Monday, June 1, 2009

June Frugal Action Item: Increase the Deductible on Your Auto Insurance

Image originally uploaded by przemion

This month's Frugal Action Item is predicated on a few assumptions, and I want to make it clear that this one won't be recommended for absolutely everyone. Here it is: if you have an automobile with insurance, raise your deductible by $500. At the same time, put an extra $500 into your savings account. That means in the event of damage to your car, you pay more out of pocket, but that extra money will be sitting right there for you. No sweat. In the meantime, you'll save by paying lower premiums. And you'll earn a tad more in interest each month because of the higher balance in your liquid savings.

Remember: insurance of any type should serve to protect us from financial catastrophe, not from ever having to pay anything for day-to-day expenses. Don't buy more insurance than you really need.

Now I don't recommend this Action Item to those who have just added teenage drivers to the family insurance policy. Nor to those who are already struggling to get by in this economy as it is. If you've lost a job, have a fixed income with very little savings, or are currently living off your savings, skip down to the Alternative Action Item below. The rest of us, if we're reasonably safe drivers, can tighten our belts and make the smart financial move.

I hear you asking, where am I supposed to find an extra $500 to put into savings? Why, from all the money you've been saving by faithfully following the Frugal Action Items since the beginning of the year! Let's take a look at how the savings have been adding up:

January's action item: CF bulb installation. This is probably saving you, on average, $2-3 per month. Let's call it $2.50 per month x 6 months. That's $15.

February's action item: Kitchen Competence. Let's say you turned over a new leaf and gave up just two dinners per month at a restaurant in favor of cooking at home. By the time you figure in the tip and extra transportation, that's probably $45-90 right there, depending on how many are in your family and where you typically eat out. Or maybe you made four loaves of bread and have been sticking with it each month. Homemade bread should be saving you at least $12 per month. So at the low end we've got a range of potential savings here from $12-90 per month, for 5 months. That's $60 to $450. If you've switched from eating out a lot to eating at home, you probably passed more than $500 in a savings after just a couple months.

March's action item: Cheaper Entertainment. If you gave up a Netflix or Blockbuster subscription, or a weekly movie night and started getting your DVD's from the library, you've probably saved at least $10 per month, even if you factor in an occasional late fee plus transportation costs to and from the library. So conservatively we'll call that $10 per month x 4 months. $40.

April's action item: Go Paper-less. The savings resulting from this month's challenge are a little harder to estimate. Let's say you gave up paper napkins, paper towels, and cancelled your newspaper subscription. That's an easy savings of $10 per month. If you were willing to go a little farther and give up tampons, sanitary napkins or diapers, your savings will be significantly higher. Let's say the average family could be saving $15 per month by giving up disposable paper goods. $15 x 3 months = $45.

May's action item: Line drying your laundry. The average dryer uses at least 75 cents to dry a load of laundry. If your family does ten loads of laundry per month, that's $7.50, easy. Two months of $7.50 monthly savings by the end of June: $15.

So there you see how easy it is to find some extra money to make progressive improvements in your financial situation. Using the lowest end numbers for each month above, we get $175 in savings. If your household saw higher savings through any of these Action Items, you've saved more than that. In any case, maybe you haven't quite saved up that $500 yet. That's okay, work at it slowly. When you have that cushion in the bank and you raise your deductible, you'll see an addition savings of perhaps $125 for a six-month policy. See how quickly the savings can pile up when you practice daily frugality?

Alternative Action Item For anyone who doesn't own a car, or who is not in a position to put an extra $500 in savings right now, a challenge of a completely different sort.

It's getting to be summertime (in the northern hemisphere - sorry, southern hemisphere visitors). So our diets should be turning to lighter fare and less cooking. The challenge this month then is to incorporate homemade but cooking-free meals into your weekly routine. Salads (green or fruit), sandwiches, wraps, gazpacho (if you're lucky enough to have ripe tomatoes already), cole slaw, mueslix, smoothies, fridge cookies, a crudité plate with an herbed dip or vinaigrette, etc - all of these will fit the bill. This challenge is designed to do two things: save you small amounts of money because you're not firing up the oven or the stovetop, and to encourage you to focus on what is fresh right now. Foods at the peak of freshness usually need almost no preparation to make delicious meals. You'll most likely eat more vegetables and/or fruits during these meals, which is healthier too. If you live in a hot climate, you'll also avoid heating up your house unnecessarily.

So see if you can eat at least one homemade breakfast, lunch, and dinner each week using no cooked foods. I'll give you a few exceptions though. Any basic food that is always sold in cooked form, such as bread, lunchmeat, or jam, is okay to include on your sandwich, especially if you previously prepared it yourself. But no cheating by bringing home a rotisserie chicken! If you happen to have a solar oven, that's fine to use as you're not drawing any power to do your cooking. And sun tea is allowed for the same reason. So shake up your routine just a bit and see what happens!

