Summer camp is a rite of passage. A place where traditions begin and memories are made. A unique venue with a structured opportunity for kids to grow and learn new skills. As enriching as it may seem, embarking on the process each year can be intense: How do I choose a camp? Should it have a philosophy? How do I know my child will have fun? But often the question at the top of the list is, “How do I budget for summer camp?”
Whether you’re scrambling for camp arrangements for this year or getting a jump-start on next summer, you’re in need of a working budget for summer camp. “As a parent who sent several kids to summer camp for many years, I know how expensive it can be,” says Leslie H. Tayne, author and founder of debt solutions law firm Tayne Law Group.
Read on for expert budgeting tips for summer camp and how to save money on summer camp so you can make the best decisions concerning your wallet and your child’s wish list:
1. Get a handle on camp tuition
According to the American Camp Association, sleep-away camp tuition can range from $630 to more than $2,000 per camper per week. Day camp tuition isn’t too far behind, ranging from $199 to more than $800 per week.
One of the best ways to budget for summer camp and prepare for tuition costs is to understand your needs for the summer as well as your child’s interests. This will help you determine ‘how much’ and ‘what type’ of camp you want: Is day-camp coverage important all summer because of work? Does your child want to experience sleep-away camp for a portion of the time? Is a camp with a specific focus (say a sport or hobby) on the list?
Depending on your circumstances and child’s expectations, it’s not unusual to be looking at a combination of campsâand tuition costsâin one season. If you have multiple kids at different ages, with different interests, creating a budget for summer camp and understanding how much you’ll need to dish out in tuition becomes especially important.
Once your camp plan is in place, assess how much you’ll need to pay in tuition for the summer months with school out of session. The sooner you’ve arrived at this figure, the easier it will be to work the expense into your household budget, says Heather Schisler, money-saving expert and founder of deal site Passion for Savings. “It’s much easier to set aside $30 a month than it is to come up with $300 to $400 at one time,” Schisler says.
Sleep-away camp tuition can range from $630 to more than $2,000 per camper per week. Day camp tuition ranges from $199 to more than $800 per week.
2. Plan for expenses beyond tuition
One of the biggest budgeting tips for summer camp is planning for the many costs outside of tuition. Tayne points out that sleep-away camp usually comes with a longer supply list than day campâsuch as specific clothing or gear and toiletries to cover the length of stay. If your child is heading to a sleep-away camp far from home, your budget for summer camp may also need to factor in the cost of transportation or the cost to ship luggage. Day camps can also have fees for extended hours or transportation if your child rides a camp bus each day.
Once you’ve selected a campâday camp or sleep-awayâcheck its website for camper packing lists and guidelines. Most camps offer checklists that you can print out, which can be good for tracking supplies and costs as you go. After you enroll, your camp may provide access to an online portal that can help you manage tuition and track additional expenses, like canteen money, which is cash your child can use for snacks and additional supplies while away.
3. Create a year-round savings strategy
By calculating the necessary expenses ahead of time for the camps you and your campers have chosen, you’ll be able to determine an overall budget for summer camp. A budgeting tip for summer camp is to save money monthly throughout the year. To determine a monthly savings goal, divide your total summer camp costs by the amount of months you have until camp starts. If camp is quickly approaching and you’re feeling the budget crunch, you may want to start saving for next year’s costs once it’s back-to-school time so you can spread out your costs over a longer period of time.
Once you start saving, you’ll need a place to put it, right? When it comes to budgeting tips for summer camp, consider placing your cash in a dedicated account, which will keep it separate from your regular expenses and help you avoid tapping it for other reasons. “Then you can have your bank set up an auto draft [for the summer camp money] so it automatically goes into your account each month and you will have the money you need when summer rolls around,” Schisler says. If you use a Discover Online Savings Account for this purpose, you’ll also earn interest that can be put toward camp expenses.
