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22
Aug 2011

How We Established Our Own Business

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In my post asking what you’d like to see me write about, two readers asked me to address the specifics of how my husband and I set up our home-based business, and I’ve also had numerous emails about this subject over the years.  So I’m going to lay out the basics of what we did, and what has worked for us.  This post is a bit long, but since I’ve had so many questions about this subject over the years, I want to add as many details as possible – both the things we did right, and the stuff I wouldn’t repeat.  I hope it helps!

**** EDIT:  I would add that just because this stuff worked for us, obviously it’s not a how-to manual and it won’t work for everybody or every business.  We worked hard, but we also had a lot of luck on our side.  This post is meant to highlight the steps we took, some of which might work for you if you’re thinking of starting your own business.  But please don’t feel like you have to do the same things we did or make the same decisions we did.  The world is a much different place than it was ten years ago, especially when it comes to online businesses. ****

1.  A disclaimer… We’re in the individual health insurance industry.  It has been great for us for nearly ten years.  But I wouldn’t recommend it right now to someone starting from scratch, simply because everything is so up in the air with health care reform.  The reform law that passed last year has significantly cut our commissions (and likely driven a lot of newer agents out of the industry, because it’s a lot easier to weather commission cuts if you have a large, established client base), and there are a lot of unanswered questions about how the industry will work as of 2014.  And of course, the whole law is headed for the Supreme Court, so it’s anybody’s guess how this will all shake out.  In a nutshell – insurance is great, but if you want to become self employed, I would steer clear of individual health insurance at least for the next few years.

2.  We eased our way in.  My husband quit his corporate job in early 2002 and started selling health insurance.  I kept my corporate job for another year and half so that we could live off of my income while he got things started.  At that point, I quit my job and joined him.  During the first year he was self employed, he made very little money, and it would have been particularly rough if we had both jumped into being self employed at the same time.

3.  We had no kids and very little in the way of financial obligations when we first became self-employed.  On the other hand, we also had no savings or assets to fall back on.  Our rent was about $700/month, we had no debts, and our living expenses basically amounted to food, gas, utilities, etc.  So it was relatively easy to make do on very little income.  It would have been nice to have a little bit of savings to cushion us, but we were very young and living paycheck to paycheck.  We bought our first house after my husband had been self-employed for about a year, and that bumped our housing costs up to about $1280/month.  Definitely a stretch.

4.  We used credit cards to get by.  I know this is a big DON’T when starting a business, and I wouldn’t recommend it.  But it worked for us.  By the time I had been working with my husband for about a year, we probably had $35,000 in debts.  This was partially due to making barely enough money to pay the mortgage and using credit cards for stuff like groceries, although most of the debt was business-related.  We spent a lot of money on marketing:  pay-per-click with Google, multimedia business cards, buying leads from an agency we worked with in the first couple years… it all added up, really fast.

5.  We played the credit card game, transferring balances from one card to another in order to get zero-interest deals.  It actually worked really well for us, but that’s because I tend to be extremely detail-oriented with stuff like that, and I always made sure that I read the fine print and got things paid off before the promotional periods expired.  Again, using personal credit cards to start a business is probably not the best idea.

6.  We incorporated.  This was an excellent move, but one that we didn’t make until 2006.  Looking back, we should have done it sooner.  Once we incorporated, we were able to completely separate our business and personal finances, and become W-2 employees of our business.  Much more official than the self-employed status we had for the previous few years.  By that point, we had nearly paid off our various debts, but once we incorporated, we had the option to get a business loan if we needed it, and we did get a business credit card.  That would probably have been a smarter way to go about financing the start-up costs of our business, but we didn’t know what incorporation entailed and didn’t become educated about the benefits until we had been self employed for a few years.  We went through an online company that specialized in incorporation paperwork, and I think it cost us about $500.  We’re an S-corp, which has worked perfectly for us (there are several options for incorporation – do your research from both a business and tax perspective before you settle on an option).

7.  We lived poor.  I think “fake it till you make it” is terrible advice.  I know some people will disagree, and I know that there are a few professions where it might actually be good advice.  But for most of us, clothes from a thrift store (which look just like clothes from the mall!) and a used car or bike will work just fine.  So does a small house or apartment.  Even with our frugal lifestyle, it took us until 2007 to pay off the debts we incurred to start our business (most of that money was spent in 2003 and 2004).  If we had financed new cars, eaten at fancy restaurants, bought new clothes, etc., it would have taken much longer.

