDHP) with a Health Savings Account (HSA).  I knew that at some point, there would be a need for going to the doctor, and I would have to spend some of the funds in my HSA, but I didn’t think it would come this quickly (I put off going to the doctor, so it is my own fault).  I have been having sinus headaches for a few weeks now and I have been really tired.  This morning, my throat started hurting close to my ears.  It was time to seek some medical attention.

Since I am spending my own money up to my $3000 deductible, I figured I should look for the most economical, yet effective, means to get treated.  If any of you frequent CVS pharmacies, you may have seen the signs for the Minute Clinic.  It is essentially asmall doctor’s office staffed by either a Nurse Practitioner or a Physicians Assistant.  These are post-graduate earners that are not to be confused with a standard nurse.  If you go to a doctor’s office with multiple physicians, you may have already been treated by a nurse practitioner, as many have them.  Anyhow, Minute Clinic is located right inside some CVS locations.  They do not treat everything, and they may refer you to your family doctor.

To make a long story short, I went to the Minute Clinic and signed in.  The PRN seated me immediately.  There is nothing fancy about the place… it is actually quite small, but we don’t need shrines to medical care; that is why it costs so much at most places.  She took my insurance card, asked me some basic questions and then asked me why I was seeing her.  I gave her my symptoms, and then she asked some more questions.  Then, she checked my ears, nose, and throat… followed by my breathing.  She indicated that I had a mild sinus infection and a middle-ear infection.  She asked if I was currently taking any medications, and if I had any known allergies to medications.  She then asked me where I would like to get my prescription filled.  I figured that CVS was where I had to have it filled, but they were happy to send it elsewhere.  She gave me a generic and indicated that it would be $4 at CVS (which was news to me), as well as Walmart and Target, and that it was on the free list at Meijer.  Since my home is in a neighborhood that has a Meijer in it, I had it sent there and went through the drive-thru and paid $0 for my prescription.  My bill at Minute Clinic was $49.99, and it will be billed later, as the co-pay on HDHP/HSA plans is $0 so that it can be paid via HSA funds, later.

I was quite pleased with the service and I will definitely be a repeat customer if circumstances warrant it.

As a tech guy, I paid a lot of attention to the computer setup.  It looks like they paid attention to IT costs, as well.  The computer doesn’t run any software, it connects to a Citrix server that runs all of the applications centrally on it via an network connection.  The applications seem to be running locally, but they aren’t.  This dramatically reduces hardware needs for each user (but a more powerful server), and it lowers the Total Cost of Ownership of the systems because they are controlled and configured in one central place, lowering the deployment and support costs.

I am impressed.

Well, with each year there are lot’s of things to close and open. With the end of the year having just passed, I have been going over what I need to get wrapped up so I do not loose out on anything. Today, I was reminded of this when a colleague made a joke about his pay, and our boss mentioned that our next paycheck should have a little extra because of excess sick time that is cashed out after the 1st of the year.

So, here is a list of things to check and make sure you address to maximize your benefit:

• Flexible Spending Accounts
• Paid Time Off and/or Sick Time
• Changes in insurance premiums
• 401(k) contribution matches
• Pre-paid training

If you can think of anything else, please contribute.  It would be a shame to pass up on some benefits just because they expired or you missed an enrollment window.

Well, get a job and max out your Roth IRA for the next four year!  2008 marks a grand occassion for the IRA.  This year, the contribution limit hits $5,000.  So, let’s assume there is a 16-year-old kid that wants to be a millionaire.  It is going to be pretty easy for this kid to hit that mark by maxing out a Roth IRA for the next four years, and then forgetting about it (although, they certainly won’t want to stop there).

