Hey, guys.

It's Chelsea from The Financial Diet and this week's video is sponsored by UnitedHealthcare. Now, we here at TFD believe first and foremost in helping people make better and healthier financial decisions, which often means cutting things out of your budget or cutting back how much you spend on those individual items.

If you're having trouble making ends meet, often being more judicious about where you're spending can, at minimum, be a big help. Being honest about where you're going overboard or not maybe getting a great return on investment on some area of spending is a fantastic first step for people who are looking to improve their relationship with money, no matter where they are. But not all budget cuts are created equal, and some budget cuts are more likely to end up costing you in the long run.

This could be because you're not thinking in terms of cost per use or because not paying something in the short term could accumulate in a large expense in the long term, or because you end up overspending on it if it's not properly accounted for in your budget. Either way, these are the budget cuts that are likely to probably cost you more than they end up saving. Number one is renters or homeowners insurance.

Now, some landlords do require renters insurance, and some don't. And while many, if not most, homeowners do opt to get homeowner's insurance, it is not something that is legally required. However, going without insurance on these two fronts is something that can likely end up costing you enormously in the long run.

Based on data from 2014, only 37% of tenants have renters insurance, even though the average premium is only $180 a year, or $15 a month. And renters insurance can cover all kinds of things in case of an emergency, from property theft to fire and water damage to medical payments for someone who is injured on your covered property, and even unauthorized transactions on a credit or debit card. The average claim for a theft or burglary is a little more than $3,000.

So if you don't pay into your renter's insurance, you do run the risk of being out thousands of dollars should you experience a break-in or other emergency. And now, a higher percentage of American homeowners do have homeowners insurance, around 85%, and the average annual premium is higher, about $1,477 a year, or $123 a month, as of 2020. And homeowners insurance covers everything from fire and water damage to theft, and the average claim payout is over $8,700.

So if you opt not to cover yourself in this way, you are looking at a potentially disastrous expense. Number two, no surprise given the theme, is health insurance. For many of us, health insurance is no small part of our monthly budget, but it's one of the most important things that you'll pay for in the long run.

This is because insurance premiums likely cover thousands of dollars worth of care each year that you would otherwise have to pay for out-of-pocket. And these things often include preventative measures like annual physicals and vaccinations that make a huge difference in your long-term health. And whether you switched to a new plan during open enrollment or opted to stick with the plan you had, for most of us, we're kicking off the start of a new year of benefits, and with that comes plenty of opportunity.

In order to make the most of your health care coverage, take time to fully understand your plan. You're spending the money to have a health care plan, so you might as well take advantage of everything it has to offer. For instance, due to COVID-19, telehealth and virtual care have become a lot more popular, both for care providers and the patients they serve.

The good news? This also means more convenience, along with the chance to help you save money. And if you have prescription medications, a good cost-saving option maybe looking into home delivery.

It saves you a trip to the pharmacy and may include a discount if you order up to a three-month supply. If you're among those struggling with your mental health, you're certainly not alone there. Due to the pandemic, the Centers for Disease Control and Prevention reported that in June of 2020, 40% of US adults say that they fall into this category.

Check your plan benefits to see what's covered for behavioral health services, and the options may surprise you. For example, UnitedHealthcare members may have access to things like an emotional support app, virtual therapy, and more. Click the link in our description to read some tips to help you make the most of your health care benefits this year provided by UnitedHealthcare.

Number three is regular car maintenance. According to one AAA study from 2016, regular car maintenance costs about $792 a year, or $66 a month when broken down. And as someone who used to avoid car maintenance like the plague in an effort to save a little money here and there and always used to end up with disastrous car problems that ended up costing me way, way more than I otherwise would have spent, I can say firsthand that opting out of these regular things is almost always a bad idea financially.

And we're just talking about the basics like regular oil changes, getting your tires rotated, getting a checkup when that little check engine light comes on, et cetera. Because if you don't get regular oil changes as recommended by your vehicle's manufacturer, for example, the worst-case scenario could mean a new engine at an average cost of $2,250 to $4,500, according to the Car Care Council, which, compared to the average cost of oil changes, which range about $20 to $100 depending on where you live, is a no-brainer financially. And this is where the mentality of scrimping at all costs really comes into play because for example, if you don't find it within your budget to pay for this regular maintenance, you are much better off doing everything you can to create a side stream of income specifically to pay for maintaining your car.

Because if you rely on driving to do things like get to work or pick up your children, you're likely setting yourself up for a financial disaster, which could put you into credit card debt or leave you stranded and without a job or worse. One thing that we cannot afford to do, no matter what income level or budget we're working with, is to not think in terms of cost per use or long-term value of a certain purchase. It can be painful in the moment to find the money to make these sort of regular payments, like for example, regular oil changes, but take the time to actually do the math to see what it would cost you on average if you opt out of these things.

