Are You Prepared for Life's Surprises?

So much has happened in the past year.  Last fall, we had two family weddings - first my daughter and then boyfriend’s son three weeks later.  Both were wonderful and very expensive. Thankfully, we were able to plan for the expenses so we could simply enjoy the time with family as we celebrated our children.  This summer my youngest child is graduating from high school and headed off to college...and my first grandchild on the way.  Wonderful!  I’m so excited to welcome her into our lives and into my budget.  I am thankful that I was able to plan for all of these joyful events and expenses.

Planned expenses are a (gentle) breeze when we budget, right?  I hope you all have a budget. We will talk more about that in our budgeting posts. Today's topic is how to handle unplanned expenses. Do you have a plan? What will you do when...not if...you are faced with unplanned expenses.  

This past year also brought a car accident, knee surgery and a fall down the stairs in which I broke 3 bones in my ankle…then another surgery to fix it.  I turned my living room into my personal studio apartment with my hospital bed and at home office being set up in it.  I reached my high deductible and my out-of-pocket max on January 1st (the first day of the new insurance year) Wow!  I wish I could say that it stopped there, but it didn’t.  One of my friends noticed a leak in the upstairs bathroom when she came over to help me.  Now I need a plumber.

I like to think that I am good at budgeting.  However, all of these expenses were unexpected and not in my budget.  My mother always taught me to save for a rainy day.  This...was more like a hurricane. 

Are you prepared to handle something like this? You need a plan.  There is a lot to think about and discover as you become financially independent. 

1. Look at your Auto Insurance Policy

• What is your deductible - Can you afford to pay your deductible if you are in an auto accident? Weigh the cost. The lower the deductible the higher the monthly premium. You may be better off paying a slightly higher monthly premium then having to risk a coming up with the money for your higher deductible after an auto accident.

• Does your policy pay for a rental vehicle - after an accident, you are going to need to fix your vehicle. How will you get to work? Make sure your auto policy includes rental vehicle coverage. You will need a vehicle while yours is being fixed. Note: The insurance company will want to settle quickly if your car is totaled (full loss) because they do not have to pay for your rental once your claim is settled.

• What coverage do you have for injuries - know your policy limits. Make sure you have enough coverage to pay the medical bills incurred.  I recommend 100/300/100.

• Does your policy include "Work Loss" pay - you may be out of work due to an auto accident. Make sure you take this into consideration as you build your policy.

2. Choose the Right Health Insurance Policy for You and Your Dependents.

• Know your options. My employer offers different plans. Take the time to understand the differences before you choose your plan. For example:

  • A Co-Pay Plan

    • You will pay a "co-pay" of flat fee for your doctor visit, specialist, or service (PT, etc.) for in network providers.

    • You will pay a percentage of the fee if the doctor, specialist, or service provider is out of network. Read the fine print to know the rate.

    • You will always know what to expect to pay, but you will pay a higher premium for the plan.

  • High Deductible Plan

    • You will pay the full amount of the doctor's visit, specialist or service (PT, etc.) until you have "spent" the amount of your deductible.

    • Your insurance will negotiate the rate for you if the provider is in network. Out of network expect to pay the full amount for the service as invoiced.

    • Your premium will be lower than a Co-Pay plan, but you will need to have a plan for how to pay your deductible if you use it.

      • Health Savings Plan (HSA) - is a savings account for you to save money to be used for your medical bills. Your contribution is pre-tax and directly deposited into your account each pay period. Many employers will contribute to an HSA for you to help you offset the cost of your deductible. The best component of an HSA is that it is your money. It doesn't expire and it goes with you if you leave your employer.

      • Health Reimbursement Arrangement (HRA) - some employers will offer an HRA to help you with your deductible. These plans are paid solely by your employer. You do not get to keep the unused money. Your employer "saves" money on your health insurance for every dollar that you don't spend.

      • Flexible Savings Account (FSA) - It is a pre-tax account set up for you and taken out of your paycheck each pay period. Employers can not contribute to an FSA, it is solely employee funded. It is to be used for your medical bills. These dollars expire each year if you don't use them. FSA's can be a wise way to plan away for expected medical bills. For example, you know that you need dental work above and beyond your dental insurance plan. You can put the money aside pre-tax and use it within the allotted time frame of your plan.

3. Ask your Employer if they Offer Supplemental Accident Insurance (Like Afflac or Colonial Life)

• The most important information regarding this supplemental insurance is that you must go to a doctor within their allocated time frame to qualify for a payout. It is usually 24-72 hours after the qualifying event happens.

• This insurance will pay a flat fee for each visit to your physician based on your injuries, ER visits and required treatments including PT or Chiropractic care. This is a great way to offset a high deductible Health Insurance plan or fill in the gaps where your insurance didn't pay 100% of your medical bills.

• Accident Insurance is very inexpensive. Many employers offer it. You can contract directly with one of these companies if your employer doesn't offer it.

4. Save for Emergencies

• I could have paid for my plumber with my credit card. I didn't. Credit Cards are not an emergency fund. Don't go further into debt to pay for an unexpected expense if you don't have to. Instead, set yourself up so you don't have to.

• Calculate savings into your budget. This is a hard task. Start small if you have to and build it up each time you get paid.

  • Author Robert Kiyosaki, talks about "Paying yourself first" in his book Rich Dad Poor Dad. This is an important concept to grasp if you desire to have financial freedom from debt.

  • Note: Make sure you pay your bills. I am not advocating for you to pay yourself and ignore your bills and Robert Kiyosaki isn't either. However, it is a good read with some practical insight while challenging the reader to think differently.

• Name your money in your savings account.

  • For example, you have $500 in your savings account. If could be named as follows:

    • $200 Emergency fund

    • $100 Christmas Gifts

    • $100 Home Repairs

    • $100 New Car Fund

  • This is a Dave Ramsey concept. If you name it, you will be less likely to spend it on something else. Put it in your budget that way. I agree with Dave...tell your money what to do. You will rest easier knowing you have a plan.

There is a lot of information here. My hope is that I have helped you to think through your own situation and will ask the questions as you make your plan. Financial freedom takes work, time and knowledge. Let's get there together.