Don’t let health woes turn into financial woes.
No one really wants to think about getting in a car accident or becoming seriously ill, but a health emergency can happen at any time. And health emergencies—even broken bones from a fall—can cost quite a bit of money, even if you have health insurance.
Thinking ahead and creating a plan before an emergency happens can reduce your financial risks and save you some worry during a stressful time. Not sure where to begin? Here are nine concrete steps you can take to help protect your finances during a health emergency.
Understand your insurance
If you have health insurance, know and understand your deductible, out-of-pocket limit, and potential out-of-network situations. Also make sure you are familiar with your employer’s sick leave and vacation policies. Depending on your situation and employer eligibility, the Family and Medical Leave Act may help you get needed time off during a health emergency. And if you don’t have insurance, look into your options through a local insurance agent or the Iowa Department of Human Services. Whatever you do, it’s important to understand how much you might have to pay in a health emergency.
Create an emergency savings account
Once you know how much your insurance expects you to pay out of pocket, start saving up that amount. Even a little bit every paycheck will add up over time. Consider opening a separate emergency savings account and deposit money directly into it when you get paid. Look into a Health Savings Account (HSA) if you’re eligible. An HSA can be especially helpful if you or a family member has a chronic illness because it sets aside money for healthcare that is completely tax free.
Budget your expenses
Tracking your expenses allows you to see where you spend your money, and whether you’re spending it on necessities or extras. Total up your basic living expenses to determine how much money you would need if a health emergency disrupted your household income. Financial planners recommend saving enough to pay for at least three months of expenses. (We know, we know.) Include this amount in your savings plan.
Creating and sticking to a budget can also help you prioritize your spending and set achievable savings goals.
While saving now will help prevent you from going further in debt in an emergency, paying down debt will save money on interest and allow you to save more in the future. In order to manage your debt, you need to strike a balance based on your situation.
Designate a financial backup person
If you have a spouse or a domestic partner, that person might naturally be the one to manage your finances in an emergency. If that’s not your situation, think about who you would trust with your finances if you were incapacitated. The person should be capable and organized, but most importantly, he or she should be someone you trust. Talk to that person and make sure they’re on board.
To make it easier on your backup person, you may want to consider setting up automatic payments via Linn Area’s Bill Payer service. (That way your financial backup person won’t have to sweat the monthlies!)
Draw up legal documents
Now that you know who will be managing your finances in an emergency, you need to make it official by completing a power of attorney (POA) for finances. A financial POA gives your designated person the legal right to act in your best interests in making financial decisions on your behalf. You get to set the limits, giving the person as much or as little power as you see fit.
While you’re about it, you may also want to consider completing a living will and a POA for health care (also known as a medical POA or health care proxy.) A living will gives your loved ones guidance on end-of-life medical care in case you’re unable to communicate your wishes. A POA for health care designates a person to make health care decisions for you if you’re unable to make them yourself. (It can be a good idea to designate one person as both the financial and health care POA so that there’s no conflict between them.)
These three documents will allow you and your loved ones to manage health and financial decisions during a medical emergency, but they must be completed before an emergency occurs. Take some time now to complete them; an attorney can help, but there are also a lot of online DIY options. Be sure to store the documents somewhere safe and accessible, preferably not in a safe deposit box. (That opens up a whole ‘nother can of worms!) Let your loved ones know where you keep your documents so they can find them easily.
Organize your financial obligations
Make sure your financial backup person knows how the bills are paid and where the account information is stored. Make a cheat sheet and keep it in a secure location or find some other way to keep this organized. Emergencies provide one very good reason to have auto-pay set up on your critical bills, and it’s easy to set up automatic online payments from your account at Linn Area Credit Union.
Communicate with the companies you owe
If it looks like you won’t be able to pay a bill temporarily during a health emergency, contact the creditor right away to see if you can work out a late or reduced payment plan. This applies to any bill you may not be able to pay, such as credit cards, loans, utilities, medical offices, and hospitals. Creditors are much more likely to work with you if your bills aren’t already past due, so be proactive.
Update your resume
Keeping your resume updated can help you find a better job with higher income, which can help with your long-term financial goals. It can also help jump start a job search if you lose your position due to a health emergency.
Apply for a credit card
While saving cash in an emergency fund is always better, a credit card can provide another safety net to cover emergency expenses. Even a card with a low credit limit, such as $1,000 or less, could give you a temporary boost and help you to avoid larger debts and fees in the future. Look for a credit card with a low interest rate, a grace period, and no annual fee. (Hint: Linn Area has great credit cards!)
Even though some of these suggestions may seem hard to tackle, start small with whatever you consider to be the easiest, and then build on that. Do a quick web search to identify sites with the information you need and schedule time to read them. Then take action so you can safeguard your finances in the face of the unexpected.