Because it's not a one-to-one comparison between paying for the thing and paying zero dollars. It's usually paying for the thing or having an expense sneak up on us that could be financially ruinous. And the last thing you want is for an expense like that to hit you out of nowhere.

Number four is good-quality clothing. Now, one thing we talk about a lot here on TFD is thinking in terms of cost per use. And almost nowhere is this more apparent in most people's day-to-day budget choices than in the clothes and shoes and other apparel items that they use.

Many people often default to a cycle of fast fashion, which when extrapolated to the number of items that you will have to frequently buy to replace items that become worn or damaged, quickly reveals itself to be very expensive in terms of cost per use, especially when compared to thrifted, higher quality items, which can, in many cases, be on par cost-wise with those fast fashion items. But getting beyond the implications on our own budget when we opt for cheaply made products, we should think also about the more environmental and macro impacts of fast fashion. For example, when it comes to labor practices, 93% of fast fashion brands surveyed by the Fashion Checker aren't paying garment workers a living wage.

And often, when people get rid of their fast fashion items, they don't even get reused, as three out of every five fast fashion items end up in a landfill. So one of the things that you can easily do to break yourself out of this cycle of fast fashion is to commit yourself for perhaps a season or a quarter because a month isn't really enough in wardrobe shopping, and a year can be daunting, to strictly shopping thrifted. It's very likely that you have thrift or consignment stores all around you which you may have never opted to check out but which likely contain many high-quality items made of great materials, under at least better conditions than fast fashion retailers, for a fraction of the price that you would pay retail.

We'll do an upcoming video about the ins and outs of mastering thrift shopping, but in the meantime, setting yourself a challenge to not exceed a fast-fashion level budget without buying a single fast fashion item is a great place to start. Number five is saving for taxes if you pay them yourself. Whenever you get a paycheck, it's really easy to feel like that money is just yours to do whatever you want with, but depending on your work or employment status, that money may not entirely belong to you.

We talk a lot about side-hustling on TFD, and in many cases, side-hustling involves working in a freelance capacity as a self-employed person. Everything from dog walking to graphic design to consulting can fall under this category. But if you're billing someone directly for your services rendered and getting a full payment without taxes taken out, that means that you, yourself, are liable for paying those taxes as well as figuring out what the total is.

Additionally, you're likely required to pay on a quarterly basis if you're a self-employed person. And we'll link to more information on how this breaks down on the IRS's website in our description. Now listen, I did this for years and years before I technically became an employee of TFD and was finally no longer responsible for doing my own personal taxes.

It absolutely sucks to keep a certain portion of your income away in a savings account that you cannot touch and must immediately drain every time the taxman comes around. It sucks. It's not fun.

It's painful. No one likes doing it. But the truth is, it's just the same as what would have happened if someone was issuing your paycheck, except the money is not taken out at the source.

It is easier mentally when we never actually see the money taken out before the check is issued to us, which is the same mental principle why it's so helpful to do direct debits to things like savings or investment or debt payment goals as soon as your check hits the account, so you never are tempted to see the money and then having to manually deducted it from what you have to spend. But the truth is if you do not calculate for this expense, you could be left with enormous tax bills, fines, penalties, or even end up in jail because you're not doing your taxes properly. As the joke goes, basically the only thing that rich people end up in jail for is not paying their taxes.

So don't go down that road. And experts recommend, as a rule, saving around 25% to 30% out of every paycheck to go toward that eventual tax burden. But again, use the link at our description to help you start calculating exactly what you'll be owing.

Number six is retirement account contributions. So even moreso than setting aside money for taxes, setting aside money for your retirement demands a real level of discipline when it comes to delayed gratification. It's almost paradoxical in that the earlier you start saving for retirement, the better off you are, but the further away you are from even being able to conceptualize yourself as the person who will one day be retired and needing that money.

But it truly cannot be overstated how important it is to make room for this investment in your budget each month because we're not just talking about the sheer dollar amount. We're talking about the massive opportunity cost represented by the compound interest. For example, if you put $500 a month, adding to $6,000 a year, which is the current limit for IRA contributions, into investments in a retirement account for 35 years and that account were to accrue 7% interest on average compounded monthly, which is the current year over year average, you will end up with $900,000, even though you have only initially invested $210,000 total.

However, if you put that same $500 a month into a savings account earning only 1% interest compounded monthly, you will end up with a little over $250,000 in 35 years. And do keep in mind that 1% is about as high of an interest rate as you are likely to find in American savings account these days. Ultimately, it's going to be very hard to conquer your own mental default into thinking that you are never going to be a retired person, and you just want to spend that money now versus putting it away somewhere where you won't be able to touch it for years and years, which is why it's extremely important to actually do the calculations of what that money represents for you.

As you can see here, the delta between keeping that money in a savings account versus putting it away in investments is going to represent $700,000 over the course of your working life. But you may be working with a much smaller amount. And you could feel like hey, I only have $50 or $25 or $100 every month to put away toward retirement.

