If you’ve been budgeting your money for a while, you’ve probably identified certain non-monthly expenses that can seriously throw you off course: insurance premiums, wedding season and holiday spending, to name a few. But the solution is usually fairly simple: Factor these expenses into your spending plan, saving up a little each month, and you’ll minimize the impact on your bank account.
Unfortunately, not all budget bombs are quite so predictable. In fact, some are so sneaky that they can blindside you even when you thought you’d set yourself up for success. Here are three such surprising scenarios—all of which can wreak havoc on your bottom line—plus expert advice for dodging them.
1. Your limited-time offer expired.
Eighteen months ago, you were on a roll. Maybe you called up your cable company and scored a sweet TV, Internet and phone bundle that shaved $50 off your monthly bill. Or, in an effort to save money on interest and pay off debt faster, you opened a balance-transfer credit card with a 0-percent introductory rate.
Smart moves indeed, but there’s a catch: These deals usually expire, and, as Atlanta-based Certified Public Accountant and Certified Financial Planner Tana Gildea points out, your providers “aren’t awesome about [putting out] a neon sign, saying, ‘Hey, your promo period is ending!” But forget to renegotiate a bill or finish paying off your balance, and you could get socked with a new rate that far exceeds the old one. In some cases, credit card companies will even charge you interest retroactively.
To avoid the shock (and higher bill), H. Jude Boudreaux, a Certified Financial Planner and owner of Upperline Financial Planning in New Orleans, recommends pinpointing your deal’s expiration date and creating a calendar reminder for a few days prior. Then, call up your provider and strike a new deal. “This allows the subconscious part of your brain to rest,” Boudreaux says. “External systems [like calendars and digital alerts] are far more reliable than our brains.”
In the case of a balance-transfer card or other financing offer, Gildea suggests checking in on your progress a full 30 days in advance. “That gives you cushion for screwing up—in case you did the math wrong, and there’s still a little bit of a balance,” she says.
2. You owed Uncle Sam way more than you anticipated.
There are a lot of reasons you could get hit with a higher tax bill than you expected, even if you’ve never misplaced a document, forgotten a tax credit or claimed too many allowances on your W-4. Gildea says one of the most common scenarios to beware affects those bringing in extra cash from side hustles.
Let’s say you file taxes as an individual, and earn $37,000 per year from your full-time job, which is near the upper limit of the 15-percent bracket for 2016. If you earn an extra $5,000 from freelancing over the year, you’ll get bumped into the next bracket, and the overage ($4,350) will be taxed at 25 percent rather than 15. On top of that, independent contractors are subject to a 15.3 percent self-employment tax, which covers Social Security and Medicare.
The solution? “If you’re getting any kind of 1099 or self-employment income, you really ought to be stashing 50 percent away,” Gildea says. “It’s better to have too much set aside, then not owe as much as you thought. Worst case, you’ve got extra cash.” (By the way, don’t forget that you can deduct some of your self-employment tax, or the employer-equivalent portion.)
3. You got a bill from a medical provider you didn’t realize was out-of-network.
You’ve likely heard basic medical insurance terms like “in-network” and “deductible.” But do you really understand what they mean when it comes to your own coverage? The reality is, not enough Americans do: According to a 2014 Kaiser Family Foundation survey, only 4 percent could correctly answer 10 questions about concepts like out-of-pocket costs and definitions of words like premium and provider network.
But what you don’t know about medical insurance can hurt your finances, especially when it comes to out-of-network charges. And avoiding them may not be as easy as you think because, in some cases, you never see the provider face to face.
“I always tell people to be on the lookout for [out-of-network] anesthesiologists,” says Andrew Rubin, vice president of medical center clinical affairs at NYU. “It’s the most common mistake that’s made when you go for a procedure [like a colonoscopy or even childbirth]—you didn’t even know the anesthesiologist was going to be there.” (Pathologists, radiologists and co-surgeons are other examples of providers you may never see, but who can charge you big bucks if they don’t accept your insurance.)
If you find yourself on the receiving end of a big, out-of-network medical bill—which Rubin says is typically between $500 and $1,000, but can spike to thousands in some cases—you can appeal to your insurance company or the hospital or facility to write off or reduce the charges. However, it’s up to their discretion to grant your request, Rubin says.
Or, if you live in certain states like New York or Connecticut, you can use your trump card: the “surprise bill law.” Details vary among states, but these laws generally require that patients are informed of and consent to out-of-network care prior to treatment. Check out this map to see the protections in your home state.
Of course, the ideal time to learn if you’ll be seeing an out-of-network provider is before you need to have a procedure or see a new doctor. Boudreaux recommends asking the pre-admission clerk at the hospital or your doctor’s office staff if there’s anyone involved in your case who isn’t in-network.
“And if the answer is, ‘We don’t know,’ find a different provider,” Rubin says.
June 28, 2016