Dealing with Your Finances in the Event You Are Unexpectedly Laid Off

It is the worst day of your day. Your boss has just informed you that your entire department is being downsized, meaning that you are now out of a job. Leaving an office you will never return to in a daze, you walk out to your leased vehicle. You return home, pulling into the garage of the home you had bought in 2008 at the height of the real estate bubble.

The next morning, fortified by a strong cup of coffee, you fire up your laptop computer to see what your options are. As you see it, improving your financial situation is the most important thing you can do right now.

As you see it, there are three different areas in which you might be able to immediately address your finances: your underwater mortgage, your leased car and having lost your job.

State Unemployment and Other Unemployment Benefits

Assuming you were not terminated for cause, your first stop should be the website for whichever state agency deals with unemployment benefits in your particular state. State unemployment benefits provides cash payments for a fixed term to eligible workers who are unemployed through no fault of their own (keep in mind that whether a worker has become unemployed through his or her own fault is determined under the particular state’s law), and meet any other eligibility requirements set forth in that particular state’s laws. You discover that in your home state, Maryland, one of the requirements to receive unemployment benefits is that you must be able, available, and actively looking for work.

In most states, the amount of unemployment benefits you are entitled to is tied directly to whatever your salary and/or wages at the job from which you were separated from. However, be the maximum amount of unemployment compensation to which an unemployed individual is entitled under state law often is much less than whatever your wages were at your previous job. You also discover that there are time limits imposed by the various states on how long you can receive unemployment benefits.

You discover that in your home state, Maryland, you can file for unemployment benefits completely online and fill out an application right away. Based on the information you enter, you discover that, if your application is approved, you can expect to receive the maximum amount of $430 weekly for a maximum of 26 weeks.

You also discover that other programs may be out there as well to help you. For instance, if you are a former federal employee or ex-service member, then there are programs that provide unemployment benefits to you independent of the state unemployment benefits to which you likely are entitled.

Your Car Lease

You next turn to considering the issue of the vehicle you are currently leasing. Your concern is that the required monthly payments for the lease are more than you can afford without any wages coming in the door every two weeks. Because your lease is a contract, your first step is to obtain and open a copy of your lease. This will assist you in determining your options. Some leases will allow you to transfer the contract and liability for all future payments to someone else. Websites like leasetrade.com, leasetrading.com, or swapalease.com allow you to advertise your lease to prospective buyers. Keep in mind, however, that you lease may not allow lease assumptions and it also may provide that any prospective individual interested in assuming your lease must meet certain eligibility criteria. After looking at the copy you have saved on your computer, you see that your lease, unlike many, permits lease assumption, so you can place an ad advertising your lease on leasetrade.com.

Your Underwater Mortgage

You next decide to research whether there are any steps you can take to deal with your underwater mortgage. Although you quickly realize that you could walk away from your mortgage, that is, give the keys to the house to the bank and move out, you do not want to take this drastic option because it would destroy your credit for up to 7 years. You do discover, however, that the state and federal government have set up programs to help many homeowners who find themselves in exactly your situation-unexpectedly unemployed while trapped in an underwater mortgage. In your home state of Maryland, you discover that the state offers several programs for borrowers which borrowers can take advantage of. Under the Lifeline program program, homeowners who are unemployed through no fault of their own can apply for assistance for adjustable rate or other mortgages. There are also federal programs available in Maryland which provide up to $50,000 in zero interest loans to homeowners to assist them in staying current on their mortgage if the person suffers a reduction in income or unemployment. In addition, you see that your own mortgage servicer, Bank of America, offers a mortgage modification program to underwater homeowners. You download information regarding the required documentation for both programs and immediately begin to fill the required forms to free up some additional cashflow for groceries and other necessities while you look for another job.

More Immediate Steps to Improve Your Finances

While conducting your research, you also come across some other suggestions to ways to improve your finances in the short term. First, you decide to cancel your cable and Netflix subscriptions in order to save on some of your monthly recurring expenses. Next, you also call your cellphone company to see if they are offering any promotions because you are currently off-contract.

After an entire morning spent performing research on the Internet, you are exhausted but feel exhilarated by the progress you made in learning some ways to reduce your expenses and lessen the impact of your unexpected unemployment on your finances.