Using the future value of money formula, let’s see what will happen if a 16-year-old maxes out a Roth IRA for four years, earns an average of 10% interest each year, and waits until the age of 59.5:

• $5000 x (1 + 0.10) ^ (59 - 16) = $300,200
• $5000 x (1 + 0.10) ^ (59 - 17) = $273,818
• $5000 x (1 + 0.10) ^ (59 - 18) = $248,925
• $5000 x (1 + 0.10) ^ (59 - 19) = $226,296

That is a sum of $1,049,239!  How amazing is that?

I have discussed the future value equation in the past; it is a great tool for figuring out retirement savings.

Now, I know there that are very few 16-year-old kids that are going to be disciplined enough to contribute $5000 a  year to some account that they won’t see for 43 years.  The cool thing is, they don’t have to do it… you could do it for them.  The catch is, the kid has to earn at least $5000 each year.  Once that hurdle is met, a loving parent could make the contribution on their behalf, and they could just be (somewhat) irresponsible teenagers, like everyone else.

My oldest child is nearly ten, so I still have over six years before this happens… but right on her coattails are her sisters.  I am preparing today by setting up brokerage accounts for them with dividend reinvesting.  When they start working, I will cash out the funds and contribute them to a Roth IRA.

For those who haven’t read, one of my goals for 2008 is to replace my main television with a flat panel television. Before you jump to an assumption, I am big into conservation, so I want to get a television that uses less electricity, in addition to having modern technology and a good picture. I am saving up for this television through various programs that earn gift cards.

Here are the criteria for the television:

• 40-42″ widescreen
• 1080p resolution
• Multiple HDMI inputs (at least three)
• Samsung or Phillips
• Available at Circuit City (since that is where my gift cards are from)

In addition, it would be nice to keep an eye out for any sales or rebates going on at the time of purchase. I hope to have this completed by May. Currently, the price is around $1700 for a television meeting this criteria. I limited the brands to Samung and Phillips because I have always had a good experience with these brands. I have dual-widescreen Samsung monitors at work, right now. Also, my current 32″ CRT television is a Phillips/Magnavox, and my current DVD player is a 1080p upconverting Phillips.

Here is my progress on gift cards:

• $20 from mid-2007
• $20.09 from December 2007
• $150 from this week (December 30, 2007 through January 5, 2008)
• $25 in the mail to us from our banking rewards

So, right now, we have $215.09 towards our goal. The only problem that I see if that there is probably a limit to the number of gift cards that can be used in one transaction. Here are some programs that I use for rewards that are available to you:

• MyPoints (please email me and I will refer you: you get 125 points, I get 100)
• eBates (this is a referral link: you and I each get $5)

So, whatever I spend, I will get 2% from eBates. Also, it is 3500 points for a $25 gift card at Circuit City on MyPoints (6750 for a $50 gift card).

As I have previously mentioned, I changed from the standard PPO plan that my employer offers to a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA), effective January 1st of this year.  I am sure that plenty of you have heard about such offerings, and many of your employers may be offering them.  However, I know there are still plenty of people that are put off by the sticker shock of the high deductible.  I want to illustrate the process I used to determine if I should use the high deductible plan or not.

The purpose of an  HDHP/HSA is to give you more control over your healthcare.  Instead of paying high premiums and walking around not caring how much your healthcare actually costs, you pay lower premiums and contribute at least the difference (idealy) to the HSA.  You can use the HSA funds at your discretion, and unlike Flexible Spending Accounts (FSA), the money does expire.  You own the account, and you can take it with you.

Here is a breakdown of my situation: I was paying $300.50 per pay period for health insurance for myself and my family.  This added up to  $7,212 for the year.  I was also responsible for a deductible, and I contributed $20 per pay period to an FSA, for a grand total of $7,692 for the year.  That is a lot of money.  The HDHP costs $211 per pay period, or $5,064 for year, and has a deductible of $3,000 for my entire family.  The difference is $2,148, which I am contributing to my HSA, along with the $20 per pay that I was contributing to my FSA, for a annual total of $2,628.  I can contribute more, if I want, and I can change the amount at any time, whether it is for more, or less.  So, if I run through my $2,600 fast, and need to get some more money to cover the rest of my deductible, I can just have my payroll person make the adjustment.

