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You’ve probably heard the old advice that you should create an emergency fund that covers at least three to six months of expenses. But you may not have been pressured to create a separate health care emergency fund. While you can use your traditional emergency fund to cover some health care expenses, it’s best to create a dedicated emergency fund, separate from the general one, that will be dedicated to your relatively predictable out-of-pocket health care expenses. Instead of true unexpected emergencies, like unscheduled home or car repairs, many of your health care expenses that aren’t covered by insurance are predictable.
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For example, if you don’t have vision insurance, you may be able to anticipate paying for glasses and/or contacts. If you have a high deductible on your health insurance, you know that in many years you will have to pay some or all of that deductible amount. You’ll also likely have different health care expenses as you go through life, from being single to getting married and having children. This is why it’s best to create an emergency health care fund separate from your general one. Here are the steps you can take to get started.
Singles Emergency Health Fund
If you’re a single person just starting out in life, chances are you’re in good health. At this age, he doesn’t have to worry about building a major health care emergency fund, especially if he’s funding both his retirement plan and his general emergency fund. But this doesn’t mean you should completely ignore an emergency health care fund.
For starters, you’ll want to get into the habit of setting aside money each month for your emergency health care fund. Even a little at a time will be worth it.
Second, you should anticipate that you will have some uncovered medical expenses, even at your age. Maybe you need glasses or contact lenses, or maybe you tend to injure yourself with sports and leisure activities. Maybe you have a high deductible insurance plan or a low coverage plan that requires you to pay more money out of pocket in the event of an injury or illness. Whatever the case, you probably want to put at least a few thousand dollars into an emergency health care fund.
And if you’re older and single and don’t have a significant health fund, you’ll want to take steps to build one. Maybe that means cutting back on some expenses and moving that money into your health care fund. Or you could take a side job that is used strictly to build up your health care savings.
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Emergency Health Fund for Couples
Once you get married, your financial life takes on greater importance. While you might, to some degree, be carefree with your finances as a single person, once you’re married, you’ll have new financial responsibilities. Not only do you and your spouse now have to cover each other’s medical expenses, but if one of you were to become permanently disabled, it could cause financial devastation for your family. That is why it is important at this age to obtain coverage such as life and disability insurance, as well as a solid health plan.
In addition to this, you should also work to buffer your emergency health care fund. For a dual-income family, a medical emergency can be a double whammy, as their medical costs skyrocket while their income drops dramatically at the same time. While good insurance is the first step, a healthy healthcare-only emergency fund (think five-digit) can also give you peace of mind.
Emergency Health Fund for Families
If you have kids, it’s time to boost your emergency health care fund even more. Not only do you have more people to cover in emergencies, but these medical costs are likely to increase as your family ages. While children are generally healthy, there are many childhood illnesses and accidents you may have to deal with, and that’s in addition to the more common medical expenses you’ll face, like braces or crutches. In the meantime, you’ll also need to be prepared for uncovered medical expenses for both you and your spouse, from benign procedures like facials or uncovered prescriptions to more serious issues like long-term care. Since these types of medical costs can add up quickly, which means you should look for an emergency health care fund of at least $25,000 to $50,000.
That can be a high number to hit, but start small. Cut some costs, change your grocery shopping habits to save more, find ways to earn extra money like having a garage sale, and focus on building that fund little by little.
Health Savings Account
The best place to keep your emergency health care fund is in a health savings account. For 2022, you can contribute up to $3,650 for singles and $7,300 for joint contributors to an HSA. Contributions get a tax deduction, earnings grow tax-free, and qualifying withdrawals are also tax-free. The only downside to the HSA is that you must have a high-deductible health insurance plan to qualify.
The bottom line
Sure, you can keep a single emergency fund and use it to cover everything from home and road emergencies to uncovered health care costs. However, if you can manage it, you’ll be ahead of the game by building a dedicated healthcare emergency fund. Even with good insurance plans, at least some medical expenses are likely to be overlooked, and having a source of cash on hand can give you great peace of mind. Storing your emergency health care fund in a health savings account is the optimal option, if you’re eligible, as you’ll get a tax deduction on your contributions, you may be able to invest your balance, and you can withdraw your funds from taxes . free for qualified distributions.
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