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?

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.

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.

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.

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?

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!

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.

We’re thinking about adding an umbrella liability policy to our homeowners/auto insurance policy.  I talked with our agent about it, and it would cost $216/year to add a $1 million umbrella to our coverage.  We’ve talked about it for ages, but keep forgetting to do anything about it.  I emailed our agent with a few questions, but I think we’re going to go ahead and do it when he gets back to us.  We’re currently paying a total of $1297 a year for our homeowners policy and our car insurance for both vehicles.  I feel like $216/year is a good deal for the amount of coverage we would be getting, although I know that the chances of ever needing that sort of coverage are slim (our homeowners policy already has $300,000 in liability coverage).  But then again, lawsuits are not pretty things, and I’d much rather have an insurance company taking care of the mess if there should ever be one.

Any thoughts?  Do you pay extra for a liability umbrella on your insurance policy?  For those who do, does $216/year sound like a good price for a $1 million policy?

My husband and I both currently work full-time (probably more than full-time if we were to actually keep track).  We don’t make a huge amount of money, but it’s plenty for us.  I know we could be earning a lot more money if that were our primary focus, but we decided a long time ago that quality of life is more important than a paycheck, and it’s been more than five years since we quit our corporate jobs and launched our own business.  In addition to our insurance agency, I have a part-time job at the local library that made up about $20,000 of our total income last year.  If I quit that job when the baby is born, it will be a significant pay cut.  And yet I know that we’ll be just fine financially if I do decide to let the library job go.  In situations like this, luck rarely has much to do with it.  Anyone can set themselves up to have options when it comes to work.  That’s not to say that it will be easy, but it’s not luck and it’s not unattainable.  Here’s what we’ve done to give ourselves choices with regards to working and taking care of our baby:

We got out of debt before we got pregnant.  We do still have mortgage debt, which will be paid off by the time I’m about 40, but I didn’t want to wait another ten years to have a baby. 

Speaking of mortgage debt, we decided to keep our “starter house” forever.  Our mortgage is about $1200/month, although we always pay extra.  Instead of upgrading to a bigger house for our expanded family, we’re making our 1300 square foot house work more efficiently.  We’ve done quite a bit of remodeling in the last year, but we’ve done it on a very low budget (about $5000 total, for a kitchen remodel, new office space, and new floors).  As the years go by, our fixed rate mortgage will become more and more affordable – we’ll never be house poor. 

We drive old cars.  Mine is a 1991, my husband’s is a 1990.  They each get nearly 30 miles to the gallon.  We will drive them (and maintain them) until they just don’t go anymore.  At that point, we’ll buy another used car (two years old doesn’t qualify as “used” to us – we’d really only be looking at something at least ten years old when we do buy another car).  Our auto insurance is less than $50/month for two cars, and of course we have no car payments. 

We buy all of our clothes used.  The only exception is socks, underwear, and running shoes. 

We cook most of our food at home.  Over the last several weeks when we were remodeling our kitchen, we ate out a lot more than usual, but we’re back on track now that the kitchen is finished. 

We consider very little of the stuff that’s marketed to new parents to be truly necessary.  We’re making our own cloth diapers and have found some that we’ve bought used.  We have a car seat, a crib, some cute baby clothes that we’ve received as gifts and hand-me-downs, and a couple of good slings.  No color-coordinated bedding for the nursery  (aren’t babies just supposed to sleep on a mattress with a sheet on it anyway?), no wipe warmers, no changing table (we got a used changing pad that screws to the top of the dresser we put in the baby’s room).  I’ll be breast feeding exclusively until the baby has teeth, and then we’ll be using an inexpensive food grinder to grind up a little of whatever we’re eating to supplement the breast milk.  We will be putting $100/month into a 529 plan, and our health insurance will increase by about $80/month with the baby on the plan, but we’ll be skipping a lot of the expenses that seem to come with the territory for a lot of new parents.

We don’t skimp on things that really make a difference.  We have $500,000 life insurance policies.  We have health insurance, liability auto insurance and homeowner’s insurance.  We fully fund our HSA in order to have money available if we need to meet our health insurance deductible.  We fund our retirement plans and an emergency account.  We haven’t been to a movie theater in at least two years, but we spend about $45/week on organic fruits and veggies.  If we didn’t have insurance, we would “save” several hundred dollars a month, but our financial foundation would be a house of cards.  So we’ve made a point to spend very little on stuff like clothing and entertainment and put our money into things that make our life more secure instead.  It makes adding a new family member a lot less scary.

We diversified our income.  When we first started working in the health insurance industry, we worked for one company, selling only their product.  We soon decided that by offering lots of different products, we could provide better service to our clients and more stability for ourselves (it would suck to be a captive agent for a company that all of a sudden stops offering products in your state).  Setting up our own brokerage, with no advance commissions and no income guarantees was a scary step, but it got us to where we are now, with income from several different companies every month.  Not having all our eggs in one basket is a reassuring feeling. 

We got in the habit of saving a good chunk of our income.  So if our income drops for a while, we wouldn’t notice a huge difference, since a lot of my income has been automatically routed to retirement plans.  That’s not to say that we’re going to stop funding our retirement in order to have a baby, just that it will be easier to not have the income than it would have been if we had been spending every penny I had been earning over the years. 

We really like free and almost-free entertainment.  An ideal weekend for us involves a long bike ride, Frisbee in the park with the dog, a movie from Redbox, and home-cooked meals.  These are all things that we can do with a baby, cost almost nothing, and have an added benefit of keeping us healthy as well as happy. 

We’ve been much poorer in the past than we will be if I quit my job at the library.  So we know we can do it.  This is true for most of us, although we may not like to remember it.  Think back to when you were in college (assuming that you didn’t have a monthly hand out from wealthy parents) and struggling to make ends meet.  Once you paid for books and tuition, there wasn’t much left over.  Rice and beans was a way of life.  The dollar theater was big-time entertainment.  A couch from Goodwill was fine, and one that you found on the curb was even better.  Your car was probably nearly as old as you were, if you had one at all.  Now fast-forward ten years and all of a sudden you find yourself “needing” $70,000/year to pay for two new cars, a big screen TV, a housekeeper, and weekly manicures.  I find that it’s helpful to remind myself of what I’ve gotten by with in the past.  It helps put some perspective into the needs vs. wants question.  During my time as a college student, and then as a Peace Corps Volunteer, I made do with very little – and was perfectly content with my life.  I can do the same now. 

Life is all about choices.  Lucky people tend to make their own luck by the choices they make.  I love reading pf blogs, because I see so many people who are making good choices and setting themselves up for good luck and happy futures.  When we take the time to build a solid foundation, we give ourselves options and opportunities that wouldn’t otherwise be there, and then we get to enjoy all of our “good fortune.”

Yesterday we officially maxxed out our HSA for the year.  $5650 is the IRS limit on contributions for a family, and we hit that mark – a huge milestone for us.  It puts us well on our way to having enough money to pay for our baby’s birth and to meet our deductible on our health insurance to get my husband’s knee worked on next month.  And it’s a sweet tax deduction.  I think this is the first time we’ve ever maxxed out any contribution account.   We haven’t ever gotten there with our IRAs or my 457 plan at the library, so it’s nice to be at a point where we have an account finished for the year.  Next year, I’d like to max it out earlier in the year to give the money more time to grow.  I’m working on 2008 goals and I’ll post about them soon.