Time Magazine reports that private school can save you money by giving you home location flexibility. This in turn can save you $50,000. They are right! Our house is in a ok but not great school district. It is smaller so there are less repairs and utilities.
Less Pressure To Spend
More importantly keeping up with the Jones is a lot different in our neighborhood. Folks are lot more down to earth. Literally. Hiring a lawn service is considered either 1) a mark of shame or 2) you must be ill.
Folks who move here and hire a lawn service invariable shift to mowing it themselves. Small yard and you can’t help how easy it is to do. Plus the entire street is a tool sharing enterprise. Having two auto mechanics on the block helps for expert advice too but we rarely need it. The point being that a lower cost neighborhood is lower cost on many levels and with more down-home kind of folks we prefer.
Use the economic concept of mispricing. to reduce your costs and free up more money for tuition.
Mispricing occurs where sellers out number interested buyers for a particular item and where the item is able to be repriced lower based on that demand imbalance.
The example usually comes up in relation to financial assets such as stocks, bonds, real estate and so on but applies to consumables as well.
An Example: Mispricing in the stock market
Charlie Munger executed this perfectly in the 2009 financial panic as described in an article in Bloomberg News.
“By diving into stocks amid the market panic of 2009, Munger reaped millions in paper profits for Daily Journal. The investment gains, applauded by Buffett at Berkshire Hathaway’s annual meeting in May, have helped triple Daily Journal’s own share price. While Munger’s specific picks remain a mystery, a bet on Wells Fargo probably fueled the gains, according to shareholders who have heard Munger, 89, discuss the investments at the company’s annual meetings. “Here’s a guy who’s in his mid-80s at the time, sitting around with cash at the Daily Journal for a decade, and all of a sudden hits the bottom perfect,” says Steve Check, an investment manager based in Costa Mesa, Calif., who has attended the publisher’s meetings since 2004.
The stock market profits were first disclosed in a May 2009 Daily Journal regulatory filing under the heading, “Liquidity and Capital Resources.” The section outlined how the publisher was sitting on about $9 million in gains after spending $15.5 million buying common shares over six months through March 31 of that year. The results kept getting better. By the end of September 2009, they had appreciated to almost $48 million.
So we went with a popular vehicle at the time, a Toyota 4runner. These were popular and expensive and we used the only mispricing technique we knew about at the time which was flexibility. We purchased a new 4Runner from the left over trucks from the previous model year. The $45,000 vehicle only cost us $40,000. We didn’t get the color or exact features we wanted but we saved $5000. Woot! And that popularity was not unfounded. We had the car 14 years and it is still on the road today.
Product is Currently Unpopular
For the next vehicle we got a little better at finding mispricing. The SUV boom was well under way and hatchbacks were unpopular and considered no longer cool. When we actually looked at the features they delivered enough mass and safety features to be safe, better gas mileage and all the functions of a full size SUV (that we needed). They were simply unpopular compared to the monster truck models of the day.
We combined the unpopular feature with the late model technique and got a Subaru Forester for $20,000. This was half the cost of the previous car purchase. Woot! $20,000 saved! These cars have since become popular again as more and more folks figured out the many benefits of these mid sized sport utility vehicles so mispricing affect is largely gone (on this model). We were in style again, at least for a while.
Cash, Analysis and Patience
For our most recent purchase we added analysis and patience to the mix and to further benefit from mispricing. Many cars are rated by reliability. And they if aren’t rated top tier for reliability they really suffer in the used car market. People don’t want to own something that wasn’t best for reliability when purchasing something used. But when you do the analysis a middle tier rated car is actually more reliable than cars of the past.
We saved $30,000
We combined flexibility, our reliability analysis and the unpopular status of middle tier to watch, wait for and eventually obtain a used Volvo wagon for $12,000 dollars with very low miles. Woot! $30,000 saved! The battle wagon doesn’t have a lot of advertisments
The market (us buyers and sellers) occasionally misprices goods and servies and assigns artificially high prices to the best and artificially low prices to the runner ups. You can discover and use this mispricing if you conduct the analysis, are flexible, patient and willing to select something currently unpopular (not easy as it sounds) that meets your particular needs. Just do your homework to make sure it is actually mispriced and not low cost for a reason you care about.
