Wednesday, February 15, 2017

Rockstar Finance Directory


Real life is sucking up all my time lately, so just a short post this week.

Check out the Rockstar Finance Directory by J. Money. It's a list of most of the active financial bloggers in the personal finance community. He's also incorporated his Blogger Net Worth data into it as well. As usual, he's done a great job rounding up the interesting blogs from around the internet!

Lots of big changes coming up in my life, so posts may be sporadic for a bit. I will return, however!

Wednesday, February 8, 2017

Don't Leave Money On The Table: Changing Jobs With A Medical FSA = Free Money


Medical flexible spending accounts (FSAs) offer you a way to pay for certain medical expenses using pre-tax dollars. At the beginning of the year, you tell your employer how much money to put into this account for the year and, each paycheck, a portion of your pay is diverted into the account. The amount is divided equally over the course of the year. You get that money back by submitting receipts for covered medical expenses to the plan administrator, who then disburses the money from the account to you.

These accounts are use-it-or-lose-it accounts, meaning if you don't submit enough qualifying expenses during the year to use all your money, you lose whatever is left. (Recent changes allow your employer to offer you the opportunity to roll some funds over into the following year, but this is something your employer has to opt-in to, so check your plan details to see if this option is available to you.)

The IRS states these plans have to operate under Uniform Coverage Rules (PDF) for cafeteria plans. This means the entire amount of your yearly contribution must be made available immediately at the start of the year.

So if you elect to contribute $2,500 for the year, you can submit a qualifying medical claim for $2,500 in January and get the entire amount paid to you, even though you have not yet contributed that amount to the plan. (Remember, your contribution is spread out over all your paychecks for the year. So if you get paid twice a month, or 24 times a year, each paycheck you deposit $104.17 to the account.)

As I mentioned before, this is a use-it-or-lose-it account. If it gets to be December 31 and you have not spent $2,500 in qualifying medical claims throughout the year, you lose whatever excess funds are in the account. But...

What happens if you change jobs during the year?

Free Money Happens!

Because the plan must operate under Uniform Coverage Rules, employees have a way to get some free money though a loophole.

Suppose you elect to contribute $2,500 to your FSA account. In January, you go crazy and go to a bunch of doctors and buy all kinds of covered items. You manage to incur $2,500 in medical costs during the month. You submit the receipts and the plan pays you $2,500. On February 1, you change jobs.

Because you were only at your old job for one month, you only contributed 1/12 of $2,500 to the account. But they already paid you the full $2,500. Here's the loophole:

Your employer cannot recoup that money from you.

You just got $2,292 in free medical care! (That's $2,500 minus the 1/12 of $2,500 you paid in January.) This is the positive flip side of the use-it-or-lose it nature of the plan.

To make the deal sweeter, when you start at your new employer, you can start another medical FSA for the maximum amount and continue to submit expenses against that.

The Fine Print

There is one rule you need to be careful of: expenses have to be incurred while you are still covered under your old plan. So, in our example, if you quit your job on January 31st, the plan will only pay for medical costs incurred on January 31 or earlier. Depending on the plan, you may also have to submit receipts for reimbursement prior to your final day of employment.

This just takes a little planning. If you know you will be changing jobs, go on a spending spree to use up the full amount you elected to put away in your FSA. It can be hard to use up the extra funds solely from visits to the doctor (most elective surgeries do not qualify for reimbursement). However, look at the list of over the counter products that DO qualify:

  • Bandages
  • Blood pressure monitors
  • Cough medicine
  • Crutches
  • Alcohol swabs
  • Condoms
  • Eyeglasses
  • Non-cosmetic dental work
  • Saline nose sprays
  • First Aid kits
  • Reading glasses
  • Sunscreen
  • Lip balm with sunscreen

Those are just a few. A more detailed list can be found here. Your FSA plan administrator probably also has a list of all covered items. Most drug stores with pharmacies note on the receipt which purchases are eligible for FSA reimbursement.

So if you are planning on changing jobs, go a medical spending spree and use up all of your FSA funds, even those that haven't been deducted from your paycheck yet. And don't leave money on the table!

Wednesday, February 1, 2017

Goal Update: End Of January 2017

At the end of each month, I post an update of my goals, including a brief discussion of any notable events that might have occurred during the month. The latest month's figures can always be found under the Featured menu in the menu bar at the top of the blog.

Last updated: End of January, 2017
Current value: $29,287
Change from last month: +$703
Percent of Goal:  26.93%






Note that the funds in this account are invested in stock, so there will be fluctuations in value that are outside my control. I never withdraw money from this account, so any dips are purely due to stock price changes.

Events Of Note Last Month:


I received income from several different sources this month. Net income from my online courses was $217.25. My hard money loan generated $133.33 in income. I made $3.89 in eBook royalties and I received $14.48 from a class action settlement with Prosper.com.

Not much of note went on this month. We just keep on tucking away money in our various savings accounts. My wife and I are driving out to Las Vegas in February, so I'm looking forward to that. Also, my hard money loan is coming due and I'll look to roll that into a new one and add some funds to it at the same time.

Net Worth Update

For January, our net worth rose by $12,803. The gains came from a rising stock market and property values. No change in the Loans figure, which looks strange, but this was because I paid our January mortgage bill in December to get the extra month of interest to deduct on my 2016 taxes.

We reached our goal of saving $10,000 in an emergency fund. Rather than stop saving, we're just going to continue to put aside the same amount each week and keep growing it. We may decide to use the excess for something in the future. Besides, it never hurts to have some extra savings laying around!



December 2016January 2017
Note: Mint.com categorizes our HELOC as a credit card debt, not a loan, hence the apparently high credit card balance.