8. We transitioned to working on-line back in 2003.  This was probably the best move we made in setting up our business.  Over the course of about two years, we went from having a mostly car-based business to having a mostly home-based business.  These days, we literally never leave the house for work at all.  We can “meet” with far more clients  in a day than we ever could have when we were driving all over the state.  We can work from anywhere as long as we have high speed internet and a phone.  The best part about working on-line is that we’re both home all day with our sons.  My husband is in his office (either in the basement or out in the office we built in our backyard) all day, but he can take breaks to come and hang out with us, and I get to be with our boys all day, taking breaks to fit in business-related work when I can.  (I only work about 15 hours a week for our business these days).

9.  My husband spent hundreds of hours in the early years of our business teaching himself the art of search engine optimization in the evenings, after a full day of work.  This has paid off tremendously for us, but there were many late nights in front of the computer.  If you’re going to be self-employed, you’re going to have to put a lot of time or money (or both!) into marketing.  Being self-employed does not mean that you work whenever you feel like it.  Especially early on, it pretty much means that you work all the time.  But if you’re ok with that, the amazing thing about the world we live in today is that you can learn – online, from home – just about anything you put your mind to.

10.  We didn’t seek out glamorous, cool jobs.  There is nothing exciting about health insurance.  Actually, we think it’s pretty interesting, and all the legislation surrounding it for the last few years has been fascinating to us.  But when you’re at a party and tell someone you’re a health insurance broker, they tend to say “oh, that’s cool” and then change the subject.  We are not astronauts.  But that’s fine with us.  My husband has always wanted to have his own business, and he loves the challenges that come with being his own boss.  But in general, we do not find our primary fulfillment from our career.  We look at our business as a way to earn money, and we seek fulfillment from the things we love (gardening, raising our boys, being outdoors, spending time with family, learning new things, etc.).  I know that some people are very successful at making something they love doing into a career.  But having the mindset that work has to be something you love can also be a big hurdle to clear if you’re looking at setting up your own business.  Just food for thought.  Whatever you do for a living, I would recommend doing it to the best of your ability.  Don’t be a slacker.  But don’t feel like you’re selling yourself short if you’re earning an honest living doing something that is “just a job”.

11.  We’re honest.  This is huge.  Working for yourself means that nobody is looking over your shoulder on a daily basis, making sure you’re being ethical and honest.  Some self-employed people get themselves into trouble because they start to feel like they can do whatever they want.  They tell customers what they want to hear (or what needs to be said to make a sale, whether it’s true or not), they stretch the truth with the IRS, they fudge compliance paperwork… there are all sorts of traps that you can fall into if you let yourself start to deviate from the path of honest-and-ethical-all-the-time.  In the insurance industry, there are some carriers that pay higher commissions than others, and there are always carriers that are running various bonus programs for agents who sell a high volume of their products.  But our philosophy is that the best strategy is to sell each client the product that works best for that client, and that the money will take care of itself.  We might not have always qualified for the best bonuses or the highest commissions, but we have lots of clients who have been with us for nearly a decade.  Our BBB and insurance license records are complaint-free, and we rest easy at night knowing that all of our income has been reported to the IRS (yes, even the income that the payers didn’t report), all of our records are in order, and all of our clients have received honest advice.

12.  We paid ourselves first.  For about a year in 2003/04, we didn’t contribute any money to our retirement plans.  That was our roughest year in terms of income, and we were barely able to pay our mortgage.  But by the summer of 2004, we decided that we had to make retirement savings a priority again, even if it meant tightening our already-tight belts.  So we started small, putting $100/month into each of our IRAs.  As we earned more money, we increased the amounts we were contributing to retirement.  We’ve kept our day-to-day living expenses about the same for the last five years or so (not as frugal as we were in 2003, but nothing extravagant either), which has allowed us to set up a SEP-IRA through our business, max out our HSA and IRAs each year, and also create an emergency fund.  If we’re able to keep on earning a good living from our current business indefinitely, that’s great – we’ll just retire a bit earlier.  But if not, it will be nice to have a bit of a cushion.  Especially now that we have kids.

13.  We stopped taking advance commissions very early on.  The first couple of years that we were “self-employed” we were actually contract workers for a large insurance brokerage.  We were self-employed, and only got paid if we made a sale, but many agencies will pay advance commissions to agents.  Basically, when you make a sale, they pay you ten months of commissions up front.  That makes for some nice paychecks, but it also means you’re in debt to the agency.  If the client ends up cancelling, you have to pay the money back.  If the client keeps the policy, the debt to the agency will be repaid in 10 months, but it becomes a never-ending cycle.  Most of the other agents we talked to had quite a bit of advance commission debt, even though they were making big paychecks every month.  We decided we’d rather live off of what we were actually earning, and switched to as-earned commissions.  That was painful at first, but we slept easier at night.  And it made it much easier to transition to setting up our own agency, since we were no longer relying on a larger agency to pay us advance commissions.

