This is because, saving for savings' sake is about as motivating as dieting for dieting's sake (unless you really, really like celery sticks). You're a lot more motivated to lose 10 pounds when you know you're going to see your old boyfriend at your class reunion in two months. Deciding you want to have $2,000 on hand next Valentine's Day for a romantic trip is something that makes it worth the effort to find savings of $167 a month.
If that's your goal, then by the time you finish this week's part of the challenge, you'll ideally have cut another $84 from your monthly spending. But don't worry if you haven't -- each category is different, and one might yield just a couple bucks while another saves more than enough to offset the shortfall. In the end, you can find a way to make it all even out.
(If you missed any of the previous installments of The $1,000 Challenge on DailyFinance.com, feel free to check out the whole series so far.)
This time, let's talk about the costs of working. The whole point is to make money, but it turns out that holding a job is a pretty expensive proposition There's the cost of work clothes, commuting, lunch and parking, plus intangibles, such as the cost to your self- esteem when it's groveling time before the boss, and the cost to your sanity when your nearest coworker spends hours mumbling along to her downloads of ABBA's greatest hits.
But when I went to trim my work-related spending, most of those expenses didn't show up. Commuting costs were part of auto expenses, while lunch and clothing came out of my personal spending.
Nonetheless, you can find a lot of room to save here, if you're willing to make some effort, whether it's carpooling, packing your own lunch, getting creative with child care, finding a cheaper place to park or, heaven forfend, filling out federal tax forms.
My biggest work-related costs were several newspaper subscriptions (including one own employer, the Detroit News) and child care for my boy, Funny Money Jr. or, as I call him, Li'l Money ('cuz that's all he leaves us).
My mother didn't raise any kids dumb enough to become newspaper columnists who tell their readers what a great idea it is to save money by canceling their newspaper subscriptions, so any savings opportunity there was out. I ended up focusing on child care, which we needed for the three days a week that Mrs. Funny Money works, plus whatever day camps and summer programs we cobble together when school is out. But first let's talk about the whole idea of how much you really make at your current job.
Take the case of Mrs. Funny Money. Between the costs of her three days of commuting and two or three days of child care every week, it takes the first $11,000 of her salary for us to break even on her work-related expenses. If she were to get a $20,000 salary, that's only $9,000 gross, or $525 a month after taxes. It's a good exercise to ask whether she couldn't net $9,000 closer to or even working from home, which would lower the cost of working, make one of the cars last longer, lower our taxable income (and possibly our tax rate), and still leave us with the same net amount of cash every month.
The fastest way to savings on child care is another very valuable tax dodge: the dependent care credit. This allows you to claim a credit of 20 to 35 percent of expenses up to $3,000 for one kid who is thirteen or younger, $6,000 for two or more, as long as that care is necessary for you to work (or you and your spouse, if you file jointly).
You also can deduct payments for summer day camp (but not sleep-away camp) if you send the kids there so you can go to work. And, obviously, you and your spouse need to have earned income since the whole point of the credit is to allow parents to go to work.
There's just one little catch: To claim this credit you are going to need to name names (and taxpayer IDs) of all your child care providers, so if you have a private sitter or nanny, you'll be outing anyone who gets paid off the books. This also means outing yourself: If you pay more than $1,800 a year to most caregivers, you qualify as a household employer and need to pay Social Security and Medicare taxes of 7.65 percent, while your sitter faces a 5.65 percent tax. If you pay more than $1,000 in any quarter, you also need to pay a 0.6 percent unemployment tax, plus any state taxes.
Last year, I calculated that if you paid a sitter wages of $2,300, and your marginal federal tax rate was 25 percent, a dependent care tax credit would have saved you $269, even if you give your sitter a raise to cover the tax. Adjust your tax withholding and you can redirect that $22.43 a month toward retirement savings, debt reduction, or other financial goals. Plus, you'll have the nice warm feeling that comes from doing your patriotic tax duty while also spending quality time with IRS Forms W-2, W-3, 2441, Schedule H, and either Form 944 or 943.
Less hassle is a dependent care savings account. This operates much like the health care flexible spending account, a benefit from your employer, included in most decent benefit plans, that allows you to shelter up to $5,000 from taxes per family (or $2,500 if you're married filing separately). The money is deducted from your regular paycheck and you file claims to get reimbursed tax-free. As with the dependent care tax credit, you have to identify your care providers, which can mean paying nanny taxes.
In many cases the spending account will be a better deal than the tax credit, especially if you have a higher income and pay more than the $3,000 (or $6,000) expense cap for child care during the year. You can't claim the same expenses for the tax credit if you've paid them under a dependent care spending account, but you can use a double-play strategy. If you pay $7,000 in child care expenses each year, shelter $5,000 in the spending account, then claim the tax credit against the remaining $2,000.
You can find a very cool interactive, printable worksheet from the FSAFEDS program of the U.S. Office of Personnel Management that calculates how you'll do with either a dependent care savings account or tax credit at fsafeds.com.
For child care, shop around for providers who may offer a scholarship or fees on a sliding scale for families who've taken a hit to their income. Most state social service departments and early childhood foundations offer subsidies to low-income parents, too. Also check with your company; larger firms may negotiate a discount with a recommended day-care facility nearby as an employee benefit. If your company doesn't, maybe now is the time to gather up some signatures from other working parents and petition the benefits department to add discount day care.
Another option that might be cheaper with preschool kids is to find out if your school system offers half-day prekindergarten for 4-year-olds. Even if it's not free, it can be cheaper than day care.
Military families, including active and deployed members of the National Guard and reserves, should check with Operation Military Child Care about child care subsidies. Contact Child Care Aware at (800) 424-2246(800) 424-2246 or at childcareaware.org. Churches, youth organizations, and community centers also offer child care and after-school programs that may give you more affordable options. Don't forget to check with your local colleges, which often run very nice day-care options for their own staff and offer unused slots to the public, for a charge. Or you may be able to look for qualified sitters among student teachers or those studying child development.
As a freelancer, I put together a combination of help from my father-in-law, Grandpa Verne, a few hours each afternoon at local daycare and, on days when the boy was sick or needed extra attention, I'd make it up by working after the boy was in bed. The hassle factor was higher, but so was my income, and, more importantly, I got to spend time caring for my son instead of stuck in traffic on the turnpike.
Once I was back at work, the child care answer was simple: Dad.
Since I'm a reporter, there's some leeway in my schedule, but too often I let work slip into the evening when it isn't strictly necessary. Starting work earlier or taking work home shaved an hour or more off each day's babysitting tab. That saved some real money over the course of a month, and I get to escape from any co-workers still tunelessly humming along to "Dancing Queen."
Some planning and hustle to get home so that the sitters put in only eight hours a week reduced our child care costs by $30 a week. On average, I managed to make it happen three weeks a month, saving $90 a month. It's not quite the $100 I was aiming for, but with the extra savings I'd piled up in the previous weeks, I still brought my five-week total to $518.39, beating the $100-per-week goal for the project.
Of course, keeping the babysitter's hours low will mean rearranging my schedule and taking work home, but, as someone once sang, "I work all night, I work all day, to pay the bills I have to pay."
Sadly, it was ABBA.
Here's the running total for the whole series so far:
- Week 1 - Miscellaneous Spending: $132.89
- Week 2 - Utilities and Phones: $139.39
- Week 3 - Transportation Costs: $41.61
- Week 4 - Kid Costs: $114.50
- Week 5 - Work Costs: $90
- Total Monthly Savings: $518.39
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