âIt’s much easier to set aside $30 a month than it is to come up with $300 to $400 at one time.â
4. Find ways to fund your summer camp account
To boost cash in your summer camp savings account, consider asking relatives and family friends to gift your children cash for camp in lieu of birthday and holiday gifts, says Tracie Fobes of budget blog Penny Pinchin’ Mom. “If your child has his or her heart set on sleep-away camp, they may be willing to forgo a gift or two,” Fobes says.
Another budgeting tip for summer camp is to put your cashback rewards toward your budget for summer camp. For example, if you open a checking account with Discoverâcalled Cashback Debitâyou’ll earn 1% cash back on up to $3,000 in debit card purchases each month.1 You can enroll to have that cashback bonus automatically deposited into your Discover Online Savings Account so it remains designated for camp costs (and can grow with interest).
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Lastly, if you don’t have your tax refund earmarked for another financial goal, you could use the windfall to kick-start your summer camp savings fund. Depending on the refund amount and your total camp costs, it could reduce your monthly summer camp savings goal significantly.
5. Reduce camp-related costs
Despite having your budget for summer camp in full view and planning in advance, camp can still be expensive. Here are some ways to save money on summer camp by cutting down on camp costs:
Ask about scholarships and grants: “Some camps offer scholarships or discounts for children and families,” Fobes says. Research your camp to see if they have anything similar to help offsetâor even pay forâthe cost of tuition.
Use a Dependent Care Flexible Spending Account (DCFSA): A Dependent Care Flexible Spending Account is a pre-tax benefit account that can be used to pay for eligible dependent care services. You can use this type of account to “cover dependent care [costs], and camp may qualify,” Fobes says.
Negotiate price: “Many people don’t think about negotiating the cost of summer camp, but it is possible,” Tayne says, and more and more camps are open to it.
See if there’s an “honor system”: Some camps have what’s known as an honor system, where the camp offers a range of costs, or tiered pricing, and parents can pay what they can comfortably afford. Every child enjoys the same camp experience, regardless of which price point, and billing is kept private.
Take advantage of discounts: Attention early birds and web surfers: “There are sometimes discounts offered when you sign up early or register online,” Fobes says.
Volunteer: If your summer schedule allows, “offer to work at the camp,” Fobes says. If you lend your servicesâperhaps for the camp blog or cleaning the camp house before the season startsâyour child may be able to attend camp for free or a reduced rate.
Don’t let summer camp costs become a family budget-buster. Plan ahead and look for money-saving opportunities and work your budget for summer camp into your annual financial plan.
To save money on summer camp, remember that you only need to focus on camp necessities. “Don’t spend a lot of extra money on new clothing, bedding, trunks or suitcases,” Schisler says. “Remember, summer camp is all about the experience, not the things.”
1 ATM transactions, the purchase of money orders or other cash equivalents, cash over portions of point-of-sale transactions, Peer-to-Peer (P2P) payments (such as Apple Pay Cash), and loan payments or account funding made with your debit card are not eligible for cash back rewards. In addition, purchases made using third-party payment accounts (services such as Venmo® and PayPal, who also provide P2P payments) may not be eligible for cash back rewards. Apple, the Apple logo and Apple Pay are trademarks of Apple Inc., registered in the U.S. and other countries.
The post Your Guide to Budgeting for Summer Camp appeared first on Discover Bank – Banking Topics Blog.
What would you do if you were laid off from your job today? This question isn’t meant to make you want to hide under your desk, but to encourage you to evaluate your circumstances. What would happen to your financial situation if you suddenly didn’t have an income to rely on?
While it’s not exactly fun to plan ahead for life’s hardshipsâsay, your car breaking down or losing a jobâdoing so can help you stay afloat financially and avoid taking on debt to remedy an already tense situation.
