The Money Mustache Community
Around the Internet => Mustachianism Around the Web => Topic started by: ALDI on September 12, 2013, 09:21:31 AM
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Hello! I must admit, I am puzzled - I searched the blog and the forum and did not find anything on this! Maybe it is because I am German and things are different elsewhere.
After weeding out all unnecessary monthly cost (weeding out must be PRIORITY ONE) you can switch the remaining monthly expenses with fixed amounts to annual payment method WITH AN DISCOUNT OF UP TO 5%!!!!!
I did it with almost every supplier/service, e.g. insurance (car, health).
Usually these companies are more than willing to do this as this reduces their admin cost by lowering the number of client payments they need to track and gives them a liquidity advantage.
Especially in this low interest rate environment, this should make sense as it is hard to find similar low risk investments.
Possible traps of this idea: 1) supplier credit risk 2) your cash balance will more volatile 3) you are stuck for a longer period of time if you find a better deal and want to switch to another supplier/service
What do you think? Additional traps I forgot about? Different views from different countries? curious to hear.....
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You could be investing that money and getting the ROI instead of them, so figure out what your ROI would be on a monthly pay account vs. the return on the after-lump pay account. I did a quick check in excel and it seemed like the up front would be worth it for my assumptions. Cash flow would be the only real negative I could think of, even in a lump sum (in the US at least) there are ways to term a policy mid-stream and get a refund unless the policy expressly states otherwise.
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I've definitely done this with insurance - although the discount is for paying in full every 6 months, as that is how often policy renewal occurs. I also found that there was a discount for paying a year in full at my gym (although gyms may not be very mustachian, I swim for exercise, for various reasons) rather than monthly. I haven't tried this with my internet provider, although I suppose it is worth a shot - anyone know whether comcast offers a discount for a yearly pay schedule? My phone is pay as you go, so that's out, and utilities such as electric and gas are also usage-based, so I'm not sure if you can do this. I'd also be interested in hearing other examples where you can get a discount this way.
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You can't really do that here-- I've never seen the option (sometimes in car insurance but many companies have only 6mo terms).
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@jba302: thanks for your thought on roi. I spared myself a detailed calculation as the best short term deposit rate you can get here is 1.5 % annually with rabodirect.
@jrhampt: Funny enough, I wanted to switch to annual payment for 3% discount with my cable tv company (unmustachian by definition, I know). They called me back to say that my €9.95 monthly rate was not valid anymore after an increase to 19.95 some years ago and they forgot to adjust my contract. The guy on the line asked me if I would still like to have a 3% discount on 19.95*12 or if I would prefer to completly cancel my request, going back to the good old 9.95 rate and everybody pretends that nothing happens. I could not believe it, of course I said "request? which request?"
Internet providers in general/Comcast in particular - did not check yet, my Internet comes through the tv cable
Gym or swim - I am with you just counted the tiles during my morning swim - of course in a public pool, no private pools for mustachians!
But be cautious with gyms, some of the chains (e.g. fitness first here in Germany and in other countries in Europe) are heavily leveraged and always on the brink of insolvency. If someone thinks he needs a gym, better pay monthly in case of doubt.
Utilities: my local public provider did not accept to switch to annual payment method. Some private electricity providers do, the actively entice clients to pay up front for a year. But we had scams and insolvencies of these providers here in Germany (teldafax) so it can be risky.
@dragoncar: thanks for you comment=> different customs in different countries, also true for payment frequency
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We save something like 5% by paying insurance annually (house) or semi annually (car). Easy guaranteed return that is about 4.75% higher than my money market account currently pays. Mustachian fo sho.
I haven't found a similar deal with any other service providers, other than prepaid cell phones where you can buy a year of service cheaper than monthly (t-mobile and tracfone come to mind).
One tip for those who are aggressively paying down their mortgages: you may be able to cancel your escrow account once you pay the balance down to 70-60-50% (depending on company), then you get to manage your own money to pay your annual insurance and property tax bill. You get the "float" off your own money instead of your friendly lender.
And if you were silly enough to have PMI (private mortgage insurance), it can frequently be cancelled if you have a 78-80% loan to value. Sometimes lenders require a re-appraisal to verify current value, particularly in markets with high volatility.