The $1,000 Challenge, Part 5: Trimming the Hidden Costs of Work

Father putting tie on son at desk
We're at the midpoint of The $1,000 Challenge, so let's take stock. If you followed the advice from the overview in the first week, you've set a financial goal, given yourself a deadline, and figured out how much money you need to save each month to pay for it.

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, 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

%VIRTUAL-article-sponsoredlinks%Other ways to save on child care include forming a daycare cooperative with friends and neighbors, where several families hire one nanny or sitter to look after a small group of children. The care provider can get a good rate but each individual pays less, or can contribute time, materials, or space for the project. You'll need to set up everything in writing, appoint one parent (not the whole gang) to negotiate with and supervise the care provider, and set rules about how much notice any parent must give before pulling out of the co-op to keep one or two members from suddenly getting stuck bearing the entire cost.

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 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
Read them in any order you want -- just get in there and start saving! Check out the series introduction to get the big picture on finding big savings in your family budget. You can check here on, follow me on Twitter, or go like The $1,000 Challenge Facebook page to get a heads up whenever a new installment comes online.Or better still -- don't buy the book. WIN it free. DailyFinance is giving away 10 copies over the next six weeks, and all you need to do to toss your name in the virtual hat is follow @daily_finance on Twitter and re-tweet one of our $1000 Challenge Giveaway Tweets. To find our tweets easily, search for #dailyfinancegiveaways.

11 Money Excuses to Stop Making in 2014
See Gallery
The $1,000 Challenge, Part 5: Trimming the Hidden Costs of Work

Nearly one in four people say they don't have money to contribute to retirement after all the bills are paid. It might feel that way sometimes, but if we can find the $50 to go out to dinner every Tuesday night, we can find $200 a month to put in a retirement account. Make this happen, even if you have to do it one dollar at a time over the course of the month.

And if you think putting away $50 a week won't make a difference, consider this: Contribute just $200 a month for thirty years, and if your money grows on average 8% a year, your total contributions of $72,000 will grow to almost $300,000 if put away for 30 years. When you think about it that way, skipping that regular Tuesday dinner doesn't seem so bad, does it?

This is one of the most seductive retirement lies. For a good long while, it is true that retirement is a ways off. (Even if you're 55, it's still at least ten years away.) But the longer you put off saving for retirement, the less interest you'll earn and the more difficult it will be for you to save.

An example: Alex and Jordan both put just over $90,000 in their retirement accounts over the years, but Alex began saving ($2,000 per year) at age 22, while Jordan began saving (about $3,500 per year) 20 years later at age 42. Even though they both put in the same total amount, Alex will have over twice as much money at retirement as Jordan will when they reach age sixty-seven (assumes a 6% annual rate of return). That's because her money had more time to grow, so it was able to make more off of itself than Jordan's.*

Seriously, you have two people who put the same dollar amount into their retirement funds. The one who started twenty years later contributed the same amount, but ended up with less than half as much.

As someone who cares about making my money work for me, this speaks volumes. It turns out that one of the smartest things you can do is simply to get time on your side. This is how you shortcut the hard work-by taking advantage of the power of compounding interest and the fact that you will only have an increasing number of financial obligations pulling at your purse strings as the years go by. So, this is not something you can keep putting off. This is something to tackle today. The time is now.

* Note: This is illustrative and is not reflective of guaranteed profits over time. Actual results may fluctuate based on market conditions.

I bet all the married people reading this are having a good laugh right now. Marriage does not automatically make your financial life easier. The effect of marriage on your finances depends on a host of factors: Do you both work? Do you both make enough to support yourselves? If one or both of you got laid off, could you still afford your rent or mortgage? Are you honest with each other about your spending? Do you agree on your financial goals? Will you have children? If so, do you make enough that one of you can stay home with them? Bottom line: This is an outrageous excuse, and now I am drinking wine.
I hear you. But saving for retirement versus enjoying life now is not an either/or proposition. You can do both. Also, let me put it this way: Yes, you deserve to enjoy

your money now, but you also deserve not to count pennies when you're old.

This is a case of counting chickens before they hatch. You never know what could happen to the inheritance (it could be devoured by medical bills, it could dwindle away in a financial crisis, or you may need it to pay off debts or taxes of the estate). Sure, it would be nice to inherit a windfall and be able to put it toward your retirement, but counting on doing so is not a plan-it's a gamble at best. It's far safer to plan to fund your own retirement and then enjoy your inheritance as a bonus if you do indeed receive one.
Yes, the market is unreliable from year to year, and yes, the value of your investments will dip in a down market. But downswings don't last forever, and historically, over long periods of time, the market has shown solid returns. While past performance doesn't reveal future returns, the S&P 500, for example, has averaged 9.28% annual returns over the last 25 years.

Alternatively, let's say you leave your money under your mattress or even in a savings account bearing 1% interest: You're going to lose the purchasing power of those dollars due to inflation (which is estimated at 3%). Yes, with the market, you're opening yourself up to some risk -- but with risk comes reward.

No one can predict the market. No one. So while it's true that you cannot time your investments perfectly so that they only ever go up, history has shown that if you invest regularly over decades, your investments should experience more ups than downs. So invest for the long haul, and don't fret over minor dips now. If you do, you'll be missing out on an opportunity to amass money later.
Sure, selling your home will free up lots of cash ... but then where will you live? And what if the market is down when you want to sell that home? Remember the housing crisis a few years ago? The one where tens of thousands of near retirees were left without nest eggs after the values of their homes plummeted? This is not your smartest game plan.
Yes, college is a big expense, and you should definitely save for it-that is, once your own retirement needs are taken care of. If you're a parent, it's a natural instinct to put your children's futures before your own. But think about it this way: If you don't save the full amount for your children's college education, you can always fall back on financial aid, grants, scholarships and student loans to help pay your children's way. When it comes to your retirement, however, there are no loans. Let me repeat: There are no loans. All you'll have to live on is what you've saved. For that reason, saving for retirement should be your top financial priority-always. I get that you don't want to saddle your kids or future kids with loans- what parent would?

But remember that if you pay for your children's college and then cannot afford your retirement, you will end up burdening your children all the same. They will feel obligated to help you out-at a time when their own families need them financially.

You may love your work, and it may be the kind of work you can even imagine yourself doing well into your seventies or eighties. But while that's easy to say now, what if you can't find work at that point in your life, or what if you have health problems or family obligations that prevent you from working? While there is nothing wrong with hoping for a best-case scenario, it isn't wise to plan around one. Sock away some money now so you're ready for whatever may come your way. The last thing I ever want you to deal with is a health issue and money concerns at the same time.

Reprinted from the book "Financially Fearless: The LearnVest Program for Taking Control of Your Money" by Alexa von Tobel, CFP®. Copyright 2013 by Alexa von Tobel. Published by Crown Business, an imprint of the Crown Publishing Group, a division of Random House LLC, a Penguin Random House Company.

Read Full Story