What can you do to prepare your budget for a layoff? These four steps will help you prepare your budget for a layoff and survive a layoff financially:
1. Put some of your paycheck into savings
In order to prepare your budget for a layoff, one of the best things you can do is learn to live on less when you have your typical paychecks coming in. Living paycheck to paycheck is a reality for many, and a habit many promise to break once they earn more. If you can afford it, consider trying to live off only a portion of your paycheck. That way, you can always depend on having extra money to fall back on in the event of a hardship, like a layoff.
Jill Caponera, a consumer savings expert at coupon platform Promocodes.com, suggests paying yourself firstâputting some of each paycheck into savings before you spend any of itâin order to save for an unexpected job loss.
“Put money directly into your savings account the moment you get paid so that you’re never in a position where you’re strapped during a true financial emergency,” Caponera says. Try scheduling an automatic recurring transfer from checking to savings that hits after each payday, or create a direct deposit to savings from each paycheck through your employer.
If living on less isn’t feasible for you right now, start small and focus on taking baby steps to prepare your budget for a layoff. You could start with a money savings challenge and a more attainable goal, like living off of 97 percent of your paycheck and saving the remaining 3 percent. This means that if your take-home pay is $4,000 a month, your goal is to put 3 percent, or $120, into savings monthly and then limit your bills and spending to $3,880. As you get accustomed to that amount, gradually increase the percentage of your paycheck you save each period. Some budgeting experts suggest saving at least 20 percent of your income and living off of the other 80 percent.
If you devote even a small percentage of your paycheck to savings before the bills and discretionary expenses roll in, saving will eventually become habit. You’ll get used to budgeting only with your post-savings take-home pay, and you won’t miss the savings portion of your paycheck.
âPut money directly into your savings account the moment you get paid so that you’re never in a position where you’re strapped during a true financial emergency.”
2. Save 3 to 6 months of expenses in an emergency fund
Once you’ve gotten used to regularly saving a portion of your income, you can save for an unexpected job loss by building up a solid emergency fund over timeâespecially if you are using an online savings account with a high interest rate. An emergency fund is a dedicated savings account that you only touch in the event of financial hardship, such as a medical emergency or job loss.
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Christian Stewart, founder of financial coaching site Do Better Financial, recommends having an emergency fund of three to six months of expenses to help you survive a layoff financially.
“The goal is to make sure all your bases are covered, meaning you can pay the bills and proceed with a relatively normal life until you find another job,” Stewart says. She notes the actual amount of money you need to save for an unexpected job loss will vary based on your lifestyle, employment industry and willingness to relocate, since this can dictate how long it could take to find another job.
To build an emergency fund and save for an unexpected job loss, Stewart recommends starting a zero-based budget. This form of budgeting gives every dollar you earn a job, such as paying a bill, funding your emergency account or financing fun and discretionary expenses. In addition to making your emergency fund a priority, this budgeting strategy helps you identify exactly how much you spend within each budget category each month. You can then find areas of careless spendingâperhaps an unused subscription serviceâwhere you could stand to cut back. You could redistribute those dollars to your emergency fund.
“In the event of a layoff, you will have a clear line of sight to regular areas of your spending that can be cut if it takes longer to find a new job,” Stewart says.
After you’re comfortable with the size of your emergency fund and feel like you can survive a layoff financially, you can use any extra savings for a different financial goal, such as saving for retirement or a down payment on a car or home.
3. Find income from a side hustle
Another way to survive a layoff financially is to have a side gig in place. Contrary to what some believe, side hustles do not have to take up an onerous amount of your time. There are actually many side hustles you can do while working full time, such as freelancing in your current field, driving for a rideshare app or tutoring.
Not only do side jobs create extra cash flow to devote toward savings or debt repayment when you have a full-time job, they also give you an added layer of security to help you save for an unexpected job loss. You might not be able to replace your full-time earnings with your music lesson business, but it can provide you with some predictable cash flow while you interview for a new position.