Pros and Cons of Investing in REITs

Real estate investment trusts, or REITs as they are more commonly known, are investment vehicles that allow investors to purchase an interest in a portfolio of properties.  At its most simple, think of a REIT as a pool of money consisting of the contributions of many small individual and institutional investors which then uses the proceeds of those contributions to invest in a portfolio of properties.  The proceeds from the rents from the properties owned by the REITs are then paid out to the REIT’s investors as dividends.  There are multiple types of REITs dependent on what type of properties the particular REIT invests in, but the most common include retail REITs, which invest in shopping malls and freestanding stores, residential REITs, which invest in multifamily housing like apartment communities or condominium complexes, office REITs, which purchase office buildings, and healthcare REITs, which invest in the real estate upon which hospitals, nursing homes, and medical centers are located.  There are also mutual funds and exchange traded funds that invest solely in REITs that allow investors to gain access to this asset class without necessarily having to do their homework to pick a specific REIT in which to invest.  Instead, the investor can just buy shares in the fund and let the fund managers choose the REITs for the investors.  

Many investors are attracted to REITs due to their relatively high yields compared to other income-producing products in the marketplace.  These investment vehicles typically often offer much more attractive dividend yields than safer, more plain vanilla financial products like a savings account or a certificate of deposit.  That is perhaps their greatest benefit, particularly in today’s era of ultra-low interest rates.  They also offer the opportunity for capital appreciation, as they can rise in price between when an investor buys shares in a REIT and ultimately sells those shares.  

REITs are also typically highly liquid in that they are traded on most exchanges and can easily be bought and sold at will by investors through brokerage accounts.  They can also be bought and sold in a variety of formats, from the direct purchase of shares in the actual REIT itself to the purchase of shares in exchange traded funds or mutual funds which invest solely in REITs, resulting in indirect ownership of REITs for fund investors.

However, REITs are also not without their drawbacks.  Unlike bank accounts, the contents of which are guaranteed up to $250,000 by the Federal Deposit Insurance Corporation, a REIT’s returns are not guaranteed.  The REIT’s ability to make payments to its investors relies upon its receipt of money from the tenants of the properties of it owns; therefore, if those properties are vacant or the tenants are not paying their rent in a timely manner, then the REIT’s dividends likely are not being paid as expected.  Accordingly, there is a chance that an investor will not receive the payments he or she was anticipating when he or she bought an interest in a REIT.  REITs also are not guaranteed not to drop in price.  During a period during which the value of the underlying real estate assets held by the trust is plummeting, a REIT can plummet in price or become highly illiquid, meaning that it can be difficult to offload in a market in which its prices are dropping.   

However, on balance, REITs can be a good investment class to have in your portfolio.  For instance, in a study conducted by the website Investopedia, they were found to be the second best performing asset class behind mid-cap stocks for the period 1990-2010, returning an average of 9.9%.  Accordingly, consider investing in this asset class either directly if you have a brokerage account or indirectly by purchasing shares in a mutual fund or exchange traded fund dedicated to this asset class.  

New Crowdfunding Rules Allow Ordinary Investors to Invest in Start-Ups

It recently because much easier for the average investor to invest in startups and for startups to raise money via crowdfunding efforts based upon rules promulgated by the U.S. Securities and Exchange Commission (SEC) that went into effect on May 16, 2016.  These changes were part of the JOBS Act, which was passed by Congress in 2012 to both assist startups in raising capital and allow ordinary investors access to investing in startups, which was previously not allowed under federal securities laws.  

Pursuant to what is known as Regulation Crowdfunding, a much broader class of investors can now invest in startups via a crowdfunding platform.  (Keep in mind any crowdfunding platform on which a startup intends to offer shares must be registered with the SEC in order to offer a platform upon which securities are offered for sale to the public.)  