14.  We worked hard to build solid relationships with the top insurance carriers.  We avoided cut-rate carriers, even if they were offering sweet commissions and extra bonuses.  We wanted to make sure that the products we were offering our clients were from solid, reputable carriers rather than some new carrier that had just entered the market and was offering trips to Hawaii for brokers who sold lots of their policies.

I hope this is helpful for those of you who are interested in setting up your own business.  A lot of this stuff will apply to many industries and lines of work – not just insurance.  The internet has given us more opportunities than ever to be our own bosses and work from home.  Of course, it’s also created lots of scams and traps for the unwary.  If something sounds too good to be true ($8000/month, working from home, no experience necessary, start tomorrow!), it probably is.  Establishing a successful internet-based business isn’t easy, but if you make it work, the rewards are huge.

 

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Category: Debt, insurance, just my life, lessons learned, work  6 Comments
26
Jun 2011

Raising Our Deductible. Again.

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When we first switched to an HSA qualified health insurance policy in 2007, we had a $3000 family deductible (our family back then was just my husband and myself).  In 2009, we raised our deductible to $5000 in order to reduce our monthly premiums, after a couple of years of rate increases.  Now we’re doing it again, and raising our deductible to $7000.

After we added our second son to our policy this spring, the premiums climbed to $573/month for our $5000 deductible policy.  We looked at options with other carriers, but there were no better deals available.  So we decided to see if raising our deductible again would make sense.  The new premium will be $438/month, which means we’ll save $135/month, or $1620/year.  The trade off is that our potential out-of-pocket exposure will be increasing by $2000/year.

That’s a trade that I’m happy to make.  In the last decade, we’ve only used our health insurance twice, other than routine physicals.  My husband had knee surgery in 2008 (the only time we’ve ever met our deductible), and our son had to have stitches last year.  The stitches incident came to $1400, which we had to pay in full since our deductible was $5000 (we now have an accident supplement that will reimburse us up to $5000 if we have a claim that is a result of an accident or injury).

We’re a pretty healthy bunch, and our track record of not needing to use our health insurance is pretty good.  Of course, nobody knows what tomorrow will bring, which is why I would never go without insurance.  But chances are, we’ll come out ahead with our new deductible.  Here’s the way we look at it:  If we keep our $5000 deductible, we’re guaranteed to have to spend that extra $1620/year in premiums, and we might save $2000… if we have a claim that is more than $5000 (a claim that’s less than $5k would be the same either way – we’d be paying for it ourselves with either plan).  If we go up to the $7000 deductible, we’re guaranteed to save the $1620/year, and we might have to spend an extra $2000… if we have a claim that is more than $5k.  Given how close $1620 is to $2000, I’ll take the option that guarantees us the savings rather than the option that guarantees that we’ll be spending the money.

We’ve been contributing to our HSA ever since we opened it in 2007, so we do have the money to cover the deductible.  If we didn’t, this would be a different story.  And higher deductibles don’t always make sense – you have to crunch to numbers and see if they make sense.  If you’re only going to save $200 a year for increasing your deductible by $2000, you’d have to go ten years without meeting your deductible in order to come out ahead.  But in this case, as long as we don’t end up having to meet our deductible every single year, we’ll come out ahead.

So as of July, we have a $7000 deductible, and our premiums will drop to $438 a month.  What do you pay for health insurance, and what’s the highest deductible you’d be comfortable with?

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Category: insurance  23 Comments
15
Aug 2010

The Cost Of A Car

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In my last post, I mentioned that I’ve only driven my car 10,000 miles in the last three years.  A reader asked whether I’d considered getting rid of the car all together, and I thought that our conversation deserved its own post, in case some people had missed it in the comments section.  This was my response to Henry:

