Health Insurance–an Update

health_insuranceThree years ago, I posted about my health insurance. I knew that going forward I’d likely be doing a mix of working for myself (renovating properties), and contract work as a technical writer / web producer / project manager. In other words, I’d be providing my own health insurance.

All the details and the math are in the original post. In this post, I want to update you on how my health insurance has been working for me.

The short answer: more expensive than I like, but otherwise it’s been great.

The long answer: my first year of self-insuring, I bought a plan with a $197 premium, with the $10,000 annual max for out-of pocket (OOP) and deductible. Obamacare went into effect my second year. My premium went up to $299. At first glance, that took my breath away. With Obamacare, though, insurance companies were given strict ceilings as to how much OOP and deductible they could ask customers to pay. So, my annual max for OOP and deductible fell significantly to $5,750. That means that even with a higher premium, if I’d gotten quite sick, or had a bad accident, I’d end up paying less in any calendar year than prior to our new health care system.

This, my third year of self-insuring, my premium has risen to $315, and my annual max for OOP and deductible rose a bit to $6,000. Not bad.

The thing is, when I originally decided on a lower premium / higher annual max for OOP and deductible plan, I made the bet that in an average year, it just wasn’t likely I’d use the max. I don’t see the doctor much. But I know something could happen. That’s why we have insurance, right? It’s a kind of gambling.

So I decided to bet that one out of every three years, I’d have to pay the max. And the other two years, about $1800 a year on top of my premium. With my current policy, that would come to $20,940 over three years:

$11,340 (3 yrs of premiums) + $1800 (yr 1) +$1800 (yr 2) + $6,000 (yr 3, max OOP + deduct.) = $20,940

If I made the same bet with the higher premium / lower annual max for OOP and deductible, three years of that same formula would be several thousand dollars more.

I’ve had a lucky three years (knock on wood) health-wise—no broken bones, no unexpected surgery, no unpredictable disease. That means I’ve paid thousands of $$ in premiums without using any healthcare services. I’m OK with that—I know others in the system benefitted from the pool of insured, and I bet one day I’ll benefit from it.

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Sometimes You Have to Quit to Get Ahead


Our lives feel so uncertain at times, making a decision to quit a job can feel crazy risky. That feeling of risk clouds our judgement, and we question our way out of making the decision to leave a job. The only way to get to a happier, more purposeful future, though, is to stare any risk or fear in the face and walk towards it, and then through it. That’s how I felt when I quit a previous job–one with nice income, prestigious company, respectable job title. And whatever fear I had dissolved. No lie. Just faded. The fear was a bit of an illusion, created by all of us on my old team. We all worked together to convince ourselves that we had to overwork, to be tough, and do occasion backstabbing to keep our jobs.

Turns out none of that is true. I saved enough money to buy my freedom, and after three years, I can with confidence say that we don’t need to overwork, we don’t need to be tough asses, and we don’t have to stab any co-worker in the back. We can work reasonable hours, be vulnerable and human, and be kind to ourselves and our co-workers, all while still making a living.

Your fearful self asks “Am I just being lazy? If I were more industrious than my 60-hour work week, would I feel better about my work?” Or, we identify with the nice paycheck and pretty good title, and wonder who we’ll be if we quit. Yes, we hate the long hours, feelings of purposelessness, and vulture-ous work culture. But at least it’s something we can commiserate over with friends come happy hour. If we quit to find something else, what’s left to moan about with our unhappy friends? Would they still be our friends? And what are we without the regular paycheck and job title?

If you’ve been to this blog before, you know the drill: live on (much) less than you earn, create financial independence for yourself—whether for a year or a lifetime—and then start making decisions that lead to more happiness and purpose for your life. Often that decision means quitting your current job. Because being chronically overworked, unhappy, and unfulfilled is CRAZY–literally insane.

Like most ideas, other people thought about this long before I did. There are thoughtful, and funny, and practical articles and blog posts that can help you ask the right questions, and reconsider any risks you think exist when it comes to leaving your current gig. Because if you do, your reward is a happier and more purposeful life.

Hate Your Job? Change Might Be Hard, but It’s Worth It

10 Reasons You Have to Quit Your Job

How to Quit Your Job

So I Quit My Day Job – Holy Cow! I Took the Plunge

How to Find the Courage to Quit Your Unfulfilling Job

5 Valid Reasons to Be a Quitter

Quit Your Job, Be Your Own Boss, Live Free

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Taxes: Getting the Benefits of an LLC or S Corp

In the post Taxes and Financial Independence, I wrote about retirement funds, investment income, and other areas that allow you to either claim deductions on your taxes, or reduce your tax burden. What I didn’t cover were business entities that you can create in order to protect your income.

I realize this is boring as crap. At least for me it is. But if you get taxes right, you can save a ton of money, and get to FI that much faster.

