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8 Budget Cuts That Could Hurt You In The Long Run - YouTube
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hey guys it's chelsea from the financial
[2]
diet and this week's video is sponsored
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by united healthcare
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now we here at tfd believe first and
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foremost in helping
[8]
people make better and healthier
[10]
financial decisions which
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often means cutting things out of your
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budget or cutting back how much you
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spend
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on those individual items if you're
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having trouble making ends meet
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often being more judicious about where
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you're spending can at minimum be a big
[24]
help
[24]
being honest about where you're going
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overboard or not maybe getting a great
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return on investment on some area of
[30]
spending
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is a fantastic first step for people who
[33]
are looking to improve their
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relationship with money
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no matter where they are but not all
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budget cuts are created equal
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and some budget cuts are more likely to
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end up costing you in the long run
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this could be because you're not
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thinking in terms of cost per use
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or because not paying something in the
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short term could accumulate in a large
[50]
expense in the long term
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or because you end up overspending on it
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if it's not properly accounted for in
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your budget
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either way these are the budget cuts
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that are likely to probably cost you
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more than they end up saving
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number one is renters or homeowners
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insurance now some landlords do require
[66]
renter's insurance and some don't
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and while many if not most homeowners do
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opt to get homeowners insurance it is
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not something that is legally required
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however going without insurance on these
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two fronts is something that can likely
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end up costing you enormously in the
[80]
long run
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based on data from 2014 only 37 percent
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of tenants have renter's insurance
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even though the average premium is only
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a hundred and eighty dollars a year or
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fifteen dollars a month
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and renters insurance can cover all
[92]
kinds of things in case of an emergency
[93]
from property theft
[95]
to fire and water damage to medical
[97]
payments for someone who is injured on
[98]
your covered property and even
[99]
unauthorized transactions on a credit or
[101]
debit card
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the average claim for a theft or
[104]
burglary is a little more than three
[105]
thousand dollars so if you don't pay
[107]
into your renter's insurance you do run
[108]
the risk of being out thousands of
[110]
dollars should you experience a break-in
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or other emergency
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and now a higher percentage of american
[115]
homeowners do have homeowners insurance
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around 85 percent and the average annual
[119]
premium
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is higher about 1 477 a year or 123 a
[123]
month as of 2020
[124]
and homeowners insurance covers
[126]
everything from fire and water damage to
[128]
theft
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and the average claim payout is over 8
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700
[132]
so if you opt not to cover yourself in
[134]
this way you are looking at a
[135]
potentially disastrous expense
[138]
number two no surprise given the theme
[140]
is health insurance for many of us
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health insurance is no small part of our
[144]
monthly budget but it's one of the most
[146]
important things that you'll pay for in
