By Peter Boys, CAFA The Financial Coach
We all tend to take our good health for granted until we get sick or injured. Even a minor health crisis can affect your family’s financial well-being. It can affect your ability to earn an income plus have the likelihood of additional bills to pay.
Consider that you may not be able to work, plus your spouse may also not be able to work if they have to look after you. You may need to hire someone to keep up with housework and childcare, you may need to buy prescription drugs, medical equipment and more.
All of this could translate into you either using up your hard-earned savings or borrowing money. Having to go this route could compromise your financial security. This impact is magnified if you suffer a critical illness or become permanently disabled.
You can minimize the financial effects of a health crisis with these strategies.
1. Know what benefits you have and how to access them. 1) Do you have benefits through your workplace? Find out what percentage of your pay you would receive. 2) Do you have benefits from individually owned critical illness insurance and disability insurance policies? 3) Would you qualify for federal government benefit programs? How much of your income is paid? Sickness benefits only pay 55 per cent of your income. Is this enough to cover all your bills? If these benefits will not cover your expenses, you should look into purchasing individual critical illness or disability insurance.
2. Withdraw wisely. You may have to withdrawal money out of your savings. Your RRSP should be your absolute last source of funds as you have to pay tax on those withdrawals. Use money from your savings account or TFSA first. Ideally, you should have at least three months worth of wages in your TFSA or savings account. If you do not have three months worth of wages saved, start saving today. Even $25 per paycheque begins to add up. Take the time to consider what investments will make the most sense for you withdraw from.
3. Borrow carefully. Debt can quickly spiral out of control and should be your last resort after you’ve exhausted all other options. If you are in the situation of needing to borrow to get by, only borrow for the absolute basic and look for borrowing options with low-interest rates and flexible repayment terms. Your choices may include secured lines of credit (tied to your home), unsecured lines of credit, personal loans or loans from friends or family. Avoid using your credit cards because of the high-interest rates they charge.
No one knows if or when they will have a health crisis. If it does happen to you, these are a few options to use to get you through. The ideal situation though is being prepared well in advance. Have enough insurance coverage to replace your income and enough in savings to get you through. The last thing you need during a health crisis is life being made worse by going broke and into debt.
Consider speaking with a trusted financial advisor who can review your options with you and help with the needed decisions to preserve both your lifestyle and your savings.
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