New vs Used: A Different Angle on Car Buying Advice

In the market for a car? There isn’t much debate when it comes to the question of whether you should buy a new or used one. Most advice you can find says go used. But that is too broad. There is little reference to the cost of the remaining life of the car when discussing the merits of used cars over new ones. This can be a critical miss.

New cars depreciate the moment they are driven off the lot. In the first year the value of the car drops by nearly 30 percent, according to Edmunds. By the time the car is five years old it will have lost half its value. But does that necessarily make buying a car after it has depreciated a better deal?

Even with the depreciated value, used cars valued on a price per remaining mile may not compare well. In a very unscientific survey of local used cars, most actually did not.

The following chart shows 4 cylinder Honda Accords, model years 2014 to 2017, available in the Portland Metro area and listed on  These are compared to a brand new 4 cylinder Honda Accord based on an on-line quote from a local dealer.

used cars 200000

Of the used cars currently on the market 70 percent were priced at a higher per remaining mile level than the new car. If you want to own your car for fewer miles, the comparison is even worse. The following chart shows the price per mile if you assume you only want to drive the car until it hits 100,000 miles. Only one of the used cars was a better deal than the new car on this basis.

used cars 100000

Cars have become very reliable. Most can be expected to last for 200,000 miles or more with recommended maintenance. The average driver could easily own a car for 15 years. Whether you plan to own your car until it dies, or you tend to sell your cars when they hit a mileage milestone, what you are paying for the remaining life is an important consideration.

The conventional wisdom to buy a used car instead of a new one may not always be good advice. While you will pay less in absolute dollars, you may not get a better value. Comparing the value given the miles you will be able to drive the car may very well lead you to buy new instead.

Image courtesy of Gualberto107 at

The 12 Days of Financial Security for Christmas


Forget the birds and performing artists. These are the 12 gifts of financial security!

On the first day of Christmas my true love gave to me a fund for emergencies

On the second day of Christmas my true love gave to me a budget for expenses and a fund for emergencies

On the third day of Christmas my true love gave to me a maxed out retirement, a budget for expenses and a fund for emergencies

On the fourth day of Christmas my true love gave to me a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the fifth day of Christmas my true love gave to me a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the sixth day of Christmas my true love gave to me full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the seventh day of Christmas my true love gave to me insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the eighth day of Christmas my true love gave to me a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the ninth day of Christmas my true love gave to me a pay-down on my student loans, a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the tenth day of Christmas my true love gave to me a sound investment strategy, a pay-down on my student loans, a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies.

On the eleventh day of Christmas my true love gave to me a long-term care policy, a sound investment strategy, a pay-down on my student loans, a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies.

On the twelfth day of Christmas my true love gave to me, a pledge to be mortgage free, a long-term care policy, a sound investment strategy, a pay-down on my student loans, a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies.

Merry Christmas everyone!

Tips for Dealing With the High Cost of Healthcare

Healthcare plans are changing. As insurers seek to limit the increases in their premiums and employers seek to lower their costs for providing this important benefit, those who need healthcare are left holding more of the bag. There are a few things you can do to prepare and limit your costs.

Thanks to the Affordable Care Act, many typical medical expenses are required to be covered by both individual and group healthcare plans. And the summary of benefits has been standardized so you can more easily understand your coverage, copayments, deductibles and out-of-pocket maximum costs.

Unfortunately these seem to be on an unending march upward. Regardless of the plan, your share of the cost of healthcare, on top of your premiums, is growing. The increasing use of Consumer Driven Healthcare Plans (CDHPs), also known as high deductible plans, and the elimination of out-of-network coverage in many cases are two developments that can lower your premium but still drive up what you pay for healthcare.


The number of companies offering CDHPs, or high deductible plans, has grown sharply in the last ten years. An annual survey by the National Business Group on Health found that 90 percent of large employers are offering at least one CDHP, and 40 percent will offer only a CDHP in 2018. Almost one third of all covered employees are now enrolled in a CDHP according to a Mercer study.

While wellness exams are fully covered under all healthcare plans now, in CDHPs you must pay for services beyond wellness exams out of your pocket until the high deductible is met. Often the savings on the premium can at least partially offset the expenses, making the lower coverage worthwhile. But there are a couple of things you can do to further limit your costs.

Take advantage of the Health Savings Account (HSA). The HSA is a tax advantaged way to save for your out-of-pocket medical expenses. Your contributions to the HSA are pre-tax, saving you the equivalent of your tax rate on medical expenses paid out of the account. Your contributions to your HSA are yours to keep, with no requirement to spend them by the end of the year. Your goal should be to accumulate at least enough to cover your deductible in the HSA.