What about you? Have you benefited from temporary mispricing conditions?
When paying for tuition for years on end I found that be willing to wait can be an ally.
We are going camping soon and usually it’s a school thing (includes tents). But this outing is a separate tent and we needed some gear.
Reviews of the low end tents revealed they are ok unless it gets windy or rainy. A wet tent would not be good for little (or big) people so we wanted to upgrade. Car camping tents can become really expensive quickly. And each night not in a hotel sort of pays for itself.
What we wanted it the glorious 6 persons REI Base camp tent. Ventilated awesomeness. With a footprint and tax it comes in a very reasonable $500. However, we aren’t reasonable. We are paying for private school. So I kept an eye out for a week, and then weeks, and then months. Prices would vary but even on Ebay the used ones were going $300+ something. They must be great tents. We spent weeks looking for one to rent from numerous places (check out lowegear.com if you camp).
Didn’t work out. We really wanted that one. But we have since learned it can be productive to be ok with second place. REI (who we like to support because of their fantastic educational programs and supporting community and the natural environment) had a two week only sale in the spring – 25% off on goods upon check out.
They only had one tent for sale with that would comfortably fit us – a Big Agnes. The reputable brand had a model with good, but somewhat mixed reviews. It was presumably on the way out for improved models so it was 25% off. After further reading I realized it wasn’t selling because bad reviews were being posted about that actually referenced a previous model. So this was an excellent tent and more than we needed for basic car camping and was small enough to serve for other trips as well.
Curious, I put the tent in the basket and saw and additional 25% off. This sucker, new, we being dumped because of mistaken reviews (or REI needed to clear inventory, or both).
It was cheaper to buy this tent new than rent the exact same model. By being patient, and flexible we were able to get an excellent tent for a price that didn’t bust our budget.
Not a camper? It is low cost adventure option. The long weekend we have planned would have been $600 in hotel costs alone – it is much less money to camp for this particular outing.
One advantage of sending your child to private school is that much of your income goes along with them. As a result it limits the other available choices because you have much less discretionary income.
Fretting over a grand tour of Europe? Fret no more! You aren’t going!
This extreme financial constraints limit your choices and the resulting simplification actually leads to longer term happiness. It is known as the paradox of choice.
Have you always wanted to simplify your life? Now you can! And what better way than the assurance of a monthly tuition bill. To be clear this isn’t about poverty – this is about voluntary simplicity. It is an interesting side effect we have noticed over years of sending the kiddo to a private school.
Read more about it in this outstanding book The Paradox of Choice (you are going to have a lot of time on your hands).
Oh, and for the trip? Easy, you are either staying home or going camping. Pick one.
There is a very subtle multiplier effect which is essentially a tax free income booster that can help you pay for a private school tuition. Here is how it works.
In November my wife was looking for a tree to plant on our very (very) small yard as a screen for a nearby street. The tree had to be fairly small given the constraints of said small yard.
She happened upon one that was ascetically pleasing with a maximum height and width of 30 feet by 30 feet. Measured from the location of where we would place it with a yard stick (it’s a small yard) at full size the tree will expand 15 feet each way. Perfect!
Method Tip 1: Avoid having to earn as much income on the purchase by purchasing a lower cost item.
The ten foot tall tree, while ideal in form and habit, was half bereft of leaves with a bit of a Charlie Brown Christmas Tree look going on. The tree was originally $120 but was marked down to $30. A sale!
Enter step one of the multiplier effect. She saved $90 dollars on the original purchase.
That saved amount removed the need to earn that extra $90. Let’s assume a 40% cumulative, federal, state, sales taxes and mystery fees on the income. That extra $90 would have cost $126 in earned income to cover. Whew!
To restate- that is $126 in earnings we didn’t have to make to actually end up with the $90 extra we would have needed for the full price of the tree.
Method Tip 2: When making a purchase, have it solve multiple problems at once.
My mother told me that her grandmother had a purpose for every plant around the farmhouse, in addition to looking nice.
In our case we were looking for a small tree that provides a summer screen from the nearby street but still looks good and drops leaves in the winter for additional sunlight in the colder months. This works for both screening and sound attenuation in the winter as it is quite dense with branches.
What else could it do for us?
