The importance of saving money for health emergencies
Posted on February 22, 2022
Modern healthcare can be awesome. Doctors can repair broken bones, treat long-term ailments, and cure disease. Health care comes at a cost, however, and in 2019, average health care spending was $11,582 per person. Insurance can help cover some or most of the cost of medical treatment, but many plans have a deductible that you must pay before coverage begins. Having an emergency health care savings fund can help you pay for the cost of unexpected treatments or medications without having to take out a loan or use your credit card.
Learn more about the value of an emergency fund and how to start one for healthcare costs.
What is an emergency fund?
An emergency fund is a liquid account that can help cover the costs of unexpected expenses. In the USA, 61% of people say they would cover the cost of a $400 surprise expense, such as a car repair or doctor’s bill, in cash or the equivalent. Often the money comes from their emergency savings accounts.
Are emergency funds necessary? In many ways, yes, because you can’t always predict what will happen. Having money saved “just in case” means you can avoid getting into debt and can stay on top of your bills and other financial obligations when the unexpected comes your way.
You don’t have to spend your emergency fund just on health care. You can have peace of mind knowing you’ve saved money in the event of a job loss, major repair or surprise bill. Once you’ve established your emergency fund, you can decide when you can access money from the account and define what “emergency” means to you.
How emergency funds can be used for health emergencies
A health emergency is not the same as routine medical care. Ideally, you would only withdraw money from your savings fund in the event of a medical emergency. Here are some examples of medical emergencies:
- A broken bone: Most fractures are unexpected and require immediate medical treatment. Fix a broken bone, like a leg, can cost up to $7,500 without insurance.
- An injury or injury: Some wounds and injuries are more serious than others and require immediate medical attention. Your emergency fund can help pay for an emergency room visit and any treatment or care you receive.
- Pregnancy complications: Complications during pregnancy can endanger both the fetus and the mother. Their treatment can increase the cost of maternal care.
- Extreme allergic reaction: Some people have unexpected allergic reactions that require emergency treatment. Money from an emergency fund can help cover the cost of treating an allergic reaction in an emergency setting.
- Heart attack or stroke: Heart attacks and strokes are two examples of unexpected conditions that usually require immediate medical attention and treatment.
Why You Should Prioritize Your Emergency Fund
Building an emergency health care fund helps protect your financial health. When you have the money set aside to cover an unexpected medical bill, you won’t have to look for ways to pay. You can also avoid taking on more debt than you can afford to repay.
When you focus on saving for emergencies, life’s surprises become less disruptive. You don’t have to worry so much about how you’re going to pay for a hospital or how you’re going to pay for drugs to treat an acute illness. The money will be there for you to use as needed.
If you have health insurance with a high deductible, saving in an emergency fund can be a great idea. Often, high deductible plans usually have lower monthly payments. They can make financial sense for people who don’t have ongoing medical bills and who primarily visit their doctor for preventative care. But if you have to go to the hospital or need medical treatment for a new ailment or injury, your insurance plan usually won’t cover you until you’ve paid the full deductible and any coinsurance amount.
How much money should you put in your emergency fund?
Many factors influence the amount of money you need to save in your emergency fund. Your current financial situation plays an important role in determining how much you need to save. If you live in a two-income household and have enough disposable income, you might be able to make do with a smaller emergency fund than a single-income household or a household that doesn’t. doesn’t have a lot of income to spare.
A standard recommendation is to have three to six months of expenses saved in your emergency fund. If you set up a fund exclusively for health care expenses, you could make your deductible your target savings amount.
You can also start small and progress gradually. If you don’t have any savings, set a goal of saving $1,000 for emergencies. Once you have that $1,000 in the bank, try to save a month or two of expenses or half of your deductible. You can build from there, saving six months of expenses or the full amount of your deductible. Dividing your target into smaller goals can make it easier to save for emergencies.
Where to keep your emergency fund
Since you don’t know when you might need money from an emergency fund, the account you choose should be accessible. A savings account may be a good option, as the balance will earn interest. The Federal Deposit Insurance Corporation (FDIC) will also insure the amount on the account.
You can also invest some or all of your emergency fund. Investments do not have FDIC protection but may have a higher rate of return than a savings account. It is essential to weigh the risk against the potential return when choosing where to save your money. You may prefer to put some of your emergency savings in an FDIC-insured account and invest some other.
Mid Penn Bank can help you create an emergency fund
Don’t let a surprise medical bill or medical emergency jeopardize your financial well-being. Mid Penn Bank offers savings accounts to help you reach your goals and set aside money for emergencies. contact us today with all your questions and to find out more.
The material on this site was created for educational purposes. It is not intended to be, and should not be treated as, legal, tax, investment, accounting or other professional advice.
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