Controlling Living
Costs
Kathryn GreinerDirector of Credit Education
University of Michigan Credit Union(734) 662-8200 ext. 2741
Controlling Living Costs
• Ways to reduce the largest expense items in members’ budgets–Housing –Transportation–Telecommunications
Rent or Own?
True of False:“Renting is like throwing money away.”
False!
Advantages Considerations
Buy
Property builds equity Responsible for maintenance
Sense of community, stability, and security
Responsible for property taxes
Free to change decor and landscaping
Possibility of foreclosure and loss of equity
Not dependent on landlord to maintain property
Less mobility than renting
Rent
Little or no responsibility -or cost for maintenance
No tax benefits
Easier to move in & out No equity is built up
No long term commitment to that location.
No control over rent increases
Less time and physical labor to maintain
Possibility of eviction
Compare
Buying
to
Renting
Home as Investment
Some people say their house is the best investment they ever made.
For many people, it’s the ONLY investment they ever made!
Some people get a greater rate of return by
Investing the difference
between the cost of renting and the cost of home ownership.
(Include the cost of home maintenance.)
Your Money or Your Life
by Dominguez and Robin, Viking Books
Homeownership Benefits
• Compulsory monthly mortgage payments
– Forced savings program builds equity
• House equity can be leveraged to buy more property
– Rental income from the second property can offset the additional cost
• Depends on maintenance cost
Home Ownership Tax Breaks
• Tax deductions for some costs of buying & selling home, private mortgage insurance
• Tax credit for energy efficiency upgrades/repairs
Home Ownership Tax Breaks
Mortgage interest and real estate taxes are deductible on federal income tax returns
Unless the amount of property tax and mortgage interest
are less than the IRS’s standard deduction
Profit on selling home may be tax free
No tax on capital gain if it’s less than:
- $250,000 if single
- $500,000 if married filing jointly
Home Ownership Tax Breaks
You can save funds to buy house in tax sheltered account
After 5 years of saving in a Roth IRA, up to $10,000 can be withdrawn tax and penalty free for first time home purchase
("first-time homebuyer“: someone who has not owned a home for two years)
Tax Breaks on Home Equity Loansdepending on the amount
• Interest is tax deductible on HE loan up to
$100,000 regardless of where you use the $
– Debt consolidation
– Car loan
– Education
• Ads say “Get a home equity loan and pay off
your credit card bills”
– Dangerous if continue to charge on credit cards
House Size
True or False: The average size of new homes has remained unchanged since 1975?
False:Average single-family house build in 2011 is 50% larger
What else determines monthly payment
on a mortgage loan?
• Amount of down payment
• Length of the loan
• Annual Percentage Rate
Smaller down payment increases cost of $150,000 home
Interest rate 20% down pmt 5% down pmt
$30,000 $7,500
4% $573/mo. $680/mo.
360 payments = $206,280 $244,800
add down pmt for
the total cost
+ $30,000
= $236,280
+ $7,500
$252,300
Additional cost: $16,000!
PMI Increases Mortgage Payment When Down Payment
Less Than 20%
PMI rate $150,000 Home
1% of mortgage loan
when 10% down pmt
$112.50/mo.
2% of mortgage loan
when NO down pmt
$250.00/mo.
30 years vs. 15 years on $100,000 loan
Length of Loan 4% APR
30 years $477
Total interest
paid in 30 yrs
$71,870
15 years $740
Total interest
paid in 15 yrs
$33,144
FICO scores affect your mortgage payments
For a loan of $200,000/30 year fix rate mortgage:
http://www.myfico.com/myfico/creditcentral/loanrates.aspx
Ways to Reduce Housing Costs
Shared housing:
Roommates or ________
National Shared Housing Resource Center
Multi-generational family dwellings
Simplicity Movement:Fewer belongings allow for smaller dwellings
Reduce housing cost summary
• Purchase a smaller, simpler home
• Shorter loan term
• Larger down payment reduces mo. payment
• Improve score for lower APR
• Consider shared housing or renting
• Look at related issues…
Choose housing closer to work (carpool, bus, bike, walk to work)
• May go from 2 vehicles to 1
• Reduce costs for gas, maintenance, and
insurance
• “Get a job closer to where you live or
move closer to where you work.”
