Medical expenses are just like that mail request you receive from your boss at the end of the day, just as you are about to shut down and pack up. It always comes when we are least expecting it, takes up more of our time and energy than we are willing to give it, and seems totally unfair. But just like that mail, these expenses cannot be ignored.
Just look at the COVID-19 pandemic. Who could have ever seen that coming? For those affected by the virus, the physical stress on their health or the health of their loved ones was equaled by the mental and financial stress it brought to the families along with it.
Often people fall into financial difficulties when they are wedged in by medical emergencies such as these because it is often the financial part that they are least prepared for. When we are younger, the need to plan for medical expenses is not that strong because we believe health is on our side. But like with the Corona, we could be struck by any health emergency at any time and at any age.
Planning to secure your health and those of your parents, spouse and children is an important decision in your life. While a health scare like the COVID-19 pandemic cannot be anticipated, you can prepare for it. Further, our need for medical facilities has increased over the years as we are living longer and fuller lives. Our lifestyle changes every few years which has a direct impact on our mental, physical and emotional health. With rising inflation, retail healthcare rates have also risen making medical security even more important. According to reports, the average retail healthcare inflation for India in 2018-19 was 7.14% up from 3.78% in 2017-18.
Set up a fund to meet medical needs
Health insurance generally covers our healthcare needs. But in case of an emergency, we may not have the time to go to those hospitals or healthcare centres that have tie ups with our healthcare plan. While your insurance will reimburse you later, you still need to make the payment at that time. So, it is critical that you start setting aside a certain sum of money as an emergency medical fund.
As a rule of thumb, it is said that at any given point in time you need to have about three months of daily expenses set aside in liquid assets or cash to meet emergencies. You can perhaps add another 20% (or any other amount that is suitable for you) to it as an aside for your medical expenses. Or you can altogether set up a financial plan catering to your medical needs. That way you will be planning for your medical and investment needs.
Mutual funds for a medical fund
Planning for a medical fund is similar to any financial plan with broadly outlined plans for short-term, medium-term and long-term.
For the short-term, you need to be prepared for unseen emergencies, big and small. It could be a minor accident or something more life-threatening. Health concerns such as cholesterol, diabetes, asthma, are also common these days across all age groups. In the short-term of course it is not possible to whip up large sums of money but you can always start small by making regular investments, through lumpsum or SIP, in debt funds. Debt mutual funds are suitable for short-term needs as they protect capital while providing moderate returns. You can start by choosing to invest in low risk products such as liquid or overnight funds, or any other short-term debt fund.
In the medium-term, your medical needs are likely to be higher due to advancing age and additional responsibilities such as caring for the health of your aging parents, children and perhaps even your partner if they don’t have an income source of their own. We lead stressful lives, both personally and professionally, in a hyper-competitive, fast-paced world which seeks instant gratification at every turn. For these needs, it is best to consider hybrid mutual funds that provide growth opportunities (through equity) and will also protect capital (through debt). You can choose equity-oriented hybrid funds, debt-oriented hybrid funds or multi-asset funds based on your risk appetite and you can consider both the SIP and lumpsum route for this.
When you think of the long-term, you need to consider medical expenses that you may incur post-retirement. You will have to plan for a large corpus here, as at a later stage in life medical spends make up for the bulk of your expenses. Start planning for this as early as you can. Set aside a certain amount monthly towards this goal by investing in equity mutual funds through an SIP. Equity funds are capable of generating high risk-adjusted and inflation-adjusted returns over the long-term and therefore build a large corpus. If you start investing early you can start small but increase the investment amount at regular intervals. You can add to these investments by making lumpsum investments whenever possible.
A good financial plan, irrespective of the time horizon of the goal, must be revisited from time to time to ensure that you are on track to reaching your goal. Another strategy to be followed is diversification and asset allocation with an aim to maximise returns while minimizing risks involved. For more expert advice on investments, it is always wise to consult a financial advisor.