“You bring up a good point, and getting rid of my car is something I’ve considered. However, I can’t see a way that it would make sense, financially or practically. Pretty much the only time I need to use it is when I go to the city about ten miles from here. We’ve tried riding our bikes in there, but the only roads into town are fast, with small shoulders, and we just don’t feel comfortable on them. There is no public transportation between here and there. And there are no places to rent a car in our town. I wouldn’t feel comfortable borrowing a neighbor’s car – we know our neighbors well enough to say hi and chat for a while, but borrowing someone’s car (for me anyway) would require a lot closer relationship than that.
I did the math a while back about how much my car is costing us. I always average at least 32 mpg, city and highway combined. If we were to borrow or rent a car for the 3000 miles I drive each year, we’d still have to pay for that gas (and there’s no public transportation here, so that’s not an option). I pay $250/year for insurance, and $65/year for registration. And in the seven plus years that we’ve owned my car, we’ve spent less than $1500 total in maintenance (including a new windshield, as the original one was cracked when we bought the car). So my car is costing us just over $500/year plus gasoline costs. (We paid $2300 cash for the car in 2003, so there has never been any monthly cost associated with buying the car).
It’s hard to see how we could get rid of the car and come up with an alternative way of getting around when we need to leave our town, that would cost less than $500/year. I’ve read that the average American spends something like $8000/year on a car, and in  that case, I’m sure there are much more financially practical options. But I’d say I’m on the low end of the scale in terms of transportation costs, and there just aren’t that many other alternatives in a town with no car sharing program, no rental places, and no public transportation.”

Henry replied with a perspective about how much his own car used to cost, living in Europe, and how much better his life is now that he no longer has the car (a common theme that I hear quite a bit from other car-free folks):

“I keep forgetting just how cheap cars are to run in the US. I don’t know whether this makes you all very lucky or very unlucky. The maths you gave would be quickly dismissed as hopelessly naïve and the worst kind of wishful thinking in Europe. $500 a year!! I live in Austria – let me share my equivalent calculations for the car I used to have (2005 VW Sharan). The car was €23,000 when I bought it back in 2007. Since then it depreciated to €15,000 when I sold it a few months ago. I averaged 7 litres per 100km (Google says that’s 33.6 mpg in your language) and drove about 15,000 mostly unnecessary kilometres annually. At €1.20/litre (very approx. $6.50/gallon) that’s quite expensive. Because we had a small knock a couple of years back, our insurance was €1,712 (not a typo!) last year. I have averaged about €1,200 in annual servicing costs and for things like new winter tyres and a new air conditioning system. We also have motorway vignettes, annual parking fees in our town, etc.

The thing is, although I’m not exactly rich, I could afford it easily, so never questioned whether it represented value for money. When I started taking my finances by the scruff of the neck earlier this year, I was shocked at how much it cost to run – the best part of €8,000 a year! I knew cars were expensive, but I didn’t realise that it was such a drain on me. To top it all off, most of the driving I was doing was to out of town clients so that I could earn enough money to pay for the car. The money I was making by going out to them almost exactly balanced the cost of the car. I got rid of the car and the clients and am in the same shape financially, even when the cost of the occasional taxi or car hire is included. This means I now have time to play football (soccer) in the park with my kids and I also have one less thing in my life to worry about. I love how liberating it is to get rid of stuff.

Sounds like there might be a business opportunity for a start-up car sharing business in your community. ?”

Henry’s experience with owning a car sounds a lot more like the average costs here in the US than my own experience (except for the gasoline cost – I’ve always thought that if the US were to catch up with the rest of the world in terms of the price of gasoline, there would be a lot less driving here).  The main reason my insurance and registration are so low is because my car is 19 years old.  Registration fees are based on the value of the vehicle, so if I had a $25,000 car, I would be paying a lot more to register it each year.  And because my car is worth so little, I only carry liability insurance.  I have lots of liability insurance, as that’s not something I feel is worth scrimping on – if I ever need it, I want to be sure that there’s plenty of it there.  But there’s no need to pay to insure against damage to my own car, as the cost of the insurance would quickly exceed the value of the car.  One thing that I’ve done to keep my insurance costs as low as possible is to be a very careful driver.  I’ve never had a ticket in my life, which helps quite a bit.  We also have our liability umbrella policy and our homeowners policy with the same company that insures our cars, and that gives us a 15% discount.

I have been very fortunate in terms of how few problems my car has had over the years.  It’s a Honda, and I’m convinced that they build very good cars.  But a huge part of it has to do with how little I drive.  If you only drive 3000 – 4000 miles per year, it makes sense that your car will last three times as long as one that is driven 12,000 miles per year.

