Be Brave Not Safe

Have you considered the “true cost” of convenience charges?

Consider the example of heating oil. We “used” to be on the “convenience” plan (some may call it the laziness plan) which resulted in our handing over extra dollars to our oil company so they would manage the process of refilling our tank. And, by having this on “auto-pilot” (for many years) it was too easy, for way too long, not to investigate the price of oil from other providers. Instead, we just let it ride…

A couple of years ago when I seriously got on my “kick” of looking for ways to shave dollars off our monthly expenses (because it is FUN – just like getting a raise at work, and I wanted to lower our outgo to sure-up our financial independence for the long haul) I investigated heating oil options.

We had been using a local firm for many years, and experienced only 1 “outage” when they miscalculated, resulting in our running out of fuel. Other than that event, our “experience” had been good.

During my investigation I found a website that provides heating oil prices from oil companies in our local area. If you live in New Hampshire, you may find this site beneficial. Upon reviewing options I found a company that delivers oil within 3 business days of requesting a refill (in a non-emergency situation) that costs $0.306 less per gallon than we were paying. The main difference: we had to “call it in” when needed vs. having someone else manage the process. We went for it!

To do so, I simply had to place a “to do” item on my list to check the oil in our tank every 2-3 weeks (during the winter months). Oh yeah, and learn how to read the oil gauge on the top of the tank 🙂

Here is where someone might say “It is only $0.306 cents. What is the big deal, given I don’t have to worry about it?” Well, if we multiply that by the number of gallons on a particular fill-up it starts to make a difference (192.1 gallons times .306 = $58.78). Some might say “Still, it is only $58.78.”

During the 2012/13 heating season we needed 4 fill-ups realizing a total savings of $225. The true / total cost over 10 years equates to $2,250. A question I’ve asked before: “Would you leave $2,250 sitting on the table?” Not this guy.

Again, by itself, this may not seem like a whole lot. However, combine this action / savings with other “small items” previously covered (and those that I’ve yet to cover) and it will add up to a small fortune!

In closing, we haven’t run out of oil in the last 2 years which demonstrates someone CAN actually monitor their oil consumption and “call it in” when needed to avoid paying unnecessary upcharges.

Still paying for a landline telephone (for the home), even though each family member has a cell?

We cut that cord many years ago, for 2 reasons:

1. 99% of the time the landline phone rang it was a telemarketer. It was hardly ever for me, or at least someone that I wanted to talk to. If someone wants to talk to me, they call my cell! The same applied for the rest of my family.
2. It was a perfect example of a negative draw on my net worth, with no value in return. I HATE that 🙂

Common objections and things we had to work through prior to killing the landline included:

• “What if my babysitter needs to call me, or someone else in an emergency, while I’m away?” New criteria for selecting a babysitter: They must have a cell phone (although, our family is WAY beyond the need for a babysitter at this point).
• “I don’t want to have to carry my cell phone around with me while at home.” Question: Do we carry our landline phone around with us at home? And, if we were to miss a call because we couldn’t get to the phone quickly enough, doesn’t it roll to voice-mail or an answering machine. The same can happen with a cell phone.
• “What about my doctor, bank and other important people that need to reach me?” Give them our cell number!
• “I don’t want to make my cell number too available as I’ll then get calls at times and places when I don’t want to be interrupted.” We can choose when to answer our cell, just like any other phone. For example: I don’t answer my cell when the number isn’t in my contact list. My kids will say “Dad, what if someone is calling you in an emergency?” My response: “If it is an emergency they should be dialing 911. Why would they be calling me? And, if someone REALLY needs to talk to me (when I don’t pick up, because their number isn’t in my contact list or I’m not available) they can leave a voice message and I will call them right back.“
• “What about having a phone available for my young child, who doesn’t yet need or can’t afford their own cell phone?” Good question! An option to consider would be an Internet-based phone service that can accomplish everything a landline phone can, for less.
• And, finally, the worst of all: “It is only $30 per month.“

Let’s run this through our monthly cost times 12 (months) times 10 (years) formula to determine the true cost of having this archaic thing, called a landline phone, still collecting dust in our homes. The answer: $3,600!

My wife and I recently returned from The Bahamas celebrating our 25th anniversary. The trip was less than it would have cost to maintain a landline phone over the past 10 years. I’m glad we cut the cord as you could say this (more than) funded our trip 🙂

Suggestion: Take a few moments to tally up the “small” / individual savings opportunities shared in this blog, to see what they amount to. 3 words come to mind: “A Small Fortune!” The tally will be shared in a future post once it is made more painfully obvious why it is so important to kill or reduce expenses that provide NO long term value and serve to delay the timeframe for achieving financial independence.

More to come 🙂

When acquiring a mortgage (whether for a new home or refinancing an existing one), strongly consider the available options. That is, don’t assume a 30-year mortgage is the “way to go.”

In viewing mortgage rates available (at time of writing) we have the following “fixed rate” options to consider at my bank:

• 15-year at 3.5%
• 30-year at 4.375%

Let’s assume the home we wish to acquire (or the remaining balance of the one we wish to refinance) is $200,000.

The 30-year mortgage would require a monthly payment of $998.57 and the 15-year would require a monthly payment of $1,429.77.

Some may say: “Ouch, the 15-year option “costs” too much. I can’t afford that.” Perhaps the monthly payment is too high for the budget, but the “costs” are actually LOWER for the 15-year mortgage. Consider this:

If we add up the total monthly payments for each of the above options, we will save a SIGNIFICANT amount on the 15-year mortgage.

• 30-year mortgage) total of all monthly payments = $359,485.20. This option “costs” $159,485.20 more than the price of the home!
• 15-year mortgage) total of all monthly payments = $257,358.60. This option “costs” only $57,358.60 more than the price of the home and, more importantly, it costs $102,000 less to acquire the home than with the 30-year option above.

Note: To simplify matters, I’ve excluded the points paid at closing (which are often lower for 15-year mortgages), as well as tax and insurance.

The key point: we can save hundreds of thousands of dollars by selecting a shorter mortgage period. And, we can save further by accelerating payments. That is, if we are in a mortgage for which there is no benefit to refinance we can dramatically shorten the loan period (and reduce finance charges / costs) by increasing our monthly payment. Building on the prior post on eradicating debt, once the home mortgage is at the top of the prioritized “kill list” we can take the available cash that was previously being applied towards other debt and apply it directly to our home mortgage.

Consider this new found knowledge when refinancing. That is, don’t be coaxed into refinancing a loan that may have 15-20 years on it, into a lower interest rate AND extending the mortgage out another 30 years. While the monthly payments will be (far) less, the “costs” of acquiring the home will go up. An exception, of course, would be if this is part of your debt eradication plan and you have committed (to yourself) the difference between your old and new monthly (mortgage) payment towards higher interest debt.

Hope you found this simple math equation helpful towards shortening the distance to your financial freedom.

For more in-depth guidance on becoming financially fit, consider this recommended reading (if you haven’t already done so).