One Emergency Away from Financial Ruin
by, 08-26-2009 at 09:44 AM (1234 Views)
Summer is very nearly over; the kids are heading back to school. Amidst the business of the summer, I learned something very important; a very large percentage of families in this country are one health emergency away from complete financial ruin.
While it's typical of families to take their children to a physician for a sports physical, I was not prepared emotionally or financially for the recommendation that I get my child to a pediatric cardiologist immediately for an echocardiogram. Initially, upon hearing the news of a potentially serious heart condition, the financial ramifications of her counsel didn't even begin to cross my mind.
I asked her whether she had a recommendation for a Pediatric Cardiologist, and she inquired as to which insurance I carried. Like a great number of self-employed people in this country, I replied that we are not insured.
Not only was she baffled by my response, she appeared to be angry with me. Her remaining questions were less about the health and welfare of my child and more of an interrogation of my financial status.
I left the office that day feeling sick to my stomach with worry wondering whether his condition would warrant continual treatments, whether he would be able play football, or whether he had an underlying condition that would change all of our lives forever.
Upon returning home, my distress over the unknown was further exacerbated by the lengthy wait for a return phone call setting a follow up appointment, (well over a week). Apparently, very few Pediatric Cardiologists will accept uninsured patients on a cash basis. Before the appointment could be set, it had to be determined that I had funds to cover the expense, which I was told would range from $1,200-2,500 depending on the necessary tests. Quite frankly, I didn't give a rat's behind how much the appointments cost, I was agitated that my sons’ health was being put on hold based on our insurance status.
This ongoing consternation lasted nearly 5 weeks before it all came to a head. During this time I found myself making financial lists at all hours of the day and night. I listed items that I would (and could) immediately cut from our family budget to prepare for the expense of the initial appointment. I made a list of assets that I would liquidate, and in what order, should his condition warrant serious long-term treatment.
On the appointment day I entered the office, thousands of thoughts racing through my mind at the same time as I mulled over every possible scenario, bracing myself for any news that I might receive. I watched with baited breath as they attached electrodes to my child, listened to his reaction of feeling like "Frankenstein" and tried to offer calm reassurance whilst my own nerves were causing my skin to prickle without my consent.
Finally, after weeks of uncertainty and dread, the Cardiologist gave me the news I longed to hear, my son would be fine. Then, and only then, did the financial ramifications become significant in my mind.
It was this point that it occurred to me, the Majority of families in this country are a single health emergency away from being completely financially devastated. We all are aware that it necessary to have a nest egg set aside for family emergencies, but a Health crisis- such as an unknown heart issue, is not something that one can set aside funds for. Obviously the best choice is to be fully insured with a wonderful growing nest egg in the bank; since this is rarely feasible, I offer the following recommendations based on my experiences:
Create your own Financial Emergency Plan, Today, before your family is trapped within a heart wrenching drama where your emotions are likely to rule your choices. My own plan now consists of 3 major categories.
Non-Essentials - Items that can be cut with as little as a phone call to save several hundred dollars per month, thereby freeing cash quickly.
- Cable TV/Satellite
- Cell phone extras
- Gym memberships
- Book clubs
- Hobby & Craft supplies
- Gift giving
- bars, restaurants, eating out (yes, even that morning latte)
2nd Level: Things are Getting Serious Now...
- Consider eliminating or dropping your 401k contributions
- Elimination of any unnecessary driving/gas expense- elimination of sports/lessons for the kids, etc
- Elimination of Items you are making payments on or Leasing- cut the debts by selling or returning any items
- Contact your mortgage Company to temporarily defer or lower payments
[br] By freeing yourself from these additional payments, most families will have a considerable amount of cash to work with to make it through an emergency.
3rd Level- Full-on Emergency Mode
At this point, it's time to start liquidating assets.
- List of items that can be sold via yard sale, ebay or in consignment stores
- List of Big Toys- campers, boats, atv's, extra car, time-shares, etc
- List of Investments- Cd's, stocks, bonds, savings bonds, IRA's, life insurance policies (that you can borrow against), 401k's, any other accounts that can be liquidated
- Lastly, Your home.-
Obviously up until this point the entire point of creating the emergency plan is to prevent losing the home, but in dire situations a family must do what they have to.
It is essential that you prepare this information ahead of time so that you are aware of the penalties and procedures for tapping into each of these resources. By listing these items ahead of time you will know which items have the smallest penalties (financially) and you will be able to tap into those first. For instance, does your home have equity that you can work with? Realistically speaking, would you be able to pay back an equity loan or would that push you further into the financial hole and risk foreclosure, which will leave you with horrendous credit and little chance of obtaining another home. Cashing out a retirement plan carries a heavy tax burden and should always be one of the last items on your financial Emergency list.
Lastly, although our entire list has been to prevent the loss of the family's home, it is far better to be prepared to sell your house on your own terms by knowing the market value and keeping that information on hand.
As with any Emergency plan, it is always best to prepare BEFORE your family is experiencing the emergency. I can say without hesitation that it is considerably easier to plan ahead when your heart is not the one making the decisions in the midst of misfortune, where you are apt to choose solutions that are the easiest, rather than the wisest for your long-term financial well being.
I implore you, create your Financial Emergency Plan, and put it in a safe place. It is my wish that your family never needs to utilize it, but if the worst happens, at least you'll be prepared.