I did seriously think about selling my car earlier this summer.  We would still have my husband’s car (a 20 year old Audi that has similar maintenance, insurance, and registration costs as my car), but his has far less room in it for things like the dog and groceries.  His car has about 100,000 fewer miles on it than mine though, so it wouldn’t have made sense at all to get rid of his and keep mine (even though my car has been going strong for years, it does have 221,000 miles on it, and I realize it’s not going to last forever).  I checked the Blue Book value on my car, and it was about $1000.  But we decided that the convenience of having the car is worth more to us than the thousand dollars would be.  There’s plenty of space in our garage for my car, and there’s no issue with parking in our town (if we lived in a city where we had to pay for parking, that would sway things more in favor of getting rid of the car).

If and when we get to a point where my car needs extensive and very costly repairs, we’ll reconsider.  But for now, we figure that we might as well keep it as long as it’s running well and costing us so little to insure, register, and maintain.  And of course, I am always focused on how I can reduce my mileage as much as possible, and use the car only when I really need it, as opposed to every time I need to go somewhere.

What do you think?  I know it’s very feasible to live without a car in a big city that has public transportation and car sharing programs, but have any of you done it while living in a small town without any of those resources?  What does your car cost you each year?  How high would that number have to be to convince you that the car’s not worth it?

 

We did also consider renting a car for long journeys and when we go on vacation.  That way we would only have to pay for the use of a car once or twice a year.  We aren’t sure if this is feasible or not, but it’s a possibility.  Take cheap car hire in France for example:  we could drive from coast to coast, through Paris, up to Nice if we wanted to – all at our own convenience – without owning a car of our own and having to pay car expenses year-round.

 

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Category: insurance, Our stuff, taxes  16 Comments
25
Nov 2009

My Thoughts On Cars

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A reader emailed me a few days ago, asking for my thoughts on buying a car – so I figured I’d share.  I drive a 1991 Honda Civic wagon.  It has 218,000 miles on it, and has never once left me stranded on the side of the road.  Well, the muffler fell halfway off one time, but I was able to tie it back on with a rag that I had in the trunk, and make my way home MacGyver-style.  My husband and I bought the car in 2003 for $2300 cash.  We bought it from a private seller; he had been the only owner, and gave us meticulous records of all of the service work that had been done on the car over the 12 years he had owned it.  In the years since we bought it, the car has needed very little work, and has been very reliable.

I have no plans to get another car until mine just won’t go anymore.  At that point, we’ll look for another car, likely one that is around ten years old.  We’ll buy from a private owner again (Craigs List makes things like that pretty easy these days), and pay cash.

Driving an older car means that insurance and license fees are very low.  We pay $50/year to register our cars (it was $25 in our old city, but we also had to pay $25/car every two years for emissions testing, which we don’t have to do here), and only carry liability insurance on our vehicles.  We both have clean driving records and have our auto insurance, homeowners policy, and liability umbrella policy with the same carrier, so we get a discount on our insurance.

Coolness and looks play no part what so ever in my car shopping decisions.  A car is strictly for getting me and my family from one place to another, and most of the time it’s parked in my garage.  Anyone who cares about whether my car is cool or not isn’t a person whose opinions matter to me.  There are some factors that I do consider worthwhile when it comes to choosing a car: safety and fuel economy.

When it comes time to buy another car (hopefully a long time from now) we will look at safety ratings and fuel economy numbers, and base our final decision largely on those factors, combined with availability and price.  In terms of safety, yes, I know that there have been a lot of advancements in car safety since my car was built 18 years ago.  But my own driving is the biggest factor when it comes to my family’s safety in my car.  In 16 years of driving, I’ve never had a ticket (nor have I ever talked my way out of one).  When I drive, I drive.  Nothing else.  I don’t eat, mess with my phone, or look at a map while I’m driving.  I would never dream of driving after I had been drinking.  I always wear a seat belt and never exceed the speed limit.  My opinion is that those things make me safer – even in my old car – than someone in a brand new Volvo who is eating a burger and talking on the phone while tailgating the person in front of them.

Fuel economy is a major issue for me.  Environmental conservation is a huge priority for me, and driving – in any kind of vehicle – is something I try to minimize specifically because of fuel consumption.  We live in a small town (5000 people) and I don’t drive at all in our town – I bike or walk instead.  The town is only a few miles from one end to the other, so there’s no justification for me to drive anywhere here.  We have baskets on our bikes, and backpacks, and our son’s stroller has a compartment underneath that is perfect for hauling groceries or library books.  I usually make a trip into the nearby town about once per week (ten miles each way).  I combine all of my errands into one trip, and make sure that I don’t drive more than 65 mph on the highway into town (even though the speed limit is 75).  Keeping my speed down and avoiding aggressive driving while I’m in town means that my car averages 30 mpg, even though it’s almost 19 years old and on the larger side as far as Civics go (it’s a full wagon, with tons of room in the back).  Considering the fact that I drive less than 2500 miles per year, and that my car gets 30 mpg as it is, buying a new car in order to boost fuel efficiency doesn’t make sense – from a financial perspective or from an environmental perspective.  The energy required to build my new car would offset the small gain that I would make by driving a more efficient car (and it would take a hybrid to get significantly more fuel efficiency).