New to these Frugal Action Items? More here:

January: Compact Fluorescent Bulbs & Hot Water Pipe Insulation
February: Kitchen Competence
March: Rein In Entertainment Spending
April: Go Paper-less
May: Solar Dryer
July: Stay Cool Without Touching that Thermostat
August: Repair It!
September: Insulate
October: Preventative Health Care
November: Frugal Holiday Wish List
December: Plan Next Year's Garden

As ever, I'd love to hear if these Action Items are making a difference in your household budget. Sound off in the comments!


Anonymous said...

Hi, Good point about insurance & one my husband & I follow. I love your blog & have been eagerly looking forward to see what you are going to do with Sewing Competency! I sent you an anonymous e-mail teasing you about it a few months ago. But seriously, I don't think anyone has to be competent in all homesteading skills. You could do yourself the favor and say I'm just not going to do that. Or maybe try to figure out what sewing competency means to you and why you say ugh! I use to stew a lot because I couldn't make designer outfits like my mother-in-law. Heck, sometimes I have trouble with a simple skirt. But I am a great mender and if there's a hole, a rip or a patch that needs tackling - I'm your girl. I've embroidered over stains, added trim to blouses etc. anything to have the life of my clothes extended and to show my own personality. I'll also do simple curtains and pillows. I've also made simple placemats & pieced pillowcases as gifts. But I don't feel like I have to know how to make a quilt or do complex alterations etc. Used clothing is cheap, I buy it from well kept places & wash it in hot water before I wear it. Marian L.

Nilki Benitez said...

Hey, I love your blog and for all the awesome tips and ideas, and just like-mindedness in general, I've given you a sisterhood award! Come by and check it out!!

Keep up the good work! Nilki Benitez

Lorna said...

Hi, great tip on auto insurance. Another thing to look for is the type of coverage--if you are paying off your car, most states require you to have "full coverage," but once you own the car outright (or if you paid cash!) you can change the type of coverage to collision-only or some other less-expensive option. On another note, I've been wondering what you (and your readers) think about life insurance. My parents never had it because they figured they were both educated professionals that could get a job if something happened to the other! But it seems all the financial gurus (Suze Orman, bloggers, etc.) are adamant about families with young children carrying it. What do you think?

Thank you for the great posts. I look forward to reading them whenever I get the chance!

Kate said...

Hi Marian. Yeah, I'm definitely dragging my heels about the sewing competency project. I don't expect to achieve anything more than the most rudimentary skills, but obviously I need to really push myself to get even that far. There is one person who might possibly serve as a sewing mentor, but nothing certain yet. I'm sort of thinking this will be something to address in the fall/winter. But who knows? That could just as easily be procrastination talking. Rest assured, if I accomplish ANYthing in the way of sewing, or even if I attempt a project and fail miserably, I'll report on it here.

Nilki, why thank you! I'm flattered. I'll have to put some thought into whom to pass this award on to. Many, many thanks!

Lorna Jean, thanks. Those are good tips too. I've never offered any advice about life insurance. It just never seemed like something I was qualified to talk about, since I don't have any kids. My gut feeling is that I would want life insurance if I did have kids, but I know nothing about it really. Sorry I can't be more helpful.

Carl said...

Hi, Kate.

Your action items are good, yes; my major obstacle is in convincing other family members that it's worth taking the time and effort to use a clothesline, wash cloths instead of recycling paper, etc.

About reducing cooking - I live in Australia, so it's winter, but what about microwaving? A one-kilowatt microwave oven would have to run for an hour continuously at full power to cost you $1, and I normally use it for about 2 minutes, which would cost about 3 cents.

PS This assumes that you eat things that are suitable for the microwave. Baking in the microwave won't form a crust, bacteria in raw meat may not be properly killed due to uneven heating, and foods like potatoes and eggs have to be pierced so that they don't explode from steam buildup.

But you can microwave vegetables with little or no added water, make porridge, and generally do whatever kind of cooking you would on a stove, provided you use the right materials, stir frequently, and use low power when appropriate.

Kate said...

Carl, all I can suggest with the obstacle of other family members is that you have them do the math. Especially if you present the savings as an after tax earning rate, it can be quite convincing. But I think it's a matter of a few changes at a time, so that we acclimate to frugality slowly. That's why the monthly action items - one change at a time.

As for the microwaving, sure, go for it. My challenge isn't a commandment written in stone. And microwaving is indeed an energy efficient form of cooking. There just aren't very many things I've gotten good at cooking in the microwave. I once got a book on microwave cooking through inter-library loan, just so I could devote some time to mastering some techniques. Unfortunately I found that the author had written the book with the assumption that all her readers had purchased some specifically designed pyrex cooking dish, which cost quite a hefty sum. Did not impress me.

If you have some good microwave recipes, I'd love to hear about them.

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