How Do You Budget For Healthcare?
The simple answer is preparation. Take a realistic look at your health and what it costs to maintain and protect it. Then, make sure you have money set aside for a rainy day with the help of special savings accounts that are available either at your workplace or directly through a health insurer.
Costs Keep Going Up
Each year the cost of healthcare takes a bigger and bigger chunk out of a family's budget. And, unlike banks, if your savings get wiped out because of your healthcare costs, your family won't be getting a government bailout.
However, if you can budget for things like groceries, home and auto costs, or what you want to spend on eBay this year, most likely you can budget for healthcare.
First, let's take a look at Gary.
Gary is a bit in the red these days. Already this year, he had to pay for some costly prescriptions for himself, his son broke his arm, and his daughter required surgery to take out her tonsils. Unfortunately, Gary did not prepare himself for these bills and now he's facing financial problems.
Good thing for Gary, we have a magic rewind button. And we can take him back to when he signed up for a health plan.
Now that's better. Red is definitely not Gary's color. So let's start over by helping Gary plan a healthcare budget. Though it may sound scary, it's really pretty easy.
Let's begin by looking at Gary's fixed healthcare costs. First, there are his monthly premiums, which are held out of his paycheck. They stay the same all year so they're easy to budget.
Next, there are products and services not covered under Gary's health plan but part of his family's overall health - things like dental visits, eye care and regular medications. These may vary a bit from year to year, but they stay fairly constant.
Then there are other costs associated with keeping Gary and his family healthy, like fitness clubs or equipment, vitamins, or his wife's visits to the spa for massages. These also stay fairly constant.
Which brings us to Gary's yearly out-of-pocket costs, which is what put Gary in the financial hole he's in. These may include the costs of unexpected doctor's visits and prescriptions, or trips to the ER. You can't really predict what you'll spend on out-of-pocket costs from year-to-year, but you can prepare yourself by taking advantage of an FSA, which is a Flexible Spending Account, or an HSA, which is a Health Savings Account.
To find out how these accounts work, you don't need a magic rewind button. Just click here, What are HSAs, FSAs and HDHPs. But as a quick review, these accounts help you put away money for a healthcare rainy day, as well as help pay for some of your regular healthcare costs.
How much money should you contribute to an HSA or FSA? Just add up your regular healthcare expenses and figure out how much you'll need to save in one of these accounts so you don't end up in the red like Gary was at the beginning of this video. Then sign up for one of these accounts through your workplace or directly from a health insurer.
Summary of How to Budget for Healthcare
With the help of a solid healthcare budget and an FSA or HSA, Gary and his family are back in black. And you can be, too.