That's almost nothing. You may think so, but take the time to do the calculation and see how much that will represent by the time you are retirement age. I guarantee that you will be shocked at the amount that you are standing to earn by putting that money in the market versus just keeping it, or worse, not having any money at all because you spent it frivolously without thinking about what retirement savings would imply for your future.

Long story short, when it comes to opportunity cost, saving for retirement is the worst place in your budget you can cut. Number seven is higher credit card payments. Now, speaking of opportunity cost, if you are someone who is dealing with credit card debt, one of the easiest places to tend to want to cut in terms of your monthly budget is just switching from paying a lot of money on your credit card debt to just paying the monthly minimum because technically that means you're not going into default.

You're still doing what you need to do on the debt at a minimum level. And then the money you use can be spent on other more fun places. But much of the time, making minimum payments is a way to ensure that you stay in the cycle of credit card debt.

Say you have a credit card balance of $5,000, which is a little less than the average American credit card debt. Your monthly minimum payment is $100, and your APR, or your Annual Percentage Rate, is 14%. It will take 76 months, or more than six years, to pay off your card, and you will pay over $2,500 in interest.

This means that you will have spent $5,000 on the things you bought with your card, but thanks to interest, they will end up costing you over $7,500 if you only make the minimum monthly payment. However, with the same balance in APR but with making $500 monthly payments, you will pay off your balance in 11 months and only end up paying around $350 in interest. Of course, the best possible route is to not get yourself into credit card debt in the first place by paying off your card in full every month.

But we understand that this is impossible for everyone, or some people may have already gotten themselves into credit card debt before discovering TFD. That was certainly my case. I used to be in credit card debt, and I went into default, and it was a terrible experience.

But at minimum, what you can do to help yourself is to calculate not just what you're paying every month, but what that will end up costing you in the long term if you switch to a lower credit card payment. The same, of course, going for student loans, but in many cases, credit cards have wildly higher interest rates and are sometimes easier to pay off in terms of the actual principal. By not just calculating that monthly amount that is coming out of your account, but seeing how much it is going to cost you in the longer run, it is very likely that that simple act will push you psychologically to either find more resources to put towards that credit card debt or to prioritize it higher in your budget at the expense of other things.

Essentially, in addition to cost per use, we must get used to thinking in terms of the long-term eventual value or expense of something as opposed to just what happens to appear on our monthly statement. Both in the case of investing on the positive level and debt repayment on the negative level, skimping out on those two areas can cost us enormously in the long run. At minimum, you should be forcing yourself to understand the implication of making these cutbacks.

Lastly, number eight is high-quality skin care. Skin care can tend to feel like such a luxury, which is not really a surprise considering how much it's been Instagrammed to death as a concept, and we tend to forget that at the end of the day, skin is just another organ that we should be taking care of like the rest of our body. And while some skin care issues are aesthetic, it is important to remember that A, those aesthetic issues can have huge impacts on our overall confidence and mental health, but also B, not all skin care issues are created equal, and many of them can have disastrous effects on our overall health.

According to a National Institutes of Health study released in 2017, there is a skin cancer epidemic in patients aged 65 years or older. And this doesn't mean that you have to run out and buy every high-end eye cream to help you look younger and fresher, but it does mean that you need to start seriously thinking about the various products that your skin needs, depending on your complexion and underlying conditions, and make the investments where they matter so that you're taking care of the organ in your body that is most exposed to the elements and therefore, in many ways, most fragile. Checkups with dermatologists can also be great investments as they can detect skin issues long before you would notice them.

Quote, "As dermatologists, we know that the early detection of skin cancer by routine examinations is crucial for successful treatment," says Robert S. Kirner, MD, PhD, and chair of the Dermatology and Cutaneous Surgery Department at the University of Miami's Miller School of Medicine. If dermatology visits are not covered by your health insurance, an annual visit will likely cost somewhere between $100 and $200, which is something that you could save up for by earmarking $10 to $20 from your monthly budget.

And do remember that high-quality skin care does not necessarily mean expensive. On a list of the most dermatologist-recommended sunscreens on prevention.com, most of the options are under $30. Like the rest of your health, skin health is something that we often tend to glamorize on one hand and neglect on the other.

We tend to think of it in terms of very aspirational aesthetics that confer wealth and youth and beauty but also forget that the most important foundational elements of these care routines are inexpensive and don't require a ton of forethought. They just require integrating them into your routine. Like everything else in this list, it's often just a question of making smart decisions now so that you don't end up paying for them in the long run.

And if you are looking to learn more and take advantage of the right health care plan for you this year, click the link in our description to read some tips to help you make the most of your health care benefits this year, provided by UnitedHealthcare. And as always, guys, thank you for watching, and do not forget to hit the Subscribe and Join buttons and to come back every Monday, Tuesday, and Thursday for new and awesome videos. Bye-bye.