Avoid Renting Storage
• 10% rent self-storage units
• Meant to be transitional
• While moving, marrying, divorcing, death in family
• $90 for 100 sq. ft., 4 yrs. = $4320
– Cost of storage units outweigh content value
– Eliminating storage unit can produce income if
contents can be sold
Reduce Energy Expenses at Home
Answers to Frequently Asked
Heating and Cooling Energy Questions
http://www.human.cornell.edu/dea/outreach/upload/FAQ
s-3-3-2014.pdf
Cut Heat & Electric Utilities
• Turn down your thermostat in the winter– Save up to 1% for each degree if 10 - 15 °setback for 8 hours
– Each degree above 75°that you set your air conditioner’s
thermostat saves you 3% of the energy used to cool your home
• keeping the thermostat set-point at 75 instead of 72°save 23% annually
• Use bathroom & kitchen fan when necessary– In just 1 hour fans remove a houseful of warmed or cooled air
– Reverse the direction of your ceiling fan
– Tightly close your fireplace damper
• Put insulating blanket around your water heater– wrap hot water pipes in cheap foam tubes
Heating and Cooling Tips
First step: seal air leaks in your home – Caulk windows, cracks in walls & foundation
• Then add insulation if you can see joists
– Home sealing and attic insulation can cut heating and
cooling bills up to 20%.
• Schedule a checkup for your furnace annually
– change filters at least 2 x per year
• See manufacturer’s recommendation
Insulation
• Heating and cooling account for 50 to 70% of the
energy used in the average American home
• Insulation:
– makes your house more comfortable by helping to maintain a
uniform temperature throughout the house
– makes walls, ceilings, and floors warmer in the winter and cooler
in the summer
– saves money and our nation's limited energy resources
– http://web.ornl.gov/sci/roofs+walls/insulation/ins_01.html
Avoiding Utility Cutoffs
• Contact the company right away
– Propose a new payment plan based on your current
ability to pay
• Get little or no cost energy audit
– Ways to save money on home heating and cooling
• Does a community agency provide a low income
energy assistance program?
Controlling Cost of Cable/Phone/Internet
• Compare rate plans and services:
• Price
• Customer service
• Text and Data Features
• Locked or Unlocked
Unlocked phones are more expensive
Prepaid Cellular Service
• Purchase phone
• No activation or cancellation fees
• No credit check
• No deposit
• No contract
• 15 – 20 cents/minute
• Monthly fee plans
• Prepaid phones can
save money if:– Occasional cell phone
user
– Make a lot of international calls
– Unlock, so it can be used with most mobile carriers anywhere in the world
Post Paid Cellular Service
Pros:
• Per minute charge _____
than prepaid
• Minutes purchased in
“plans”
• Better customer service
than prepaid
• Contract = new phone
• Can change: _________
(can extend service)
Cons:
• 1 to 3 year contract
• $50 to $350 penalty to
cancel contract
• Credit check required
• Activation charge
• Must estimate time you
will use, if you go over
your minutes, cost is
about $.45 per minute
Controlling Cost of Cell Phones
• Are you paying more than you need to on your current plan? Get just the service you need!
– Texting, data, international calls, # of minutes
• The average cellphone customer uses only about 1/3 of "any time minutes" allowed by most wireless plans• The rest are paid for but wasted
• You may think you're paying less than 10 cents per minute for calls
• The average cellphone customer actually pays more than $3 per minute
Telecommunication Issues
• Early upgrades: are they worth it?
– Frequency, fee, cost of phone?
