6 things that have a big impact on my savings

Below are 6 things I've done in the past or continue to do that have had a large impact on my personal savings. The first is the biggest life choice I've made which has had the largest impact on my personal finances. The other items are all choices I've made that have all made a significant difference in my spending and savings.


- Getting a college degree

I previously discussed the value of a college degree in the article : What is a college degree worth? Median income between high school and college is : high school = $33,609 and college = $59,365. After taxes the take home is going to be around $28k for high school and $46k for college (assuming single filer). So you are looking at an extra $18,000 annual income for the college degree holder.

- Buying used cars and driving them for years

My last car cost around $7500 and I drove it for 10 years. By comparison if I had bought 2 new cars and driven them 5 years each I would have spent much more. If I had bought a relatively cheap new car 10 years ago for $10k, driven it 5 years and then traded it in for another fairly cheap new car for $12k I would have paid $189 monthly payments for 5 years and then $151 payments for another 5 years. $20,400 total for 2 new cars with about $4k in value at the end. I instead paid about $8300 in payments and had $1000 value at the end. Thats a difference of about $9100 over 10 years. So I'm saving about $910 a year on car payments.

- Driving a fuel efficient car
&
- Driving less

These are two separate choices I make that multiply for extra savings. First I drive cars that get decent fuel economy. My cars have gotten over 20 MPG in the city. If I had an inefficient vehicle with 10-15 MPG in the city I'd be paying about twice as much for gasoline. Second I drive less than most people. I purposefully live close to work and I try to be smart about not driving more than necessary. I only drive around 8000 miles a year. The average American drives more like 12000 miles a year. If I drove 12000 a year and got 10 MPG I'd be spending $3000 a year on gas. By driving 8000 miles and having a car that gets 25MPG I spend $800. Combined I'm saving up to $2200 a year.

- Quit smoking

I used to smoke a pack a day. Cigarettes around here cost around $4 a pack or more. So by quitting smoking I've saved about $1460 a year.

- Avoiding Starbucks

I've never bought a daily coffee at a Starbucks or similar coffee stand. By avoiding this habit I'm saving $3 or so daily. This saves me $750 to $1095 a year.

- Packing my lunch

I used to spend about $10 a day on lunches a few years back. I was eating out at restaurants daily with a coworker that I am friends with. Then I cut back to eating in the cafe here at work which ran about $5 a day. Now I've switched to packing my lunch 4 days and eating out 1 day a week. This costs me about $2 for the packed lunches and $5 to eat out. Originally I was spending about $10 a day or $2500 a year. Now I'm spending about $650. So by packing a lunch I'm saving $1850 over eating out at restaurants daily.


All of these things add up to make a large impact on my personal finances. If I had instead never gone to college, bought a new low MPG vehicle every year, drove as much as an average American, continued to smoke cigarettes, picked up a Starbucks habit and still ate lunch out daily then I'd be $25,000 behind total annually. Of course going to college has had the biggest impact for me. Each of these the last 5 items might individually seem like small things but they add up to over $7,000 annually.

These are just some examples from my own life. We each have lifestyle choices that add up to significant financial differences. Do you subscribe to cable TV? Do you have a high end cell phone plan with high minutes, unlimited texting, web etc.? Do you pay someone to mow your lawn instead of doing it yourself? Do you have a gym membership you rarely or never use? Some of our lifestyle choices are worth while to us and some we could live without. So look at your own life and consider what you spend money on and then figure each item as an annual expense. Then consider if its really worth while to spend an extra $2000 a year to eat out lunch or an extra $1000 a year to have a new car instead of used.

Best of Blog posts for the week of November 7th

All Financial Matters discusses what happened after the 50 worst months in S&P 500 history: The 50 Worst Months in S&P History and What Followed This post was from last Friday but I missed it then. Looking at the worst 5 months where the index dropped 20% or more, the following 5 year periods all showed 13% annual growth rates.

Free Money Finance discusses Three Reasons to Invest in Gold the discussion is actually about a Kiplinger article discussing reasons people buy gold and it generally lays out why they are NOT good reasons.

Jim at BluePrint for Financial Prosperity weighs in against payday loans and credit card advances with : Avoid These Three “Short-Term” Loans

The Digerati Life points out a deal Discover Credit Card Rewards, Sign Up Bonuses and Holiday Promotions where you can get a $20 gift card for charging $200 at certain participating shopping malls around the country. So check to see if your local shopping mall is on the list.

My Money Blog examines a stable value fund with : Should I Invest In My 401(k)’s Stable Value Fund?

About Google Ads

This site has Adsense ads served by Google. The individual advertisers are picked by Google to match content on this site. As the author of FreeBy50 I do not pick which ads Google lists in the Adsense ads.

Sometimes Google will list advertisers that are promoting products that I personally do not recommend. Sometimes Google will even show ads for something on the same page as an article I write saying you should not buy the item. For example right now I just wrote an article saying how payday loans are a very bad idea and Google is advertising payday loans in the ads. I obviously do not endorse those products. I can block individual ads by domain but there are too many payday loan advertisers for me to find and block them all.

If you see an ad from Google with objectionable content then please let me know.

The Hope and lifetime learning tax credits for college

If you are attending college or you are paying a dependents college expenses, then you may be able to take a tax credit. The Hope credit and the Lifetime learning credit are two tax credits to help people pay for college.

Here is how they work:

You can claim the Hope credit or the Lifetime learning credit but not both.

The credits are nonrefundable so that means they can reduce your tax bill to $0 but not refund you money over what you owe in taxes.

For either credit you can only apply it towards qualified education expenses at a eligible university. Generally this means tuition at accredited schools.

Both credits have income limits: You can claim the maximum credit if your modified adjusted gross income is less than $47,000 filing single or $94,000 if filing jointly. If you make between $47,000 and $57,000 for single or $94,000 to $114,000 jointly then you can get a partial credit. If you make over $57,000 single or over $114,000 joint then you are not eligible.


The Hope Credit

The credit applies per student. It is only available for the first 2 years of college per student. The student must be pursuing an undergraduate degree. How much :

1. 100% of the first $1,100 of qualified education expenses you paid for the eligible student, and

2. 50% of the next $1,100 of qualified education expenses you paid for that student.

This results in a maximum of $1650.


Lifetime Learning Credit
The credit applies per return.

The amount of the lifetime learning credit is 20% of the first $10,000 of qualified education expenses you paid for all eligible students. This makes the maximum $2,000.

Some examples:

Lets say you have a $15,000 annual tuition bill that you are paying out of pocket. The Hope credit would max out at $1,650 and the Lifetime credit would give you 20% of the 15,000 up to $2000. So your maximum would be the Lifetime credit for $2,000 annually. Your credits would be $8,000 total for 4 years and this would pay 13% of your $60,000 total 4 year bill.

On the other hand consider if you are going to a public school with a $7,500 annual tuition rate. The Hope credit would be $1,650 and the Lifetime would be 20% of $7500 for $1500. So the Hope credit would be more. But you can only use the Hope credit for the first two years. You could claim the Hope credit for the first two years and then the Lifetime credit for the second two. That would give you 2 x $1,650 and 2 x $1,00 for a total of $6,300. This $6,300 would equate to 21% of the total $30,000 bill.


For all the details on the Hope and Lifetime credits see:

• Details from the IRS on the Hope Credit
• Details on the Lifetime Learning credit.
• IRS publication 970 - Tax Benefits for Education

Image from IRS.gov