So, I actually am better off than my previous deductible (I cannot recall what my deductible was, but I did not contribute enough to my FSA to cover it).  Now, I actually have almost enough money to cover my entire $3,000 deductible, and it is costing me the exact same.  Also, while the money is sitting in the HSA, I am earning 3% interest, and once I have a balance that exceeds $3,000, I can invest in a limited number of mutual funds.

So, I am better off, but now, I have a reason to try and save money on my healthcare.  If I don’t deplete my HSA funds, they accumulate, and over time I will have a nice chunk of money that can be used for healthcare down the road.  As a matter of fact, if it is earning enough money each year, I can actually use the HSA funds to pay my HDHP premiums, and I wouldn’t be paying any more money for heatlhcare again.

I hope to share some of my endeavors to save money over the year.  I hope to not really have any major incidents (who does?), but I know we will have certain expenses, given we are a family of five and given our history.  A lot of naysayers will state that this doesn’t make sense for people that are unhealthy, but I would beg to differ.  If you are going to be able to cover the deductible anyway, how is it a bad thing?  Suppose chance deals you a good year and you don’t hit your deductible?  Sounds like even the unhealthy should use this system.

Alright, I have some debt… here is the run down:

• 30-Year Mortgage with 29 years remaining @ 6.75% and principle of $115K
• 5-Year Auto Loan with 2 and 1/2 years remaining at 16% and principle of $5K
• 6-Year Auto Loan with 3 years remaining at 11% and principle of $10K
• $40K of student loans @ just under 4%, and I am just beginning payment
• $2K personal loan @ 22% with $1K remaining
• $7K of credit cards @ 0% for at least another year

Okay, so my goals mostly have to do with dealing with my debt. I also have some retirement savings that I want to deal with, as last year I fell short of my goal of $10K saved by about… $9K. I changed jobs and was not eligible for 401(k), and I only put about $40 in my Roth IRA. I become eligible for the company 401(k) in May of this year.

I am also big into conservation… mostly conserving my money by sending less to the utility companies. For two years, I have had every single light bulb in my home replaced with a CFL bulb, with the exception of the lights in my oven and refrigerator. I just bought a programmable thermostat last year, as well, and it is working out great. Here is a list of all of the conservation items I would like to complete:

• Replace all CRT monitors and televisions with LCD or Plasma (I have 4 total)
• Replace washer and dryer with an Energy Star rated front-load setup (Duets)
• Replace tank water heater with tankless on-demand unit
• Setup a stationairy bike to generate electricity that will charge a battery that will run the kids’ television (and I might throw in a small solar panel, that could do 10% of the work)
• Park the 30MPG Chevy Malibu and lease a new Volkswagon Passat TDI that gets close to 60MPG (unfortunately there are not new models in the US… only the non-TDI version that is nowhere near as impressive)

So here is my short list of goals for this year:

• Pay off the personal loan at 22%
• Pay off the auto loan at 16%
• Continue my bi-weekly mortgage system
• Replace our main television with an LCD or Plasma (40+ inches)
• Replace the kids’ television with an LCD (27 inches)
• Max out my Roth IRA and contribute up to the match on 401(k)
• Contribute $3K to my Health Savings Account, and try to limit my use of the funds to 50%

Here are my stretch goals that I will work towards if I meet the others with time to spare:

• Replace my bedroom television with an LCD (19-22 inches)
• Replace washer and dryer with front-load units that are Energy Star rated
• Max out spousal Roth IRA for my wife
• Contribute another $2900 to my HSA
• Reduce the principal on my 11% auto loan to $5K

Now, before anyone gets hysterical about the “luxury” items in my financial goals, I plan to get these through rewards programs that give me gift cards. I already have over $100 in Circuit City gift cards, and I should be able to get plenty more between these rewards programs and various gifts I may receive through the year (always gift cards, if people ask).