Pursuant to Regulation Crowdfunding, there are limits on the amount that can be invested by an individual investor.  These limits are tied to the investor’s net worth and annual income.  Pursuant to the legislation, an investor’s net worth is calculated by subtracting any and all liabilities from the investor’s assets.  With respect to the actual concrete limits, if an investor’s annual income or net worth is less than $100,000, the investor can invest $2,000 or five percent of his or her net worth in a 12 month period, whichever is less.  If an investor’s annual income AND net worth are both greater than $100,000, then the investor is permitted to invest up to a maximum of ten percent of his or her income or net worth, whichever is less.  

There is also a limit of $1,000,000 that can be raised by any startup through crowdfunding in any 12 month period.  Each startup must disclose certain information in connection with any crowdfunding, including the price pursuant to which it is offering its securities to the public, the method of determining that price, a discussion of its financial condition, a description of its business, information about its officers and directors, as well as financial statements.

These recent changes to the federal securities laws permitted by Regulation Crowdfunding should prove beneficial for both ordinary investors, who now have access to an asset class they previously lacked the ability to invest in, while also making it easier for startups to raise money to fund and/or expand their businesses or to use for other purposes.

Utilizing Assets in an IRA for College Expenses

Families or individuals will sometimes wish to tap retirement assets in an Individual Retirement Account (or IRA) to pay for educational expenses.  This has become an even more attractive option recently, as the rules governing both traditional IRAs and Roth IRAs have been amended in the past several years to allow withdrawals for qualified higher education expenses. The tax treatment of the funds used to pay for college varies based upon whether the assets being used for college expenses are located in a Roth IRA vs. a traditional IRA, however.  

With a Roth IRA, the principal portion (the amount you put in) can be withdrawn tax-free and penalty-free at any time for any purpose.  A key benefit of Roth IRAs is that distributions are not taxed as earnings until the entire principal balance is withdrawn. That means you can take out as much as you put in, tax-free, to pay for college and withdraw the earnings portion tax-free when you turn 59 1/2.  

By way of example, imagine that you have $100,000 in a Roth IRA on your child’s first day of college, $65,000 of which is principal and $35,000 of which represents earnings over the period that you have been contributing to the Roth IRA.  You would be free to use that entire $65,000 towards college expenses before needing to worry about any tax consequences and then you would still have $35,000 remaining that could be used for retirement purposes.  Note, however, that any withdrawals that exceed the total contributions are attributable to earnings and will be taxable for those under age 59½.  Therefore, if you withdraw $75,000 of the $100,000 from the example above to pay for college expenses and you are under the age of 59 ½, then the $10,000 of earnings withdrawn would be taxed as ordinary income on the following year’s tax return.

In the event you choose to withdraw moneys from a traditional IRA to pay expenses associated with college, the full amount of the withdrawal will be taxed as ordinary income, assuming both that you are under 59 ½ and that all your contributions to the traditional IRA were made on a pre-tax basis.  To use the same example from above, imagine you have contributed $100,000 to a traditional IRA.  Whatever amount you take out of the IRA to pay for college expenses is taxable, no matter whether you take out $10 or the full $100,000 in the IRA.  Therefore, whatever amount you withdraw will be taxed as ordinary income on the following year’s tax return.

When it’s time to prepare your taxes, any amounts that you withdraw from a Roth or traditional IRA are required to be reported on Form 5329.

Tapping retirement assets to pay for college expenses can provide an alternative to taking out costly student loans or paying college expenses in cash.  Ensure, however, that you understand up front what the tax implications of making any distributions will be in order to avoid an unexpected, and most likely hefty, tax bill.  If you do intend to withdraw assets from a traditional IRA or amounts in excess of your contributions to a Roth IRA, then consider either making quarterly estimated tax payments or adjusting your withholding to account for these distributions.

Another consideration from a planning perspective is that the $5,500 (for those under 50) or $6,500 (for those over 50) IRA contribution limits apply, no matter whether you plan to use moneys in an IRA for retirement purposes or to pay for college expenses.  Therefore, if you decide you like the thought of using an IRA to save for college, make sure to factor the IRA contribution limits into your planning.  

Are you having problems repaying debt, with student or other loans or do you need help coming up with a savings or investment plan? I offer assistance in debt management, student loan and general personal finance issues, including advising on debt management, resolving student loan problems and saving and investing strategies.