You could even turn your side hustle into a full-time job if you have a passion project you’ve been wanting to turn into a career. Alternatively, your side hustle turned full-time gig could help maintain your income stream if you plan to take additional time off after a layoffâif you decide to go back to school or make a move to a new industry, for example.
4. Know where to turn for assistance
Being laid off can be a traumatic experience, and if it does happen, it is important to know where to turn and how to make decisions that aren’t rooted in fear or emotion.
“Sit down with a level-headed friend, spouse and/or counselor to process your new financial reality,” Stewart of Do Better Financial says. “If you’re receiving a compensation package, do yourself a favor and work out beforehand where the money will be spent and how long you need it to last.”
Speaking of work benefits, make sure you utilize all of the benefits possible before your layoff goes into full effect, such as getting an annual physical through your health insurance plan.
âSit down with a level-headed friend, spouse and/or counselor to process your new financial reality. If you’re receiving a compensation package, do yourself a favor and work out beforehand where the money will be spent and how long you need it to last.”
“If you’ve been laid off, or are expecting an upcoming layoff, you should immediately contact your state’s unemployment office to set up your account and start receiving your compensation,” consumer savings expert Caponera says. “While these benefits won’t pay as much as your full-time salary, these funds will certainly help to cover your monthly bills and living expenses while you continue to look for work.”
Each state has different benefits and paperwork requirements, so make sure you’re using your state’s government website to learn more and to survive a layoff financially.
Prepare your budget for a layoff
Facing a layoff can be emotionally and financially draining, especially if you don’t see it coming. The most important thing is to start planning ahead, and prepare your budget for a layoff before it happens.
The post A Step-by-Step Guide to Prepare Your Budget for a Layoff appeared first on Discover Bank – Banking Topics Blog.
If you have an irregular income, you know how great the good times feelâand how difficult the lean times can be. While you can’t always control when you get paid or the size of each paycheck if you’re a freelancer, contractor or work in the gig economy, you can take control of your money by creating a budget that will help you manage these financial extremes.
Antowoine Winters, a financial planner and principal at Next Steps Financial Planning, LLC, says creating a budget with a variable income can require big-picture thinking. You may need to spend time testing out different methods when you first start budgeting, but, âif done correctly, it can really empower you to control your life,” Winters says.
How do you budget on an irregular income? Consider these four strategies to help you budget with a variable income and gain financial confidence:
1. Determine your average income and expenses
If you want to start budgeting on a fluctuating income, you need to know how much money you have coming in and how much you’re spending.
Of course, that’s the basis for any budget. But it can be particularly important if you’re trying to budget on an irregular income because you may have especially high- or low-income periods. You want to start tracking as soon as possible to build up accurate data on your average income and expenses.
For example, once you have six months’ worth of income and expenses documented, you can divide the total by six to determine your average income and expenses by month.
Many financial apps and websites can help with the tracking, including ones that can connect to your online bank and credit card accounts and automatically pull in your transactions. You may even be able to pull in previous months’ or years’ worth of data, which you can use to calculate your averages.
If you’re budgeting on a fluctuating income and apps aren’t your thing, you can use a spreadsheet or even a pen and notebook to track your cash flow. However, without automated tracking, it can be difficult to consistently keep your information up to date.
2. Try a zero-sum budget
“There are several strategies you can use to budget with an irregular income, but one of the easiest ones is the zero-sum budget,” says Holly Johnson. As a full-time freelance writer, she’s been budgeting with a variable income for over seven years and is the coauthor of the book Zero Down Your Debt.
With a zero-sum budget, your income and expenses should even out so there’s nothing left over at the end of the month. The trick is to treat your savings goals as expenses. For example, your “expenses” may include saving for an emergency, vacation or homeownership.
“There are several strategies you can use to budget with an irregular income, but one of the easiest ones is the zero-sum budget.”
Johnson says if you’re budgeting on a fluctuating income, you can adopt the zero-sum budget by creating a “salary” for yourself. Consider your average monthly expenses (shameless plug for tip 1) and use that number as your baseline.