• Lost or stolen cell phones
– Responsible for all fees until you report it; none after
– Mobile payments using a digital wallet• Security encryption
• Freeze wallet if phone lost or stolen
• how to dispute purchases
• Reduce unwanted telemarketing• National Do Not Call Registry www.donotcall.gov
• Credit reporting agencies: 888-567-8688
• Direct Marketing Assn: www.DMAchoice.org
Help to Buy or Lease Car
• Consumer Action Handbook
– Free from USA.gov/consumer
• What to research
– Choose a Safe Vehicle (crash test results)
– Vehicle history
– Prices of similar models
– Manufacturer rebates
– Rights when buying used car
Cut Insurance Costs
• compare policies:
• insweb.com, get instant quotes from different providers.
• For links to state sites that offer price comparisons, try
the National Association of Insurance Commissioners
www.naic.org.
• Insurance Information Institute www.iii.org for tips on
picking a reputable firm.
Raise Deductible
• Cut insurance up to 30% when you increase
your deductible from $200 to $500
– Raise deductible up to $________ and your savings
could jump to 40%
• If it’s an older car - drop collision?
– Assuming car is fully paid
– Mileage, condition & value
Insurance/College Kids
• Some insurers will cut your rate if
– a child on your policy is living at college
• Not using your car
– If your HS student has an A or B average
Ask for Discounts!
• Carpool
• Accident-free for
three years
• Over 55 years old
• Anti-theft system
• Longtime customer
• Take defensive
driving course
• Insure more than one
car
Higher Insurance Costs
• A car’s theft rate and safety record can also jack
up your costs
– Get information for specific models with the National Highway Traffic Safety Admin nhtsa.gov
– Studies have shown correlation between good
credit ratings and low risk driving
Some cars are more expensive to insure
• SUV’s have a high rollover rate– Can cause greater damage to other vehicles
– Accidents with SUV’s often mean higher medical and repair costs
• Review your auto insurance policy:– Do you already get roadside assistance
• part of your vehicle warranty
• auto club
Spend less on your vehicle
• Gas • Maintenance
Shop for best gas prices in your area
Gasbuddy.com
Gaspricewatch.com
Autos.msm.com/everyday/ga
sstations.aspx
For low-cost stations selling
alternative fuels:
Altfuelprices.com
• A calculator at
bankrate.com will
help you figure out
if the money you
would save would
be eaten up by the
extra miles you’d
drive to get there
US Average Gas Price Trend
Government Fuel Economy Web Pages
• www.epa.gov/greenvehicles Green
Vehicle Guide
• www.fueleconomy.gov calculates annual
fuel estimates
• www.epa.gov/carlabel compare the fuel
economy of diesel, hybrid, electric,
gasoline
DRIVING BEHAVIOR, VEHICLE CARE
DIRECTLY IMPACT FUEL EFFICIENCY
Drive Smart
Aggressive Driving
• Jackrabbit starts & stops can slash your highway gas mileage by 10%.– With gas prices at $3.62 per gallon…
– that’s equivalent to paying an extra $.36/gal.!
• Observe the speed limit. Gas mileage decreases
rapidly above 60 mph.– factor in an extra 10 cents a gallon for each additional
5 mph over 60 mph
More tips on fuel efficiency
• For every extra 100 pounds it carries:– Car can lose 1-2% of fuel efficiency
• Turn your engine off– About 10 seconds of idling your car’s engine uses
as much gas as restarting it
– 2 minutes uses enough fuel to drive a mile
• Maintenance maximizes fuel efficiency
Maintenance can reduce the frequency of
car replacement, lowering vehicle costs
• By keeping a car well-maintained for an additional 4 years after paying it off:
• Set aside the car payments and save over $22,800! ($475/mo. x 48 mos.)
Cost cutting possibilities…
• Groceries & meals out
• Child care
• Clothing
• Education
• Gifts and holidays
• Travel and vacations
• Grooming
• Entertainment
• Internet
• Donations