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:

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.

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.