Shop around for your prescription medications. Before you spend your deductible you will pay the cash price for your medications. There can be a shocking difference among the cash prices charged by different pharmacies. So it pays to shop around.

Try to see where your prescriptions are cheapest. One prescription I checked ranged in price from $38 at Costco to $341 at Rite Aid.

There can be substantial savings for name brand, non-narcotic drugs purchased through Canadian pharmacies. One name brand prescription can be bought for $78 for a three months supply vs $497 at the lowest cost U.S. pharmacy.  Check out to find the lowest prices for your medications. If the pharmacy is certified, you can be assured they get the medications from the same manufacturers as U.S. pharmacies.

These pharmacies will be out-of-network, so the cost of your medication may not apply to your deductible or out of pocket maximum, but the savings can make that sacrifice well worth while.

Finally, many pharmaceutical companies offer coupons on your name brand medications to make them more affordable. Check your medication’s manufacturer’s web site for offers.

Loss of Out-of-Network Coverage

Whether your plan is a CDHP or not, increasingly, health insurers are cutting out-of-network coverage. Out-of-network coverage pays providers even if they haven’t negotiated pricing with the insurer. Your share of the cost is higher, but your out-of-pocket costs are still limited by the plan maximums. If there is no out-of-network coverage, you will fully pay for services, and the expenses will not go toward your annual maximum out-of-pocket expenses.

This is a big issue with emergency room services. The ACA requires insurers to cover “reasonable” expenses for emergency care regardless of the hospital you use. However the hospital and the service providers working there, are free to bill you for their fees above what the insurer pays them if they are out-of-network.

Even if you seek care at an in-network hospital, the doctor who attends you may not be an in-network doctor. Hospitals often contract their emergency room physicians from outside doctor groups. If you are attended by an out-of-network doctor in the ER, you could be billed for their service separately, and your insurance would not cover the cost. The practice is called balance billing.

The Commonwealth Fund, a private foundation funding healthcare research, reported that 14 percent of those who had visited the ER received an unexpected bill from an out-of-network doctor. Of those who were subsequently admitted to the hospital, 20 percent received an unexpected balance bill. Seven in ten who had unaffordable healthcare bills did not know their provider was out-of-network, according to the Kaiser Family Foundation.

Consumer Reports offers some advice to help you protect yourself. If a family member or friend accompanies you to the hospital, during registration, they should request you be treated only by an in-network doctor if you arrive at an in-network hospital. At discharge, your companion should request a print-out of all charges in case you must fight the bill later.

Carefully validate your bills against the list of charges. If you receive an out-of-network balance bill, check with your insurer to see if you can get them to pay it as part of the emergency coverage. If not, negotiate with the doctor. If that doesn’t get your bill within reach, file an appeal with your insurer. The Patient Advocate Foundation can provide advice on filing an appeal for free. If all else fails, file an appeal with your state insurance commissioner.

Healthcare has become a consumer nightmare. To avoid bills beyond what you can afford make sure you have savings to cover your share of the costs. Take charge of your medical bills by shopping around for the best prices on medications, and be willing to go to bat for yourself if necessary.

Image courtesy of Serge Bertasius Photography at

How Much Mortgage Loan Can You Afford?

When my husband, Jeff, and I were in the market for our current home, we took the steps you usually do to make sure we could jump on our dream home should we find it. The biggest part of that was getting pre-approved for a mortgage loan. After submitting all our information to the bank, we got back an approved loan amount that was frankly shocking. There was no way we could afford a mortgage payment that high. What were they thinking?

The amount of loan that you qualify for and the amount of loan you can afford are two different things. In expensive housing markets, like Portland, Seattle, San Francisco and others it’s tempting to spend as much on a home as the bank is willing to lend you, because your dollar just doesn’t go very far in these cities. But that can take away all your financial flexibility and ultimately your financial security.

You may be thinking if a bank is willing to lend you the money, you must be able to afford it. But the bank doesn’t really care about your other goals or even your financial security. They only care that you can make the payment, and they have a formula that gives them confidence you can. The formula is the debt to income ratio, and it is the biggest factor in determining how much money the bank is willing to lend you.

The debt to income ratio is your monthly debt payments divided by your gross monthly income (your income before taxes). Banks generally cap your debt to income ratio including the mortgage payment at 43 percent. Other factors like your credit score and down payment will influence whether they will lend the full 43 percent. But if you have a good credit score and can put at least 10 percent down, you will likely be eligible for the maximum loan amount.