I actually don’t mind paying taxes. I bet you’ve heard the Oliver Wendell Holmes quote that “Taxes are what we pay for civilized society”. I’m with him—I want to throw some money in the hat for garbage pick-up, police, libraries, schools…but then again, I want to pay as little as I need to.

Thus, here’s the scoop on the two main business entities that are relevant to you if you work for yourself, or if you own investment property.


LLC is the typical business type for rental properties, because LLCs are meant to cover “non-active” income. I.e., instead of working all day, you kind of sit back and collect rent, minus the odd afternoon spent fixing a tenant’s sink.

On personal taxes, rental income has the same tax rate as salary income. But, if you create an LLC for your investment property, you don’t have to pay Social Security (12.4%) or Medicare (2.9%) on rental income. That’s huge. An added benefit is the protection you get in lawsuits—if you have a litigious tenant, they can sue the assets owned by your LLC, but not your personal assets.

With an LLC, you can deduct pre-tax expenses, such as related travel, uniforms, computers, phone bills, advertising, promotion, gifts, car expenses, and health care premiums.

Besides the social security / Medicare break, you get the regular deductions that you’d get without an LLC. That means you can add furniture and appliances to the cost basis of the property and depreciate the proper amount each tax year. Same thing for improvements—like an addition, new AC, replace plumbing, renovating the kitchen—you can depreciate these. Materials, tool rental, and labor can also be depreciated. For repairs, such as repairing a roof, plumbing, electric, replacing a broken window, you can deduct the full cost of the repair in the tax year that the repair was completed.

S Corp

S Corps are a business type that covers “active work”—anything you do that brings in income, as opposed to passive income you might get from a rental property.

As an S corp, you have to pay yourself a reasonable salary, for which you pay regular taxes, and distribute the rest of the income to yourself as profit. The profit distribution to yourself (or any other shareholders) is free from Social Security (12.4%) or Medicare (2.9%) taxation. DEFINITELY read more about what the IRS defines as paying yourself a “reasonable income”. It’s tricky because they don’t give us a dollar amount, or a percentage of profit. But they DO apparently do regular audits of S Corps because of the potential for abusing the tax benefit of income vs. profit distribution.

Like with an LLC, an S Corp allows you to deduct pre-tax expenses, such as related travel, uniforms, computers, phone bills, advertising, promotion, gifts, car expenses, and health care premiums.

Health Care Premiums and Costs

Whether your tax entity is an LLC, an S corp, or you file as a freelancer, you can deduct health care premiums. If you itemize your deductions (on Form 1040, Schedule A), you can deduct expenses you paid that year for medical and dental care for yourself, your spouse, and your dependents if your total medical expenses exceed 10% of your adjusted gross income. Yeah, more eye-bending reading.

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Read Up! Great Ideas about Financial Independence

I’ll be back with new posts later this week. In the meantime, read other people’s great posts!

A tweet in time saves nineteen thousand dollars: David of Raptitude writes about going on sabbatical. That’s the sweet side effect of saving money: you buy your freedom.

Google Voice: The $0 Phone Plan: you have choices to the standard (expensive) cell phone plans—Brandon gets you up to speed on Google Voice.

Affordable Healthcare Marketplace: this is the time to educate yourself about your new health insurance options beginning Jan 1, 2014. I’m one of the people who will be paying more—but only about $40 more. And, going forward, I know that I can continue to work for myself (or not work at all, if that’s what I want!), and still have access to health insurance. Yippee!

How I Live in a 400 Sq Ft House: you know from my blog that I love small homes. Everything about them is awesome: less upkeep and cleaning, fewer repairs, less need for furniture, lower taxes / mortgage / rent, less expense for utilities…I could go on and on. This blogger tells you her story.

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More Great Ideas about Financial Independence

We Are All Richer Than We Think: Writer David Geller quotes Henry Ford to make his point—”If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience, and ability.”

Thoughts on Financial and Personal Independence: J.D. Roth is back from Ecuador, with a great story to share.

The Mad Fientist is about to become FI! Emotions of Financial Independence.

I love my Seattle neighborhood. We’re about to start a tool library—a sustainable way to save resources and money.

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Taxes and Financial Independence


Pay attention to tax deductions and tax-advantaged investments, and you’re well on your way to financial independence. Depending on whether you’re an employee or self-employed, some of your choices will differ. I loved the 401k with matching $$ when I was an employee. But the SEP IRA is great for self-employed people, as is the ability to deduct any health insurance premiums I pay. Like we used to say in the early 2000’s: CHA CHING!

When I was still an employee, I was saving almost 50% of my post-tax income. I maxed out my 401K, did an HSA (to which my employee contributed $1,000), maxed out my Roth IRA, and also got a great tax deduction from my mortgage interest. Because of that, even though my income was in the low 6 figures, my tax rate was only about 12% in 2012.