For example, if your monthly household bills, groceries, business expenses, savings goals and other necessities add up to $4,000, that’s your salary for the month. During months when you make over $4,000, put the extra money into a separate savings account. During months when you make less than $4,000, draw from that account to bring your salary up to $4,000.
“We call this fund the ‘boom and bust’ fund,” Johnson says. “By building up an adequate amount of savings, you will create a situation where you can pay yourself the salary you need each month.”
3. Separate your saving and spending money
Physically separating your savings from your everyday spending money may be especially important when you’re creating a budget on an irregular income. You may be tempted to pull funds from your savings goals during low-income months, and stashing your savings in a separate, high-yield savings account can force you to pause and think twice before dipping in.
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An easy way to put this tip into action when creating a budget with a variable income is to have all of your income deposited into one account, then disburse it into separate savings and spending accounts. “Transfer a set amount on the first of every month to a bill-paying account and a set amount to a spending account,” Winters, the financial planner, says.
“The bill pay account is used to pay for all of the regular expenses, like rent, insurance, car payments, student loans, etc.,” Winters says. These bills generally stay the same each month. The spending account can be used for your variable expenses, such as groceries and gas.
When considering your savings accounts, Winters also suggests funding a retirement account, such as an Individual Retirement Account (IRA).
If you’re budgeting on a fluctuating income as a contract worker or freelancer, you may also want to set money aside for taxes because the income and payroll taxes you’ll owe aren’t automatically taken out of your paychecks.
4. Build up your emergency fund
“The best way to weather low-income periods is to prepare with an adequate emergency fund,” freelancer Johnson says. An emergency fund is money you set aside for necessary expenses during an emergency, such as a medical issue or broken-down vehicle.
Generally, you’ll want to save up enough money to cover three to six months of your regular expenses. Once you build your fund, you can put extra savings toward other financial goals.
When you’re budgeting on a fluctuating income, having the emergency fund can help you feel more at ease knowing that you’ll be able to pay your necessary bills if the unexpected happens or when you’re stuck in a low-income period for longer than anticipated.
A budget can make living with a variable income easier
It can be challenging to budget on an irregular income, especially when you’re first starting. You might have to cut back on expenses for several months to start building up your savings and try multiple budgeting methods before finding the one that works best for you.
“Budgeting requires a mindset change regardless of which type of budget you try,” Johnson explains.
“The best way to weather low-income periods is to prepare with an adequate emergency fund.”
However, once in place, a budget on an irregular income can also help free you from worrying about the boom-and-bust cycle that many variable-income workers deal with throughout the year.
The goal is to get to the point where you can budget with a variable income and don’t have to worry about when you’ll get paid next because you set your budget based on your averages, planned ahead during the high times and have savings ready for your low times.
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Your utility bills likely make up a significant part of your monthly budget, so itâs important to keep a close eye on them. But while your rent or mortgage stays the same month to month, your utilities donât.
Sweltering summer days and icy winter nights can lead to budget-blowing spikes in your utility bills, and no matter how hard you try to budget and plan, you canât predict the total each month. Or can you?
Budget billing may offer the consistency you crave. Here, personal finance experts describe how budget billing works and explain who may benefit from it, empowering you to answer this question for yourself: Does budget billing save money?
What is budget billing and how does it work?
As you consider this option, your first question might be: What is budget billing? Budget billing is a service offered by some utility companies that provides a set monthly bill for services like gas or electricity.
How does budget billing work? To calculate your monthly budget billing amount, a utility company will look at your past usage, typically over the last year, and average it to determine your monthly charge, says Sara Rathner, financial author and credit cards expert at NerdWallet. This will give you a predictable bill to pay each month, rather than one that fluctuates.