For a small segment of the population, space is an issue – if you have more than five people in your family, you’ll probably need something bigger than a car in order to have seatbelts for everyone.  But I will note that I often see large SUVs and minivans driving around with two or three people in them (or worse, just one person).  Unless you literally can’t fit your family into a car, why pay for more vehicle than you need?  Not to mention the higher fuel, insurance, and licensing costs that go along with larger, more expensive vehicles.

For an even smaller segment of the population, four wheel drive is an issue.  I would say that this is limited to people who live in small, snowy mountain towns where the roads aren’t plowed after every storm, and people who live on dirt roads.  In most urban areas, four wheel drive isn’t necessary.  In my opinion, it’s detrimental; I notice that as soon as the snow flies and the roads get icy, people in SUVs often think that they can still drive the speed limit.  And they end up in the ditch.

Driving an older car that we paid for with cash means we have no car payments, which is the best part of the deal as far as I’m concerned.  We’re saving money now for the day when we will eventually have to replace my car.  I haven’t thought much about a replacement, as we have two vehicles (my husband drives a 1990 Audi) and could use the other one for a while.  But I doubt that we’ll spend more than $5000 when it comes time to get another car.

I’m curious to hear your thoughts on this subject.  Do you have car payments?  Are you trying to get rid of them?  Did you buy your car with cash?  What is the most you’ve ever spent (or would spend) on a car?  Are you (or would you consider being) a one-car family?  Would you ever consider giving up your car all together and switching to bikes and public transportation?

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Category: insurance, Our stuff  13 Comments
24
Feb 2009

Getting A New Roof

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I’ve mentioned several times that we need to replace our roof.  We had planned to do it ourselves, but the more we thought about it, the more we decided that might not be such a great idea.  One of the slopes of our roof is steep and two stories up, with nothing but the glass of our greenhouse and our picket fence under it.  The other three sections of our roof aren’t bad, but that one is pretty rough.  So we started talking about hiring a roofer.

We talked with a neighbor who had his roof replaced last fall, and he mentioned that his homeowners insurance paid for it.  We were surprised, because his roof had been in even worse shape than ours – we assumed that insurance would only pay to replace a roof that was in relatively good shape when it was damaged.

We called our American Family agent, and he confirmed that they would send an adjuster out look at our roof, and noted that there had been a major windstorm here last December, and a huge hailstorm four years ago (I remember that our garden got flattened in that storm).  They came out twice in the last week, once to evaluate damage from the windstorm, and then yesterday to check for hail damage.  They ran their numbers, subtracted depreciation (to account for the fact that the roof was old to begin with) and are sending us a check.  For $2200!!

We got estimates from two roofers, both of whom have been in business for quite a while and have A+ ratings with the BBB.  The less expensive estimate is $5300, which includes new 5 inch seamless gutters and downspouts.  With the $2200 from American Family, we will be able to pay for the new roof without dipping into our emergency fund, which is a huge plus.

Since I’ve been known to rant about companies that have annoyed me, I wanted to balance that out by giving a big shout out to American Family.  I never expected them to give us such a big amount, considering how old our roof was to begin with.  Obviously we’re thrilled with the payout.  But beyond that, everyone we talked with at American Family was fantastic.  Our agent explained that we would not lose our claim-free discount if we filed a claim because of wind or hail, and got everything going for us.  The claims reps and adjusters we worked with bent over backwards to make the process easy and fast.  We have our cars, home, and liability umbrella with American Family, and have been with them ever since we bought our house.  This is the first time we’ve ever had any interaction beyond basic additions and subtractions to the policies, and we are thoroughly impressed.

We’ll be scheduling the roof replacement very soon, and are excited to finally be getting it done.  We’ve been doing all sorts of other (much smaller!) home improvement projects over the last couple weeks – update coming soon.

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Category: home improvement, insurance  7 Comments
13
Feb 2009

How Many Financial Blows Could You Withstand?

