Budget Cuts: Avoiding Common Mistakes During Economic Uncertainty

Nearly a year into a pandemic and a long-term economic crisis, many of us are still looking for smart ways to tighten our belts. Sure, we've cut down on eating out and impulse buys, but that doesn't mean we're out of the woods. Some budget cuts may seem reasonable when you're down to the wire; unfortunately, they can also do more harm than good.

New research from analysts at ValuePenguin shows that when it comes to eliminating seemingly unnecessary monthly payments, nearly 40 percent of us stop paying for insurance first. Not all insurance is created equal, to be sure; we're more likely to cut out plans that cover our phones, our pets, or our rental properties before anything like our car payments. Nearly half of us, in fact, said that health insurance would be the last cost we'd cut, and more than one-quarter of respondents would not eliminate an insurance policy no matter what.

That might be for the best: Almost two-thirds of respondents who did stop paying for insurance said they regretted it later. Three-quarters also said cutting insurance was more of a last resort — they had already cut out spending in areas like groceries, debt payments, and savings contributions first.

If you're at that point, you know things are tough and you're doing the best you can with your available options. But for those just starting on their budget breakdowns, start paring down on other, truly less essential line items first.