 Are you having problems repaying debt, with student or other loans or do you need help coming up with a savings or investment plan?  I offer assistance in debt management, student loan and general personal finance issues, including advising on debt management, resolving student loan problems and saving and investing strategies.  Initial consultation is always free and then I can provide you with a detailed written proposal.  If interested please email me at insideconsumerfinance@gmail.com. 

Are you really saving money by buying things on sale?

Are we always saving when we buy things on sale?  This question occurred to me as I was walking through the grocery store the other day, when I found myself getting excited and grabbing things that were not on my list but were on sale.  

My wife had given me a fairly short list of items we truly needed: milk, bananas, veggies, apples, etc.  But as I was waking through the store I noticed my favorite cereal was buy one get one free, so I grabbed four of them even though I had two already at home. 

I also have done this in the past with clothes-I went to the mall or store needing to get a couple dress shirts for work and ended up walking out with dress shirts, a couple ties, some casual shorts, etc.  The dress shirts I absolutely needed because I had worn out or gotten irreversible stains on several of my older dress shirts.  The other clothes, although I have worn most of them multiple times, were not strictly necessary.  

From my experience, whether you are really saving money by buying something on sale completely depends on both the time value of money and whether you actually would have bought whatever was on sale at some point in the future anyway, i.e. whether it is a want or a need.  So in the case of me buying my favorite cereal, I had two boxes left when I bought the boxes so I did not need them at that point.  However, I saved $8.00 by buying them now versus me paying the regular $4.00 price if they had not been on sale.  I go through a box every 7-10 days so I would have gotten little to no return on that $8.00 if I had not bought the cereal.  

The clothes I bought probably don't fit the same analysis. Yes I have more clothes as a result of my purchases of those on sale products and I do use them, but the extra $100 or whatever I spent on them might have been better invested, where it could have grown at whatever percent per year you consider the liky growth rate over the  near and long term future. 

So, at the end of the day, whether you are really saving money probably depends on whether what you are buying on sale is a want versus a need.   

Have you had a similar experience where you tend to buy things on sale just because they are on sale?  Do you ever wonder if you are really saving saving money by buying things on sale?

Guest Post on My Personal Finance Journey Blog

I did a guest post on the My Personal Finance Journey Blog on resources for resolving issues with your student loans when you are having problems with your servicer.

Post is available here

Do you drive out of your way for cheaper gas?

In driving home yesterday and, as I unfortunately often tend to do, I was on the search for a gas station because I had let my tank run down far enough that the gas light was on.  Because I was close enough to running out of fuel that I was getting nervous, I just drove into the first station I saw without even looking at the price.  I ended up paying $2.89 per gallon and saw another station half a mile down the road offering gas at $2.73 per gallon.  I have a ten gallon tank and only had a gallon left, so I ended up leaving around $1.50 on the table by waiting until the very last moment to fill up.

I previously had this really negatively affect my wallet a month ago when I was returning a rental car to the airport.  I deliberately waited to fill up until right before I got to the rental car return at the airport.  By way of context, the average price here is between $2.80 and $2.90 depending on which part of the city you are in.  As you may or may not know, if you bring a rental car back and the tank is not full, they charge you a ludicrous price that is typically more than double the going rate for gas wherever you are.  In this case, it was $6.00.  

In any event, every single gas station within half a mile of the airport was selling gas for $3.99 a gallon and up.  So, by not filling up two exits before the airport, I cost myself more than $1.00 per gallon.  I of course had no way of knowing this, but it was a lesson to me to not wait until the last minute to fill up because there is nothing I hate more than having to pay more money than absolutely necessary for something.  

So what did I learn from this experience? I am going to start keeping my eyes peeled for a good price around the time my tank hits halfway empty so I am not stuck stopping anywhere with a pump just because I am about to run out of gas.  

You may think it's a waste of time and energy to worry about saving such a small amount but I would point out that it can add up.  Let's say that each of my wife and I need to fill up once a week.   I have a little car with a small tank but she has an SUV with a 25 gallon tank so we are looking at $6.00 per month or $96 annually for me and then $4.00 weekly, $16 monthly and $192 annually for her for a combined total of $288 for the two of us.  