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the long run
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this is because insurance premiums
[150]
likely cover thousands of dollars worth
[152]
of care each year that you would
[154]
otherwise have to pay for out of pocket
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and these things often include
[157]
preventative measures like annual
[159]
physicals and vaccinations
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that make a huge difference in your
[162]
long-term health and whether you
[164]
switched to a new plan
[166]
during open enrollment or opted to stick
[168]
with the plan you had
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for most of us we're kicking off the
[171]
start of a new year of benefits
[172]
and with that comes plenty of
[174]
opportunity in order to make the most of
[176]
your health care coverage
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take time to fully understand your plan
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you're spending the money to have a
[181]
health care plan
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so you might as well take advantage of
[184]
everything it has to offer
[186]
for instance due to covet 19 telehealth
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and virtual care have become a lot more
[190]
popular
[190]
both for care providers and the patients
[192]
they serve the good news
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this also means more convenience along
[196]
with the chance to help you save money
[198]
and if you have prescription medications
[200]
a good cost saving option may be looking
[201]
into home delivery
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it saves you a trip to the pharmacy and
[204]
may include a discount if you order up
[206]
to a three-month supply
[207]
if you're among those struggling with
[209]
your mental health you're certainly not
[210]
alone there
[211]
due to the pandemic the centers for
[213]
disease control and prevention reported
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that in june of 2020
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40 of us adults say that they fall into
[218]
this category
[219]
check your plan benefits to see what's
[221]
covered for behavioral health services
[223]
and the options may surprise you for
[225]
example united healthcare members may
[227]
have access to things like an emotional
[228]
support app
[229]
virtual therapy and more click the link
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in our description to read some tips to
[233]
help you make the most of your
[234]
healthcare benefits this year
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provided by unitedhealthcare number
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three is regular car maintenance
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according to one triple a study from
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2016 regular car maintenance costs about
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792 dollars a year or 66 dollars a month
[248]
when broken down
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and as someone who used to avoid car
[251]
maintenance like the plague in an effort
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to save a little money here and there
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and always used to end up with
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disastrous car problems that ended up
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costing me way way more than i otherwise
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would have spent
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i can say firsthand that opting out of
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these regular things
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is almost always a bad idea financially
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and we're just talking about the basics
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like regular oil changes getting your
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tires rotated
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getting a checkup when that little check
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engine light comes on etc
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because if you don't get regular oil
[277]
changes as recommended by your vehicle's
[279]
manufacturer for example
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the worst case scenario could mean a new
[283]
engine at an average cost of 22.50 to 4
[285]
500
[286]
according to the car care council which
[288]
compared to the average cost of oil
[290]
changes which range about 20 to 100
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depending on where you live is a
[294]
no-brainer financially
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and this is where the mentality of
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scrimping at all costs really comes into
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play
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because for example if you don't find it
[301]
within your budget to pay for this
[303]
regular maintenance
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you are much better off doing everything
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you can to create a side stream of
[307]
income specifically to pay for
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maintaining your
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car because if you rely on driving to do
[312]
things like get to work
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or pick up your children you're likely
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setting yourself up for a financial
[317]
disaster which could put you into credit
[319]
card debt
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or leave you stranded and without a job
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or worse one thing that we cannot afford
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to do no matter what
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income level or budget we're working
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with is to not think in terms of cost
[329]
per use
[330]
or long-term value of a certain purchase
[332]
it can be painful in the moment
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to find the money to make these sort of
[336]
regular payments
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like for example regular oil changes but
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take the time to actually do the math to
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see what it would cost you
[343]
on average if you opt out of these
[345]
things because it's not a one-to-one
[346]
comparison between paying for the thing
[349]
and paying zero dollars it's usually
[351]
paying for the thing or having an
[352]
expense sneak up on us that could be
[354]
financially ruinous
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and the last thing you want is for an
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expense like that to hit you out of
[358]
nowhere
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number four is good quality clothing now
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one thing we talk about a lot here on
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tfd is thinking in terms of cost per use
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and almost nowhere is this more apparent
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in most people's day-to-day budget
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choices
[370]
than in the clothes and shoes and other
[372]
apparel items that they use
[374]
many people often default to a cycle of
[376]
fast fashion which when extrapolated to
[378]
the number of items that you will have
[380]
to frequently buy to replace items that
[382]
become worn or damaged
[383]
quickly reveals itself to be very
[384]
expensive in terms of cost per use
[386]
especially when compared to thrifted
[389]
higher quality items
[390]
which can in many cases be on par cost
[392]
wise with those fast
[394]
fashion items but getting beyond the
[395]
implications on our own budget when we
[397]
opt for cheaply made products
[399]
we should think also about the more
[401]
environmental and macro
[403]
impacts of fast fashion for example when
[406]
it comes to labor practices
[407]
93 of fast fashion brands surveyed by
[410]
the fashion checker
[411]
aren't paying garment workers a living
[413]
wage and often when people get rid of
[415]
their fast fashion items they don't even
[417]
get reused
[418]
as three out of every five fast fashion
[420]
items end up in a landfill
[422]
so one of the things that you can easily
[423]
do to break yourself out of this cycle
[425]
of fast fashion
[426]
is to commit yourself for perhaps a
[428]
season or a quarter because a month
[430]
isn't really enough in wardrobe shopping
[432]
and a year can be daunting
[434]
too strictly shopping thrifted it's very
[437]
likely that you have thrift or
[438]
consignment stores all around you which
[440]
you may have never opted to check out
[442]
but which likely contain many high
[444]
quality items made of great materials
[446]
under at least better conditions than
[448]
fast fashion retailers for a fraction of
[450]
the price that you would pay retail
[452]
we'll do an upcoming video about the ins
[453]
and outs of mastering thrift shopping
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but in the meantime setting yourself a
[457]
challenge to not exceed a fast fashion
[459]
level budget
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without buying a single fast fashion
[462]
item is a great place to start
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number five is saving for taxes if you
[467]
pay them yourself
[468]
whenever you get a paycheck it's really
[470]
easy to feel like that money is just
[472]
yours to do whatever you want with
[474]
but depending on your work or employment
[476]
status that money may not entirely
[478]
belong to you
[479]
we talk a lot about side hustling on tfd
[482]
and in many cases side hustling involves
[484]
working in a freelance capacity
[486]
as a self-employed person everything
[488]
from dog walking to graphic design to
[491]
consulting can fall under this category
[493]
but if you're billing someone directly
[495]
for your services rendered and getting a
[497]
full payment without taxes taken out
[499]
that means that you yourself are liable
[501]
for paying those taxes as well as
[503]
figuring out what the total is
[505]
additionally you're likely required to
[506]
pay on a quarterly basis if you're a
[508]
self-employed person
[510]
and we'll link to more information on
[512]
how this breaks down on the irs's
[514]
website in our description
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now listen i did this for years and
[517]
years before i technically became an
[519]
employee of tfd and was finally no
[521]
longer responsible for doing my own
[523]
personal taxes
[524]
it absolutely sucks to keep a certain
[526]
portion of your income away in a savings
[528]
account that you cannot touch
