Save on Health Insurance

Section 1501 of the Patient Protection and Affordable Care Act (PPACA or just ACA) of 2010 also known as Obamacare requires you to "maintain minimum essential coverage." If you do not, you will have to pay a penalty. For 2016, that penalty is at a minimum $695 per adult. The idea is that if you do not voluntarily participate in the "shared responsibility" to keep costs down, you will be forced to contribute in this other way. 

However, there are a number of ways you can avoid the penalty. You can get an exemption. Some exemptions have to do with income levels. Others have to do with hardship and several other situations. The interesting one is membership in certain groups. Members of recognized tribes are exempt. Certain religious sects, e.g. the Amish, object to insurance of any kind including Social Security and Medicare. You can also get an exemption if you participate in a recognized "health care sharing ministry."  

Health care sharing ministries are not-for-profit member organizations created to share medical costs among their members. There are only about a handful of them and there will be no new ones unless the law is changed. To be recognized, they have to have been in continual operation since 1999.  

Because they are not insurance companies, they are not regulated by insurance laws. This is what allows them to discriminate when accepting participants. By accepting only healthy participants without pre-existing conditions, avoiding the ones who need it the most, and excluding common procedures, their costs are much lower than insurance companies who are required to accept everyone and adhere to minimal care standards. 

Thus, if you can get past the moral dilemma of this supposedly Biblical practice, you can save substantial cash without a penalty and still have basic health care coverage. Each of them have their own rules usually spelled out in a document called guidelines or something to that effect. You will need to examine the document carefully to determine if it meets your needs. It is usually quite simple and in relatively plain language. 

Some of the major players in this arena are: 

Christian Care Ministry:  http://www.medi-share.org  
Christian Healthcare Ministries: http://www.chministries.org  
Samaritan Ministries International: http://www.samaritanministries.org  
Liberty HealthShare: https://www.libertyhealthshare.org/ 

Some new ones have emerged on the scene lately, but it is unclear how they get around the continual operation provision of the PPACA. 

Altrua HealthShare: http://altruahealthshare.org/ 
Medical Cost Sharing, Inc.: http://www.medicalcostsharing.com/ 

In this age of Uber, ZipCar and AirBNB I am sure people are tinkering with ways to make health care sharing the norm rather than the exception to avoid contributing to the profits of insurance companies and their shareholders. I would personally like to see a cost sharing organization that would accept everyone and cover all common procedures as they have need. That could be accomplished by transforming an existing organization or change the law to allow new ones. In the meantime, if you were to assume the burdens of everyone as well as the ones who shirk their responsibility, that would truly be Biblical. 

Saving Money on Housing Costs

Related Article:  Housing Costs

Cost of Housing 

Depending on who you ask, the average American household housing expenditure is roughly one third of their annual income. Of that, about two thirds go to mortgage, rent, tax or insurance.  The rest goes to utilities, maintenance and furnishings.

For example: 
Household income:  $50,000
Housing:  $ 16,666

Mortgage/rent/tax/insurance:  $11,110
Utilities/maintenance/furnishings:  $5,550

Of course your situation is likely to be dramatically different if you're a college student living in a rented room or a senior citizen living in an assisted care or nursing home situation. We will deal with such situations in other posts.

For most of us, it is our largest expense so it pays to pay attention to it.  Let us take a look at how we can control our housing cost one element at a time.

Remember Financial Freedom = Savings = Income less Expenses. Financial freedom should always be our goal.  We do this in two ways:  Increase income and decrease expenses.  That will increase our savings which leads to financial freedom.

Income 

Income is the most difficult component of the equation to influence.  It largely depends on your ability to get other people to give you money.  We are going to cover in more detail how to do this in other posts. Here, we will simply emphasize the importance of trying to shift income from active (job) to passive (rent, royalty) income.

Housing Cost 

The cost of housing is a far easier component to influence and far more flexible as your life progresses. An enormous amount of criteria goes into selecting what kind of housing is right for you and your circumstance.  Those criteria are likely to vary dramatically over your lifetime.  Here are a few items to think about that will save some money:

Moving is Expensive 

Well, if you can simply fit all your belongings in a duffel bag, it's not, but if you have to sell one house to get another, the expenses can really ad up.  In the latter case, some long term planning can pay off big time.

Life has a way of throwing us curveballs from time to time.  Finding ways to prevent that from happening is really important.  So think about what is your income situation and your family life going to be like for, say, the next decade or two before you jump into huge expenses.

Fixed Expenses 

Fixed expenses are the ones that are, well, fixed.  There is not much you can do to change them and they usually stay the same over an extended period of time.  Mortgage, rent, taxes and insurance fall into this category.

Mortgage 

For most homeowners, interest is the biggest part of the monthly mortgage payment.  Mortgage interest rates do change over time so it is important to keep an eye on them.  However, re-financing usually come with significant costs involved.  Use this housing cost control with great care.

Rent 

Rent changes far more frequently than a mortgage does.  The most frequent change is when the landlord raises the rent every year.  Take some time to think about why he might do that.  It might not be pure greed.  If it is greed, you do have some ways to respond.  Find out what rent for a comparable apartment is in your area.  If he just does not like you or needs your place for something else and is using the rent to encourage you to move, there is not as much you can do.

Taxes 

Taxes is probably the fixed expense you have the least control over, but be sure to check how it compares to that of your neighbors.  Maybe you can have it reduced.  Also, be sure to take advantage of every rebate or incentive your municipality offers.

