Information for this article was provided by Allsup, an NFCA founding partner.
Family caregivers take on many roles: advocate, transportation director, health aide. The list could go on forever. Some responsibilities are easy to master, drawing on an individual’s talents and skills. Others, such as ensuring adherence to a proper medication regimen, may take expert help and a bit of training.
Sometimes experts and training are hard to find, however, and it’s human nature to avoid things we don’t think we are equipped to handle. For many of us, it may seem overwhelming to manage a loved one’s finances and adapt to changes in our own financial picture as we take on the role of family caregiver. The good news is that with proper planning and the right tools, every family caregiver can be more in control when it comes to finances.
Establish a Budget
There’s no magic wand that will make medical bills disappear, but everyone can benefit from basic budgeting principles. Establishing a budget is especially important if you have experienced
reduced income, increased costs, or both. It’s not unusual for family caregivers to reduce the amount of hours we work or quit working altogether in order to care for a loved one, thus reducing or eliminating our income. At the same time, many incur the financial costs associated with a loved one’s care. These costs can include substantial healthcare expenditures, such as the cost of medications, supplies, home care, equipment and more.
If you are managing a loved one’s finances or you need to get a handle on your own finances, the first thing you should do is create a budget. Many people may think they have a handle on their expenditures and income without putting the facts down in writing. But a written budget is an easy, step-by-step process that can help:
• Provide a reality check about how much money you have and how it’s spent from month to month.
• Make sure you live within your means and help you identify opportunities for saving money over time.
Identifying and comparing your resources to your expenses gets you started down the path of ensuring these two columns are in line. This becomes especially critical as you experience fluctuations in both income and expenditures. You may think that you don’t need or can’t stick to a budget, especially if you have limited resources. However, setting up a realistic budget is the first step toward establishing control over your finances. Your goal is to know exactly where you stand financially for the month. Without this knowledge, your spending, debt, and financial future can quickly spiral out of control.
To get started, you need to know about available assets and income (economic resources) as well as liabilities (any amount of money that you owe and that you must pay in the future) and regular expenses.
• Examples of assets: A home, investments, life insurance contracts, bank accounts
• Examples of income: Disability insurance payments, Social Security retirement payments, employer paychecks, interest payments on investments or bank accounts
• Examples of liabilities: Personal loans, mortgage loans, credit card debt
• Examples of expenses: Rent or mortgage payments, medical co-pays, groceries
Documents that can help you identify income:
• Bank statements (interest payments, automatic deposits)
• Pay stubs from anyone contributing to your household income
• Social Security Disability Insurance, Supplemental Security Insurance or other SSA payments (retirement, dependents, widowers, etc.)
• Tax returns
Documents that can help you identify expenses:
• Monthly bills (rent, mortgage, utility bills, other)
• Credit card statements
• Receipts for expenditures (groceries, clothing)
• Bank statements (withdrawals, automatic payments)
• Tax returns
• Health insurance statements
Don’t forget to include close estimates of miscellaneous monthly expenses you pay in cash, such as amounts you spend on gas, eating out, and going to the movies. Try to be as detailed as possible. The more details you provide, the more realistic — and, therefore, useful — your budget will be. Try keeping a “budget journal” for one week, documenting when and where you spend cash, write a check, or use your credit or debit card. For an even more precise picture of your monthly spending, keep a journal for an entire month. Pinpointing your spending patterns will help you create a more accurate budget and make more informed purchasing decisions.
As with any budget, you will need to adjust it as circumstances change. But even a preliminary budget is an important and positive step.
Analyze Your Budget
After you create a budget, compare your expenses to your assets and income. If your income is higher than your expenses, you have survived the month financially. If your expenses are higher than your income, there are problems. You will need to identify and address these as soon as possible.
In either case, your goal should be to increase your available sources of income while decreasing your monthly expenses. Going forward, you should redo your budget on a monthly basis to see how you are doing and to help you get on track and stay there.
Make Changes
A budget will help you identify your essential and non-essential spending each month. Essential expenses such as housing costs and car loans are hard to trim. Non-essential expenses such as eating out, entertainment and vacations may be painful to cut out but still possible. Cutting back on even one small category, such as a store-bought coffee each day, can have a significant long-term effect on your savings. Refer to your budget journal to see what changes you can make to decrease expenses.
Manage Debt
Debt management is very important. Getting a handle on your debts and keeping them under control helps with controlling expenses. For example, you spend less on interest charges, late fees, and other penalties. With limited income and increased medical and caregiving expenses, your debts can add up. Before this happens, try applying these debt management tips:
1. Identify your debt. Determine your current debt situation, including credit card balances and auto, home, and other loans.
2. Establish a credit card payment strategy. Your goal should be to pay off high interest credit cards first to save on interest charges.
3. Consolidate your debt. You may be able to consolidate your credit cards into one by taking out a single loan. This potentially can lower your interest rate or establish a fixed rate. It’s also much more convenient to service one loan rather than juggling multiple loans. This will make it easier to keep track of your debt, and lower interest rates will save you money.
4. Refinance your mortgage. If you own your home
and are paying a high interest rate, refinancing your mortgage may result in lower monthly payments.
Factors to consider include how long you plan to stay in your home, how much lower your monthly payments will be, and how much it will cost you to refinance. Evaluating all of these factors will help you decide if refinancing truly is the right option for you.
Take Control
As with any new behavior, managing a budget gets easier the more you do it. To help you get started, use the free financial planning and budgeting tools and calculators in the “Personal Finance” section of Allsup’s Web site at Allsup.com. Also, be sure to tune in to the family caregiver financial planning webinar that NFCA and Allsup will present in February 2011.
Allsup helps individuals apply for Social Security Disability Insurance benefits and select Medicare plans best suited to meet their needs and save them money.
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