saving money – telecommuterguide

One of the benefits of working from home is the amount of money you can save. You might be wondering just how much money will stay in your pocket when you telecommute. You can expect to save between $2,000 and $12,000 per year when telecommuting. The average person will save $7,000 per year when working from home instead of commuting. People who pay for childcare, or move elsewhere, can save even more - possibly an extra $5,000! To learn more about the ways you can save, read on! Transportation Savings If you normally drive yourself to work, you can save on gasoline, insurance, tolls, parking, and repairs/depreciation. If you take public transportation, you can save on train or bus fare. Gasoline Assume that you drive 30 miles a day for work, Monday through Friday. That is 150 miles per work week - about 7500 miles per year. If your car gets 30 miles per gallon, that comes out to 250 gallons of gasoline. At a cost of $2.80 per gallon, you would save $700 per year by working from home. That is the savings on gasoline alone! To find the number for situation, figure out how many miles you drive per day. Then, multiply by $700. Then, divide by 30. Example Let's say you drive 25 miles per day for work, instead of 30. First, multiply $700 by 25 to get $17,500. Then, divide $17,500 by 30 to get $583.33 per year in gasoline savings. Insurance If you stop commuting, you will drive 7,500 fewer miles per year (see calculations above). This just might qualify you for a low-mileage discount on your auto insurance! Cutting down your mileage by 7,500 miles per year could qualify you for a discount of 5%, 10%, or more. Call your insurance company and ask! They won't know that you are telecommuting, and thus driving less, until you tell them! Assume you are paying $1,200 per year for auto insurance and get a 10% discount for low mileage. In that case, you stand to save $120 per year on auto insurance. Tolls Assume you commute 5 days a week, 50 weeks a year. That means you go through 500 tolls that you have to pay. At $1 each, you would save $500 per year by telecommuting. Double that if you go through two tolls per day. You could save even more if the tolls in your city are super-expensive. For example, some tolls in New York are $15.00! Parking In a city like Boston, you could pay $20 or more per day for parking. That comes out to $100 per week, or $5,000 per year. Even if you share rides every other day, you still end up paying $2,500 per year. All of that comes out to a lot of savings when you work remotely! Repairs and Depreciation The IRS deduction for business mileage was 53.5 cents per miles in 2017. Let's assume that you only see 20 cents of depreciation per mile driven. If you drive 7,500 miles per year, then you will see $1,500 worth of depreciation in a single year. That doesn't count any repairs or replacements, such as batteries, tires, or brakes. These items need more frequent attention when you drive more miles. Also, think about the time you need to spend while waiting for the dealership to service and repair your car. Train or Bus Fare Using public transportation will save you money compared to the alternative of driving yourself. However, if you telecommute instead, you can completely skip the train or bus fare. Skipping the subway can save you upwards of $1,000 per year in cities like Boston. Bonus Benefit - Help the Environment, and Commuters When you telecommute, there is one less car on the road. That means you are not causing pollution with your vehicle. If enough people telecommute, the number of cars on the road during rush hour will decrease dramatically. This will reduce traffic jams and road rage. The result is a much shorter and more pleasant commute for those who cannot work remotely. If everyone has a shorter commute, then this further decreases pollution. In addition, we will see reduced costs for gasoline and insurance. This money can be spent on other things, which will benefit the economy as a whole. Food Savings Assume that during the workweek, you eat one meal a day on the go. If even if it only costs $10, you could have had a great meal at home for $3. So, each time you dine out costs you an extra $7. This comes out to $35 per week, or $1,750 per year. (Assume two weeks' vacation - hopefully more!) To find the number for your situation, determine how many times you dine out per week. Then, multiply by $1,750. Then, divide by 5. Example Let's say you eat on the go 6 times per week, instead of 5. First, multiply $1,750 by 6 to get $10,500. Then, divide by 5 to get $2,100 per year in food savings. In addition to the cost savings on food, you will also be able to eat healthier food. Cooking for yourself lets you control the salt, sugar, and fat in your food. This can help to keep you healthy and save you on health insurance costs, such as doctor's visits and medication. Childcare Savings As any parent knows, childcare costs