Controlling Living

Costs

Kathryn GreinerDirector of Credit Education

University of Michigan Credit Union(734) 662-8200 ext. 2741

kathryng@umcu.org

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After 5 years of saving in a Roth IRA, up to $10,000 can be withdrawn tax and penalty free for first time home purchase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