[530]
and must immediately drain every time
[532]
the tax man comes around
[533]
it sucks it's not fun it's painful no
[535]
one likes doing it
[537]
but the truth is it's just the same as
[538]
what would have happened if someone was
[540]
issuing your paycheck
[541]
except the money is not taken out at the
[543]
source it is easier mentally when we
[545]
never actually see the money taken out
[546]
before the check is issued to us
[548]
which is the same mental principle why
[550]
it's so helpful to do
[551]
direct debits to things like savings or
[553]
investment or debt payment goals
[555]
as soon as your check hits the account
[557]
so you never are tempted to see the
[559]
money and then having to manually deduct
[561]
it from what you have to spend
[562]
but the truth is if you do not calculate
[565]
for this expense you could be left with
[566]
enormous tax bills fines penalties
[569]
or even end up in jail because you're
[571]
not doing your taxes properly
[573]
as the joke goes basically the only
[575]
thing that rich people end up in jail
[577]
for is not paying their taxes
[579]
so don't go down that road and experts
[581]
recommend as a rule saving around 25 to
[583]
30 percent out of every paycheck
[586]
to go toward that eventual tax burden
[588]
but again use the link in our
[589]
description to help you start
[590]
calculating exactly what you'll be owing
[592]
number six is retirement account
[594]
contributions
[595]
so even more so than setting aside money
[597]
for taxes setting aside money for your
[599]
retirement demands a real
[601]
level of discipline when it comes to
[602]
delayed gratification
[604]
it's almost paradoxical in that the
[606]
earlier you start saving for retirement
[608]
the better off you are
[609]
but the further away you are from even
[611]
being able to conceptualize yourself as
[613]
the person who will one day be retired
[615]
and needing that money
[616]
but it truly cannot be overstated how
[619]
important it
[620]
is to make room for this investment in
[622]
your budget each month
[623]
because we're not just talking about the
[625]
sheer dollar amount we're talking about
[627]
the massive
[627]
opportunity cost represented by the
[629]
compound interest
[631]
for example if you put 500 a month
[634]
adding to 6 000
[635]
a year which is the current limit for
[637]
ira contributions
[638]
into investments in a retirement account
[640]
for 35 years
[642]
and that account were to accrue 7
[644]
interest on average compounded monthly
[646]
which is the current year-over-year
[648]
average you will end up with nine
[650]
hundred thousand dollars
[651]
even though you have only initially
[653]
invested two hundred and ten thousand
[655]
dollars total
[656]
however if you put that same five
[658]
hundred dollars a month into a savings
[660]
account earning only one percent
[661]
interest compounded monthly you will end
[664]
up with a little over two hundred and
[665]
fifty thousand
[666]
in 35 years and do keep in mind that one
[669]
percent is about as high of an interest
[671]
rate as you are likely to find an
[672]
american savings account these days
[674]
ultimately it's going to be very hard to
[677]
conquer your own mental default
[678]
into thinking that you are never going
[680]
to be a retired person and you just want
[682]
to spend that money now
[684]
versus putting it away somewhere where
[685]
you won't be able to touch it for years
[687]
and years which is why it's extremely
[689]
important to actually
[690]
do the calculations of what that money
[692]
represents for you
[693]
as you can see here the delta between
[695]
keeping that money in a savings account
[697]
versus putting it away an investment is
[699]
going to represent
[701]
hundred thousand dollars over the course
[702]
of your working life
[704]
but you may be working with a much
[705]
smaller amount and you could feel like
[707]
hey i only have
[708]
fifty dollars or twenty five dollars or
[709]
a hundred dollars every month to put a
[711]
way toward retirement
[712]
that's almost nothing you may think so
[715]
but take the time to do the calculation
[717]
and see how much that will represent by
[718]
the time you are retirement age
[720]
i guarantee that you will be shocked at
[722]
the amount that you are standing to earn
[724]
by putting that money in the market
[725]
versus just keeping it or worse not
[727]
having any money at all
[729]
because you spent it frivolously without
[731]
thinking about what retirement savings
[732]
would imply for your future
[734]
long story short when it comes to
[735]
opportunity cost saving for retirement
[738]
is the worst place in your budget you
[739]
can cut
[740]
number seven is higher credit card
[742]
payments now speaking of opportunity
[744]
cost
[745]
if you are someone who is dealing with
[746]
credit card debt one of the easiest
[748]
places to tend to want to cut
[750]
in terms of your monthly budget is just
[752]
switching from paying
[754]
a lot of money on your credit card debt
[755]
to just paying the monthly minimum
[757]
because technically that means you're
[759]
not going into default you're still
[761]
doing what you need to do on the debt at
[762]
a minimum level
[764]
and then the money you use can be spent
[766]
on other more fun places
[768]
but much of the time making minimum
[769]
payments is a way to ensure that you
[771]
stay in the cycle of credit card debt
[773]
say you have a credit card balance of
[774]
five thousand dollars which is a little
[776]
less than the average american credit
[778]
card debt
[779]
your monthly minimum payment is a
[780]
hundred dollars and your apr
[782]
or your annual percentage rate is 14
[785]
it will take 76 months or more than six
[788]
years to pay off your card