are going through the roof. In the Boston area, childcare can cost between $10,000 and $20,000 per year, depending on the age of the child. If you have two or more children, costs can become overwhelming. Let's say that you can only manage to stay home with your child one day per week. That will still save you 20% of that cost, or $2,000 to $4,000 per year. The savings are even better if you can stay home with your child two or more days per week. In that case, the savings start to dwarf the other categories that I have mentioned in this article! You and your spouse should try to work out an arrangement where someone is always home. That way, you can completely eliminate this expense. If you can both work from home with flexible hours, then you can alternate. One spouse can work while the other watches the kids. That way, you can keep both jobs - and both incomes! As an added bonus, telecommuting while switching off and watching the kids means that you can spend more time with your children. It also further reduces the need to drive around to drop off and pick them up at daycare. Housing Savings This may not apply to everyone, but in some cases, you can move after you begin to telecommute. Tim Ferriss popularized this concept of "geoarbitrage" in his book "The Four Hour Work Week". The idea is to earn your money in one place, while living and spending your money in another. Ideally, you earn good money by telecommuting, and then reside in an area with a low cost of living. If you rent an apartment, you can find another place with lower rent, and move after your lease ends. If you own a house, then market conditions may dictate whether a move is feasible. These conditions include things like housing prices, property tax rates, interest rates, and closing costs. You will need to consider the impact on your family and the relative quality of schools, among other factors. If you and your spouse both telecommute, you need not consider commute length when choosing a home! If your spouse continues to work, you can move somewhere that makes the commute easy. Keep in mind that even a savings of only $100 per month comes out to $1,200 per year. I imagine that you could save a lot more than this, though. If you really want to make a dent in your bills, you can live in a place where you are close to food, shopping, and any other needs. Then, you can take your car off the road (one car if your spouse has a car). In that case, you would pay no insurance and suffer no depreciation or repair expenses. You would even avoid paying for excise and registration if you sell your car! This may seem extreme to some people. However, it might not seem so bad when you consider that the savings could fund an extravagant getaway each and every year. Health Care Savings I already mentioned that when you work at home, you have more time to cook healthy food. Skipping the commute gives you time to cook, and also lets you skip an hour of sitting in the car. You can spend this extra time to exercise and improve your health. In the long run, improved health will save you lots of money on medical expenses. Good health will also save you from lost wages due to extended periods of illness or disability. I can't promise that those things will never happen, but being healthy will make them less likely. If they do happen, you can recover faster. It is difficult to calculate health costs, but let's try an example. Assume that good health and low stress lets you avoid 5 sick days per year. If you have your own business, then you will save a full week's income. If you make $52,000 per year, then that is $1,000 per year you are saving by staying in shape. Laundry Savings If you use dry cleaning once weekly at a cost of $30, it will add up to $1,500 per year. In some jobs, you might still attend meetings and wear a suit or formal attire. Even if this cuts your dry cleaning bill in half, telecommuting will still save you $750 per year. Tax Savings Now, for my favorite part: tax savings for remote workers! Generally, you will need to deduct these items on Schedule C for your federal income taxes. No matter your tax situation, make sure that you pay all required taxes on time. If you have your own business, you will generally need to make estimated quarterly tax payments. This ensures that you don't fall too far behind. You may be exempt from these quarterly taxes in certain cases. Once case is if your business income falls below a certain threshold. It is always best to check to make sure you know the rules for your situation. You can do so at the IRS website for estimated tax payments. Home Office Deduction In some cases, U.S. federal income tax law allows you to deduct the cost of your home office. There are some conditions and restrictions. For instance, you must use the home office exclusively for your business or contract work. The space cannot double as a gym! There is a tedious "actual expense" method, which might