The Life Transition Blog

Budgeting For Caregiving

One of the more stressful parts of caregiving is the worry about how to pay for it. Planning ahead can help, as can creating a caregiving budget. Of course, once you create your budget you need to stick to it! As a rule of thumb, if you're thinking ahead you're making a plan while if the situation is unfolding right now, you're creating a budget. Yet, even when you are building a budget it is important to think through the "what ifs" and create a few scenarios for how your caregiving journey might unfold. It's helpful to construct a best case, worst case, and most likely case because this view of the future might help you make decisions about what to do now. I advise caregivers to assume that the resources available at any moment will be lower than what you expect and the needs of your care recipient will be higher. If you think about things this way, you are more likely to be "surprised" that you have more than enough rather than the opposite.

A budget is made up of inflows, outflows and the assets and other resources available. Inflows include your care recipient's income, social security payments, pension benefits, IRA, 401K, or annuity distributions, Veteran's benefits, long term care insurance proceeds, support from family, etc. Outflows include all of your care recipient's expenses, not just those associated with the care itself. For example, if Mom lives in her own apartment, you have to include her rent and utilities, not just the cost of the home health aide. Always include a contingency or cushion line when you are fashioning a caregiving expense budget. Be sure to consider all of the assets or other resources that are available or could become available. These include savings, value of the home or car, gifts from others, loans, credit card limits, and life insurance policies to name a few. It is important to know about the availability of these resources along with how to access or monetize them.

Once you have crafted the budget, you will immediately see whether the inflows are sufficient to cover the outflows. If they are, you have a surplus, and that's a good thing! When you have a caregiving surplus, put it away for immediate access later. If the outflow exceeds the inflow, a budget deficit occurs and must be funded. That's where assets and other resources come in. If the deficit is short term, as when extra help is required for respite, it might be feasible to fund it from savings or using a credit card. Alternatively, if the deficit is ongoing, it's time to determine if the available resources are sufficient to cover it and for how long. It may be time to consider making changes to the caregiving budget so things are more in balance.

A budget is like a roadmap - it gives you an idea of where you're headed. When you're on vacation it's sometimes fun to toss the map and take the scenic route that might lead to an adventure or a great little restaurant. However, a budget detour is less likely to be fun. Therefore, as caregivers, it is important to periodically take a look at our directions and make sure we're heading where we planned to go. Whether you do this weekly, monthly, quarterly or less often will depend on how tight your caregiving budget is and the stability of the caregiving needs. For example, if yours is a deficit budget and the caregiving needs suddenly and permanently go up, it is critical to keep a very close eye on the budget. On the other hand, if you have a surplus budget and things are stable, it is likely to be fine to check in with your budget less frequently.

When you review your caregiving budget you are looking for variances. A variance occurs when the actual amount spent differs from what you planned when you created your budget. A variance can be positive or negative. For example, if inflows are greater than planned, that is a positive variance. Similarly, if expenses are lower than planned, that's also a positive variance. On the other hand, if inflows are lagging or expenses are higher than plan, you have a negative variance. The idea is to explain the variance and determine whether it is likely to recur, not to blame yourself or anyone else for the fact that the variance happened. For example, if the electricity bill is high in August relative to your budget for August, you're unlikely to be alarmed if you assumed that the bill for the year is divided evenly by month. One way to help interpret a variance is to look at both this period (e.g., this month or quarter) and to also look at year-to-date. In this way, you can see if a variance seems to be a one-time matter or a trend. If you see trends, you're likely to be facing a new reality, and it's probably time to revise the budget!
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