With the rise in health insurance premiums over the past decade, many individual and corporate health plans now offer a Health Savings Account option. The premiums are often lower than other traditional policies and the benefits of an HSA make this option worth a second look. Individuals can contribute either lump-sum or periodic contributions (up to $3,500 for an individual or $7,000 for a family in 2019) to an account like an IRA. They receive a tax deduction for those contributions, and then can use those dollars to pay for medical expenses, typically up to their plan deductible. Did you know those H S A dollars can be used for other things?
Unlike the old Flexible Savings Account options in health plans that had to be used in the same calendar year, HSA contributions can be invested and used in the future. They can be used for vision, dental or orthodontic care for your children or banked for future health or even long-term care insurance premiums.
In one specific example, a 55-year-old with family coverage who plans to retire at age 62 contributes $7,000 plus a $1,000 catch-up contribution if they are covered by a high deductible plan. They receive a tax deduction on that contribution and can use those dollars to pay for their annual health care. Let’s say the same individual has a $3,000 deductible which they meet each year for 7 years.
Why do budgets have such a negative connotation? It seems like any time you start to talk about budgets, people put up the defenses and fight to avoid it. I’ve had several different scenarios lately where the client needed a budget to dig out of a financial hole from a job change or needed a retirement budget to allow for making the final projections on their ability to retire. Yet, it always seems that starting a budget is a monumental mental hurdle for people regardless of how important it is to solve the problem or finalize a retirement picture.
But a budget is not designed to be something feared and loathed, but a tool that allows you to manage your finances. I also like to think of a budget as a spending plan instead of some cruel device that controls me and doesn’t allow me to spend money. I’m currently facilitating Dave Ramsey’s Financial Peace class as a Wednesday night study through my church. This is an awesome class that teaches some important financial skills that many people have never been taught and wouldn’t be taught without this class, but its teachings revolve around a budget. Why is that so important? Dave’s opinion is that you have to give every dollar a name and purpose. Without every dollar being dedicated to a purpose, money seems to disappear and not accomplish the goals you desire and work so hard to achieve.
The skill of budgeting is not something that you learn over night, so it will take time. I feel it takes at least 3 months to get your monthly budget under control and probably a full year to build out a reliable budget. It takes a year to capture all the annual expenses that people forget about like vacations, Christmas, annual insurance premiums, birthday presents, etc. While individually, some of these items don’t seem too big, collectively they can be 10% of an annual budget. That’s enough to derail anyone’s plan.
Most people want to retire as soon as they are financially secure enough to retire. How do you know if you will be financially secure without a spending plan? That requires us to project your annual budget out into retirement. A small miss or overspending can be amplified over an average 18-year retirement that is only getting longer with increases in medical treatments and healthier living. I was recently approached to help a young client plan to semi-retire at an extremely early age. In his case, we will have to project his retirement for probably close to 50 years. If we don’t have a good conservative budget for his yearly spending, how can we be sure he’s saved enough to make it that far while living the lifestyle he is accustomed to?
Ever been sold on the payment instead of the price? Yeah, me too and so has everyone. Salespeople make it quite simple to get you in that new car, help you get the new bedroom suite, purchase a new boat, and even get you into a new wardrobe.
It's a Big Problem!
Millions of Americans don’t even need a salesperson because they do this to themselves. They’ve bought into MASTERCARD’s tagline - There are some things money can’t buy. For everything else, there’s MASTERCARD.
Are you the master of your Mastercard or are you enslaved to it like some Americans who are part of the 828-billion-dollar pile of credit card debt?
This is the amount of credit card and other revolving plans debt that Americans had at the end of August 2019.
The number alone stirs up many questions for me, but one question persists – how?
After much thought, my conclusion is: Minimum. Minimum. Minimum.
Here’s what happens when you only pay the MINIMUM on your credit card: