How Should You Budget for Car Insurance?
Paying your car insurance when it’s due, whether you pay monthly or in full, is essential to keeping your policy active. A lapse in coverage could bring about legal issues, depending on where you live, and will affect your insurance premiums going forward.
You need to be responsible for making payments on time every time. The best way to do this is to work your insurance into your budget.
Know what to expect.
Before you start budgeting for car insurance, you want to be sure you get the best rate possible. To do this, CNN explains that you need to understand the factors your insurance company will use to determine what to charge you.
Your insurer wants to assess the chances that you’ll make a claim against your policy. It does this by looking at certain information you’ll provide:
- Type of car
- Coverage choices
- Driving record
- Credit history
- Driving habits
In addition to these primary factors, your insurance company will also consider if you have any lapses in auto insurance coverage in the past, if you’ve made previous claims, and any other information that will allow it to determine the risk you pose.
You should get quotes from multiple companies to find the policy that best suits you at the most reasonable price. Use resources, such as https://www.moneyexpert.com/car-insurance/, to help you make your final decision.
Identify how you’ll pay.
Auto insurance companies may offer a variety of payment options:
You’ll want to find out your options from your insurer. Also, get details about each option, such as any fees included in them. Most companies will give you a discount for paying in full and assess fees for making payments.
You must figure out which payment option makes the most sense for your financial situation. While many people would love to pay the premium in full to save money, it’s not always an option for everyone.
Whatever method you choose, make sure you know the full amount you’ll pay for each payment, so that you can enter this into your budget.
Understand budget basics.
If you don’t already have a budget, then you’ll need to create one. Creating a budget isn’t too difficult, but you’ll need to gather information about all of your sources of income and expenses.
It’s essential that you include every single expense you have. You’ll list all of your fixed and variable costs. Fixed expenses are those that you pay the exact same amount for each month. Variable expenses are those that may vary each month, such as food, clothing, and household products.
It’s better to overestimate your needs than to underestimate when it comes to those expenses that aren’t set, such as food. However, you don’t want to be too outrageous with your estimates.
Estimating variable expenses
The best way to determine variable expenses is to record your spending habits for a month. Collect receipts or keep a log of every penny you spend.
At the end of the month, go through everything, and determine how much you spend on various categories:
- Household goods
You may have other categories, but this should give you an idea of where to start.
Writing up your budget
Once you have all the information you need about your income and expenses, you can write up a budget. There are many budgeting apps and software you can use, or you can create a simple spreadsheet.
It doesn’t matter how you create it as long as it’s something easy for you to maintain and use. You may have to try a couple of different options to find what works the best for you.
The most common way to budget is monthly, so list your income for the month and the month’s expenses. This is where you’ll factor in your insurance costs.
Real Car Tips suggests that you include your insurance costs into the costs for your vehicle. For example, if you pay $250 a month for your auto payment and $45 a month for your car insurance, list your car payment as $295.
The reason for this is that it makes it a priority bill you must pay. You’ll be more likely to honor your budgeted amount than if you had it listed separately.
You can do this even if you pay in full. For example, if your insurance premium for six months is $200, you’d then budget about $34 a month for insurance. Each month, you’d put that $34 aside, so that when your policy is due again in six months, you have the money to pay it in full.
Balancing your budget
Once you’ve listed all your expenses and income, total each of them. Then, subtract your expenses from your income.
The goal of budgeting is to ensure that you have enough money to pay for your expenses. In the best-case scenario, you’ll even have money left over each month.
If you find that you have more expenses than income, you’ll need to make some adjustments. Ideally, you can raise your income, but that isn’t usually a practical solution. The usual solution is to reduce your expenses.
You’ll need to break your expenses down into essential and non-essential. Essential items are those that you must pay:
- Rent or house payment
- Car payment
- Auto insurance
Non-essential items are those you don’t need to have:
- More clothing
However, there are some expenses that could fit into both categories, such as food. You must have food, so it’s essential, but you don’t need the fancy coffee drink every morning or take out dinners three times a week.
To differentiate and determine where you can spend less, you should place each expense into one of four categories:
- Essential fixed
- Essential variable
- Non-essential fixed
- Non-essential variable
Essential fixed items are typically going to be those you must pay, so you won’t be able to adjust them. Essential variables are also usually things you must pay for, but there may be room for adjustment. For example, food would fall under this category, and you’ve seen how you could adjust that expense.
Non-essential fixed items might include your monthly subscription to a service. Non-essential variable items are generally things you just spend money on nonchalantly. Both categories are good places to find ways to cut your expenses.
Be honest when adjusting your expenses. Never cut out an essential item when there’s a non-essential item you can cut.
In the end, you should be able to adjust your expenses to balance your budget.
Making insurance affordable
The bottom line when it comes to fitting your auto insurance into your budget requires starting with a healthy budget. You want to create a solid spending blueprint that makes it easy to add in your auto insurance, and ensure that you pay it on time every time it comes due.