Reminder: Just-Cash June starts tomorrow

If you’re like me, you rarely carry much cash in your wallet, so Just-Cash June is a pretty major shift in your habits. Consider this a friendly reminder to visit the closest ATM that doesn’t charge you a service fee. If you’re a member of a Credit Union*, you can use any of the 28,000 Co-Op Network ATMs in the country for free.

* If you aren’t, you should seriously consider making the switch.

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How and when to shop around for insurance

Including the health insurance policy I have though my work, only 7% of our yearly expenditures go to insurance. For that price, our family is covered by a generous health policy*, Venessa and I each have life insurance, our renters policy covers the loss of any of our belongings, and both the car and scooter are adequately covered. I keep our insurance premiums low by using two tricks:

  1. Only get the bare minimum insurance you need (e.g. renters: do you really have $100k worth of stuff?), while keeping deductibles high**
  2. Every time I get a renewal notice, that trigers something in my mind that says “shop around for lower rates before you renew this policy”

I just did a thorough job shopping around for renters insurance, here are the steps I took (you will note how anal I am). These steps can easily be applied to any form of insurance.

I got quotes from every major company (Geico, Progressive, Nationwide, AmFam, PEMCO, State Farm, Allstate, Travellers) and kept track of them on a spreadsheet. The lowest quote was almost 3 times less than the highest one, so you should get quotes from all of them to see which is cheapest for your particular situation. The spreadsheet also had columns for “deductible”, “coverage levels”, etc. which helped me make apples-to-apples comparisons of the different policies.

The annoying thing with renters insurance is you have to figure out the combined value of everything you own (“Personal Property”). It’s a pain in the ass, but the alternative is having more insurance than you need (or not enough). If you live in an earthquake-prone area, getting an “Earthquake rider” is a good idea. I think it only added $2/month to my premium.

You can dial up/down your liability coverage to have a cheaper or more expensive premium, depending on your level of risk tolerance.

Tweak the above instructions for different kinds of insurance. For example, do you really need collision and comprehensive on your auto insurance? If your car is paid off and/or more than 7ish years old, you don’t need it.***

I actually enjoyed this process and look forward to doing it again in a year or so****. Not only does it save money but it’s interesting to see how tweaks to the coverage can impact your premium.

Let me know if you have any questions, I’m happy to help.

* I can’t take credit for this one since I didn’t do any shopping around for health insurance. It’s just what my company provides, and I consider myself very lucky to be covered by their group policy.

** You can only have high deductibles if you have an emergency fund to cover smaller losses. You do have an emergency fund with at least $1000 and at most 6 months worth of living expenses, right?

*** If your car isn’t paid off, what the hell are you doing borrowing money for a more expensive car than you can afford? Either figure out a way to save more money to get your fleet paid off, or sell it and use that cash to buy a car you can own outright.

**** I don’t recommend switching insurance companies any more frequently than once a year since it does impact your credit and insurability.

An inside look into your credit score

I did the yearly (or whenever) shopping around for cheaper insurance, and found that I was overpaying for renter’s insurance, so I switched from PEMCO to American Family. I was getting frustrated with PEMCO’s customer service at any rate.

When I got my new insurance policy, it came with a credit notice (which apparently is the law now) stating how my credit impacted my insurance premium. The interesting part is that it itemized some of my personal credit criteria, and told me the optimal values for these criteria (according to Transunion, at least).

Since I’m a nice guy, you can now see how to optimize your credit score without the hassle of changing insurance policies.  I’ll also give you some hints on improving your credit:

  • Your oldest revolving account (i.e. credit card) should be 18 years old! Mine is only 10 years old. It’s important to hold on to your oldest credit card. If your oldest card charges a yearly fee, switch cards now so that you can get a new “oldest” card asap.
  • Your most recent credit application should be over two years ago. Mine was 7 months ago, but well worth the temporary ding to my credit. However, if you plan on getting a loan, do not apply for any credit cards for 2 years prior!
  • This one is the most fascinating: A quarter to a half of your credit accounts should have a balance greater than 50% of their credit limit. Only 15% of my accounts had such a balance, which I consider a good thing.