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A while ago my husband and I were discussing with my dad our plans to move to a less expensive town.  He was talking about how many financial blows a person can withstand, and how increasing that number should be a primary goal.  It resonated with me, and really made me think.  It’s part of the reason why we decided that we’d rather sell our current house instead of renting it out.  Two mortgages, one of which is covered by rent from tenants, is great as long as things are going smoothly.  But things don’t always go smoothly, and having just one house and one mortgage is a lot easier to juggle if things get a little rocky.

My dad pointed out that it would take several financial blows to knock my parents down.  They’ve already withstood a few, the biggest being the autoimmune disease that struck my dad without warning in 2001 and caused kidney failure.  He had to retire at 55, several years ahead of schedule.  Even with health insurance, his medical expenses eat up a huge chunk of money every year.  It’s not an ideal situation, but it would be much worse if they had been in debt when he got sick.  They’ve always planned carefully, and while they’ve never had a great deal of money, they stretch what they do have farther than anyone else I know.

My parents would never in a million years put in granite countertops or buy a big screen TV.  They drive a Hyundai that they paid for with cash.  They taught me everything I know about shopping in thrift stores and at yard sales.  They are the king and queen of do-it-yourself, and make frugal into an art form.  Years of living like that put them in a position where a pretty significant financial blow wasn’t able to topple them.  And they could withstand several more if necessary.

That is our goal.  My husband and I are working to get ourselves to that point.  When we bought our house six years ago, we were far from it.  Our mortgage was a stretch for us, and starting our own business at the same time made things even tougher.  We worked our butts off, but we were also lucky.  We had the various financial hiccups that go along with starting a business, but we didn’t have any major catastrophes.  We’ve gotten ourselves to the point where we could withstand some financial difficulties without too much of a problem, but we still have a long way to go.

These days our income is more than it was when we bought our house.  But we won’t be upgrading to a more expensive neighborhood, buying new cars, or abandoning the thrift stores where we do our shopping.  Upgrades are fine, as long as your financial situation stays the same or gets better.  But what if it gets worse?

I look at every month where our income exceeds our expenses as a gift that should not be squandered.  It’s an opportunity for us to build up a wall around our family to shield us from whatever life might throw at us around the next bend.  That’s why we’re so focused on saving and living frugally.  A few years ago, we had to be frugal because there simply wasn’t enough money in our budget to live any other way.  Now, we choose to be frugal because we don’t know what the future will bring.  Our income isn’t huge, and it could easily be eaten up if we chose to upgrade a few aspects of our current lifestyle.  But carefully considering every purchase means that we’re able to put money aside every month instead of spending it.

I hope that we’ll continue to have smooth sailing for many years to come.  And we’ll be careful and do our best to make that happen.  But sometimes life throws curve balls that are tough to anticipate.  Insurance (life, health, liability, etc.) can help with some of those, but avoiding debt and building up savings will make it much easier for us to weather whatever storms might lie ahead.  And to me, that brings more comfort than anything we could spend our money on right now.

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Category: insurance, savings  15 Comments
30
Dec 2008

Lowering Our Health Insurance Premiums

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We lowered our health insurance premiums, and our new bill starting in January will be $341/month.  It had gone up to $498/month as of November, and we decided it was time to increase our deductible.  By raising our family deductible to $5000 (it was $3000), we save ourselves $1884 in premiums for the year.  That’s pretty much a no-brainer, considering that as of today our whole family is perfectly healthy.  The worst case scenario is that we end up having to meet the new $5000 deductible.  In that case, we’d only be $116 worse off than we would be if we kept our $3000 deductible (because the $1884 savings would be offset by the additional $2000 we’d have to pay to meet our deductible).  But the odds are better that we won’t have to meet our deductible (we’ve only ever met it once – this year – when my husband had knee surgeries).  In that case, we just get to pocket the $1884 savings.  We’ll be using that money to fund our HSA, just in case we do end up having to meet the deductible.

Sometimes it’s not so clear cut – it’s always less expensive to go with a higher deductible, but the savings might not be as close to the increase in out of pocket exposure.  It’s a personal decision about how much risk one is willing to assume and how healthy (and lucky) one feels.  But in this case, it was pretty obvious.  I’d rather keep the $1884 and maybe have to use it to meet the higher deductible instead of spending it for sure by having to send it to the health insurance company as premiums.