Suppose that you and your partner make $108,000 per year between the two of you. You also pay $1,000 per month in student and car loans. Here is what your current debt to income ratio would be:

Debt to Income

How much mortgage will your bank lend you? Your current debt to income ratio is 11 percent. Assuming that you have good credit and a 10 percent down payment, your debt to income ratio could increase by 32 percent.  That allows for a total monthly mortgage payment, including taxes and insurance, of about $2,850. The bank will likely lend you around $450,000, using today’s interest rates on a thirty year mortgage of 3.63 percent and average property taxes and insurance rates in Portland, Oregon.  The value of the home would be $500,000.

Can you afford that? Let’s see. The following table estimates your monthly take home pay and how much you’ll have left to live on after all your debt payments.

mortgage paymentYour total debt payments take up almost 70 percent of your take home pay. The money remaining after just making your debt payments is less than $2,000. That puts you in a precarious position. If either you or your partner loses your job, you won’t be able to cover all your payments.

The size of your debt payments drive the size of the emergency savings you need to set aside. You won’t be able to reduce your expenses if you lose one of your incomes with payments like these. If both you and your partner make about the same amount of money, you will need to have at least $8,500 in emergency savings. You’ll need even more, if one of you makes more than the other. You should also have enough additional savings to cover your health care plan deductible.

But even if you have emergency savings, the payment is more than you can afford. You will inevitably have maintenance and repair expenses on the home you just bought. The more expensive the home, the larger those bills will be. Some of your remaining income will need to be set aside for that.

A good rule of thumb for maintenance and repair is $1 per square foot. In Portland, a house in this price range will be about 2,500 square feet, so you would want to set aside $2,500 per year or $208 per month and hope nothing needs fixing right away.

This example assumes you are saving 5 percent of your pay for retirement, which isn’t nearly enough. The longer you wait to save more the greater the portion of your income that will need to go to savings. If you’re still in your twenties, you can get away with saving 10 to 15 percent of your pay (around $1,000 per month). But if you are in your thirties, and don’t have current retirement savings, you should be saving 20 to 30 percent of your pay (more than you have left).

And what about your other financial goals? There is no room for them, whatever they may be. With this mortgage, about all you’ll be able to do is make the payments.

Instead of letting your bank tell you how much you can borrow, you need to figure out how much you can afford while still working toward your other financial goals. To keep your monthly obligations at a more comfortable level, your total debt payments should be no higher than 25 percent of your income.

With the income in the example, that allows for total debt payments of $2,250, and a mortgage payment (including taxes and insurance) of $1,250. That translates to a mortgage of $206,000 and a home value of $229,000 with 10 percent down. That’s just a bit more than half what the mortgage company was willing to lend you.

To estimate how much loan you can get away with given the payment you can afford, try this loan calculator. This calculator only provides the loan amount, and doesn’t include taxes and insurance, so you’ll want to leave room for those. However, it’s a good place to start.

Houses are expensive. Their true cost is much more than the monthly mortgage payment, and you have other goals beyond owning a home. Controlling your housing costs is one of the best ways to ensure you can meet those other goals. Base the house you buy on what you can afford, not what your bank is willing to lend you.

Image courtesy of dfrsce at


How to Figure Out How Much You Spend

Try this. Figure out how much you spend in a year off the top of your head. Some things will be easy. You know your mortgage or rent payment. You probably have a good idea about what your utilities and other monthly bills run. Groceries might be more of guess. Eating out, gas, car/home repairs, vet bills and other things all also might be harder to come up with, but stick a number on them. Go ahead. I’ll wait.


Now, let’s see what you actually spend. Use the following worksheet to calculate your spending from your paycheck.

spending worksheet

This is your spending, because it must be. If you didn’t save it or pay it out in taxes, you must have spent it.

Now this might not take into account all your spending. For example, if you usually get a tax refund, and you spend it rather than save it, you can add that to your spending. If you get a bonus that isn’t reflected in your most recent pay, and spend that instead of save it, add that as well.

Are you surprised by how much you spend? Most people that I’ve done this with are. In my small sample of experience, the difference between how much people think they spend and how much they actually spend can be as much as 30 to 40 percent.

Several years ago, my husband, Jeff, and I did this exercise. He couldn’t believe how much we were spending. He was so surprised he committed to tracking all our expenses transaction by transaction for six months. Guess what? Yes, we were spending that much.

Why should you do this? Well to understand how much you will need to save for retirement, you need to know how much you will be spending every year. Therefore it’s important that you have a good estimate. If your estimate is 30 to 40 percent off, you could be in for a surprise. Even if you don’t have a specific plan for how you want to live when you stop working, chances are you don’t want to give up a lot of how you live now, other than the work part, that is.