It’s interesting that you’re penalized for keeping your balances low. I guess the credit agencies want to see that you can leverage your credit but still make your monthly payments.

All this was just a long way of reminding you to shop around for insurance from time to time. My next post will explain how to do that.

Just-Cash June

Want to join me on a little experiment I’m trying next month? I’m going to only spend cash in the month of June. It’s called “Just-Cash June” (unless someone can think of a better name).

Everyone who participates is allowed one non-cash expenditure. I’m not sure what mine will be yet. For many, I assume it will be rent, but I pay my landord via popmoney so I can save mine for something else.

I figured I’d give everyone advance notice so you can get to a cash machine in time.

FAQ

What are the rules?
If you choose to accept, you can spend only cash from June 1 to July 1. Everyone gets ONE get-out-of-jail-free card, where you can use any payment method you want. Optionally, blog or tweet about your experiences. Did your spending habits change? Was it freeing or annoying? Let me know in a comment below if you’re joining the experiment.

Why are you doing this?
I’ve experimented with Credit Card vs Debit Card spending, and found that I spend less when I use a Debit Card for everyday spending. So I want to continue the experiment to see if I’ll spend even less if I have to physically hand someone cash to make a purchase. I’m still a big fan of credit cards, especially sign-up bonuses, but I’m also a fan of spending less and conscious spending.

What about online purchases?
Unless you can figure out how to pay e-merchants with cash, you have to shop online now or wait till July. Humans somehow survived for 10,000 years without online shopping, so I think we can do another month.

What about bills?
Most bills have an auto-pay feature, which I highly suggest you sign up for anyway. It deducts the amount due from your checking account each month, so you never need to remember to pay bills any more. This is one step to “automating” your finances.*

How will you track your spending for June?
I’ll use Mint’s mobile app, which integrates with their website and lets you add cash purchases. You could use a piece of paper in your pocket if you want to go low-tech.

* The other main step is automatic savings plans such as having your 401k deducted from your paycheck, or setting up a monthly transfer from checking to savings. Set these things up too and you’ll be well on your way to automated, worry-free finances.

Turn onesies into t-shirts

Lillia is potty training now, so she can’t wear onesies any longer. It would be a shame to get rid of them, so we just cut off the bottoms and turned them into regular t-shirts. Bam! New wardrobe!

That zig-zag pattern is accomplished by cutting with pinking shears, and it helps prevent the fabric from fraying. If you don’t have a pair of pinking shears, get a solid used pair and they’ll last forever. They probably feature in a craft project at least once a week around here.

(Dudes, I know it has the word “pink” in it, but they’re just scissors with sawtooth blades and that’s pretty manly when you think about it.)

When it comes to timing your retirement, only two questions matter

The names in this true story have been changed to protect the innocent.

At our Mother’s Day BBQ, the conversation turned to finances and Facebook’s IPO. The consensus among family members was that nobody was going to buy IPO shares in the company. But Aunt Marsha told me that a friend of hers was considering moving her entire 401k savings into shares of Facebook, at which point I almost choked on my BBQ Salmon. I explained that putting a large portion of capital into any single company is too risky, and advised Aunt Marsha’s friend to put the money in a low-cost index fund, and keep it there.

Then Aunt Marsha said, “Thanks for letting me know, because she’s got a lot of money in her 401k. Like $30,000.” Keep in mind Aunt Marsha is almost 60 and her friend is approximately the same age. We got to talking about what it means to have that amount saved up for retirement at that age, and I explained the following:

Anybody can retire at any time they want, but there are two variables in the “can I retire?” equation:

A. How much do you plan to spend per year in retirement?

B. How much do I have saved up?

If the answer to Question A is 4% or less than the answer to Question B, then hand in your pink slip! Otherwise, you don’t necessarily need to keep working (but you probably will need some more capital somehow). You can:

1. Minimize spending.

2. Maximize income.

3. Increase savings rate.

4. Go into partial retirement (which will probably reduce spending but will also reduce income). I’ll write about this last one (including a book review) later.