I know that doesn't wow you as a huge amount that will change your life, but that is still more than $20 per month to spend or save as you wish.  

After that math, I am going to stop the next time I see a station with a cheap price.  

Do you research ahead of time where the cheapest gas around you is?   Do you recommend any particular apps or websites that you find to be particularly helpful?

Automatic Bill Payment: An Easy Way to Simplify Your Financial Life

In today's banking world, virtually every financial institution offers both auto pay and online bill pay, including the ability to have your bills automatically deducted from your bank account.  This is a very convenient option for staying on top of your bills, as you don't need to worry about remembering due dates or possibly missing a payment deadline and incurring late charges.  

I have virtually all my bills set up for autopay from my bank account and I have them synced to come out the day after we get paid.  (As a general practice my wife and I always keep two months or so of expenses in our checking account in order to make sure we never have issues with unintentionally over drafting).  

Our bank lets us set up automatic bill pay through the bank itself, but we elected to set up the autopay through each of the third parties themselves (cable company, power company, cell phone, student loans, even retirement accounts).  My thought was that the utility or other third party themselves would be in a better position than the bank to resolve any issues that might come up if there was some sort of payment glitch.  

As far as drawbacks, one of the main concerns I have heard with automatic bill pay is that a third party has access to your bank account, theoretically enabling it to withdraw at will and potentially cause you to be overdrawn and get you hit with overdraft fees.  I have not actually heard of anyone I know having issues with this but have read horror on several personal finance blogs about people who paid off their student loans only to have the servicer continue withdrawing money from their account even after the loans were completely paid off.  So, in my mind at least, the likelihood of this happening is fairly low.  The specific concern about connecting the auto payments to your bank account versus a credit card is that once the money leaves your bank account it is gone whereas with a credit card your own money has not actually gone put the door.  Having had to work to get some charges on my debit card reversed recently when it got stolen, I understand what a pain this can be.  

I have some of my recurring bills auto paid to my credit card, including a charity I give to monthly, but there is no real rhyme or reason to this.  I just set it up several years ago and never bothered to change it to auto pay from my bank account.  

Auto paying your bills is a great method for reducing the hassle of paper bills and wasting postage on sending in checks. I would strongly urge you to consider it if you are not currently using it.   

Do you pay all your bills automatically? What has your experience with this been?

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Saving on moving costs by getting a binding quote

My wife and I just moved to a new city 350 miles away from where we had previously lived, which meant either getting movers or renting a truck and doing it ourselves.  We moved to a fairly major metropolitan area so parking the truck would have been a challenge and the thought of driving the truck through the city when I am not a very confident driver in such a big vehicle scared both of us.  It would probably have been the cheaper option (the cost of renting the truck was about $400 and then we would have hired movers on both ends for what we estimated would probably run about $800-$900 including gas and totals and hiring movers).  

As is my practice I did a little research and filled out a form on some website where you could get quotes from multiple companies by filling out some basic information. I got calls from a bunch of different companies, very few of whom had any online ratings, with two of them giving me quotes for $1400 based on a flat hourly rate, assuming 10 hours drive time there and back (completely unrealistic in a large truck) and four hours of loading and unloading (again completely unrealistic considering we moved into a 5th floor condo).  A couple others estimated much higher, with two in the $2700 ballpark. 

In talking over the situation with my wife, she was skeptical about relying upon quotes over the phone that relied completely upon me reporting what we had to move versus a professional coming to see what we had and giving us an estimate based on that.   We called around and had several of the local moving companies come out to give us in person estimates and ended up going with one that quoted us $2100 (the other two were around $2700).  However, each of them confirmed what my wife had thought-it is completely useless to have someone give you a quote over the phone because they have no idea what you really need moved.  Even more importantly, each of the moving companies told us independently to be wary of a company that doesn't give you a binding quote but instead tells you they think it will cost x dollars per hour and estimating how long it will take.  Their point was that you have no idea if they're going to drag their feet and end up blowing the time estimate by hours and hundreds of hours.  Each of them offered the ability to go on the hourly route for price but also offered a binding price option, regardless of whether their truck got pulled over, if they blew a tire, etc.  