In our case the tree selected is a Granny Smith apple tree! It should produce about $20 bucks of
organic apples every year (ok, more like $50 but I want to be conservative here to make a point).
What about having to pick the extra apples that we won’t eat, giving bags of them to neighbors, family, coworkers and the local food pantry and then still having to pick busted ones off the ground? What a hassle right? Sure, but we have arranged our lives such that we get regular physical activity with this sort of money saving effort all year long. Annual gym memberships were cancelled long ago but we will only count the month of apple picking and leaf raking mayhem here for another $50 saved.
And for the grand finale, our nearby park has crab apple trees. These can be used to cross pollinate Granny Smith apple trees (they self-pollinate but word in the fields is that a nearby pollinator will help with yields). That is a second $30 tree we didn’t have to buy (nor had space for) because we selected a compatible tree for our neighborhood.
Total economic impact
The first year we saved $90 on the tree and $30 on a second tree we didn’t need to purchase. The tree (fairly big already) should produce apples about three years hence and provide the shade to assist with house cooling.
Lets look at the numbers using the Granny Smith multiplier method.
Year 1: $120 saved
Year 3 on: $50 saved on gym membership, $20 on apple costs and $5 on AC costs for an annual savings of $75.
Ten year economic output: $645
And remember this is all tax free after the initial $30 we spent. That is a money tree that offers $60+ annually in savings, builds community as we gift organic apples, screens the street and provides a beautiful tree to look at. Plus it is pretty cool to have an apple tree.
Let’s assume my conservative numbers are *still* too high and it only saves us half that, or $30 a month.
Fine. An investment with a yield will take a hit of 15% on the income so I would need $34.5 in monthly income ($414 annually) to produce that same value.
A typical safe stocks yield 3%. We would need a stock portfolio with a market value of $13,800 to produce that same income. And to purchase that stock we would have had to earn $20,010 in gross income to purchase that investment.
Oh, and the yield on the Granny Smith Apple Tree is $30 a year or 100% of its original purchase price, annually.
We just trounced the stock market and avoided having to earn an additional $20,000. Thanks Granny Smith!
Don’t overdo it
The multi-purpose mindset does have its limits. Spending an extra $10,000 on a fancy pick-em-up-truck because you might need to haul a jumbo pack of toilet paper someday is just a slow way to lose money. Just think about it first and run the numbers is all I am saying.
Get into the multi-purpose mindset. You can do this.
Breaking news in our house – the 25 year old leaking bathroom faucet has been replaced!
I know, huge!
Why is this breaking news? I am glad you asked! The news is that we saved money in two places – the $5 on the Amazon Prime movie rental we were going to watch instead of fixing the sink as well as on the labor to install the replacement faucet.
To get this double benefit we followed the instructions (repeatedly) and after extreme highs (it works!) and equally bad lows (nope, the new connections leak) we got stuff disconnected and the new stuff reconnected. There are only three connection points – hot water, cold water and the drain but I assure you for a novice like me it was a slow and laborious process. Let talk benefits in order to convince you to consider in sourcing before hiring someone.
First, we changed from passive consumers to active producers (and I use that term loosely). From observers to doers. This mind shift is more important that the actual money saved.
Though we did save a chunk of change. According to HomeWyse.com, this would have normally cost us $331 in labor for an expert. And to earn that we would have had to earn $479 in income to pay for it (not to mention asking someone to work a holiday weekend).
$300 bucks might not seem like a lot but ten of these $300 do-it-yourself gigs adds up to $3000. Combined with other habits this can help out with the tuition bills.
Of course safety is paramount and we double and triple checked to make sure the circuit breaker was off and that the dishwasher was off before we did anything else. Start small with something simple that you are comfortable with but would normally hire out to someone else.
This weekend we had quite the coup on the financial front. In short, we saved $3000 in a single weekend. The largest portion of these savings is very counter intuitive. Specifically, it is something we *didn’t* do that resulted in the savings.
Our sidewalk has sunk down into the ground quite a bit and we need it back here on earth. To do this we were considering hiring a contractor to repair and replace our entire front sidewalk.
We diligently obtained lots of quotes – some as high as $8000 and one contractor quoted us is a good deal at $2000. And the contractor seems excellent. And the firm is made up of U.S. military service veterans. So, heroes.