Keep in mind that if you recently moved into your home, the charges used to calculate your budget billing amount may be based on the previous ownersâ or rentersâ usage, says Rathner. Your actual usage may end up being more or less than theirs.
Another point to remember on how budget billing works: While budget billing gives you a steady amount to pay each month, this amount can, and likely will, change over time. Some providers update bill amounts quarterly, some annually. Thereâs no universal timeline for these updates, so be sure to ask your utility provider about its specific process, says Lance Cothern, CPA and founder of personal finance blog Money Manifesto.
These changes are made to capture your actual usage, whether that usage has decreased (a mild summer allowed you to keep the AC off more often) or increased (a brutally cold winter forced you to blast the heat). Typically, you will be notified in advance of the change.
Now that you know how budget billing works, you may be wondering: Could it save me cash?
Does budget billing save money?
Not exactly.
âBudget billing won’t save you money; it just evens your bill out over time,â Cothern says.
How does budget billing work if you end up using less energy and overpay? You may be reimbursed for the amount you paid above your actual energy usage, or the amount overpaid will be applied to next year.
âAnyone who sticks to a strict, detailed monthly budget may prefer the predictability of budget billing.â
How does budget billing work if you underpay? Youâll have to pay the extra amount to make up the difference. These payments or credits happen in addition to any adjustments your provider makes to your monthly bill if your usage changes over time, Cothern says.
What are the benefits of budget billing?
Overall, thereâs a fairly straightforward answer to what budget billing is, and the benefits are clear, too. While it doesnât save you money per se, it may allow you to more easily manage your monthly budget.
For example, if you know your monthly electricity bill will be $100, you can account for this expense in your budget and more precisely allocate funds into other expenses or savings.
âAnyone who sticks to a strict, detailed monthly budget may prefer the predictability of budget billing,â Rathner says. âYou know exactly how much your utility bill will be each month and can plan your other spending around it.â
Combine budget billing with autopay and you can set and forget your utility bills, ensuring theyâre paid on time and in full, making money management a lot simpler. This could also help you deal with financial stress.
While budget billing has its pros, it also comes with cons. Does budget billing save you money? To help answer that question, consider the following:
You may face extra fees. Some utility companies charge a fee for budget billing. In Cothernâs view, this negates the benefit since thereâs no reason to pay tacked-on fees for this service. Itâs important to find out whether there are fees before signing up when youâre researching how budget billing works.
You may ignore your utility usage. Budget billing puts your monthly utility charges, as well as your actual usage, out of sight and out of mind. Without the threat of a higher bill or the reward of a lower one based on your energy habits, some people get complacent, Rathner says. They leave lights on or turn up the heat instead of grabbing a blanket. If this sounds like you, budget billing may actually cost you money in the long run.
âAlways keep an eye on your monthly bill even though you pay a level amount for months at a time,â Cothern says. Most utility companies provide your usage information right on your bill.
If you can financially handle the seasonal swings of each bill, budget billing may not be much of a benefit for you, Cothern says. Paying the full amount also means youâre paying attention to the full amount, he says, which may motivate you to reduce your energy consumption. And thatâs where the real opportunity to save money lies.
By considering potential fees and the impact on your energy usage, youâll have a good sense of whether budget billing saves you money in the long run.
Make the most of how budget billing works with this hack
After scrutinizing how budget billing works, the potential downsides have led some financial pros, Cothern among them, to develop a new hack for paying utility bills.
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Instead of signing up for budget billing, open a savings account online specifically for utilities, Cothern suggests. Youâll also want to sign up for a rewards credit card, if you donât have one already.
Next, grab your last 12 months of utility bills, total them up and divide by 12 to get your monthly average. Youâll then want to set up an automatic transfer of that amount from your checking account into the utility savings account each month.
When the utility bill comes, pay it with your rewards credit card and then pay that bill with the money in your savings. You reap the benefits of maintaining a consistent amount coming out of your budget, as well as credit card rewards and any interest earned on that money from your savings account.
