Certain expenses in life are largely unavoidable — home repairs, automobile maintenance, and the cost of putting food on the table. Right up there with these essentials is healthcare. Yet 40% of Americans admit that they never save for future healthcare expenses, according to a recent report by HSA Bank. As such, a good 20% aren’t confident in their ability to handle an unexpected medical bill in the next year.
If you’ve been neglecting to save for healthcare costs, it’s imperative that you change your tune. Otherwise, you may find that a single health event wreaks havoc on your finances and causes you a world of money-related stress.
Saving for healthcare
If you don’t have a dedicated means of paying for healthcare, you’re doing your finances a disservice. So change that situation immediately. Start cutting back on expenses in your budget to pad your emergency fund. That way, you’ll have cash reserves to tap when medical bills arise.
Ideally, your emergency fund should contain enough money to cover three to six months of essential living expenses. If your savings are nowhere close, you should, at the very least, sock away enough money in the bank to cover your annual health insurance deductible, which is the amount you must pay out of pocket before your insurer starts paying for the services you utilize.
At the same time, be sure to take advantage of one extremely useful healthcare savings tool: the HSA. You’re eligible to fund one if you’re on a high deductible health insurance plan, defined in 2020 as an individual deductible of $1,400 or more, or a family deductible of $2,800 or more.
If you qualify to participate in an HSA, you’ll have the option to set aside up to $3,550 next year in pre-tax dollars to cover healthcare expenses as an individual, or up to $7,100 as a family. And if you’re 55 or older, you get a $1,000 catch-up contribution on top of whichever limit you qualify for, similar to the catch-up contributions allowed by popular retirement savings plans like IRAs and 401(k)s.
Not only can HSA funds be withdrawn to cover immediate healthcare costs, but they can also be invested for added (tax-free) growth and carried forward to cover future costs. Some HSA participants, in fact, contribute more to their accounts than they plan on needing on a yearly basis so they can retain those funds for future years or, specifically, for retirement, when healthcare can be a major burden for seniors on a fixed income.
Healthcare expenses are largely unavoidable. You can do your part to lower them by taking good care of yourself and understanding your health benefits, but at the same time, you can’t discount the possibility of getting injured out of the blue, needing surgery, or falling ill despite your best efforts to avoid that fate. The more of an effort you make to save money for healthcare expenses, the less financial stress you’ll encounter when those medical bills inevitably start piling up.
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