How to Create a Healthy Budget for Medical Expenses
Creating a budget for medical expenses may not sound like a lot of fun, but it is important. Health care is important, and not being prepared for it can ruin a budget in a split second. If you create a budget for medical expenses, though, you can more easily take on whatever comes your way.
Budgeting For Medical Expenses
Follow these steps to make an effective budget for medical expenses:
Prioritize Your Health
Let’s be honest: Health care is expensive- really expensive. One of the best budgeting tips I can give you for your wallet is to minimize the amount of medical care you need. You have to make your health a priority or else you will end up spending more than you can imagine. The following are just a few ways that poor health can cost you money:
Poor health can lead you to the doctor way more often than you want to go. It can also cause trouble in your mouth, leading you to the dentist more often- and no one wants to go to the dentist more than they have to, either. The truth is that poor health can lead to issues all throughout your body. And the more issues, the more medical visits you have to endure and pay for.
When you are unhealthy, you end up needing more prescriptions. That is not to say that healthy people never need medication. In fact, I know some people who take good care of themselves but have to take medications to keep genetic issues at bay. The point is that the more unhealthy you are, the more likely you are to be on prescription medications.
It is not just about prescriptions, though. Even over-the-counter medications can add up. Tylenol may not cost much for someone who only has headaches here and there. Others that have headaches constantly can end up paying out hundreds each year on it.
And headaches are not random. They are caused by something. It might be from stress, sleeping in a strange position, heart trouble that is affecting how your blood is pumping, or a hundred other things. If you take care of the cause of the headaches, you can greatly decrease the amount of pain reliever you need. The point is simply this: The healthier you are, the less medication you should have to spend money on theoretically.
If you have to take a medical exam in order to qualify for medical insurance and you have health issues, you are in for some high costs. The more unhealthy you are, the riskier it is for the insurance company to cover you. Therefore, they are going to charge more to offset that risk.
A lack of health tends to lead to more sicknesses, and that tends to lead to more missed days at work. This means that you are not only spending out money to combat the sickness, but you are also losing money that you should be making. The poorer your health, typically the weaker your immune system. That makes you more susceptible to any sickness you come in contact with.
Unfortunately, some mostly healthy people do end up with a disease, but more diseases are due to poor health than genetics. And when disease runs through your family, you are more likely to suffer from it if you are in poor health. And all of that costs you even more money. Allow me to break it down:
Heart disease and diabetes runs rampant in my family. If I do not take care of myself, I could easily end up suffering from it. Many people think that because I am a pretty small person, I do not need to worry about my weight or spend time exercising, but that is far from true. Size is not the only determining factor in these diseases.
Diet and exercise, as well as stress, have more power over it than how big or small I am. I have to work out to keep my blood pumping regularly and to keep my heart strong. If I don’t, I will end up like so many others in my family: Having to take insulin on a regular basis, having to be even more careful about what I eat, potentially having a heart attack and needing heart surgery, and so on.
Trust me, working out a few times a week costs a lot less than anything these family members have to pay out. And working out now does not cause me to miss work like heart trouble could. Preventative care is the best way to save yourself money.
Another way that poor health can cost you and your whole family is through premature death, and I do not just mean financial costs here. Yes, you dying young can have terrible financial consequences on your loved ones, but the emotional consequences are even greater. And it is difficult to worry about financial issues when you are busy mourning the loss of a loved one.
Do you and your family a favor by taking care of yourself now. Keeping yourself alive and well should be at the top of everyone’s budget goals list. If it’s not, you should make that change now.
While you are taking care of your physical health, be sure to check in with yourself mentally and emotionally as well. Struggling in these areas can lead to physical problems, so you need to take care of all three areas as they all affect one another.
Consider Your Regular Costs
How often do you visit your doctor? Dentist? Eye doctor? Therapist or psychiatrist? Kids’ visits? Spouse’s visits? How much does it all cost you? How much are your monthly premiums? You need a good understanding of just how much you pay out for your household medical costs each year.
List Any Medical Changes Coming
Are there any changes coming? Are you expecting a new child? Will one of your kids be moving out on their own? Are you anticipating surgery or physical therapy during the year? Is one of your kids starting a contact sport that you know will probably lead to broken bones or other injuries? Anything you are expecting to happen needs to be considered.
Build a Medical Emergency Fund
It is always best to have an emergency fund for your medical costs that is separate from your regular rainy day fund. You really never know what will happen and you do not want to have any surprises through any kinks in your financial plan. Anything you can put away is helpful, of course, but if you could manage to put away a full year of your regular medical costs, that would be great. It may take some time to build it up, but you will be thankful for all of your hard work when you find yourself sitting in the emergency room with a sickness or injury.
Take a Look At Any Insurance Coverage You Have
Preventing health issues is definitely important, but you also need something in place for emergencies and that regular medical care. Paying out of pocket for your yearly doctor and dental visits can hurt your wallet. Having insurance can help lighten the load.
Take a look at any insurance you currently have. Does your employer offer any coverage? Does your spouse have you covered under his or her employer-sponsored coverage? Do you have any external coverage? Does it cover everything you need to be covered? You cannot create an effective budget for medical expenses until you are clear on what you have and what changes you need to make.