Do your homework before signing up for budget billing
After weighing your options and considering your personal budgeting style, you may decide that budget billing is right for you.
If thatâs the case, itâs important to read your utilityâs program rules in detail. Yes, that means digging into the fine print to understand how budget billing works at the specific company, Cothern says, because budget billing is a general term for a wide variety of utility company programs. Budget billing may be called something else, like flat billing or balanced billing, and it may carry different nuances and terms.
Before signing up for budget billing, Rathner suggests calling your provider and asking the following questions:
Are there startup or maintenance fees?
How is the monthly amount calculated? How often is it updated?
What happens if you overpay or underpay?
What happens when you move or end service?
With the answers to these questions, youâll have a better idea of how budget billing works for your provider. Armed with that info, you can determine whether budget billing saves you money and make the call on whether enrolling is right for you.
Whether you opt for budget billing or not, small adjustments to your home can result in major savings on your energy bills. For starters, check out these four ways to save energy by going green.
Articles may contain information from third-parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.
The post What Is Budget Billing and Is It Right for You? appeared first on Discover Bank – Banking Topics Blog.
Adults often feel the pressure to act responsibly with everything related to their well-being and their wallets. And nothing says âadulting” quite like budgeting for medical expenses. It’s easy to think that health insurance will cover the majority of medical-related costs and thus can be overlooked in your budgetâa copay here, a deductible there… all can be handled without much ado, right?
Not so fast. Medical expenses should be a top budgeting priority, with out-of-pocket costs on the rise and the always-present risk that an unexpected medical expense could put a ding in your spending plans. Consider this: On average, healthcare costs account for about 8 percent of annual household spending, or nearly 7 percent of pretax income, according to the Bureau of Labor Statistics. Even if your health insurance kicks in to cover an expense, your budget for healthcare costs still needs to include your premiums (AKA the amount you pay for your health plan).
How do I budget for healthcare costs, you ask? Fair question. This can sound like a lot. To better plan for healthcare costs, consider these five steps:
1. Determine your total healthcare budget
When budgeting for medical expenses, it may be helpful to bucket your healthcare costs into three categories:
Fixed Premium: This is the set amount you pay for your health insurance. If you get health insurance through work, this expense may be deducted automatically from your paycheck.
Routine: These are your anticipated healthcare costs, even if they fluctuate. Think your copay for your annual checkup or the cost of a regular prescription.
Unexpected: These costs can be difficult to predict, like an unplanned trip to the emergency room or an urgent medical procedure.
When it comes to planning for healthcare costs, your medical and spending history is key. âThe best place to start in determining how much to budget for healthcare costs is to look at how much you actually spent on healthcare previously,” suggests CPA and personal finance blogger Logan Allec.
You can start by reviewing all of your receipts from your insurance company and healthcare providers and going through your bank and credit card statements to flag any healthcare costs you paid out of pocket over the past year, Allec says. (If you didn’t save all of last year’s receipts, don’t stress. You can contact your insurance and healthcare providers for documentation.) The final number you come up with is a good start for determining your annual fixed and routine healthcare expenses. (Those unexpected curveballs mentioned earlier? See tip 3.)
When budgeting for healthcare costs, Allec also says to anticipate if you’ll have any extra costs this year that you didn’t encounter last year. For example, are you scheduling a surgical procedure or expecting a child? Make sure you understand how much you will have to pay out of pocket by reviewing exactly what your insurance covers annually, and factor that into your plan for healthcare costs.
2. Put your health at the top of your priority list
Once you’ve estimated your annual healthcare costs, consider how you prioritize them against your other essential expenses, says Todd Christensen, blogger and financial educator from Money Fit.
As a guide, Christensen says that healthcare expenses should fall between necessities like your mortgage or rent, taxes, food, transportation and phone. âIf you have a hard time paying for prescriptions but make monthly payments to your cell phone provider, then you have prioritized your personal communications over your health,” he adds.
