Not only does caregiving impact you physically, mentally and emotionally, it can also negatively affect your financial health. LendingTree shares 7 ways to protect your finances when you’re a caregiver.
Becoming a family caregiver often doesn’t just impact you physically, mentally and emotionally – it can drain your finances too.
A 2018 survey from Northwestern Mutual found that 68% of family caregivers have provided their loved one with financial support in addition to their other duties, while another 67% of caregivers that took on these costs had to cut back on their own expenses to do so.
If you’re currently a caregiver or anticipate becoming one in the near future, it’s important to understand that your financial health can be at risk.
Here, we’ll cover seven ways you can protect your finances as you take on this responsibility.
7 proactive steps to help secure your finances while caring for a family member
1. Broaden your definition of an emergency expense
You shouldn’t have to dig yourself into a hole – financial or otherwise – while caring for a loved one.
“Many folks see their own financial situations flipped upside down by being a caregiver,” says Matt Schulz, chief credit analyst at LendingTree. “That’s especially true when there’s an unexpected medical emergency that transitions into a long-term caregiving situation.”
Having an emergency fund to tap into can help you avoid taking on debt when the unexpected occurs.
And though traditional advice advocates for three to six months of funds to cover your basic expenses, as a caregiver, you’ll want to pad the account to cover the needs of your family member as well.
“In some cases, time can be an ally,” says Schulz. “If you envision yourself as a likely caregiver in the future, putting money aside to prepare for that can help greatly.”
If you want to keep your finances separate, consider opening up a new account (bonus points if it’s a high-yield savings account) to act as a slush fund to help cover the costs of unexpected medical bills, specialty food to meet dietary requirements, and cash for home improvements that can make living at home more accessible.
2. Build your credit score
A high credit score can help you raise your credit card limit, qualify for better lending programs with better terms, and more.
“A good credit score gives you options,” says Schulz. “When you’re a caregiver, that is so important. Being a caregiver can already be a ridiculously expensive proposition, but having good credit can help you keep those costs down a little bit if you’re needing to borrow to cover some expenses.”
Additionally, improving your credit score will ensure that your financial prospects aren’t affected dramatically once your caregiving responsibilities come to an end.
The two major factors that impact your credit score are your payment history and account balances, so focus on them when trying to boost your score.
Set up automatic payments to ensure you’re never late on a payment again.
Also focus on paying down and staying out of debt, which has the added benefit of freeing up more funds for yourself and your loved one.
Consider using free credit monitoring services to track your score as it improves – some even offer personalized tips based on your financial profile to help you boost your score even further.
3. Make your retirement fund a priority
Once you’ve reached your goal for your emergency fund and given your credit score a boost, you’ll want to start contributing as much as you can to your retirement fund, even if it’s only a little bit here and there.
If you’re working full time and your employer offers matching contributions, take advantage of it – especially if caregiving means you might need to reduce your hours or eventually quit.
If you’re not working or are on a part-time schedule, open an individual retirement account (IRA) and regularly contribute funds as you would with a 401(k).
Withdraw money from this account only as a last resort, as you will lose out on the benefits of compounding interest over time.
Just as with your emergency savings, if you do need to use these funds, work on contributing as much as you can in the months afterward.
If you have any cash left over after maxing out your retirement fund contributions, consider investing it in other assets to help it grow.
But remember: Investing carries some risk, and making a profit isn’t guaranteed.
Minimize your risk with the following tips:
- Diversify your investments by putting your money in a variety of different assets and industries. That way, if one of them loses value, your losses are limited because your other assets likely haven’t also dropped in value.
- Contribute a specific dollar amount to your assets on a regular basis, a practice called dollar-cost averaging. Over time, this strategy helps balance out the short-term growth periods and dips of the market while also helping you avoid emotion-based investment decisions.
5. Look for passive income opportunities
Taking care of someone else can often feel like a full-time job in itself, so you might not have time for an actual side hustle.
In this case, passive streams of income can increase your available funds with little to no work.
Some simple ways to make extra money include:
- Rent out an extra room in your home or list it on Airbnb.
- Rent out your car or household items, like a stroller or leaf blower.
- Start a blog about your caregiving work and focus on getting some affiliate marketing links.
- Sell unwanted items on Facebook or eBay.
- Put advertising on your car.
- Sell stock photos.
6. Look into paid family leave
Although the federal government hasn’t mandated paid family leave for private employers, certain states have.
Keep in mind that some states offer job protection – where you’re able to return to your job after your leave – but others don’t.
What the federal government does offer is up to 12 weeks of unpaid leave through the Family and Medical Leave Act (FMLA).
This piece of legislation comes with some caveats, but it’s worth looking into if you need an alternative to paid leave.
7. Discover how to get paid as a caregiver
A 2020 report from the National Alliance for Caregiving and AARP found that 19% of caregivers in the U.S. are providing unpaid care to an adult with health or functional needs.
However, this doesn’t necessarily mean you need to sacrifice your financial health too.
Look into programs offered by Medicare, Veterans Affairs (if your loved one is a veteran), and other government agencies to see if they can offer some financial support.
If your family member has long-term care or life insurance, you may be able to use the policy to pay for your caregiving expenses, too.
If you’re at a dead end, consider asking your loved one or other relatives to compensate you for the care you’re providing.
This may make you feel uncomfortable, especially if you feel obligated to help out. But if you’re helping to care for your family, you shouldn’t have to surrender your funds and your financial stability to do so.
Recommended for you:
- Getting Paid as a Family Caregiver: 3 Government Benefits Programs
- Financial Help for Seniors: 2,500+ Federal, State, & Private Benefits Programs
- The Ultimate Guide to Senior Veterans Benefits
Guest contributor: Joshira Maduro works as a market research analyst for LendingTree, where she writes insightful pieces that empower people to make better financial decisions. She lives in Charlotte, NC, navigating care for her elderly parents.
This article wasn’t sponsored and doesn’t contain affiliate links. For more information, see How We Make Money.