[789]
and you will pay over twenty five
[791]
hundred dollars in interest
[793]
this means that you will have spent five
[794]
thousand dollars on the things you
[796]
bought with your card
[797]
but thanks to interest they will end up
[798]
costing you over 7 500
[800]
if you only make the minimum monthly
[802]
payment however with the same balance in
[804]
apr but with making 500
[806]
monthly payments you will pay off your
[808]
balance in 11 months and only end up
[810]
paying around 350 dollars in interest
[813]
of course the best possible route is to
[815]
not get yourself into credit card debt
[816]
in the first place by paying off your
[818]
card in full every month
[820]
but we understand that this is
[821]
impossible for everyone or some people
[823]
may have already gotten themselves into
[825]
credit card debt before discovering tfd
[827]
that was certainly my case i used to be
[829]
in credit card debt and i went into
[831]
default and it was a terrible experience
[833]
but at minimum what you can do to help
[834]
yourself is to calculate
[836]
not just what you're paying every month
[838]
but what that will end up costing you in
[840]
the long term if you switch to
[842]
a lower credit card payment the same of
[844]
course going for student loans but in
[846]
many cases credit cards have wildly
[848]
higher interest rates and
[849]
are sometimes easier to pay off in terms
[851]
of the actual principal
[852]
by not just calculating that monthly
[854]
amount that is coming out of your
[855]
account
[856]
but seeing how much it is going to cost
[858]
you in the longer run
[859]
it is very likely that that simple act
[861]
will push you psychologically
[862]
to either find more resources to put
[864]
towards that credit card debt
[866]
or to prioritize it higher in your
[868]
budget at the expense of other things
[870]
essentially in addition to cost per use
[872]
we must get used to thinking in terms of
[874]
the long-term eventual value or expense
[876]
of something
[877]
as opposed to just what happens to
[879]
appear on our monthly statement
[880]
both in the case of investing on the
[882]
positive level and debt repayment on the
[884]
negative level
[885]
skipping out on those two areas can cost
[887]
us enormously in the long run
[889]
at minimum you should be forcing
[891]
yourself to understand the implication
[893]
of making these cutbacks lastly number
[895]
eight is high quality skin care
[898]
skin care can tend to feel like such a
[900]
luxury which
[901]
is not really surprised considering how
[903]
much it's been instagrammed to death as
[905]
a concept
[906]
and we tend to forget that at the end of
[908]
the day skin is just another organ that
[910]
we should be taking care of like the
[911]
rest of our body and while some skin
[913]
care issues are aesthetic
[915]
it is important to remember that a those
[917]
aesthetic issues can have huge
[918]
impacts on our overall confidence and
[920]
mental health but also b
[922]
not all skin care issues are created
[924]
equal and many of them can have
[926]
disastrous effects on our overall health
[928]
according to a national institutes of
[930]
health study released in 2017
[932]
there is a skin cancer epidemic in
[934]
patients age 65 years or older
[937]
and this doesn't mean that you have to
[938]
run out and buy every high-end eye cream
[940]
to help you look younger and fresher
[942]
but it does mean that you need to start
[944]
seriously thinking about the various
[945]
products that your skin
[946]
needs depending on your complexion and
[948]
underlying conditions
[950]
and make the investments where they
[951]
matter so that you're taking care of the
[953]
organ in your
[954]
body that is most exposed to the
[955]
elements and therefore in many ways most
[957]
fragile
[958]
checkups with dermatologists can also be
[960]
great investment as they can detect skin
[962]
issues long before you would notice them
[965]
quote as dermatologists we know that the
[967]
early detection of skin cancer by
[969]
routine examinations is crucial for
[971]
successful treatment
[972]
says robert s kirschner md phd and chair
[974]
of the dermatology and cutaneous surgery
[976]
department
[977]
at the university of miami's miller
[978]
school of medicine if dermatology visits
[981]
are not covered by your health insurance
[982]
an annual visit will likely cost
[984]
somewhere between one and two hundred
[985]
dollars
[986]
which is something that you could save
[987]
up for by earmarking ten to twenty
[989]
dollars from your monthly budget
[990]
and do remember that high quality
[992]
skincare does not necessarily mean
[994]
expensive
[995]
on a list of the most dermatologist
[997]
recommended sunscreens on prevention.com
[1000]
most of the options are under 30 like
[1002]
the rest of your health
[1003]
skin health is something that we often
[1006]
tend to glamorize on one hand
[1008]
and neglect on the other we tend to
[1010]
think of it in terms of very
[1012]
aspirational aesthetics that confer
[1014]
wealth and youth and beauty but also
[1017]
forget that the most important
[1018]
foundational elements of these care
[1020]
routines are
[1021]
inexpensive and don't require a ton of
[1023]
forethought they just require
[1024]
integrating them into your routine
[1026]
like everything else in this list it's
[1028]
often just a question of making smart
[1030]
decisions now so that you don't end up
[1032]
paying for them in the long run
[1034]
and if you are looking to learn more and
[1035]
take advantage of the right health care
[1037]
plan for you
[1038]
this year click the link in our
[1039]
description to read some tips to help
[1041]
you make the most of your health care
[1042]
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