The Broke Professional - grow your money and yourself

Diamonds in the Rough Roundup 4/11/14

The sun is finally shining and the cherry blossoms are blooming.  I’m enjoying these temps in the 70′s and looks like we’re finally out of winter.  Check out some of these equally refreshing articles I came across.

-A Realistic Look at Ideal Days in Our Future Financially Independent Life by RichmondSavers:  Great thought provoking post on how we would spend our days if finances weren’t an issue.  It’s something we need to think about as we all only have a limited amount of time on this planet.

-How to Recover from a Financial Mistake by Stefanie O’Connell:  Everybody makes a dumb financial move here and there.  It’s important not to beat yourself about it, learn from it and move on.

-Should I say Something?  A PF Enthusiast’s Dilemma by Cash Cow Couple:  It’s always tough to see or hear a loved one about to make a not so smart financial move.  Is it always smart to tell them or is there another way?  A thought provoking situation.

-The power of profit margin by Get Rich Slowly:  Being in charge of your finances is like being in charge of a business.  If you start thinking of your transactions as personal profit or loss, it can put a new spin on spending recklessly.

-How Much Do I Have To Make As An Entrepreneur To Replace My Day Job Income by Financial Samurai:  Really fascinating post comparing the different aspects of being employed to being self employed.

Big shout out to Daraius at Million Mile Secretes for including me in his Interview Series.  Check it out here.

A Twist on the HSA

The Health Savings Account is the relatively new kid on the block in the healthcare world (check out my intro post to the HSA here).  The HSA has the distinct advantage of staying with you at the end of every year rather than expiring on December 31 like Flexible Spending Accounts.  Depending on which bank you open your HSA with, that money can be invested or gain a small amount of interest.  If you’re eligible for it, it is a nice account to have because contributions, earnings, and qualified distributions are all tax free.

There is one condition of the HSA that actually gives it a while new dimension.  It can act as an IRA.  My eyes were opened to this idea from a post by the Mad Fientist.  It took me a few days to kind of wrap my head around it but ever since I did, I’m all in.  And it’s all because of one rule regarding HSA’s:  any distributions made from the account after the age of 65 can be used for ANYTHING.  Meaning that after you turn 65, you can use the money for healthcare expenses, paying the mortgage, going on a vacation or just letting it sit in the account and grow.  The one caveat is that if you withdraw HSA money after 65 for anything other than healthcare expenses, you will have to pay taxes on it. This makes it similar to a traditional IRA.

The key to making this happen is that you don’t have to DIRECTLY pay for healthcare expenses because the funds don’t expire.  Let me explain.  With an FSA, the money expires at the end of the year so you better use that money on any and all healthcare expenses.  Or scramble to get glasses in December like I did because I had too much money left over.  You either use the debit card they give you or pay for it yourself and make sure to submit the receipt by the end of the year.  With an HSA, you can just pay for a $100 doctor’s visit out of your own pocket (ideally with a rewards credit card), hang on to the receipt and know that you have two choices.  The first choice is to now move $100 from your HSA to your checking account to cover the $100 charge you made.  This is fine if you know you won’t have enough money in your checking or savings to cover the bill.  This is also similar to what you would do with an FSA.

The second choice, and the better one, is to not touch your HSA money and simply file the receipt away for future use.  This will allow that $100 to grow in the account and still give you the ability to withdraw that $100 at some time in the future if you really need it.  Or, ideally, just let it sit in the account until you’re 65 and withdraw it without penalty or taxes.

There are certainly some things to keep in mind when using the HSA as a modified IRA.  If you have a genuine healthcare emergency that you will definitely not be able to cover out of pocket, use the HSA money.  That’s what it’s there for.  Hopefully the emergency will happen after you have had a few years to build up some money in the account (the 2014 IRS limit for HSA contributions for a family is $6,550).  So saving the max amount even after a few years will give you a nice cushion in case of a high hospital bill.  So if you haven’t opened an HSA or are not contributing the max amount, find a way to do so.

For its intended use, the HSA is a great account as it allows you to set aside money tax free, lets the money grow in the account tax free and lets you withdraw it tax free for qualified healthcare expenses, which we all need to spend money on at some point.  No other account allows you to do this.  But if you can keep your healthcare expenses low and cover them out of pocket, this money can grow and grow until 65 and if you need it before then, it will certainly be there for you.  Just be sure to hang on to your receipts.

It Might be Time to Cut the Cord

I admit, I am slow to change.  A big reason is that I take a long time to decide when comparison shopping anything.  Not one of my best qualities but it has saved me a few dollars along the way.  I didn't get my first smartphone until about 2 years … [Continue reading]

The Infinite Monthly Payment Loop

infinity

I've been told there was once a time where people actually paid for things up front and in full.  Cars, houses, education and such were paid for with cash and then utilized to the best of the person's ability.  A person or persons simply saved up the … [Continue reading]

Diamonds in the Rough Roundup 3/28/14

The Sweet 16 is upon us.  I hardly watch any college basketball during the regular season, but something about March Madness brings out the college basketball fan in me.  Here are some sweet posts I stumbled upon this week: -17 Things That Will … [Continue reading]

I Found the Worst Credit Card Ever

Hmmm this looks like a logo for a widely popular bank...

For some reason I really enjoy stumbling upon atrociously bad financial offers.  Be it a prepaid debit card (like Suze Orman's monstrosity), a horrible checking account or Rent A Center, there is just something about staring an obviously bad deal in … [Continue reading]

Why you need to collect Points and Miles

What maximizing rewards will eventually cause...I think

I've talked before about some great rewards you can get from credit card spending.  I've also talked about the importance of having a great credit score and the benefits one can reap over a lifetime just by having a great score.  With these two … [Continue reading]

Diamonds in the Rough Roundup 3/21/14

It's March Madness time!  Already some big upsets with Harvard and Dayton winning yesterday.  Here are some winning articles I came across this past week: -A Guide to Freaking Out About Retirement Planning by Green Money Stream:  While freaking … [Continue reading]

Financial Commandment #4: Avoid a Paycheck to Paycheck Lifestyle

Have you ever seen those pictures or videos of people walking on a tightrope between two very tall buildings?  All those pictures are from a long time ago and it seems not many people do that as a thrill anymore (I wonder why??).  Besides that, they … [Continue reading]

What Baseball can Teach you about your Finances

  There is nothing like the start of the baseball season.  Even thought the season seems interminably long, there is something about the anticipation of the Opening Day of baseball games.  It means spring is right around the corner.  Green … [Continue reading]

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