Hearing stories on the news or even from people we know about unexpected medical costs that have derailed someone’s finances is not uncommon these days. Many of us have a fear of something like that happening and, the unfortunate truth is, most people are vulnerable when it comes to medical expenses.
This means the planning for the unexpected is more important than ever. Here are some tips you might consider:
Start With a Tax-Advantaged Savings Account
One of the best ways to prepare for medical expenses is by establishing a tax-advantaged savings account. These accounts allow you to save money on a pre-tax basis and use it for qualified medical expenses without paying taxes on them. Some popular examples of these accounts include
- Health Savings Accounts (HSA)
- Flexible Spending Accounts (FSA)
- Health Reimbursement Arrangements (HRA).
Each one offers different advantages, so it’s important to understand the differences between them before deciding which one is right for you.
Health Insurance Coverage
It's important to assess your current health insurance plan and determine if it provides enough coverage for potential medical expenses. If not, consider looking into additional plans or supplemental coverage that may be able to provide more comprehensive coverage. For example, critical illness insurance pays a lump sum if you're diagnosed with a covered illness, such as cancer or heart disease. This can help cover the costs of medical treatment and other expenses.
Additionally, make sure that you understand any exclusions or limitations on your current plan so that you don't get stuck with large out-of-pocket expenses unexpectedly.
Savings & Emergency Funds
It's also a good idea to build up an emergency fund specifically for unexpected medical bills. This fund should be separate from other savings accounts so that you don't accidentally dip into it when funds are tight. Additionally, this will help you ensure that there is always money available if a medical emergency arises. You may also want to set aside funds specifically for retirement as well since medical costs tend to increase with age.
Budgeting & Financial Planning
Finally, it's critical to create a budget and financial plan so that you can save money each month for both immediate and future medical expenses. Even small amounts over time can add up significantly when compounded over longer periods of time.
Consider talking with a financial planner who can help guide you through creating a realistic budget and financial plan tailored to your individual needs and goals. They may also be able to recommend additional strategies or resources for saving money on healthcare costs as well as ways to save for retirement healthcare in order to maximize your savings potential over the long term.