Get Financially Prepared for a Medical Emergency

No one likes to think about them, but emergencies do come up. And one of the reasons they are so scary is because we never know exactly when an emergency will rear its ugly head. Medical emergencies especially are among the scariest, because they often involve the health of our loved ones or our own well-being. And the last thing you want to have to worry about in the midst of such an emotional time is how you are going to pay for the whole ordeal. An illness or unexpected accident can really put stress on a family’s budget, especially if the finances are already tight. So that is the very best reason for preparing well in advance, so that you will be able to weather the storm financially and not be forced to accumulate hefty debt or take out loans to foot the medical bill.

But you would be shocked at how many Americans are currently underprepared for such a situation. An Aflac study done at the end of last year found that 51% of the employees polled admitted to being poorly outfitted to pay any out of pocket expenses in the event of an emergency, and that another 31% had less than $500 in their savings account that they could access in the event of an emergency. You may be thinking, no big deal, I have stellar health insurance so I have no need for an emergency fund. However the same Aflac study revealed that many Americans who were covered under major medical insurance confessed that they would have difficulty paying the co-pay, deductible or difference in a truly costly emergency situation.

With that said, let’s move on to some tips that will get you started in planning ahead for a medical emergency:

Get Familiar with your Insurance

Do you know what your co-pay is? How about your deductible? What about how much an ambulance ride to the hospital costs? Does your insurance even cover ambulance rides? These are all very important pieces of information to find out beforehand, so you know how much you could potentially owe. Not only that, but when you inspect the medical bill afterwards, you can easily spot any errors where you may have been overcharged or where your insurance should have picked up the tab instead of you. So the first step is becoming familiar with your insurance policy and everything it covers as well as everything it doesn’t.

Start an Emergency Fund

The point of this stash of cash is to prevent you from needing to take out loans or accumulate debt in paying for your medical bills, not for lesser-urgency scenarios. Emergencies can range from getting cancer to breaking a bone, but the emergency fund should be reserved for these sorts of real financial tragedies, things that you cannot afford to pay upfront.

The way you start your emergency fund is by simply putting money aside each month, into an account separate from your checking and preferably also separate from your savings. Make the monthly transfer around the same time that you pay your bills, so that it acts almost as another utility you are paying.

Emergency agencies state that having 3-6 months of living expenses saved is a good goal to shoot for with an emergency fund. If that sounds like a lot, just focus on putting in as much per month as you can—even if it’s only $25. Set your initial goal as $1000, and then keep accumulating from there.

Write up your Assets

This is a worst-case scenario, but it’s good to have on you nonetheless should the worst happen. You should take an inventory of all of your possessions with monetary value that you could liquidate easily, should the time ever come to do so (things like electronics, jewelry, cars, antiques.) Figure out the worth of each item, and tally it up so you have a rough number for how much you could earn in the absolute worst of scenarios. Work on that emergency fund first, but keep this list as a “last resort.”

Pay Off your Debt Now

I’ve found that usually it’s the folks who carry a large amount of debt and have barely any savings that get hit the hardest with a costly medical emergency. It’s a double whammy—first, they don’t have adequate savings to fall back on to pay for the bill. And second, they already owe a lot of money, so paying the medical bill with their credit card further buries them in debt. And that’s assuming they have enough credit to even cover the bill! Worst-case scenario their credit cards are maxed out, leaving them ineligible to apply for a loan or another credit card, and then the trouble really starts.

As you can see, it’s important to pay off your current debt, which will free up your finances in many ways—including lessening the risk for financial disaster should an emergency strike. One simple way is to stop using your credit cards! Don’t pay for what you can’t afford. To figure out how to make cuts in areas of your life, it’s a good idea to sit down and actually formulate a game plan to cut out luxuries and extras that you tend to splurge on. An added bonus of chipping away at your debt will be a higher credit score, which is helpful for many reasons. So as you are saving for your emergency fund, you should also be actively working to reduce your day-to-day expenses to pay down your credit cards.

In the Good Times, Think of the Bad Times

Nobody wants to think about weathering difficult times while in the midst of a lucrative or superfluous one, but it’s like the saying goes, ‘This too shall pass.’ One day, you may not have the flourishing paychecks you do now, so set some of them aside for the rainy days. This means that the next time you find yourself with a three-paycheck month, a big bonus, or a good-sized tax refund you should consider putting a percentage of it away in your emergency fund or what I like to call a “buffer” fund. A buffer fund can be thought of as the middleman between the checking account and the emergency fund—it doesn’t have to be used as sparingly as the emergency fund, but it has to be used much more sparingly than your checking account.

Replenish the Emergency Fund After Use

Heaven forbid you do find it necessary to dip into the emergency fund (you’ll be more than happy to have it when the time comes,) the next step is to replenish it. I think the obvious reaction to an emergency passing is a sigh of relief and the desire to not think about it if you can avoid it, but it’s important to rebuild the emergency fund for any future crisis. And if you’ve had to dip into it once before, surely you realize the value of having it there for you when you need it.

DK is an avid financial blogger and enthusiastic skim-boarder. He enjoys catching a good wave and writing a good article. Check out his work at RoadFish.com

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