It may be tempting...but you could get burned. While we are all seeking ways to slim down our budgets, there are some monthly costs that simply should not be eliminated. They may lower your monthly budget now, but the reality is that you might end up shelling out a lot of cash later. Read on to find out what you absolutely should not touch from your budget and instead how you may be able to lower some of these costs.
1. Health Insurance
We know that health insurance is expensive, but even if you are a generally healthy person, it’s a dangerous cost to cut. Despite feeling that you are untouchable, you will be surprised how quickly medical bills pile up when you have to pay out of pocket. In fact according to Women’s Health, insurance companies negotiate with in-network healthcare providers for every procedure and end up coming down about half the price on average. Consequently, even if you have to pay before you meet your deductible it's still a significant amount less than an uninsured patient would pay. Especially now with many areas still affected by the pandemic, this is one cost that you should keep a place for in your budget.
2. Minimum Credit Payments
Your credit may be the last thing on your mind right now, particularly if you are struggling to make ends meet. However, getting behind on credit payments will have lasting effects on your credit score and will hurt your chances of being approved for a new line of credit later on. Not only will you end up paying more in interest by racking up debt, but you’ll likely have higher interest rates for new credit accounts because of your lower credit score. Remember that your payment history accounts for 35% of your FICO credit score.
Instead of missing payments you should contact all of your creditors and see what financial relief options they have available right now. If you are not able to suspend payments, then at least make sure you are making all of your minimum payments on time each month. For more help protecting your credit, read our article Stop Coronavirus From Impacting Your Credit Now.
3. Car Insurance
You may be required to keep a certain amount of coverage on your car if you are leasing or financing it, but for those who own their vehicle outright there is the option of lowering your coverage to save some money. Just because you can doesn’t mean you should. You’ll kick yourself later if you drop your coverage and then get in an accident and are responsible to pay a substantial amount of money.
We like to think accidents won't happen to us, but they can even when it isn’t your fault. I recently paid off my auto loan and I could have lowered my insurance coverage but I chose not to. Last week, someone hit my car in a parking lot and fortunately we didn’t have to go through insurance because the driver agreed to pay for the damage. But it’s a wake up call that anything can happen and you need to be protected.
There are other ways of lowering your auto insurance rate without lowering your coverage. First, you should reach out to your car insurance provider and see if they have any discounts or financial relief available. If not, then spend some time getting quotes from other insurance agencies and see if you can get a better deal without lowering your coverage. Your current provider might even be willing to match the lower rate or offer some deduction. Also, if you are working from home or unemployed right now your car insurance provider may be able to lower your rate since you aren’t driving as much. When it comes to asking for a lower rate, it never hurts to try.
4. Low Cost “Wants”
It’s easy to fall into the trap of cutting all unnecessary expenses, but this may actually cause you to splurge on something really expensive instead of a couple small things each month. To help you avoid impulse buying and maintain your mental health as well, allow yourself to indulge in some low cost “wants” occasionally rather than focusing your entire budget on “needs.” Keep a small amount set aside in your monthly budget for “wants” - buy ingredients for a nice dinner every once in a while or rent that movie you’ve been wanting to see.
Your budget is a tool to help you organize your finances and get your spending under control. This doesn’t mean you should cut all expenses possible. Some really could come back to bite you and end up costing much more than your current monthly cost.
However, there are many things you can cut from your budget or at least lower how much you are spending on them each month with some lifestyle changes. Check out our article, 9 Ways You're Losing Money Without Even Realizing It.
Personally, during these challenging times we have found some expenses that we had to cut, whether businesses were closed or items weren’t available, and we have decided to go without them going forward. See our post, Post-Pandemic Savings: Expenses We Easily Learned To Live Without, to find out how to identify unnecessary costs from your budget based on our experiences.