Monthly Archives: October 2018

You get what you pay for – Overall factors and housing costs

You get what you pay for – Overall factors and housing costs

  • Key purchasing factors for all items: Many people just do not make “smart” purchases. The old adage that “you get what you pay for” (pardon the dangling participle) is just not always true in today’s economy. At times I wonder if some of us just like to be able to say we paid more! My view, when comparing identical items is, I prefer to pay less. There are two key factors to maximize your purchasing power. First, never allow yourself to be “sold” and next make “time” your asset. 

–         Research (doing our homework vs. “being sold”) When you identify a need it is important to research the market. I’m not suggesting that you not listen to sales pitches. However, I am suggesting that you never make a purchasing decision based on an initial pitch. Always (repeat, always) do your homework before making a purchase decision. By that I mean “research” the market. My policy is always to buy local, but only if they offer what is needed at a reasonable price. By reasonable I mean at or near the “market” price. A few good sources for price information are: EBay, Amazon & Walmart online. If you check these information sources it will give you a good idea of what you should be paying.

–         Timing; making time your asset: Having to make a purchase on the spur of the moment almost always is an expensive decision. Be sure to plan all significant purchases in advance. Give yourself the time to do your homework and thus make an informed decision.

  • Housing costs (the biggie)

–         How much of our income should be dedicated to housing costs? The typical recommendation is no more than 35% of “gross” income, but in today’s economy that is not always possible. The average family income in our area is approximately $38,000 per year. Looking at the average this translates into about $1,300 per month for rent (or mortgage), taxes, insurance, utilities, etc.

–         Is it better to rent or to own a house?  Initially, at lower income levels renting actually can be a good decision. A few of the reasons are: Renting provides flexibility, the overall occupancy cost can actually be less than ownership is some markets and it provides time for first time buyers to evaluate what they want in terms of location and type of housing. Another factor is that loan approval for a purchase can be difficult and expensive at lower income levels. My recommendation is to put off purchasing until a family is fairly certain that they will be located in an area for an extended time period. In times past the recommendation would have been to invest in a home as soon as possible and start building equity in the vastly appreciating real estate market. The promise of market appreciation is much less certain today. It is taking much longer to recover the transaction and ownership costs through appreciation. It is also best to wait until a person achieves a good to excellent credit score prior to applying for a home loan (it will save big bucks over the life of the loan).                                                                                                                                                    –         Utilities – methods to control, this is not a “fixed” expense:  Utility costs have the potential to exceed the cost of rent if not properly managed. The very best way to manage your major utility expense (electric or the combination of electric & gas) is to moderate your temperature expectations.  Setting your thermostat in the 74 – 76 F range in the summer and in the 64 – 66 F range in winter may take some getting used to but it the financial benefits can be substantial. When compared to a constant 70 F setting it can easily amount to over a $1,000 in annual saving. I recommend using a programmable thermostat. A low end model works great and they can be purchased for under $25. The unit comes with easy to install instructions. Even a novice can install one in under 30 minutes. The basic models allow you to manage temperatures in four different time zones each day and have different settings for each day of the week. The potential savings can easily exceed the cost of the unit in just a few months. If you do not reside in a house with a centrally controlled system then the best way to go is with “zoned” units, preferably heat pumps (have the ability to both heat and cool in one unit). This is probably only a viable option for home owners or very long term renters that are able to work out a deal with their landlords. These units only cost a bit more than A/C units and offer the advantages of only using electricity when a zone is occupied and are very energy efficient. An additional energy saving item is to convert to LED light bulbs. They last up to 20 x longer than incandescent and more than 5 x longer than florescent. They also use less than 1/20th of the energy of incandescent and less than 1/5th of the energy of fluorescent. One option is to replace your bulbs as the old ones expire. They can be purchased for about $2 each on eBay and locally at near that price when on sale. I recommend not waiting as the financial payback in energy savings is usually less than six months. Another benefit is that florescent bulbs are not recyclable, while LED bulbs are. While other options like solar are available, the preceding offer the quickest financial advantage.                                                                              –         Insurance (casualty & contents) Most renters do not carry insurance on their contents. It is important to understand that the insurance a landlord carries on rental property does not cover the contents of the tenant. I’m not making a suggestion one way or another, just a point of information. As a homeowner I do highly recommend carrying insurance and if you have a mortgage the lender will require that you have coverage. Insurance rates vary significantly among providers. The difference in premiums can vary by as much as 200%!  Shopping rates every few years is a must! When you do shop I recommend getting quotes from no less than 3 firms.                                                                                 –         Property taxes: This cost applies to the owner of the property. There is little you can do to control this fixed cost. The rate is set by the assessed value of the property and usually represents about 1% (or a bit more) of the fair market value. If the market has declined (which it did from 2007 – 2015) then you have the option of asking for a reassessment through the county assessor’s office.                                                                                  –         On-going maintenance (lawn care, upkeep, breakdowns, etc.) Another factor that apples to the property owner. In a fairly flat market property will decline in value if not properly maintained. If you are a renter your rental agreement may specify that as tenant you must maintain the lawn. It is recommended that, as a property owner, you set aside an extra 10% of the value of your loan payment for ongoing maintenance and repairs. This will insure that when the need arises the ability to fund will be available.

