Unaffordable Living Expenses Despite a Substantial Income Increase

Unexpected expenses, insurance costs, and poor budgeting can prevent you from living comfortably even after a significant pay raise. Let’s explore the specific challenges faced by a 20-year-old who recently relocated for a better job that doubled his income.

Breakdown of Expenses

Rent: $1089
Car insurance: $300
Utilities: $150
Cell service: $25

Total fixed expenses: $1564

Financial Challenges

1. Unexpected Expenses:
Car repairs, medical emergencies, and other unforeseen events can quickly drain a budget. The individual in our case has faced a series of costly setbacks, including engine work, a lawyer’s fee, and tire replacements.

2. High Insurance Premiums:
For young drivers, particularly those with less experience or a history of traffic violations, insurance can be prohibitively expensive, as demonstrated by the $300 monthly premium in our case.

3. Lack of Budgeting:
Without a structured budget, it’s easy to overspend and accumulate debt. The individual in our case has not created a budget and relies on juggling bills and putting out fires to manage their finances.

Impact on Financial Well-being

These challenges result in a constant state of financial stress, making it difficult to save for emergencies, retirement, or major purchases. The individual is often forced to choose between necessities like food and gas, and their mental well-being suffers as they feel overwhelmed and trapped.

Solutions to Improve Financial Health

1. Create a Budget:
A comprehensive budget helps you track your income and expenses, ensuring that every dollar is accounted for. Prioritize essential expenses and allocate funds towards savings and debt repayment.

2. Explore Insurance Options:
Consider shopping around for different insurance providers and comparing quotes. Contact insurance companies and explain your situation. Sometimes, you may be able to negotiate a lower rate or find discounts for good driving habits.

3. Manage Unexpected Expenses:
Establish an emergency fund to cover unexpected expenses. Start small and gradually increase your savings. Consider using a high-yield savings account to earn interest on your emergency funds.

4. Seek Professional Advice:
If you’re struggling to manage your finances on your own, consider consulting a financial advisor or credit counselor. They can provide personalized guidance and help you create a plan to improve your financial well-being.

ACA and Affordable Healthcare

The ACA (Affordable Care Act) provides subsidies and tax credits to help low- and moderate-income individuals and families afford health insurance. If you don’t have health insurance through your employer, explore your options through the Health Insurance Marketplace (also known as Covered California in California).

1. Eligibility:
To qualify for ACA subsidies, you must meet certain income requirements and reside in a state that has expanded Medicaid.

2. Benefits:
ACA subsidies can significantly reduce the cost of health insurance premiums. You may also qualify for tax credits to help cover out-of-pocket costs like deductibles and copayments.

3. How to Apply:
Visit HealthCare.gov or call 1-800-318-2596 to apply for ACA subsidies and explore health insurance plans that fit your needs and budget.