Non-Discretionary Optimizations: Deductibles

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In Trim The Fat Off of Your Expenses, I outlined several ways in which my wife and I were able to save over $360 a month, most of which has been re-purposed for covering the added costs associated with having a newborn son; in Making Your Lunch Has Saved You How Much Money?, I practically laid out an easy way to save the average couple over $1,100 per year; in Pay Yourself First, I discussed the importance of categorizing where your money is going in order to determine how much of your money is being spent on recurring non-discretionary items; and most recently, in Guaranteeing An Inheritance For My Son, I presented a plan in which simply saving $1.78 per day, for 18 years, could potentially leave your child with close to half of a million dollars! One of the main reasons that personal finance is discussed so frequently on this blog is because it is such a large part of all of our lives, and as a result, it can have a direct impact on the quality of your parenting.

In my own experience, when people choose to build financial margin into their lives, they commonly enjoy a lesser degree of stress and anxiety than if they were instead living at the edge of their means, or worse, if they were living outside of their means. This is not to insinuate that money is the solution to all of life’s problems. Rather, it is an observation that by making the intentional decision to build margin into your family’s finances, you are increasing your chances of being able to absorb life’s difficulties with a greater and increasing degree of ease. Thus enabling you as a parent to spend more time pouring into and enjoying your family, instead of worrying about if you will be able to provide for them.

Therefore, in order to help you down a path which leads to the opportunity to spend more devoted time with your family, the following examples are two easy ways to optimize some of your non-discretionary expenses. Additionally, in case the last article left you wondering how to afford setting aside $650 per year in order to motivate and encourage your child to save from an early age, by the time you are done reading this post you will have no excuse!

1. Car Insurance

In regards to non-discretionary spending, car insurance is something that is nearly impossible to live without. Most of us need our vehicles to get to work, to go to the grocery store, to see family and friends, and to pick up our children from school. So how can someone optimize this arguably forced expense. Well, in addition to the seemingly obvious answer to call a few agencies for better quotes, a likely unsought option is to increase your deductibles.

Hey New Dad, how will this save me money if I have an accident and then have to pay a larger deductible?

I am glad you asked. According to industry experts, the average driver will be in a car accident once every 18 years. Considering that 76% of people think that they are wonderful drivers, most of you will likely assume that you will fare better than average. However, by definition, it is impossible for 76% of people to be better than average! Therefore, for the sake of all of us, we will perform our analysis utilizing the expert opinion.

After calling our insurance company, I discovered that by raising mine and my wife’s comprehensive and collision auto insurance deductibles from $250 per incident to $1,000 per incident, our monthly premium decreased by $31 per month, which is $372 per year. Saving $372 for two years ($744) nearly covers the increased cost in our deductible ($1,000 – $250 = $750). However, as highlighted, the average driver should only reasonably expect to have an accident once every 18 years. Therefore, by making this subtle policy change, saving $372 on our yearly premium for 16 years (18 years less the 2 years required to cover the increased deductible) means that we will save approximately $5,952, which equals approximately $331 each of the 18 years.

2. Homeowners Insurance

Using the same clever logic with which we reviewed car insurance, let’s now apply it to an even more important non-discretionary life expense, homeowner insurance. According to industry experts, an average homeowner will make a claim on their policy once every 9 or 10 years. Therefore, being the conservative individual that I am, we will perform our analysis using the increased frequency.

After speaking with the same insurance agent, I found out that by raising our home insurance deductible from $250 per incident to $1,000 per incident, our monthly premium decreased by $117, which is $1,404 per year. Saving $117 per month, means that it will take 7 months to save the deductible difference (($1,000 – $250) / $117 = 6.4 months). Therefore, performing this policy change will result in my wife and I saving nearly $12,000 over the course of nine years! Yes, you read that correctly. (($1,404 x 8 years) + ($117 x 5 months) = $11,817). Over the course of 9 years this savings equals $1,313 per year.

With just two phone calls, my wife and I have effectively reclaimed $1,644 per year just by making subtle changes to our vehicle and home insurance policies. There is nothing quite like some simple math to show you the fallacy of your ways. After reading the numerous, easy to implement, cost saving examples that have been outlined on this blog, it is my hope that you feel fully capable and empowered to take the same kind of intentional steps in your own life in order to save literally thousands of dollars per year!

saving money on insurance

Also, in addition to no longer having any reason to prevent you from setting aside $650 per year for your child’s future, if you have been implementing the money saving tips outlined previously on this blog, you should be gaining substantial margin in your personal finances. As a result, with each passing week and month, I fully expect that you should feel less stress and anxiety over money, and therefore you should have more undivided energy, patience, attention, and love to devote to your partner and children!

“put your life in service to your values rather than putting your time in service to money.”
Vicki Robin
Your Money or Your Life

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