The one goal that is essentially set in stone (because I have already set it up) is the $3K to my Health Savings Account. In May, I will setup my contributions to my 401(k), and I will likely not see much of a difference in my pay, as I should get a raise by then. Also, the personal loan should be knocked out by February, as I have already conservatively estimated my tax return at around $2K, and that is with the standard deduction and disregarding education tax credits (I finished up my BS last year, and my wife started school last year, too). I plan to have about that much of a return next year, and I cannot claim anymore exemptions for payroll without going over nine, which several HR folks have verified as a red flag to the IRS (something I am not interested in doing). That $2K will go a long way to pay off the personal loan and make a dent in my $5K auto loan. That will also free up $100 each month that can also go to the auto loan, as well as various rebates I get on things that I buy and then sell on eBay; I end up breaking even or making a little money, plus I get rebates back. Already have about $100 in rebates that I should receive this month. In addition, I should get a decent bonus in May, given my work performance (I have already saved the company a bunch of money, and I have a few big projects in Q1 that will save even more and improve service). So, hopefully by May the two loans on my goals will be diminished to zero.

My bi-weekly mortgage is already setup, so that is easy to continue. Hopefully I will have replaced on of the televisions by May, as well. That will leave me with one more television to replace, and establishing my 401(k) in May, and making sure that I contribute to my Roth IRA. If I run into any funds before April 15th, I will contribute them as 2007 contributions, and then still have plenty for 2008 contributions after that point.

I think the easiest stretch goals to hit will be adding another $2900 in contributions to my Health Savings Account, and reducing the prinicpal on my other auto loan to $5K. I say this because the Health Savings can easily be automated in payroll, and it is triple-tax-advantaged (deposits are tax free, interest earned is tax free, and qualified withdrawals are tax free). Also, reducing the principal on my other auto loan should be easy because when the first two loans are finished in May, I will have $300 a month that can go towards the only auto loan I will have left. That will be at least $1800 that I can pay down on the principal, plus I will be paying less in interest each month on the regular payments. I can continue to use my various rebates to contribute to the auto loan. It is also likely that I will have some money left over in May after I pay off the first auto loan… and that can go towards the second auto loan, as well.

Well, it looks like it’s out with the old tonight. Tomorrow, it is in with the new. I have some goals I have been thinking about and I am going to write them up tomorrow. Hopefully this we keep me on task and brighten my future. Perhaps it will inspire others.

New Years’ celebrations can be great fun, but there are also many tragedies associated with the celebrations and there are lots of folks that have stories to share. Be safe and come back tomorrow to check out my goals.

Many of you may have read The Automatic Millionaire by David Bach. The book is filled with great concepts that can help you realize that it really isn’t that difficult to accumulate wealth. Simply put, the book begins by finding everyday expenses that are unnecessary and shows how they can add up over time with the power of compounding; it truly is remarkable. Next, it walks through ways to make your wealth building automatic (using online banking, direct deposit, and 401(k) offerings).

One of the most acclaimed and pushed concepts is paying off your mortgage; it is so acclaimed, in fact, David Bach wrote a follow up book titled The Automatic Millionaire Homeowner. This concept that is so touted is the bi-weekly mortgage. Essentially, it relies on the homeowner to be paid bi-weekly. Instead of paying your full mortgage payment once a month, it suggests to pay half of your mortgage payment every two weeks, when you receive your paycheck. What happens is that at the end of the year, you will have paid 13 full monthly mortgage payments, and you should be able to knock seven years off of your mortgage if you start from day one.