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Category: insurance  7 Comments
11
Nov 2008

Raising Our Deductible

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We got our annual health insurance premium increase this month, and we’re now paying $498/month for our health insurance.  I fondly remember 2003, when we were paying $110/month.  But since then we switched to an HSA qualified plan with a $3000 family deductible (as opposed to the $2500 per person deductible we had before), and we added a third family member to the policy.  And of course there are five years of rate increases factored into the equation.  I know there are plenty of people paying more, but $500 a month is still a lot of money.  I’ve never used my health insurance for anything other than annual exams.  Our baby was born at home, and we paid our midwives ourselves – insurance didn’t cover it.  My husband hasn’t ever used his health insurance until this year, when he more than got our money’s worth from it with two knee surgeries and all the follow ups and physical therapy visits.  But by the end of the year, he should be back to normal, with no more knee issues.  Our baby has only used the policy for well-child checks, which are covered regardless of whether we’ve met the deductible or not.

Taking all of this into account, we’ve decided to raise our deductible in January.  I checked with the insurance company, and we can increase the deductible to $4000 and pay $420/month.  That saves us $78/month, or $936/year.  Of course, we’ll have an extra $1000 in exposure with the higher deductible, but as long as we don’t meet our deductible every year going forward, we’ll come out ahead with the higher deductible and lower premiums.  The way I look at it is that if we keep the lower deductible, we’re guaranteed to be spending that $936/year in premiums.  If we go with the higher deductible, we might have to spend extra money to meet the deductible.  That’s a gamble I’m willing to take, given our history of never using our health insurance at all.  We have enough money in our HSA to cover the higher deductible, and we’ll be putting more into it in January (some of which will come from the savings we get by going with the higher deductible).

Our deductible will be $4000 for the family, and the policy has 100% coverage after the deductible – so as long as we stay in network, $4000 is our worst-case out of pocket amount.  What about you?  What’s the highest deductible you’re comfortable with?  Have you raised your deductible or cut your benefits in order to lower your premiums?

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Category: insurance  6 Comments
03
Nov 2008

Health Insurance Deductible Scare

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When I checked the mail late last night, we had an EOB from our health insurance company, saying that we were going to be billed $2600 for my husband’s recent knee surgery.  Holy smokes.  This was his second knee surgery this year, and we had met our $3000 deductible back in January when he had the first one.  Our policy covers 100% after the deductible, and we had pre-certified everything before the second surgery (and had been assured that everything was covered, as our deductible had been met).  The billing people at the hospital also confirmed this before the surgery, so we figured all was well.  So when I saw the EOB, my heart dropped.  What could I have missed?  And how could I have missed something so big?  It was saying that we were still being charged towards a deductible, and I started to wonder if maybe the hospital was no longer in network, and that they were hitting us up for the out of network deductible.  But both the insurance and the hospital had confirmed they were in network, on the day of the surgery.  Oy.  I had to go to bed and try to not think about it until today.

This morning I called our health insurance company, and explained the situation to a very helpful lady.  She put me on hold to try to figure out what was going on, and was gone for a very long time.  But eventually she got back on the line and said that the mistake was theirs, and that we did not owe anything – the whole surgery would be covered by insurance.  So that was a happy ending indeed.  We’re looking into LASIK for my husband right now, and if it had turned out that we actually owed another $2600 for his knee, we would have had to postpone the eye visit for a good long while, to give us time to pad the HSA back up again.  So I’m happy to report that everything turned out ok.  I wish I had waited until this morning to get the mail, so that I didn’t have to worry about it while I was going to sleep last night!

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Category: health, insurance  2 Comments
17
Sep 2008

A Credit Score Discount On Our Home Owner’s Policy

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Back in January 2007, I wrote about a letter than I got from our home owner’s insurance company telling us that we weren’t getting their best rate because of our credit scores.  Last week, our insurance agent did an annual review with us, and I guess that our scores have gone up, because now we’re getting their “credit based insurance discount.”  We haven’t seen our credit scores since we were applying for a mortgage six years ago, but I’m guessing they took a bit of a beating during our broke years.  We never paid anything late, and we never went over a limit or missed a payment, but we did have a lot of debt for a while.  We paid off the last of it in August 2007.  So I’m guessing that our credit scores must have improved since the beginning of 2007 when we found out that credit scores are incorporated into home owner’s insurance rates.  That feels good.  Our policy is costing us $546/year now, which is $8 less than last year, and we have more coverage now, since they increase the limits every year to keep up with inflation.

Yet another benefit to paying off debt and improving your credit scores: lower home owner’s insurance premiums.

Stay informed with credit report monitoring service that alerts you regarding any changes made to your credit report.

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Category: insurance  4 Comments
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