You can legitimately expect to spend less than you do now in some areas. For example, if you have mortgage or other debt you’ll pay off before you stop working, you can subtract that from your annual spending. If you’re currently paying for college for your children, you can subtract that as well.

But before you go shaving off expenses, you should consider that some of your current costs could be higher when you stop working. You might spend more on travel or hobbies. You could also wind up spending more on health care.

One way to assure that you spend less in retirement is to spend less now, by saving more. If you’re actually spending a surprising amount more than you thought you were, there is a good chance that you are spending your money in ways that aren’t making you happier. The only way to figure that out is by tracking every expense to see where your money is going.

Just gaining the awareness of where you’re spending your money can motivate you to change it. Any expense where you find yourself thinking “I can’t believe I spend that much on…” is a good candidate for a spending cut. You can also force an expense reduction by having more savings automatically contributed to your retirement account. You’re paycheck will get smaller, forcing you to spend less.

Being aware of how much you spend now will help you prepare for your future. Gaining that awareness will also help get your spending under your own control and put you on a path to meeting your financial goals.

Title image courtesy of Stuart Miles and hour glass image courtesy of Sira Anamwong at


Ten Ideas to Change Your Thinking About Saving Money

This is my 100th post. I sincerely thank everyone who has read them either directly on my blog, or on Linked In, Facebook or Twitter. These posts have had over 3,000 visits, and there are now around 500 fabulous followers.

To mark the occasion, I considered giving 100 tips for saving, or 100 ways to reduce debt or something of that nature. But I realized even if I could come up with that many, no one would make it past the first ten anyway. So you get ten.

Of all of the things I’ve written about personal finance, the topic of changing your mindset toward saving may be the most powerful. So, here are ten different ways of thinking that will help you achieve your financial goals.

  1. Saving money isn’t natural. People have all sorts of natural tendencies, but saving money isn’t one of them. If you are not a natural saver, there isn’t anything wrong with you, nor should you allow that to be your excuse. Saving is a learned behavior, and anyone can learn it.
  2. Financial security has more to do with what you have than what you make. While having a good income certainly makes life easier, building savings is the only way to make life financially secure. Having savings gives you the flexibility you need to meet life’s opportunities and challenges.
  3. Saving is more important than how you invest. The best investment strategy will not allow you to achieve your financial goals unless you are saving enough to begin with.
  4. Life is about trade offs. You can do anything you want, but you can’t do everything you want. If you spend money on one thing, you can’t spend it on another. If you spend more than you make today, you can’t spend as much tomorrow, and if you don’t save money now, you will have to save much more in the future. Conversely, saving money today is worth multiples of what you save down the road.
  5. Spend with intention. Money is only as good as what you do with it. By all means, spend money on what is important to you. That includes both today, and making sure you have enough to do the same in the future. Maximize what you have to spend on the important things by minimizing what you spend on the unimportant ones.
  6. Goals are the first step toward success. The only way to get what you want is to decide what that is. While big goals are important, don’t discount the value of the small goals that lead up to the big ones. Achieving your retirement savings goals starts by achieving your monthly savings goals.
  7. Be prepared to reach your goals. You can’t get where you’re going without a road map. Know what is required to achieve your goals. Lay out the specific things that you will do as well as the things that you won’t. Track your progress frequently and adjust your plan as needed.
  8. Commitment is half the battle. Commit to your goals and your process. Simply calendaring an action or telling someone else about your intentions will greatly increase your chance of getting it done. Write down and/or discuss with someone close to you both your plans and how you expect to achieve them.
  9. A budget is a plan for how you spend, not a diet for your money. A budget is more about planning to achieve your goals than giving things up. It is a way to document the steps that you will take. Every month you stay on budget is a month you are closer to your ultimate goal, and that is an achievement in and of itself.
  10. Be grateful. As the interfaith scholar David Steindl-Rast once said, “it is not joy that makes us grateful; it is gratitude that makes us joyful”. Gratitude helps you appreciate your life as it is, and it helps you avoid the temptation to compare what you have to what others have.

It can be hard to move forward without changing how we think about our lives. I hope these 100 posts have informed and inspired you to think differently about how you can reach your financial goals. Please keep coming back, because I’ll keep writing.

Image courtesy of samuiblue at

The Monster Lurking in Your Bills

What creeps up on you without you even being aware? It gradually but surely takes away your freedoms and keeps you from doing the things that are important for your future. It takes away your sense of security and control. This evil monster is debt.

Debt is an insidious thing. While it lubricates the gears of society and allows you to accomplish things that would otherwise be difficult, it can undermine your financial security and your ability to reach your financial goals. Here’s how it happens.

