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Stop the Bleeding by Learning to Budget

Special Needs Budgeting

About the Author
David Fulton is a Colorado Springs, CO fee-only financial planner providing Hourly and On-Going Financial Planning and Investment Management.  While he works with a broad range of clients, David specializes in working with Active and Retired Military, Federal Employees, and Families with Special Needs Children.
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If you are like 66% of American families, you don't like budgeting. It’s ok to admit it. Budgeting stinks! It’s annoying, tedious, disheartening, and essential! Budgeting for a Special Needs Family is even more critical than it is for your neighbor. Your neighbor probably has most of the same fixed costs as you do; housing,  transportation, food, gas, insurance, utilities, etc. However, it’s the variable costs that eat us alive. I’m not talking about music lessons, sports camps, and shopping trips. Families with Special Needs face steep variable medical costs and because they are variable, they by definition can change from month to month. Which makes budgeting difficult on a good day. The average family with a special needs child faces over $10,000 a year in out-of-pocket medical costs. Some of our families are frequent flyers to the emergency room and depending on our healthcare plans, may face large co-pays on prescriptions, physical and occupational therapy, and durable medical equipment. The only way to survive these choppy financial waters is to budget, and budget well.

Budgeting 101

So how might we solve this problem? Glad you asked.  First, you need to get a good budgeting tool. If you are comfortable with the good old excel spreadsheet then good for you. If you are tired of looking at all the cells and get mad when the autosum function doesn’t work right, then you need a new budgeting tool. Luckily there are some great companies that have developed very sophisticated tools to help you (best budgeting apps and tools for 2018).

Next, take stock of where you are today. Open that excel spreadsheet (or open one of the handy budgeting tools) and capture all the money you bring in. That includes salary, bonuses, government benefits, side jobs, etc. If you earn it, or someone in your family earns it, put it in the pot.

Next, lay out all your mandatory deductions. This includes payroll taxes, social security and Medicare taxes, child support or alimony, etc.

Then account for and deduct your fixed expenses in a typical month. These include mortgage/rent, utilities, homeowner's association fees, property taxes, insurance premiums, car payments, student loans, etc.

The next deduction should be your variable medical expenses. Do the best you can to get a good average on what you spend in a typical month on medical necessities. By definition some months you will spend more, others you will spend less.  However, if you can budget for it, it will help smooth the ride.

The last expenses are your “day to day lifestyle” expenses. These include cellphone and cable bills, restaurants, coffee shops, grocery bills, air travel, clothes and consumption goods, gym membership, entertainment, pet care, kids activities, etc.

Take stock of what you have left. Is there anything? But you haven’t even accounted for savingfor the future yet! If you’re like most people, then then you waited to see what was left before you moved the remainder to a savings or investment account…and guess what? There is usually not much left at this point. If this is you, then you need to make some lifestyle changes to fit it all in. Which is exactly the reason why people hate budgeting to begin with!  Its a trade off in choice.  Choose to limit what you spend today, for the hope that you can have enough for that far off, nebulous future.  So what's a person to do?

Clearly Define Your Savings Goals.

The first goal should be your emergency fund. The rule of thumb is 3-6 months of fixed expenses. However, because of the nature of healthcare volatility, you should probably increase it if possible. Nothing will knock your budget to the dirt like an extended hospitalization.

Next, you need to save for your own retirement. We know that the time value of money and compounding interest is a beautiful thing. If you defer your retirement savings even a little, it will cost you huge in the long run. Remember, not only are you retiring for two, many families must plan a retirement for three! If you have planned ahead and have a Special Needs Trust in place, your retirement savings can also become a powerful tool to fund the Trust as well. Be warned, there are restrictions and limitations associated with the various retirement accounts when used to fund a trust.  Check with a special needs planner to optimize your beneficiary designations and reduce the risk of large taxable events.

Your remaining savings goals should include an ABLE account, 529 or other college savings plans for your other children, and any other goals you may have like saving for a house down payment, a new car, a wedding, etc.

Ensure Every Dollar has a Purpose

Now, we are going to do this exercise again and I want you to ensure every dollar has a purpose and put it on auto. (Hat tip to David Bach here.  If you haven't read The Automatic Millionare you should!) Account for your various savings goals. Don’t skimp on retirement or funding your emergency fund. Set up auto withdrawals. Some employers even let you set up a direct allotment from your payroll.  

Start with your emergency fund, and specific savings and investing goals, then move on to your fixed expenses and your estimate for variable medical expenses. Every dollar has to have a purpose in advance. If it doesn’t, it will flow out of your bank account and you will have no idea where it went or what you got for it. 

Lastly you get to negotiate with yourself (or hopefully your spouse) on how much of the remainder you will put against each of your lifestyle expenses. If you get to zero each month, that is ok.  Don’t worry about it.  You no longer have to live with regret month after month. You can rest easy knowing you funded all of the critical expenses first and if the entertainment budget went dry, think of all the good family game nights you just made room for!  The most important thing is that your income is not just an ambiguous pot to draw from.  Rather, you've created a purpose for each dollar.  

The best part about this budget plan is you can really stop counting after you've set aside your fixed and medical costs.  The rest doesn't really matter.  If you spend more in groceries one month you inherently know you have less for entertainment.  If you spend less, you get to do more, but either way, you've got room to adjust.  

To get your financial house in order you have to commit to a budget. Only if you commit to a budget will you have the tools and foundation to stop the bleeding.