6 Things You Should Never Cut Out of Your Budget

No matter how tight your budget, leave room for these bills

Girl at the doctor
••• John Fedele / Blend Images / Getty Images

There are plenty of ways you can save money. You can stop dining at restaurants, stop buying new clothes, cut your cable television or even your Internet service.

But what items should you absolutely never cut from your budget, no matter how strapped for cash you may feel at the moment?

Here’s a list of items that you should never cut, no matter how broke you feel. Make sure that you spend every last dime paying for these expenses, even if you have to take a second job to afford it.

Health Insurance

Did you know that two-thirds of all bankruptcies are directly tied to medical bills? There’s no limit to how high your hospital bills can stretch.

If you wreck a car, the most money you’re likely to lose is the value of the cars (not counting, of course, any medical bills associated with the car accident.) That means your downside is likely to be no more than $20,000.

But hospital bills can, quite easily, stretch into the six-figure mark. If you have a serious injury or illness, your medical bills may stretch into the millions. That's more common than you might expect.

If your employer doesn't offer health insurance, buy your own individual plan. If you feel that individual plans are too expensive, consider the cost of not having one. If you’re really struggling to make payments, choose a plan that has a high deductible.

After I graduated from college, I bought a health insurance plan with a $5,000 deductible. Obviously, I never relied on this plan for a flu shot, contact lenses, or any other standard office visit. I knew that if I got sick and had to go to the doctor, I would have to pay the bill out-of-pocket.

But with my $5,000 high deductible plan, I had the peace of mind of knowing that my “downside” was capped. If I became seriously ill or injured, the most money I would have to pay would be $5,000. It wouldn’t be fun to make those payments, but it would certainly be better the needing to pay $40,000 or more.

Homeowners Insurance

After costs relating your health, the second single-biggest bill you may ever have to pay is the cost of your home.

If a catastrophe strikes in your home gets destroyed – perhaps by fire, tornado, earthquake, or any other disaster – you’ll be on the hook for paying for that loss, unless you have homeowners insurance. And if you think mortgage payments are tough now, just wait until you’re paying two mortgages: one for the house that you live in, and one for the house that was destroyed.

Many lenders and mortgage companies want to protect their assets, so they collect insurance as a portion of their mortgage. In other words, when you pay your mortgage, you may already be paying that insurance. But double-check your loan documents in order to make sure.

Also, reassess your insurance policy at least once a year to make sure that you have an adequate amount of coverage. Having inadequate insurance is almost as bad as having none at all.

Car Insurance

I know, I know: I keep talking about insurance. But that’s because it’s so darn important.

It’s against the law to drive without at least a state-mandated minimum amount of car insurance. It doesn’t cost much more to get you a little bit of extra coverage that will pay for damages to both your car and the other party’s vehicle. You’ll also want liability protection that will cover bodily injury in case of an accident.

Remember: bodily injury is a health-related bill, and those costs can be astronomical.

Repaying Debt

If you’re paying high-interest credit card debt, such as 29 percent APR credit card fees, it’s hard for you to afford to not pay that back as quickly as possible. Every month that you’re paying a high-interest loan, you’re sinking further and further into a hole.

However, if you have lower interest debt, such as a reasonable mortgage or a single-digit-rate car loan, you don’t have to be in as much of a hurry to repay that loan.

Before you rush to pay off those low-interest debts, you should focus on building an emergency fund and saving for retirement. Which leads to my next point …

Your Emergency Fund

You’ll be amazed at the peace-of-mind that you’ll experience when you know that you have a few months salary set aside to deal with any emergencies that may pop up.

If something unexpected happens that formerly would have required you to break out the credit cards – such as the pipes bursting in your bathroom – you’ll be able to pay the bills right away, without going into any debt.

Continue adding to your emergency fund, the only after you first maximize your 401(k) match. Which leads to my next point …

Your 401k Employer Match

If your boss matches your contributions to 401(k), take full advantage of this opportunity. If you get a 50 cent match on every dollar that you invest, up to the first 6 percent, you’re effectively earning a 50 percent “guaranteed interest rate” on 6 percent of your salary. That’s substantial.

Once you’ve maxed out your employer match, focus on building an emergency fund and repaying high-interest debt. In the meantime, make sure that you don’t skimp on your insurance plans. Insurance is the best protection that you have against sinking even further into debt.