I recently celebrated another birthday. I was disappointed when I remembered that, while my toys have gotten more expensive, they do not bring me even a fraction of the excitement a new set of Legos did when I was 6. But upon reflecting on some of the financial changes I’ve experience over the years, one thing I noticed is the lessening of financial stress. When I consider all of the things that have helped alleviate this stress, I find that some of the most impactful were also some of the most subtle.
Like most people, the most important thing for relieving financial stress is having a budget. Now I’m not going to launch into a speech about how budgets work and why we need them. Instead, I wanted to discuss two similar strategies that fall under the radar for most people and that are possible only by using a budget. The benefit I have personally experienced has allowed me to free up more cash in our budget, making it feel like an increase in your paycheck.
As an Insurance Advisor at Carson Group Partners, I spend much time reviewing insurance policies, including premiums and payment schedules. Many insurance policies offer a monthly premium payment option. What may not be clear, or not initially sound like a big deal, is the additional cost that insurance companies will add if you pay on a monthly basis. In my experience, I have found that people will often choose either annual or monthly premiums schedules when they purchase their first insurance policy and rarely change as time goes on. What is often missed is how much those additional monthly costs can add up over the course of a year or many years. The policy is the same, but the cost is higher.
This is not to say that paying monthly is a mistake or bad. Sometimes it is most efficient from a cash-flow standpoint to spread payments over a period of time. That said, unless there is a compelling reason to be paying monthly, it is in your best interest to utilize your budget, position it to be able to pay lump-sum, annual premiums and then enjoy the extra cash flow throughout the year.
On a similar note, many employers now offer two types of health insurance coverage to employees: what I’ll refer to as “traditional” coverage characterized by (relatively) low doctor visit copays, prescription copays and coinsurance and high-deductible or HSA-qualified plans. The prior is typically more expensive on a monthly basis and often has greater, overall out-of-pocket maximums. The latter is characterized by few or no copays. Instead, HSA-qualified health plans require that qualified medical expenses are fully paid by you but are deducted from your out-of-pocket maximum and, should you reach that number, most (if not all) further medical care is provided entirely at the insurance company’s expense. One reason people shy away from these policies is the idea of having to pay all their annual costs, typically totaling thousands of dollars, out of pocket before the insurance company will pay anything.
Evaluating which is right for you does require some careful review of how frequently you need to visit the doctor. But if it is reasonably certain that you will hit your out-of-pocket maximum regardless of which plan you select, it may be significantly more efficient to select the HSA-qualified plan. You may find that the total out-of-pocket maximums come in lower than traditional plans and oftentimes there is an HSA (health savings account) available that offers even further benefits via tax savings. Here again, a budget is vital to allocate the funds necessary to meet medical expenses until the insurance company picks up.
I hope that these seemingly simple strategies are something that you either are or can begin to position yourself to take advantage of so that you can enjoy what feels like a little bump in your paycheck.