From budgeting for your insurance premiums to preparing for doctor visits and ordering prescriptions, think of paying for healthcare expenses as a “need” instead of a “want,” Christensen says. By adjusting your mindset to give your health the significance it deserves, budgeting for medical expenses will become second nature.
3. Set up an emergency fund
Remember those unexpected healthcare costs that are tricky to plan for? When creating a budget for healthcare costs, Christensen suggests creating an emergency fund. An emergency fund is an account that is set aside to help cover an unexpected financial or medical emergency, such as a procedure or medication that is not fully covered by your insurance plan.
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Experts typically recommend saving at least three to six months of living expenses in your emergency fund so you can pay for unexpected expenses without having to take on debt or dip into savings earmarked for other financial goals. But, according to Christensen, if you’re starting an emergency fund from scratch, it’s best to start small and focus on a goal that’s attainable for you.
“Initially, the amount is less important than the commitment to just do it,” Christensen says. Managing the account, however, does require some discipline. For example, going on a 10-day wellness retreat, however therapeutic the massage sessions may seem, probably does not qualify as an emergency.
On average, healthcare costs account for about 8 percent of annual household spending, or nearly 7 percent of pretax income.
4. Take advantage of health savings accounts
In addition to your emergency fund, there are also special health savings accountsâfunded by you or your employerâthat can help you cover your health expenses and plan for healthcare costs. Here are three common health savings tools to consider:
A Health Savings Account (HSA) can be for you if you’re enrolled in a high-deductible health insurance plan (HDHP), which is a plan that offers lower premiums in exchange for a higher deductible. An HSA lets you put money away on a pre-tax basis for eligible healthcare expenses, including certain dental work, eyeglasses and prescriptions. Contributions can come from you, your employer, a relativeâanyone who wants to fund the account. Also, the funds roll over from year to year with an HSA, which makes it a great long-term tool for budgeting for medical expenses. Note there is an annual limit for how much you can contribute.
Whereas an HSA can be funded by you and your employer, a Health Reimbursement Arrangement or a Health Reimbursement Account (HRA), is funded solely by your employer, and funds can be spent on predetermined medical expenses. What’s left over in the account can be rolled over to the next year. If you leave the company, however, you can’t take the funds with you.
With a Flexible Spending Account (FSA), you can have a certain amount of money taken from your paycheck, pre-taxed, and deposited into an account that’s used for qualified healthcare expenses. Both you and your employer may contribute to this plan, with a maximum contribution allowed by law. Unlike the accounts above, FSAs don’t generally roll over at the end of each year. Check with your employer for your plan’s specifics.
5. Evaluate health insurance choices carefully
To budget for healthcare costs effectively, consumer finance leader Trae Bodge suggests you take the time to evaluate your health insurance options to find the best plan for you and your family. For each plan, you’ll want to carefully consider the type of plan (are your preferred doctors, hospitals and pharmacies covered?), as well as the cost of premiums, deductibles, copays and prescriptions. Your health history may also be an important factor when considering different coverage options.
âIf family members go to the doctor frequently or have multiple prescriptions, it may be better for your budget to opt for a more expensive plan, given the coverage provided,” Bodge says.
If you’re an entrepreneur or self-employed, you can shop the Health Insurance Marketplace at healthcare.gov. But also look at comparable plans directly through insurance providers to better budget for healthcare costs, Bodge says. You might be able to save by choosing a smaller insurance company over a larger one or by signing up directly with the provider, Bodge adds.
Plan for healthcare costs today
When it comes to budgeting for medical expenses, a little planning today can go a long way toward providing for a more financially secure tomorrow. With a healthcare budget firmly in place, you’ll be better empowered to make decisions that are good for your healthâand your wallet.
The post Your Guide to Budgeting for Healthcare Costs appeared first on Discover Bank – Banking Topics Blog.
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