If you have any questions or suggestions for topics, please drop me a line in the comments section!

Wednesday, January 25, 2017

Alarming Misinformation About Alarms

These days, the subscription model for businesses is where the money is. Making a product someone pays for once is so passé. Why settle for a one time payment when you could be collecting money month after month from your customers? Understandably, some consumers are concerned with this trend, so marketers like to point out all the ways a monthly subscription will give you more benefits and may, in fact, even save you some money.

Alarm monitoring companies are huge promoters of the latter. If you have a monitored alarm system, they point out, you will likely receive a discount on your homeowners insurance. One figure widely touted is a savings of up to 20%! Check out these claims (click the images to be taken to the quoted site):

Home Advisor - How Alarms Systems Add Value While Keeping You Safe

http://www.homeadvisor.com/r/home-security-alarms/#.WH-QEH1WdP0

Home Advisor - 2017 Alarm Monitoring Costs

http://www.homeadvisor.com/cost/safety-and-security/hire-an-alarm-monitoring-service/


SafeWise - 8 Benefits To Owning A Home Security System

http://www.safewise.com/blog/top-8-reasons-get-home-security-system/


A Secure Life - Top 10 Reasons To Install A Home Security System

http://www.asecurelife.com/reasons-to-install-home-security-system/

Always Remember Your Source

The claim that a monitored alarm system can save you up to 20% on your home owners insurance seems to come from a 2011 study conducted by the Rutgers University School of Criminal Justice. However, further examination will reveal that the study was paid for by the Electronic Security Association, a trade advocacy group for manufacturers and sellers of security systems. That's a pretty good reason to view the findings with a critical eye.

A widely used quote from the president of the ESA is that the insurance savings can be substantial enough to offset a portion of the monitoring costs:

http://www.prnewswire.com/news-releases/survey-finds-insurance-carriers-offer-major-discounts-for-home-alarm-systems-116654399.html

Sounds good! I might be more likely to pay a monthly monitoring fee if I can recoup some of the cost via savings on my home insurance!

Turns Out, Those Savings Claims Are Wildly Optimistic

My house has a monitored alarm system and has had it since the day we bought it. The house was bought new and the alarm system was included, so I don't really have any installation cost to examine. However, I do pay a monthly fee for monitoring that runs about $37.75. I could pay only $32.75, but I cancelled my landline phone line eight years ago and had to switch the alarm system to a wireless receiver, which added $5 per month to my bill. The installation fee for the wireless receiver was $125, but I have long since recovered that cost from the savings I've obtained from not having a phone landline for eight years.

Several years ago, I thought about cancelling my alarm service. I even called up the monitoring company, but I was given a hard sell and was talked out of quitting. (I wasn't so financially savvy back then.) One of the things I remember the person on the phone telling me was that if I cancelled, they would have to call my insurance company and tell them, so my insurance rates would go up. That scared me - no one wants insurance rates to go up! It never even dawned on me that they didn't have a clue who my insurance company was, so they couldn't call anyone if they wanted to. Doh!

I Finally Crunch The Numbers


Fast forward many years to the present. Last week, I noticed my alarm panel was reporting an error code. I called and was told that my wireless receiver was no longer functioning. It used old wireless 2G technology and all the 2G cell towers in my area were decommissioned, so the unit had to be replaced with a unit that used the 3G network. I was told there would be a $79 fee for the change. I asked why I had to pay that, since it's their equipment, their service, and I had done nothing that required the change. I was put on hold and a few minutes later, was told that the fee would be waived. Score one for me.

Their brazen attempt to get me to pay a fee caused me to re-examine the whole alarm monitoring concept, so while I was waiting for the service tech to show up, I starting crunching the numbers.

Because my home owners insurance is billed annually, let's look at the alarm system costs on an annual basis. I pay $113.33 per quarter, or $453 each year to the alarm company. My city also requires all users of a monitored alarm system to pay a $10 annual alarm permit fee to my police department.

Total Annual Cost For Monitored Alarm: $463

My yearly homeowners insurance premium, including all discounts, is $635.06.



The discount I receive for having a monitored alarm is:



FIVE DOLLARS!

This was so far off from the "up to 20%" claim I had read, I actually called my insurance company to see if this discount was being quoted on a per month basis. Nope. That's per year.

My monitored alarm system is only giving me a 0.8% discount on my home insurance.

Is It Worth It?

No way. I'm spending $463 to save $5. Guess what service I just cancelled?

There Are Benefits - They Just Aren't Monetary

I'm not going to say that alarm systems have no benefits. My alarm system can be set so it beeps whenever a door or window is opened. This was really nice when my daughter was a toddler and we were worried about her walking outside without us noticing. The feature can also provide comfort when someone is home alone and worried about possible intruders.

My wife likes to open windows when it isn't too hot outside. Later, when it becomes too hot, I'll switch on the A/C. Because the control pad can tell me which windows are open, I use it to find and close any windows my wife might have opened to make sure I am not running the A/C with any open windows.

Additionally, an alarm system can provide security even if it is not monitored. If my alarm is triggered, an extremely loud siren goes off whether or not the system is monitored. That's going to scare away any thief.

The lack of monitoring does not make my system completely worthless.

It Comes Down To Your Peace Of Mind

Newer alarm systems can also monitor for fire, carbon monoxide, and all sorts of other dangers. Those features won't likely need to be monitored to work either. However, if you want the peace of mind that comes from knowing someone will call the appropriate authorities if your alarm is triggered, then go ahead and pay for a monitoring service. Just be aware of the true costs and don't be misled by inflated claims of potential savings.