I am here to tell you that this concept actually works, but there is a better way. You see, David Bach is pushing a plan from Wells Fargo. There is nothing wrong with this, really. However, Wells Fargo is doing this because they will make money from it. There are three ways that mortgage lenders can make money from this (and if they do this, they will use all three). First of all, they charge you a lump sum of money up front to enroll in this program (many range between $300-500). Next, they charge a service fee for each payment (many are around $0.75 per payment, which is now 26 payments in a year, and not 12). Lastly, they do not apply these payments to your mortgage as they come in; what happens is they accumulate the money for you, and they pay your 12 monthly payments like normal, and then they make 13th payment at the end of the year. By doing this, they are not only keeping you from saving money on interest, but they are actually earning more interest on your money.

I have a simple way that you can do this yourself, and it is completely free, and still 100% automated, and it can even be modified for people that are paid semi-monthly. First of all, you will need a high-yield savings account. There are many of these out that earn 4% or more. Next, you calculate your automated mortgage payments. I recommend taking your original mortgage and adding 1/12 to it, and then dividing it in half. So, if your mortgage is $1200, add $100 and divide it by two. This means that you will take $650 every paycheck and have it directly deposited into your savings account. Then, setup for your mortgage to be automatically paid from your savings account (the mortgage company will pull your money via ACH). However, take the extra 1/12 and have it paid as extra principal each month.

What happens? You will automatically pay 13 mortgage payments in a year. Also, you will have earned interest on your average balance, instead of another company. In addition, your extra principal is paid each month, reducing the overall interest you will pay even further. You also pay absolutely no fees to do this. And, if you do this bi-weekly, you will have an extra payment sitting in your savings account at the end of the year that you can either save, pay towards your mortgage as a 14th payment for the year, or use for something else (like funding an IRA). If you get paid semi-monthly, you will get everything except the extra 14th payment for of money in your savings account.

For full disclosure, if you follow my links to the books and make a purchase, I will earn 4%. David Bach didn’t really disclose, but I did.

There is a lot of debate going on about healthcare in our ’round-the-clock political cycle. Some of it is hype and some of it is not. However, I think that there are relatively few people that want to maintain the status quo. There are basically two camps out there: 1) Universal Healthcare, where people want the government to be more involved in our lives and dictate how we can consume healthcare resources, and 2) Free Market Healthcare evangelists who believe that a great deal of our current situation can be directly attributed to our system already being influenced too much by the government, and would like to see them back off.

I find myself in the second camp, and there are many reasons for this. The first reason is simply ‘principle.’ I simply do not desire for the government to be involved in my life. I believe in limited government that abides by the constitution of its respective jurisdiction. Essentially, the federal government is around for a handful of purposes, namely: defense of the nation, securing our borders, minting currency, establishing laws for interstate commerce, and protecting our rights. Essentially, this means that healthcare is not within the scope of things for which the federal government can be involved (including many other activities which they are currently engaged, like education, Social Security, wealth redistribution, etc). If a state government has a constitution which grants that authority to its jurisdiction, then it would be constitutional for that body to be engaged in healthcare, although I still wouldn’t enjoy it.

Another reason that I do not want the government involved in healthcare is that they are simply incompetent at most things. The supporters of Universal Healthcare are usually critics of the current presidential administration. They tend to argue that the administration is incompetent, and that it has dropped the ball on several occasions, like FEMA’s response to disasters (Hurricane Katrina, namely), handling of our current international conflicts, and the healthcare activities for which the federal government is already engaged (VA hospital system for veterans, medicare, medicaid, SCHIP). So, tell me, why is it that they are critical of the current administration, but they believe giving it more responsibility will all of a sudden become a magic cure to our healthcare? It is a very hypocritical stance. The most common reaction will be that the current administration is incompetent, but if when we have a new administration, it will be better. That is also a ridiculous proposition; it simply will not be the case, regardless of the party to which the administration belongs. The government is a large bureaucracy, by design, and is inefficient. I do not believe inefficiency in healthcare is a desirable thing.

Lastly, I believe that vesting our healthcare responsibilities in ourselves is our best bet. Isn’t your health important enough to you that you want to be responsible for it? Do you blindly trust someone else to manage your healthcare? If your response is yes, I am sorry, but we will have to agree to disagree.

