Budgeting for a Health Emergency: 6 Steps to Getting Started

As a financial planning team, we do much more than just help you invest and compound your wealth – we also help you find ways to do more with the money you already have as you build your Two Comma life. Often, that includes figuring out a savings and budgeting plan built around your goals.

Of course, financial planning isn’t one-size-fits-all, and we’re often asked some variation of the question: “What are some key components of successful budgeting?”

One answer that always springs to mind is budgeting for unexpected healthcare expenses. With that in mind, we’ve put together this quick guide to budgeting for unexpected health-related costs, including why it’s important, benefits you can expect, and six key steps you can take to get started.

Why Should You Plan for Unexpected Healthcare Costs?

I know what you’re thinking:

I already have health insurance – so why do I need to plan for healthcare costs?

But even with insurance, a major illness or injury can have substantial out-of-pocket costs from your deductible, copays, medications, and any necessary specialist care. All of us are at risk for a health emergency – which can easily throw your entire financial plan off track. In fact, the average 4-5 day hospital stay averages about $14,000!

Also consider that during the recovery time, you might not be able to work, thus lowering your income and adding financial strain to an already stressful time.

With other factors like transportation or additional childcare added in, it can quickly become both financially and emotionally overwhelming. By taking a proactive approach, you can feel confident you and your family are taken care of and focus instead on getting well again.

Budgeting for Health Emergencies: 6 Tips for Keeping Your Wallet Well

1. Be aware of your health risks

Consider the health problems you are most at risk for, and what kind of care or treatment you would need should those problems arise. This could be based on family history, a physically demanding job, or even lifestyle choices.

For example, if your father and grandfather suffered from cardiovascular issues relatively early in life, it might be worth exploring preventative measures you can take now to reduce your risks, while also considering the costs involved with treatments, care, and recovery.

2. Consider your location

Where you live can have a big impact on your overall healthcare costs. While a hip replacement costs about $24,302 in Chicago, Illinois, it will run you closer to $19,766 in Omaha, Nebraska.

It may be worthwhile to research average costs for procedures and hospital stays in your area to get a better idea of potential expenses (particularly for your top health risks or concerns).

3. Set a specific goal

Having a clear target will help you stay motivated and on track for your health emergency fund. A financial advisor can help you nail down an appropriate goal number, taking into consideration your entire life, finances, and family circumstances.

Keep in mind that those who have several dependents will likely need to squirrel away more than individuals with no children or adult children.

4. Explore budgeting resources

There are plenty of resources available to help you on your journey, including:

Free budgeting apps on your phone to help track your spending
Online budget templates and calculators to guide your overall cash flow
Automated transfers, which can be set up through your bank
And more

Consider talking to your financial team, family members, and friends to see which tools they’re using that could make a valuable addition to your toolbox.

5. Consider a tax-advantaged savings account

A Health Savings Account, or HSA, allows you to invest money for eligible health-related expenses with extra tax advantages. Contributions to HSAs are typically tax-deductible, and the funds grow and can be withdrawn tax-free when used for qualified medical expenses.

Note that to qualify for an HSA, you must be enrolled in a high deductible health plan (HDHP), not be enrolled in any other insurance plans, and not be claimed as a dependent.

6. Ask the experts

Don’t hesitate to seek help from qualified financial professionals. A financial advisor can help you assess your individual health risks, understand your insurance coverage, and determine the appropriate amount to save for healthcare emergencies.

They can also guide you on utilizing HSAs, Flexible Spending Accounts (FSAs), and other financial tools to maximize your savings and minimize the financial impact of unexpected healthcare costs.

Budgeting for a health emergency might seem daunting, but with a proactive approach and the help of qualified experts, you can build a financial safety net that provides peace of mind.

Build Your Budget with Confidence

Healthcare is an important piece of a healthy financial plan – but it isn’t the whole picture. If you want to build a wealth management plan that incorporates your goals and values, we encourage you to book a free consultation with a member of our team to get started.

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