Insurance 

Insurance is probably the smallest of your fixed expenses, but do not neglect to review this at least on an annual basis.  Remember, with the magic of compound interest over a very long time even a very small amount of saving can make a huge difference later in life.

Variable Expenses 

Variable expenses are the ones you do have at least some control over.  Maintenance, utilities and furnishings fall in this category.

Maintenance 

Except for wear and tear, maintenance is usually included when you rent.  When you own, that broken pipe or the rotten window will be your own responsibility.  Some maintenance items can be deferred. Others need to be taken care of right away if neglecting them would cause other damage to occur.

Utilities 

The control you have over the utility bill will depend a great deal on whether you rent or own. Sometimes heat and/or electricity is included in the rent.  Even then, you may have some control. The relationship you have with the landlord might influence your rent, so do pay attention to how you use utilities and let the landlord know that you do.  He might go easy on you next time your lease is renewed because of it.  At other times, these are separate charges and how you use them directly influences what you have to pay.  You might even consider some simple improvements like closing air leaks around windows and doors or pay attention to how you use your appliances to save on electricity.

Owners have a lot more control and a lot more reason to pay attention to this housing cost component.  There are lots of things you can do to save on utilities.  Some are easy and inexpensive to do.  You might even be able to weather strip doors and windows yourself.  Others such as insulating attics and walls, replacing an outdated furnace or installing solar panels or a wind turbine are big projects.  It could take years to recover the expense.  Ask yourself some questions about what makes sense in your particular circumstances.

Furnishings 

This is one category where you have almost complete control.  Cardboard boxes make excellent shelves, even tables.  They are great choices when your time horizon is really short.

For most longer term arrangements something a little sturdier makes more sense.  Furniture is the kind of goods that become outdated long before they are worn out.  Worn out can mean different things to different people.  What is just a scratch to one person might be broken to another.  How important is it to you that your home is spotless?  Is durability and sturdiness more important to you than modern design?

Furnishings also include such things as curtains, carpets, rugs, kitchen utensils, bath and bedroom supplies.  As always, spending is about getting the right value for your money.  What is important to you?

Make or Save?

What's more important - make or save money?  I have to say making money is more important for most people most of the time. You can't really save any until you've made some, can you? Boosting your ability to obtain income should take center stage especially in the early part of your life.

Basic needs will be roughly the same for all of us regardless of background, education, intelligence or what have you.  Once you have a balance between your expenses and your income, the focus begins to shifts to savings, the difference between the two.  The more you can increase the gap between them the more you save.

Why save?  Well, you could live paycheck to paycheck for the rest of your life.  Some people do that. Some even enjoy it.  For most of us, however, independence from the regular paycheck is either a dream or a goal.  Savings can be invested and investments produce return, an income stream.  With very little effort on your part, returns on investment can, over time, replace some or all of your paycheck.  That's financial independence.

Health Savings Account for Retirement

A Health Savings Account (HSA) is not only a great way to pay for medical expenses not covered by insurance, it is also the best retirement investment available.  None of the other traditional investment vehicles, 401k, IRA or Roth IRA, offer a triple tax advantage.

Not only are contributions to a HSAs tax deductible for everybody, not just for people below a certain income level. Withdrawals as well as earnings are also tax free as long as you use the funds for qualified medical expenses.

401k and traditional IRAs may escape taxation at the time of contribution, but distributions of principal as well as earnings are always subject to income tax.  On Roth IRAs, it is the reverse, you pay tax on contributions but not on distributions.  The only time HSA distributions are taxable is if you use it for things other than medical expenses or if you leave any of it to anyone other than your spouse.

If you are healthy most of your life, there is likely to be plenty of medical expenses in retirement such as Medicare premiums, long-term care or alternative treatments.  HSAs can be used for all of these things without a tax penalty.

So how do you get one of those?  The catch is that you have to have a high-deductible health plan to qualify.  There are plenty of plans with high deductibles, but that alone does not necessarily guarantee that the plan qualifies.  You need to study the fine print.  Get IRS Publication 969 for details.

Portfolio Maintenance - Rebalancing

Portfolio re-balancing is what turns a good return into a great one.

Your latest portfolio statement may show a decent overall return and you may be tempted to leave it at that, but there's one step that can boost your return significantly over time.

Do you know what's going on with each individual investment?  Since you're reading this blog, I'll assume your portfolio consists of maybe half a dozen different kinds of investments.  As the economy and other circumstances change, they may not all have moved in the same direction.

It is likely that one part of the economy has been in favor while another has been struggling.  That gives you an opportunity to harvest some gains in one sector and pick up some bargains in another.  When you do this periodically you will consistently buy low and sell high without letting emotions guide you.

Retirement Starts in High School

The Roth IRA (Individual Retirement Account) is the best deal on the planet for high schoolers with a job.

Why?  Because the earnings are tax free forever.  Just about all other income you will ever have will be subject to taxation.

Why is this so important?  Most middle class Americans will pay 25% of the last dollar they earn, 28% is they have a good job and make more money than most.  If you're still in high school and you're reading this, chances are you will be paying 28% or more.

If you're in high school, you're probably looking at 40 to 50 years of working.  In 50 years, $500 will grow to $6,000 at a modest 5% interest rate. If you saved the same $500 in a regular taxable account, you would have to pay tax on the interest every year.  You could do a little better by putting it in a regular IRA account.  In the end you would still have to pay tax on all the earnings leaving you with about $4,300, not bad, but not as good as a Roth IRA.

For 2014, you can put as much as $5,500 into a Roth IRA, but you can get started with far less.  The two important keys are the time you have for it to grow and that the earnings will be tax free.