make sense for some people. However, there is also a simplified method that will take less time, and is easier to verify. You can deduct up to $5 per square foot of office space, up to a maximum of 300 square feet. This caps the deduction at $1,500. Between federal and state taxes, you could end up paying 30% or more of your income. That means that a home office deduction can save you $450 or more, depending on your marginal tax rate. Office Expense Deductions You can also take deductions for items that are necessary for your business or contract work. For example, you can deduct printer paper and ink, pens, pencils, keyboards, mice, and headphones. You can also deduct some of your costs for utilities such as electricity and internet. In addition, you would be able to deduct the cost of your printer, computer, and any other necessary equipment. This can include furniture, such as chairs, desks, lamps, and filing cabinets. When the cost of an item is more than $2,500, you need to deduct the cost over several years. To do this, you need a depreciation schedule. If you don't how to do this, check out the IRS website, or ask an accountant. When the item costs $2,500 or less, than you can deduct the entire cost in the year you buy it. To do this, you would use the de minimis safe harbor. As always, do your research before you take these deductions. I am not a tax lawyer, nor am I an accountant. I just wanted to make you aware of these helpful deductions, which can save you a bundle! Mileage Deduction If you travel for your business, then you can deduct 53.5 cents per mile driven. This might not seem like much, but it adds up. Driving 5000 miles per year for business can give you a deduction of $2,675. If you pay a marginal rate of 30% for all taxes, then this deduction will save you $802.50 per year. Even a remote worker can easily put this much mileage on a vehicle. Driving 10 miles each way to a coworking space will add up to 100 miles per week, or 5000 miles per year. Additional Benefits Perhaps you work for yourself, or work a 1099 (contract) job for a company. In either case, if you run your own small business, you can deduct 20% of your business income. This is a new rule in 2018 due to the revised tax code. As a result, you should do your research and make sure that your business income qualifies. Talk to your accountant, or bug your friend/relative who is/knows an accountant before you do anything drastic. Bonus Benefits There are a couple more benefits that I need to mention. These are not strictly cost savings, but they are worth considering all the same. Real Hourly Wage Think about all the time you spend (or used to spend) sitting in traffic. As a telecommuter, you don't have to spend that unpaid time in gridlock anymore! This means that your real hourly rate is much higher than before. Example Before you became a telecommuter, you commuted 30 minutes each way for work. This is a total of one hour per day spent commuting. If you are paid $36 per hour for 8 hours of work, then you will make 36*8 = $288 per day. Divide this by 9 (the total hours spend working and commuting) and you really make 288 / 9 = $32 per hour. To find your own real hourly rate, first make a fraction: (hours worked) divided by (hours worked + hours commuting). Then, multiply this fraction by your hourly rate to get your real hourly rate. If you work 8 hours per day, and commute 2 hours per day (1 hour each way), then the fraction is 8 / (8 + 2), or 8/10. If your hourly rate is $30 per hour, then your real hourly rate is 30*(8/10) = $24 per hour. The longer your commute, the more your real hourly rate will increase when you telecommute. Earn a Raise or Promotion Numerous studies support the idea that telecommuters are more productive at home than at the office. I don't think this is a blanket statement that can be applied to everyone, however. Your personality, work style, and job type will dictate whether you are more productive at home. If you do increase your productivity by working at home, then your boss will notice. If he doesn't, then make him aware of your improved productivity! Once you show that working from home makes you more productive and improves the quality of your work, you can negotiate for a raise. This will put more money in your pocket, and as outlined above, will increase your real hourly rate even further. Conclusion There are several financial advantages to working from home. Telecommuting can save you hundreds, thousands, or more per year in various costs. The benefits are even greater for self-employed workers. Before you make the switch, decide if remote work is really right for you. You can think about the pros and cons if you check out my article on telecommuting. I hope that this article was helpful in discovering some of the ways you can save money by telecommuting. If you work remotely and have discovered other cost savings that I missed, please leave a comment below!