Look Into Potential Coverage Options
If your current coverage is not enough for current needs, is too expensive for your budget, or you have changes coming soon, you need to look into other coverage options. Let me start by saying that it never, ever hurts to look into government options.
If your income is within the requirements, your kids should be able to qualify for Medicaid or AllKids. If you suffer from certain illnesses or disabilities, you might be able to qualify for disability, Medicaid, or Medicare. Some government programs will cover all of your needs while others only cover a portion. Any help is good. If you need it, do not hesitate to look for assistance. There is no shame in doing what you must to take care of yourself and your family if assistance is available.
For those who do not qualify for government programs, there are other options. You always want to check for insurance options through your employer. Sometimes, this coverage will be the most budget-friendly for you but not always. Still, it never hurts to check the options.
In addition to regular insurance, there are other things that can be funded by either you or your employer, and they are very much worth looking into:
Health Savings Account (HSA)
A health savings account is pretty much exactly what it says- a savings account for health care. It also happens to be a great help in your budget for medical expenses. An HSA is an account into which you can make contributions pre-tax. Your employer, a friend, or a loved one can contribute as well as long as you do not go over the annual contribution limit.
An HSA will cover many medical costs, including vision, dental, and pharmacy, but they usually do not cover everything. You will need to check with your specific HSA to learn exactly what you can use it for. It is best to be clear about the coverage prior to signing up for it.
One of the best things about an HSA is that, like a regular savings account, the money rolls over from year to year. This makes it a great help as- unlike regular insurance coverage- you do not “use it or lose it”. It is there when you need it, making it an excellent tool in your budget for medical expenses.
Health Reimbursement Arrangement (HRA)
These are also referred to as Health Reimbursement Accounts. Only employers can contribute to them, though, and they can only be used for certain expenses. These funds also roll over but they are null and void should you quit or get fired from that company.
Flexible Spending Account (FSA)
A flexible spending account is similar to an HSA. You or your employer can make contributions to it, and the funds can be used for particular expenses that are specified for that plan. There is a maximum amount of contributions per year as well.
The biggest difference is that the funds do not roll over from year to year- not typically, anyway. Some employers treat them a little differently. Either way, the best thing you can do is learn the specifics of each plan before choosing one. You need to know if the plan will actually benefit you or not before you put any money into it.
Get Coverage In Order
After having taken a look at your current coverage and your needs, you need to make decisions. Are you going to stick with your current coverage or make some changes? If you are going to make changes, do so now before you go any farther in building your budget for medical expenses. You need to know what you will be paying out each month or your budget will not be accurate.
Build Your Yearly Budget For Medical Expenses
By now, you should have your coverage in place. You know how much your premiums will be if you are using regular insurance. If you are choosing an HSA or an FSA, you will be determining your contributions in a moment. For now, list the fixed amounts of your medical costs. This should include your premiums, any regular copays, and prescriptions- even any over the counter meds you purchase regularly.
Prevention Expenses
Next, you are going to calculate in your preventative care. I am referring to what we were discussing at the beginning of this guide. How much can you spend on vitamins and exercising each month? Be aware that you do not necessarily have to go to a gym. You do not have to spend a dime on exercise. YouTube has some great exercise videos, you could just go for walks or bike rides, or some other activity you enjoy.
This is all up to you. You may need to invest in a good pair of sneakers, some exercise equipment, some workout clothes, or something else though. However, you choose to stay healthy, add the cost to your list now.
Now, determine how much you want to sit in your medical emergency fund, your HSA, and your FSA. As I said before, if you can have a year of medical costs put away, you will be in pretty good shape.
Some people let an HSA replace their medical emergency fund since they can save and let it build up each month. This is not always a good move. First, your HSA might not cover everything you need it to, so it is best to have something else put away just in case.
Second, you cannot always get immediate access to your HSA. You might have to use your own cash for some things and then be reimbursed for them. So while it is a good thing to grow your HSA, you should still have something put away for emergencies that you can easily access- just in case. Now, add all of the above costs together in order to get have your yearly budget for medical expenses.
Break It Down
Your last step is going to be to break it down into manageable amounts. Start by dividing that total into 12 monthly amounts. If this amount comes out to more than you can spend each month, you need to do one of three things:
Find a way to cut costs
Increase your income
Continue to look for better, more affordable coverage
Once you have it to a manageable amount, you need to add it to your regular monthly household budget. However, do not just put “Medical Expenses” down. You need to specify exactly where everything is going.
If you are spending $20 a month on Tylenol, write that down. If your prescriptions are $50 a month, write that down. If you are saving $100 a month for your emergency budget for medical expenses, you need to write that down. Doing this means that you know exactly where that money needs to go each month instead of trying to figure it out on payday.
You can then take your monthly budget for medical expenses and break the costs down even farther depending on how you get paid, such as weekly, bi-weekly, and so on. The farther you can break it down, the easier it is to get your money exactly where you need to put it.
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Conclusion
It is never too early nor too late to budget for medical expenses, and it is something that should be done regularly. Needs change, available options change, and lifestyles change. You need to update your budget for medical expenses every year- or as soon as you experience a change in medical needs. Make your medical budget a priority.