this is the first of several posting on this topic, stay tuned for more next week.

The Price of Medication

The Price of Medication

I have posted numerous times about the cost of RX in our country. Recently my lovely spouse passed along a link to an article that rekindled my ire on this topic. See the intro below:

“Why a patient paid a $285 copay for a $40 drug

Health Aug 19, 2018 11:42 AM EDT

Two years ago Gretchen Liu, 78, had a transient ischemic attack — which experts sometimes call a “mini stroke” — while on a trip to China. After she recovered and returned home to San Francisco, her doctor prescribed a generic medication called telmisartan to help manage her blood pressure.                                                                                                                                          Liu and her husband Z. Ming Ma, a retired physicist, are insured through an Anthem Medicare plan. Ma ordered the telmisartan through Express Scripts, the company that manages pharmacy benefits for Anthem and also provides a mail-order service.

The copay for a 90-day supply was $285, which seemed high to Ma.

“I couldn’t understand it — it’s a generic,” said Ma. “But it was a serious situation, so I just got it.”                                                                                                                                                                     A month later, Ma and his wife were about to leave on another trip, and Ma needed to stock up on her medication. Because 90 days hadn’t yet passed, Anthem wouldn’t cover it. So during a trip to his local Costco, Ma asked the pharmacist how much it would cost if he got the prescription there and paid out of pocket.                                                                                                 The pharmacist told him it would cost about $40                                                                                    “I was very shocked,” said Ma. “I had no idea if I asked to pay cash, they’d give me a different price.”                                                                                                                                                           Ma’s experience of finding a copay higher than the cost of the drug wasn’t that unusual. Insurance copays are higher than the cost of the drug about 25 percent of the time, according to a study published in March by the University of Southern California’s Schaeffer Center for Health Policy and Economics.                                                                                                                  USC researchers analyzed 9.5 million prescriptions filled during the first half of 2013. They compared the copay amount to what the pharmacy was reimbursed for the medication and found in the cases where the copay was higher, the overpayments averaged $7.69, totaling $135 million that year.

USC economist Karen Van Nuys, a lead author of the study, had her own story of overpayment. She discovered she could buy a one-year supply of her generic heart medication for $35 out of pocket instead of $120 using her health insurance.”

I act as guardian for my mother who has both Medicare & Tricare coverage. I just received a detailed account of my mother’s medications for RX this year. There is an “*” on each line item. The note at the bottom of the statement reads as follows: “You can use home delivery from the TRICARE Mail Order Pharmacy for this medication and receive a 90 day supply for less than the 30 day supply co-pay from a retail pharmacy. Shipping is free……..”

I am shocked by this. As a tax payer you should be also. Obviously planned overpayments to pharmacies (with possible collusion by insurance companies) is horrible and in my view constitutes both fraud and an additional “tax” to consumers. However, keep in mind that these are examples were the Co-pay is higher than the retail value of the drug. This is not merely an “overpayment” but outright theft. The attempt at explanations, in my view, are ludicrous. I encourage you to form your own view by reading the entire article at: https://www.pbs.org/newshour/health/why-a-patient-paid-a-285-copay-for-a-40-drug