And then we paused.
We are all correctly hardwired to an action for bias. But to pay for school means to prioritize spending in a most singular way. And that often means *not* taking action. After some thought we decided to pass. $2000 saved immediately. There are lots of other much lower cost options available to us. The alternatives aren’t as quick, or as fancy looking, as a new slate sidewalk. But a $40 slate patch serves a more important purpose.
It is not the 2 for 1 deals, coupons or thrift stores that get it done. Those are indeed effective tools – but only after not spending is considered as the first choice.
The saving super power of not doing anything is often forgotten. It goes against our bias towards action.
And it is sacrifice. That is what is required to pay the tuition for someone else. Embrace it. The lower cost solution still meets the need and makes room for something more valuable. It also has the benefit of keeping us from getting a little too proud or having the neighbors get envious of a brand new slate sidewalk. Instead they will see a nice and neat, but uninspiring, repair job.
So that is the first $2000.
The remaining $1000 was saved on a train trip using an Amtrak rewards card. We had enough points to take a required family trip for free. Score! This is what most of us will get excited about. Goods and services for free! Points! Free travel!
I want to reiterate that this isn’t where the magic happens. It happens on the cracked and aged (but still serviceable) sidewalk staying that way. Boring, simple and requiring no action. Embrace the self-restraint and acknowledge that it is difficult to do. The children aren’t the only ones who get an education from a private school.
$3000 saved in 2 days, most of it through pausing and then… doing nothing.
Are you sure you can’t afford to pay for private school?
Expect complaints. And comparisons to what other kids received. Be ok with that. Instead, you are giving your kids a great education and the tools, later in life, to buy stacks of material goods if they so choose.
Earlier this week our Volvo’s “check engine light” came on. I grabbed my handy dandy OBDI reader and plugged it in to the White Whale’s (That is what we respectfully call it) OBDI reader slot. This is really easy to d and at a dealer this work costs $160. I know because I paid for that service once.
Two second later I saw the offending error message – a cylinder misfire. Knowledgeable people on the internet had noted this might affect gas mileage but was not an immediate safety issue.
We purchased the car used but it came with an extended warranty and this is beyond my (current) rudimentary car maintenance skills so we took it in thinking this might be a warranty item.
The shop dutifully noted that it was likely because we hadn’t had the 75,000 service and since that needed to be done anyway why not go ahead and perform the work.
That item – the 75,000 service – rang a bell. I quickly bounded up the stairs and checked my records. We keep a file for each call and just add the work to the running list as it is performed. And sure enough – there it was – $990 for the 75,000 mileage service a mere 12 weeks ago. We didn’t do it at this particular place so they didn’t have it in their records.
This wasn’t malicious intent on their part and was a good guess as to what might have been the cause. More likely one of the brand new spark plugs wasn’t seated properly, or faulty which is a much smaller repair. Indeed, the problem was a cable that wasn’t plugged in properly. The technician reconnected the cable and the problem was solved.
A $990 expense saved – all from a line in a word file on a ten year old computer. Keep your own records for big things like car expenses. Saving $1000 here and there can fund a tuition.
Little costs add up. Avoid them and you can redirect those funds toward tuition payments.
For example, a few years ago during a conversation someone mentioned they had a down blanket and thus kept their heat a bit lower in the winter.
Inspired, we researched, explored and then purchased three down blankets. This has a notable upfront costs. Synthetic down is lower cost and, importantly for kids, won’t make your nose itchy or cause an asthma attack.
This fluffy stuff – available in blankets and jackets is a magical no-power-required space heater that follows you around.
We lowered our heat from 72 degrees at night to 62 degrees with no loss in comfort. Saving 3% on our bill for every degree we lower our heat means we dropped our bill by about thirty percent. And this applies for every month of the winter. Every year. On a $200 heating bill (it’s cold where we live) that is $60 bucks each month that can be sent to the school to pay for tuition. Just with a few blankets. Passive power.
That might not seem like a lot. Learn to respect small amounts of money. When we were first scrambling to find ways to cut expenses we did research to cover the cost of private school we made a list and started going through the items one at a time for months. $60 a month isn’t a lot of money. But twenty $60 items is $1200 a month. You can do this.