Money can be saved in many ways. Skipping a few dinners, not going to watch the new Transformers movie, pull back on your shopping genocides, and you really don’t need every online video subscription service. Even reducing your loan principal is also savings – because it increases your net worth.
Having said that, there are certain ticket items that should never be out of your budget, not matter how light your wallet is. A budget helps us anticipate and plan these very important expenses so that we don’t screw up. If your wallet is broke, get a second job if you can, but never miss these all important expenses (I kid you not).
Homeowners Insurance
Remember all those hurricanes you wish your town was not a part of? I hope you do realize that eventually, your luck will run out. At that moment, the expense to get your home fixed will burn a giant gaping hole in your wallet.
Hurricane isn’t the only one. Fire, Tornado, earthquake – these come crashing onto you and your family. If you think that your mortgage is difficult to manage, you have no idea how difficult it will be paying for two mortgages for the same house, which apparently is already destroyed.
Some lenders are smart and offer insurance as part of their mortgage plan. If you are not sure, stop reading and go check if this clause is part of your loan documents – right now! Don’t take the mortgage company’s sales guy’s words seriously – read the whole document. It’ll be a great relief to you if your mortgage company is collecting insurance as a portion of your mortgage payments.
Finally, make sure you check your home insurance coverage items at least once a year. Your insurance should be adequate to cover for any catastrophe. Otherwise, it beats the purpose of having one.
Health Insurance
There is famous Irish Proverb and it’s perhaps the least understood proverb in the United States, and it says “Health is Wealth”. I say “least understood” because two-thirds of all bankruptcies are caused by medical bills. You have no control of how high your medical bill will be once you land up in the hospital because you cannot read the mind of the folks in those white coats.
First, when you get a job offer – negotiate for health insurance to be part of your package. It is worth it. If your employer does not offer you any, go out there are buy one right away. If you feel those premiums are too high, just image the cost of the bill which you’ll have to bear, if you don’t have health insurance. You can always go for a plan, which has a high deductible, just in case you are struggling to make payments. Sure they won’t cover your routine checkup expenses, contact lenses, or your flu shot. But in case you land up in the hospital with a serious injury, the bills can very quickly reach the six-figure mark and sometimes even in the millions!
Get rid of your Debt
If you took a bad decision to take a Credit Card with a ridiculously high interest rates (like 20% APR), then you need to get out of it as soon as possible. Pay it up, and pay it fast before it drags you deep down into a hole you’ll not be able to recover from. It’s not something you can run away from.
A mortgage, car loan, or a student loan with a small, single digit interest rate is not a big problem. Car loans brings me to my next topic
Get Car Insurance
Oh no, not another insurance. But bear with me, this is very important. Of course, we all know that the state mandates the owner of a vehicle to have car insurance. But you should not stop there. It is a very good idea to get cover for not only your car damage but the other person’s car as well. This alone will save you from so much unnecessary litigation hassles, time and money. Needless to say here, after my health insurance advice, is to make sure you get cover for your bodily injuries. Remember – the cost of repair for a damaged car is negligible in comparison to the bills which you may need to pay to recover from your bodily injuries. Don’t get cheap here. Please.
The All Important Emergency Fund
Think of the Emergency Fund as your lifelong friend, who is there for you everytime you need them to be. But like any other relationship, it takes a bit of effort, and responsibility to maintain one. If you do not maintain this relationship, then you’ll have to make friends with a Credit Card – whose friendship comes at a price which you clearly shouldn’t pay.
Peace of mind is not an expensive resource – especially if you use your money smartly. A few months of extra salary, lying in your bank for those unfortunate yet unexpected events. Think about your home for a second. Think of all the things that can go wrong – a burst pipe, a leaking roof, termite infestation, etc. Who is going to pay for this? Your Emergency Fund will – so keep it.
The gift of 401(k)
This one is special. Really special. If your employer is prepared to match your contributions to 401(k), then it is a substantial amount which will add up really quickly. As an example, if your employer matches, for example, 50 cents for every dollar you put into the 401(k), up till the first 6 percent of your salary – you land up making 50% of an interest rate GUARANTEED on 6 percent of your salary! This is an opportunity you should never let go of.
Build your 401(k) up till your employer matches, concentrate on building an emergency fund, get rid of those obnoxious high interest rate debt, while making sure you are setup with your insurance plans. Work towards these steps, and you will never be financially brittle!
Author maintains a blog on Personal Finance at http://ishobhit.com
