In our report on the state of financial support for caregivers, as of October 2021, we found that the majority of caregivers we surveyed don't get paid for their family caregiving. Furthermore, 90 percent of those surveyed reported experiencing financial strain as a direct result of caregiving. It's clear that the costs of caregiving can add up, especially in situations where the majority of care is paid for out-of-pocket.
For better or worse, money and finances are a critical part of everyone’s lives. The planning and organization of our financial health takes on even greater importance when we begin caring for someone else. Assessing your financial situation, and that of the person you're caring for, at the beginning of and throughout a caregiving experience can limit your risk for financial catastrophes, like filing for bankruptcy. While there's no full-proof plan for avoiding caregiver financial burden, here are some steps you can take today to get your finances in order and strengthen your income.
Organize your finances, or consider expert support
Evaluate all of your current financial assets, and make a master list to keep track of what you have and where you have it. Knowing where you are now and where you want to end up can help you manage that time in between.
- By creating and updating on a regular basis a list of your finances, you will always be acutely aware of your position. There are several helpful apps that can aid you in tracking your finances and remove some of your financial stress.
- Look into increasing or protecting your credit score. A healthier score will make it easier for you in the future should you ever need to borrow money to cover expenses. By setting up automatic payments, having several lines of credit you use sparingly, and trying to avoid repeat credit checks in a short amount of time, your credit score will rise over time and provide you greater financial flexibility.
- For some, independently tracking finances may be too time consuming or simply an area where their knowledge is limited. If this is the case for you, consider consulting with a financial advisor. If you explain your current situation and future goals, they can develop and advise a path that simplifies your finances and ensure you’re not headed for a financial disaster.
Set-up or revisit your emergency fund
If you don’t have an emergency fund, we strongly encourage you to create one. Safety is often the top priority for you; your finances are no exception. These funds offer some wiggle room should the unexpected happen and offer you a financial safety net.
If you already have an emergency fund, consider increasing your contributions. A good rule is to set aside more money than you think you may need. While this may be difficult to achieve, identify areas where you can be more flexible and judicious with your current spending. This tactic can yield great benefits to your long-term financial health.
Open a high-yield savings account
Consider opening a separate account specifically for your emergency fund, one that might have a higher savings rate seeing as you (fingers crossed) won’t be accessing it often. High-yield savings accounts are great option no matter your age or life stage. They allow you to keep an eye on your funds while watching them grow. They also remove the temptation to dip into this money for non-emergency situations.
Protect and plan around what you have
Once you have an accurate understanding of your financial standing, it’s important to take steps that will grow your money over time and shield you from financial disasters. If you don’t already have a Roth IRA and/or 401(k) account, consider opening one. This can be done with or independent of an employer. Both accounts will help you take advantage of compounding interest -- allowing you to make money using your money.
Traditional 401(k) definition
Your contributions to a traditional 401(k) are "pre-tax," which means you don't pay taxes on the money until it's withdrawn.
Roth IRA definition
Unlike a traditional 401(k), your contributions to a Roth IRA are taxed when you put the money in, but you can withdraw it tax-free at a later date.
Ideally, contributing to both can greatly reduce financial stress in the future as you have a steadily growing sum of money you can use later down the road.
It’s also valuable to check-in on any money you have invested and where you’re putting it. As people age or opt for less risky investments, they often change to a more secure method of investing. This approach reduces the risk of monetary loss, makes you current funds more secure, and can contribute to helping you avoid any financial downfalls in the future.
Explore passive income opportunities
Passive income is money you can make without being actively involved. This can be a great option for caregivers as the day-to-day task list can be demanding and leave you with little extra time. While some forms or aspects of passive income may require an upfront time investment, over time most will become low maintenance while still earning you money. If you can find a source of passive income that suits your lifestyle, it can be a great boon to have what is, essentially, a second source of income to supplement whatever you may have currently.
A common source of passive income that many people turn to is renting out an extra room in their home or even listing their entire property on Airbnb. If this option is available to you, make sure you take the steps needed to protect your financial investment in your property which include getting home warranties and homeowners insurance. In case unforeseen expenses arise, you’ll have some financial support. Home warranties protect your appliances and critical systems, such as plumbing and electrical, and homeowners insurance protects the physical structure.
While renting out your property is a great option, there are a bunch of other opportunities for passive income that may fit your needs better. From blogging to teaching online classes, work from home options have become more accessible and flexible allowing you to earn money without making a full-time commitment. Here are some other financial options available to you that can help reduce financial stress.
As a caregiver, often your first instinct is to protect. The same should be true for your finances. While the financial world can appear large and intimidating at the start, in reality, it’s not too hard to learn the basics and use what you've learned to your advantage. If you know where you stand on your current and future financial goals, you can begin to plan for all aspects of your finances and significantly reduce your chances of running into any financial catastrophes.