We chose to go with the binding quote based on an in person estimate and I would recommend that approach if you are moving any time soon.  

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Financial worries part 2

I previously covered this issue as it relates to my student loans but I wanted to address it in a slightly different context.   The issue is financial worries and, specifically, my worries about saving.

I have always been someone who compulsively worries about a whole host of things, with one of the things I worry the most about being finances.  One of my biggest source of financial worry has always revolved around the issue of saving, whether for retirement or any other purpose.  I constantly worry about whether we are putting enough aside, if it will last us as long as we will live, what we will do if unexpected medical expenses pile up, etc.  I think this is a topic that is especially prone to worrying for younger people because there is so much speculation in the media that social security will have run dry by the time many of those of us in our 20s and 30s retire in 30 or so years. Same with the continued rise in healthcare costs-all the talking heads say that healthcare costs continue to rise year over year and that the average retiree will spend $250,000 in out of pocket medical expenses during the course of their retirement.  This is completely independent of the retirement savings that will theoretically comprise the majority (if not all if Social Security goes broke) of your retirement income.

My specific worries about saving are not that I will not be able to achieve a specific goal but instead is more of a generalized anxiety that I will not, at some indeterminate point in the future, have set aside enough for whatever the source of worry that day is.  For instance, we are in the process of moving and are going to rent for the first couple years in our new city.  We currently own a home in our old city that we are in the process of renting out, but we wanted to rent in our new city before buying so that we could figure out what neighborhoods we like, etc.  So our timeframe for buying a house again is probably two years in the future, as we figure that will be enough time to figure out exactly where we want to live, let us settle into our jobs and even take some time to save up more of a down payment, as housing is 40% more expensive here than in the much smaller city we just left behind.  Similarly, I think both my wife and I have worried that we are going to have to put off having kids or to have her stay home with our kids like we have discussed and are hoping to do as a result of my having student loans because our living expenses went up when we moved. Probably the thing I worry about the most is that we will find ourselves eating dog food in retirement because we did not save enough while we were young.

The thing is, there has never been a particular milestone that I have had to put off yet because I/we had not saved enough.  All of the things I worry about are these nebulous events in the distant or not so distant future that may or may not come to pass.  My anxiety is more a generalized anxiety about money in general.  I worry this way about work, about whether I am doing the right things with my life, if I am being a good person, etc. so it just may be a function of my particular personality, but I was curious as to whether others have had the same experience.

Do you experience generalized financial anxiety of the type I do?  How do you cope with it?  What are some of your biggest financial worries?  Please share in the comments section below.

Also, another plug for my weekly newsletter to be started next week.  To sign up either send me an email at insideconsumerfinance@gmail.com or use the button on the right side of the screen.

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Update on the Greek crisis

Well, Greece defaulted.  I discuss external events and how you should let them influence your investment and retirement planning decisions here: http://insideconsumerfinance.blogspot.com/2015/06/to-what-extent-should-you-be-focused-on.html.

There is a national referendum tomorrow on a proposed deal that has since been rescinded but it is being billed by some analysts as a means to judge whether the public wants the current prime minister to stay in office.  No way to know how this is going to resolve itself at this point, but I will continue to hold fast as the stock market gyrates (like it did this week) as a result of all the uncertainty surrounding this situation.

To what extent should you be focused on external events as it relates to your finances?

You have probably heard a large amount about the Greek debt crisis, particularly in recent weeks and months as it comes to a critical point in determining whether the bailout will be extended by Greece's lenders (primarily the International Monetary Fund and European Central Bank) and on what terms.  To the extent the two sides fail to reach a deal by the time the current bailout expires on June 30, Greece may be forced to exit the European Union.  Considering how far apart the sides are and the fact that the Greek PM has called a national referendum on the proposed terms of the extension of the bailout program, right now it looks likely Greece will end up defaulting on its debts and perhaps leaving the European Union.  

No one has any idea what effect a failure to reach a compromise and/or a subsequent default and exit from the European Union would have on markets.  Some are saying that it would be a relatively contained event that would have little effect on either the European Union or global financial markets.  Others, and I count myself in this camp, think that there is no way to know what kind of effects it will have.