There are a ton of deductions and tax-advantaged ways to save on your next bad-ass federal return. Here are the main ones you should think about:

Mortgage interest: I do NOT have the mortgage on my primary residence paid off, by design. There are a couple great reasons for this, one being the tax deduction for mortgage interest I pay. In most cases, you can deduct all of your home mortgage interest. You can also deduct the amount you paid for mortgage insurance premiums. Sweet! Read, read, read.

Traditional IRA: This is the original IRA. Its great benefit is that in the tax year for which you contribute to this, you don’t pay any federal tax on the amount you put aside. The drag is, when you begin to withdraw money from the IRA, you do pay tax on any withdrawals. It’s a wildcard as to what the tax rate will be at that point.

You can make contributions to a traditional IRA if you received taxable compensation during the year, and you were not age 70½ by the end of the year. If you’re aiming for financial independence, you need to know that you can’t include earnings and profits from property, such as rental income, or interest income and dividend income.

The contribution limits are, not surprisingly, complex and Kafkaesque, but generally, the limit in 2013 is $5,500. If you’re over 50, you can contribute $6,500, but hopefully you’ll be financially independent by then! Read up on the rules.

Roth IRA: With the Roth IRA, you pay taxes on any money you contribute, but when you take distributions during retirement, you get that money tax free. Nice! The contribution limits for this are the same as for a traditional IRA. Read up on the rules.

SEP IRA: A SEP IRA is a type of traditional IRA for self-employed people or small business owners. Any business owner with one or more employees, or anyone with freelance income, can open a SEP IRA. Your contributions are tax-deductible, and go into a traditional IRA. Like a traditional IRA, the money in a SEP IRA is not taxable until withdrawal.

One of the key advantages of a SEP IRA over a traditional or Roth IRA is the high contribution limit. For 2013, contributions to a SEP-IRA are the lesser of 25% of your income, or $51,000. Yup, you can read more about it.

401K: You can invest in a 401K only if you have an employer who sponsors the program. Although it really sucks, you cannot invest in a 401K if you’re self-employed. Tax-wise, this works like a traditional IRA. You can invest up to $17,500 in 2013. Many employers also do some amount of matching, which is great free money. Take it! I always contribute the max to a 401K when I’m working for a company. Read up!

HSA: To be an eligible for an HSA, you must be covered under a high deductible health plan (HDHP). For 2013, if you have self-only HDHP coverage, you can contribute up to $3,250. If you have family HDHP coverage you can contribute up to $6,450. The money you place in your HSA is not taxed. There are other health care related, tax advantaged programs, including MSAs, FSAs, and HRAs. And yes, the IRS tells you all about them.

Health insurance premiums and expenses: If you itemize your deductions on Form 1040, Schedule A, you can deduct the amount of your medical and dental expenses that exceed 10% of your adjusted gross income. And, if you’re self-employed, and have a net profit for the year, you can deduct (as an adjustment to income) the premiums you paid on a health insurance policy covering medical care including a qualified long-term care insurance policy covering medical care. You can’t take this deduction for any month in which you were eligible to participate in any subsidized health plan maintained by your employer, your former employer, your spouse’s employer, or your former spouse’s employer. I love any deductions for self-employed people! Read details here.

That’s the list! Needless to say, if you have dependents, or a home office, or have done energy-saving home updates, or many other things, you can get even more deductions. Call it a kick-back from our free-spending government. 


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So Many Good Ideas: Money, Financial Independence, and Sustainable Living

I continually find fantastic blog posts, articles, and videos that make me think about money, financial independence, and sustainable living. Instead of keeping these to myself, I’ll share them each Friday so you have some fun weekend reading.

Why 2.5 billion heartbeats might change the way you think about money:  We need to start hating debt again

Say Hello to J Money at Budgets Are Sexy has what I think is a great news web site—a continuous listing of articles, videos, whatever related to finance and money. Great design, great idea.

Brandon Curtis at rolls up some new investment ideas in his post Nontraditional Investments. Some good ideas here.

When did goods get so bad?: David at Raptitude is a pleasure to read, and right on in this post.

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Be a Smart Inventor, Not a Mindless Consumer


Becoming financially independent and living a sustainable lifestyle go hand-in-hand. Part of buying less, and consuming fewer products that are shoved in our faces hundreds of times a day, is being a creative inventor. Inventing solutions and items that work for you, instead of mindlessly consuming services and products. It’s the way we need to live today: using fewer resources and fossil fuels, and more ingenuity.

We each have the ability to creatively think through problems or needs, and possible ways of solving them. And we also have the capability of inventing many solutions. There’s no need for us to be spoonfed products—like the by now notorious Hutzler Banana Slicer—or services like professional veggie gardeners who come to your home to garden for you. We can figure out how to make things, and do things, and spin around the splendid wheel of DIY virtue. This decreases your reliance on expensive and wasteful stuff that you buy as a consumer. This increases your confidence, your smartypants brain, and your independence in a world where you’re expected to be mindless consumers.