The Student Loans

You and your partner went back to school to get your master’s degree a while back. Between the two of you, you still have almost $60,000 in student loan debt. It was important to go back to school so you could make the next step in your careers, and while that debt will help you earn more, the payments are over $600 per month.

The Mortgage

You move out to the suburbs and buy the house of your dreams. It’s a little bigger than you need, but the agent said it would be a good investment. Your mortgage company didn’t hesitate to make you the loan, so they must think you’re good for the payments. Your mortgage alone is $1,800 per month. Taxes and insurance add another $700, taking you up to an even $2,500.

The New Car

Your local car dealership is offering a no-interest loan on a new car when you trade in your clunker. Your car is ten years old, so it’s about time for a new one. Your loan payment is $350 per month.

The Once in a Lifetime Trip

You had a big anniversary last summer, so you and your honey took a dream trip to Italy. You were inspired by the trip a coworker had taken. If your coworker could take a trip like that, of course you should be able to as well. And it was so romantic. The trip set you back $10,000, and you put it on your credit card. Since then you just haven’t been able to make a dent in the card balance. Your minimum credit card payment is $250 per month.

The Consequences

What are you up to now? Every month you are obligated to pay $3,700 in debt payments before you do anything else.  You don’t get to choose not to make those payments. Between the two of you, you make good money, but money feels tight.

After taxes and health insurance premiums you’re taking home about $4,700 per month. But that only leaves you $1,000 to pay for all of your other expenses. And you haven’t set anything aside for emergencies or your future retirement.

Paying your bills is all you think about. You juggle your payments between paychecks. You wait to send payments until the very last minute. You’ve over drafted your bank account twice this year. You’re starting to quarrel with your partner.

Debt has turned from something that provided an opportunity to something that is ruining your life. How could this be? The debt was taken on for good reasons. What else were you supposed to do?

Vanquishing the Monster

Debt can be minimized if you go at life with that intention. Student loans can be limited by working part time and living as cheaply as possible. Buying only the house that you need will reduce your mortgage payment and property taxes. And paying cash for everything else will go a long way toward growing your financial freedom.

But if the monster is already in your life, the only way to get rid of it is to pay the debt down. These are the steps.

  1. Create a budget. Include in your budget all the things that you spend money on monthly as well as an allocation for irregular expenses, like car or home repairs or uncovered health care expenses. Nearly all expenses are predictable if you sit down and think about the present as well as the future. Setting money aside for these expenses, that can be foreseen, but for which there isn’t a monthly bill, will help keep you from adding to your debt.
  2. Using your budget, cut back your non-debt spending wherever possible so that you have a little wiggle room. Stick to this new spending plan.
  3. Use your wiggle room to build some emergency savings. Your goal should be to save enough to cover your minimum living expenses for three months. If you have two incomes, you can get away with saving what the lower of the two won’t cover, but if there is only one, you’ll have to save enough to cover all those expenses. The emergency savings will keep you from adding to your debt in the event that you unexpectedly aren’t working.
  4. With your emergency savings in place, use the money you were saving toward it to begin attacking your debt. The debt snowball popularized by Dave Ramsey is a good approach.
    • Pay only the minimum payment on all outstanding loans except the one with the smallest balance.
    • Concentrate all the money freed up by making only the minimum payment and what was going toward your emergency savings to pay as much as you can on the smallest loan. The extra payments reduce the loan balance directly, and will allow you to pay down the loan faster.
    • Once that loan is paid off, move on to the next lowest balance and use all the money you were paying on the first loan to add to your payment on this loan.
    • Keep going in this way until you reach your mortgage payment.

Pay as much as you can. Don’t be discouraged if the amount is small. Every little bit makes a difference.

Don’t worry about the interest rate on the debt you are paying off. While you will pay more interest if you don’t pay down your high interest loans first, you will get out of debt faster by paying off your debt in the order of the balance. Getting out of debt faster will increase your financial flexibility, reduce the amount of emergency savings you need and allow you to make progress on your other financial goals.

Don’t worry about paying down your mortgage until your other debt is paid off, and you are fully meeting your monthly savings goals.

If your employer offers a match to your retirement plan contributions, it is important that you contribute at least enough to the plan to get it. Paying for your future life is one of those bills you need to be setting money aside for every month, and getting help from the company where you work will go a long way. Ideally you would do this before you begin the debt snowball.

Debt is a monster. If it has taken over your life, the only thing to do is to get rid of it. It won’t be easy. But if you lay out a budget, cut back your spending and pay as much toward your debt as possible, you will eventually win.

Image courtesy of Pansa at