The problem with being able to judge the effects of external events like the Greek crisis or the failure of Lehman Brothers in 2008 are several. First, no one has any clue what effect these events will have on markets.  Seven years later we are still dealing with the aftermath of the financial crisis that, in my opinion, really began to get really bad when Lehman Brothers failed.  No one at the time would have been able to tell you how long it would take us to recover from the financial crisis, to the extent you believe we have even recovered at present.  Secondly, the ability to tell when to pull out of and then get back into a certain asset class or the stock market is also extremely difficult.  I am skeptical that even the people on Wall Street are any good at it.  

Personally, I try not to be too worried about external events because I have seen studies that say people who pull out of the market invariably do much, much worse over the long term than those who leave their money in even when the market it is dropping like a stone.  To me this applies to both stocks and bonds. As nerve-wracking as it may sometimes be, I think you are always better off staying the course.  

Saving money on car, and other types of, insurance by paying your premiums at once

I'm probably beating a dead horse on the issue of ways to save money associated with your wheels, but there was one more I wanted to cover: car insurance and, specifically, how to save money on your premiums by paying in a single lump sum.

Most auto insurers will offer discount on your premiums if you pay the entire amount at one time vs if you pay it in either either monthly or quarterly installments.

Take my auto insurance policy for an example.  I have Progressive and am up for renewal every 6 months.  In January I received a bill saying my 6 month policy premium was $1,048.00 but it would cost me $823.00 (a $225.00 savings) if I paid the entire six months up front vs $175.00 (rounded off) if I paid it in monthly installments.  We paid it all at once, as we always do.  You just save too much money by doing it that way for me to want to do anything else.

You can get the same savings by paying your premiums in one lump sum for life insurance and homeowners insurance.  We pay our homeowners in one lump sum every March and do the same with life insurance policies as well. The life insurance saves us $5.00 per month or $60 over the course of the entire year (the annual premium is $300 if paid in a lump sum or $35.00 per month if you pay monthly).  A small amount, to be sure, but a savings nonetheless. 

I could see there being an argument that there might be better uses for your money than parting with the entire six months' premium at once versus just paying on a monthly basis.  However, leaving the money you would use to pay for the remaining five month policy term in a savings or investment account will not make up the savings you get for paying in full every six months.  Take my car insurance.  I save $223 by paying up front.  Inflation is not even 2% these days and your rate of return for using the money you did not pay towards your premium is not going to come close to beating a $223 savings over six months.  Unless you know about some sort of investment scheme I don't. 

This entire discussion is predicated upon the assumption that you have the cash to pay the entire premium up front.  I know some people suggest setting up an automated savings plan in order to have accumulated enough to be able to pay your premium twice a year.  That is not a bad plan to me, but I normally just budget things so we have enough "extra" in our savings to be able to make that payment every six months. 

In any event, I know it requires a substantial cash outlay to pay your insurance premiums at once but the savings are huge. 

Please pay for parking to avoid getting parking tickets.

Well, on the subject of saving money associated with your car there are ways to save on parking costs too.  

This is kind of a no-brainer but over the weekend I had to make a quick stop somewhere and I had no change so I decided to chance it by not putting anything in the meter for what I thought would be a quick trip to run a couple of errands.  I figured in the half our or so it took me to run my errands no one would come by to check the cars, particularly since it was Sunday. Well, I guessed wrong.   

It cost me $50 for the ticket. So in essence I tried to cheap out and avoid a $1.50 parking fee and would up paying $50 instead.  So instead of $ $0.05 per minute I paid $1.67 per minute.  Talk about negative ROI.  

Does your car have an eco mode? It's an easy way to save gas

On the topic of saving money, and saving money as it relates to your car and driving, I wanted to discuss the issue of using an "eco" mode or button.  By that I mean the setting your car may have in which it is more environmentally friendly and runs more efficiently and burns less gas.  I call it "Eco mode" because my little Hyundai has a button next to the steering wheel that says "Eco Mode."  

From my understanding, the way "Eco mode" operates is to make your car run more efficiently and burn less gas by restricting how quickly you can accelerate and regulating the transmission. 