We have two main examples of healthcare activities that are not covered by insurance, traditionally, and have become less expensive and improved in results. LASIK vision correction is the first, and most popular for various segments of our population. Most insurance providers do not cover the costs, and may at most provide a discount. We have witnessed the costs coming down from multiple thousands of dollars to a few hundred dollars, for those with mild-to-moderate vision correction needs. Equipment involved has increased in quality and accuracy, and more people can be treated than ever before.

The second example is cosmetic surgery. I have no personal experience in this area, either for myself nor anyone I know. However, reports and statistics conclude that more people are seeking cosmetic surgery than ever before, namely because it is more affordable, and that it is simply delivering better results.

Now, I do believe in the concept of insurance, don’t get me wrong, but what we typically call medical insurance is a misconception. We basically have a payment plan that incorporates discounts. When you purchase car insurance, does it cover maintenance? No, it certainly doesn’t. Insurance covers major events that are catastrophic in nature, and very costly. The best system we have going for us, in the respect, is the advent of the high deductible health plan (HDHP) coupled with health savings accounts (HSA).

I changed jobs earlier in the year. My previous employer did not offer HDHP/HSA. Further, I had already met my deductible for the year, before I left. My current employer does offer such plans, but I did not want to deal with it having already met one lower deductible. So, I stayed with the similar plan (actually it was the exact same plan as both employers are members of the same chamber of commerce organization that provides for a substantial savings). However, I submitted my paperwork to switch to the HDHP/HSA beginning January 1st. I wholeheartedly believe in the plan. My total benefits package is costing me the exact same as before, but over time, I will have more money saved in my health savings account, and one day, I can simply pay for my high deductible health plan with that money, and be covered in retirement with those funds.

I will be writing more about my experience with my new healthcare endeavors and how I manage the use of my HSA funds to limit their use to maximize future growth.

Lot’s of people are definitely going overboard this year, despite media claims of economic disaster. Heck, I can barely get out of the parking lot at various stores where I just want to get in, get out, and go home. However, there are a lot of great money savers that can be purchased for yourself, or given as gifts, and the sales are great.

For the past week, I have been searching for a programmable thermostat to use at home. At a home show, I talked with the company that installed my furnace (when the house was built) and they tried pushing a $400 dollar thermostat on me. Granted, the thing controlled a hybrid heating system that was comprised of both a gas furnace and a heat pump, but give me a break, that is just outrageous! That skewed my thoughts about programmable thermostats for two years!

My search brought me to the Hunter 44260 Set and Save Programmable Thermostat. This unit normally goes for $40, wherever I look, but it being discounted right now. This unit has an indigo backlit display, and can be programmed with separate schedules for weekdays, as well as independent schedules for Saturdays and Sundays. The best ways to use these is to turn back your heating by five or more degrees when people are sleeping, or out of the house, and the opposite for cooling. This unit can save you around $100 a year based on usage, and is Energy Star rated. I picked one up for myself, and called my mother-in-law to give her a heads up.

While I was out, there were also plenty of great deals on compact fluorescent lightbulbs and LED Christmas Lights. I don’t traditionally decorate the house with lights, but if I ever decide to, I will wait until I can get a good deal on LED lights, and use those. I am certainly not interested in doubling my electric bill just to show off lights to other people; especially since I have worked so hard to reduce it.

As a gift to my grandmother, I am going to get her several CFL lightbulbs for her home. She has an awkward bathroom setup, and it is difficult to find the light switch. So, she leaves the bathroom lights on all the time when anyone is over (which is always considering that most of my family lives within five minutes of her house). It is costing her at least $2 each month to run the lights in her bathroom; I will likely spend just about $2 on the two CFL bulbs it will take to light the bathroom, and she will save that much every month until the bulbs die.

Happy Holidays (and that isn’t secular… holiday is derived from Holy Day)!