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Tighten Your Belt, But Don't Scale Back These Areas

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The Tampa Tribune

Published: February 15, 2009

There's no doubt this recession is having a huge impact on consumers, and as a result, they're cutting back on spending and saving more.

The fact that we are tightening our belts in response to this economy is certainly a good thing. But sometimes when we make decisions under pressure - and there is definitely pressure, thanks to unemployment and the down stock market - we tend to make the wrong choices. We all heard about the Tampa mother who watered down her baby's formula to save money, putting the child's health at risk. You might even know someone who is going without health insurance or the prescription drugs they need.

There are certain things in your budget that can be scaled back very easily, and then there are areas where you simply shouldn't budge.

Retirement plan contributions. The Pension Rights Center counted about 20 major corporations in December that publicly announced changes to their 401(k) matches. Many others have discontinued or downsized their traditional pension plans. If your company is still offering matching dollars, you should keep kicking in the money.

If your company has cut back and you want access to your money, make a contribution to a Roth IRA instead. You can get your contributions out at any time, and after five years, you could use the money for education or a down payment on a house.

Insurance. Don't cut your homeowner's insurance thinking that just because the price to buy a home has dropped, you won't need as much coverage. What you're paying for is the amount it would cost to rebuild that home and replace your belongings. (If you're looking to save money on that policy, raise your deductible instead. Going from $500 to $1,000 could shave 25 percent off your premiums.) Skimping on the liability component of your auto insurance policy could be similarly disastrous. We live in a society that is rather litigious, so taking only the state-mandated minimum amount of liability insurance can cost you in the long run. If you have an older car, drop collision or comprehensive coverage instead.

Your health. Blue Cross Blue Shield of Minnesota just completed a study that found that people who go to the gym at least eight times a month have significantly lower health care costs than those who don't. But guess what? You'll get those same benefits by going for a run or walk outside, taking a bike ride or spending less than the cost of a monthly gym membership on a pair of dumbbells to strength-train in your own living room.

What you eat, of course, has a similar if not more substantial effect on your health. This, too, can be inexpensive: Frozen fruit and vegetables can be just as healthful as fresh ones, and many grains such as brown rice and oatmeal can be purchased in bulk from health food stores for less than a dollar a pound.

Health care. Some cutbacks are fine - switching to generic instead of name-brand drugs, for instance. But skipping doctor's visits or doses is a huge no-no, and so is cutting off your health insurance policy. Unexpected medical costs are the biggest cause of bankruptcy in the United States. If your plan gets too pricey - and more companies are putting the burden of paying for policies on the employees than ever before - shop around for individual coverage. If you're fairly healthy, you should be able to get a decent rate. If you can't afford individual coverage, get a high-deductible policy. You may be out the first $2,000, but then the insurer can step in and prevent total financial ruin.

Charity. Giving to others can make you feel better about yourself and your own financial situation, and you don't even have to hand over your hard-earned cash. Instead, donate items you no longer use. Give canned goods, shop at thrift stores that benefit a charity or simply share some of your time. The value of your time isn't tax-deductible, but some out-of-pocket expenses directly related to volunteering, like transportation costs, may be.

With reporting by Arielle McGowen. Jean Chatzky is the financial editor for NBC's "Today," a contributing editor for More magazine, and a contributor to "The Oprah Winfrey Show."

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