If you’re wondering, and even if you’re not—the photo is of stakes I put in place for my apple tree. As it’s grown, it’s started leaning precariously, especially now that apples are weighing it down. A neighbor suggested I stake it, and told me where to buy stakes. I liked the suggestion, but not the idea of consuming yet another product to do so. So I watched some videos on YouTube, and set to work figuring out how to do it.

I have a small pile of 2 x 2s, from a bean pole system. I sawed one in half, and chopped an end of both of the parts into points that I could hammer into the ground. Then, using a couple heavy duty bungee cords, I pulled the tree onto the stakes. The bungee cords are left over from when I owned a car. Now the tree’s happy, and I’m happy.

I get that creating a stake for an apple tree isn’t even close to rocket science. But I love having been able to assemble the parts without having to be a mindless consumer. I was an inventor! I felt like a legit and authenticate citizen, instead of a consumer fanning the flames of “growth”—that being a sordid way of using up resources, which I hope one day soon we can call “old school growth”, and laugh and laugh at how silly we used to be.

There are tons of items or services I’ll never be able to create myself. For example, medical machinery, painkiller drugs (am a big fan of those), trains and tracks (love trains!), complex software (although with a bit of work, you should be able to do simple software for yourself), and the proverbial space rocket.

So I’ll keep appreciating the smart people who collaborate to create those things, while I move on gaining new skills and focusing on things I can invent with my own brain smarts and elbow grease.

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Many Things You Do Are Work, but Only Some of It Is Paid

This is my shortest post ever, but one I think is really important.

I’m currently gearing up to finish my sabbatical and go back to paid work (it’s a short-term technical writing project). You might do paid work. You might also do gardening, cleaning, volunteering, helping friends or neighbors, childcare…it’s all work. Don’t make the mistake of respecting only your paid work, or of neglecting the other types of work, which likely give you more pleasure or sense of purpose than your paid work.

Put paid work in the right perspective—the thing you do that brings money into your life, and that will lead to your financial independence—and leave enough room in your head and heart to do the purposeful, unpaid work that lends meaning or pleasure to your life.

During my time away from paid work, most friends / acquaintances were supportive and happy for me, but some have had judgments about it. If I say I’m too busy to meet up with them, they are confused, or even indignant, that I’d claim to by busy during my time away from paid work. Some people absolutely won’t accept that the unpaid work I do (landscaping projects, home projects, blogs, helping friends out) is a legitimate way to spend my time, given that I’m not even close to an “acceptable” retirement age.

Long story short: if you achieve early financial independence, and choose to stop doing paid work at that time, be prepared for the skewed judgments of people who are still chained to their paid jobs. Focus on your values, and the activities that are important to you, and drown out the noise of negative nellies.

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Use Low-Commission Real Estate Services


Where ever you live in the United States, you can find a realtor or real estate service that offers low-commission services when you buy or sell a home.

I sold my condo in March 2007 using a partially online service, Redfin. My part of the deal was to provide photos and description of my property. And, if I was interested in an open house, I had to plan and host the event (I didn’t, as history shows that open houses rarely lead to a sale). That’s it—that’s all I had to do. Redfin agents did all the showing, all the negotiating, all the paper work up to where the escrow company took over.

As the seller, I of course was responsible for paying all the agent fees, for both buyer and seller agents. The standard for this in Seattle is 6%. I still had to give 3% to the buyer’s agent. But, with Redfin as my seller’s agent, I gave them a flat $2,000. That saved me $9250 in seller’s agent fees. A ton!

They were very easy to work with, so when I was ready to buy a house in late 2010, I used them as well. When I bought my house, (about 400k), I got a refund from Redfin of several thousand dollars at signing with the escrow company. That was based on the 3% fee they received from the house seller.

They saved me THOUSANDS with both transactions, and did all the work I can’t do myself (contracts, offers, escrow stuff). I will never use mainstream agents again.

I just went to the Redfin site to remind myself how it worked, and it looks like they’ve changed the way they do fees. They now get a bit more, but it’s still worth it by thousands of dollars. The fee differs based on whether you buy or sell a place. I live in Seattle, where the traditional fee for selling is 6%. That is split half-and-half b/w the buyer and seller agent. The buyer agent still gets their half (3%), but Redfin only takes 1.5%. Their current fee info is at:

Caveat: Redfin is only active in a few large cities in the U.S. But do a quick Google search—you’ll find various low-rate agents in your neck of the woods. Make sure you read reviews before you engage them. I bet you’ll find an agent or company that does a great job for you, saves you a ton of money, and gets you that much closer to financial independence.

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