Just doing back of the envelope calculations and based on my anecdotal evidence, my car averages around 37 mpg highway in Eco mode and 33-34 without it.  (All I have to do to engage it is press a little button next to the steering wheel and it switches to Eco mode).  I have an 11 gallon tank, so pressing that button (and assuming I have it engaged every time I drive) saves me an extra gallon every time I fill up my car. I fill up about once a week so that adds up to $150 in annual savings based on $3.00 per gallon for gas.  

Really the only times I have ever regretted using the Eco button were in situations when I needed to accelerate quickly.  My car has the lowest horsepower of any car in its class (I am talking the absolute worst) and so deploying the Eco button takes me from pathetic acceleration to having the acceleration of a two speed bike.  

Occasionally that will result in terrifying encounters with trucks, like once when  I was pulling onto the freeway at an entrance with an extremely short distance within which traffic entering the highway had to merge.  An eighteen wheeler was going way over the speed limit next to me and another car was rushing up behind me and cut in front of me to merge.  I found myself standing up on the accelerator and screaming "come on come on" at my car at the top of my lungs and I somehow made it in front of the truck.   I was almost toast and didn't use the eco setting for weeks afterwards.  

On the whole, however, there are not that many times I really need the extra horsepower besides the occasional brush with death on the highway so I generally use the Eco mode to save a few bucks every time I am in the car.  

Again, this is not a huge savings but enough that you should pay attention to it, in my opinion. 

Want to save money on tolls? Buy an easy pass

Having just moved to a major metropolitan area where many of the roads and highways are toll roads, I am only now realizing the value that purchasing an easy pass for those roads is.  

By easy pass I mean an electronic device that you preload with a certain amount of money for the tolls and then every time you pass under or through a toll platform it automatically registers that you have a pass and dings your account for whatever the applicable toll is. 

They go by different names in different places.  In Florida it is called a SunPass, in California a FasTrak, and EZPass in other states. (Please pardon me if I got the names wrong).  

Nome of the roads or highways where I grew up in the Midwest were toll roads so my first experience with paying tolls was driving to college, which required me to stop and pay a toll at a good fashioned toll booth on one of the state highways I had to take. 

After college, I never lived in another place that had any toll roads until we just moved.  We vacationed in Florida and would occasionally take the Florida Turnpike, which also had good old fashioned toll boths, but that was before I myself was driving.  

In any event, when I was interviewing for what eventually became my new job in this city, my wife and I drove down and discovered that all the highways and most major roads here generally all have various portions that are tolled.  It surprised me that there are no toll booths, which helps traffic move much more smoothly, but the the thing that surprised me the most was the difference in tolls between those who had the city's version of an easy pass system and those who were just billed by their license plate-the prices for those with the easy pass are half of that paid by the "toll by plate" drivers who don't have a pass.   

Further, and depending on what kind  of hurry you are in, some of the express lanes on the highways here are only available to those drivers with an easy pass-using those lanes without the pass means you are going to get nailed for a $100 fine. 

Upon investigating this further, the actual easy pass transponder itself only costs $10.00, which probably paid for itself within two weeks for me.  It was simple to buy one at the grocery store and then I just set up an online account and have it set to automatically replenish the funds in my account every time my balance hits $10.00.  I did the same for my wife's car.  

My wife's new job requires a commute over a bridge that requires a toll so we are also saving $0.60 on her commute every day.  

I know that doesn't seem like much but let's take just her daily commute as an example of how the small amounts you save on a daily basis can add up over time.  Say she commutes 5 days per week for 10 months (she is a teacher) and her saving $0.60 per day results in an annual savings of $120.  That does not even factor in what she saves when she drives anywhere else, whether on the weekend or after school-that is just on her daily commute.  

Anyway, the whole point of this is to point out how much you can save if you sign up for whatever version of easy pass your city or state offers.  It may not seem like much on a daily basis but that $0.30 on my wife's drive to or from work can add up over the course of a year.  

This whole discussion will probably strike those of you from large urban areas as silly, but some of my friends in major cities just never bothered to sign up for their version of an easy pass.  Please make sure you do that if you are somewhere with lots of toll roads.  

As my mother once said, a dollar in your pocket is better than a dollar in someone else's pocket.