Budgeting for Medical Expenses

Life is full of expenses, large and small, expected or unexpected. Over the course of your life, you work hard and save carefully to make sure that you have enough money to get by — to pay your bills, support your family, and plan for the future. But, unfortunately, some financial hurdles can lay waste to even the most carefully constructed financial plan. And few expenses loom as large as those associated with medical care.

Whatever you think of our nation’s health care system, one thing is for sure: Getting the care that you need can be very expensive, especially if you’re suffering from a serious or terminal illness. Tragically, medical debt is the single most common cause of bankruptcy in the United States. And even those who manage to keep their heads above water financially will see their wealth shrink and their plans brutally reshuffled if they fall seriously ill.

Still, you can do certain things to reduce the financial stresses that come with medical bills. With smart budgeting and a few tricks, you may be able to gain the upper hand in your financial battles even as you fight your illness. A bright future for your family requires careful money moves today. Here’s what you should know.

Plan ahead

If you’re reading this in good health, here’s something that you need to hear: It won’t always be this way. Even if you get through most of your adulthood in perfect health, you’re likely to see increasing health care costs in your golden years. And, unfortunately, far too many of us neglect to factor health care costs into our retirement plans.

When you’re calculating your cost of living for retirement, add in a healthy amount for medical expenses. Assume the worst and save carefully — you don’t want to find that your savings are insufficient when you’re already retired.

Use tax-advantaged savings accounts

You are probably aware of tax-advantaged savings and investment accounts for retirement, such as 401(k)s and IRAs. But did you know that similar programs are in place for other types of expenses, including education and — you guessed it — medical expenses?

A health savings account (HSA) can help you stash money for medical expenses pretax, and it can even help you save for retirement expenses if you know how to use them properly.

Get a viatical settlement

If you have a life insurance plan, then you have a payout coming your family’s way eventually. But you need cash now. Is there a way to turn that future windfall into cash in the present?

There is, and it is called a viatical settlement. Viatical settlements are an option for seriously ill people who would rather have cash now than a life insurance payment later on. Essentially, a viatical settlement allows you to sell your future life insurance payout for cash now, so that you can pay down medical bills and protect your family from the cycle of debt.

Work with a financial adviser

As your budget grows tighter, adding a new expense may be the last thing that you want to do. But when it comes to tricky financial maneuvers, hiring an adviser who knows about finances can be far cheaper, in the long run, than trying to go it alone.

Health care expenses are a serious burden, and they can mess with all sorts of things, from your taxes to your long-term retirement plan. When you need to shuffle money around, pay bills, and do your taxes, what you don’t know can really cost you. You should consider working with a professional to ensure that you’re doing everything as carefully and efficiently as possible.