The Broke Professional - Grow your money and yourself

Wealth Savings Account

Another Health Savings Account post?  Yes.  Another one.

HSA post. Another one.

HSA post. Another one.  Another one.

I’ve written about HSA’s previously here and here.  But it seems some people still don’t get it.Since HSA’s are a fairly new concept, I thought I would give one more post at explaining its benefits.

Many people I’ve spoken with who are hesitant about HSA’s are not really hesitant about HSA’s.  There is no reason to be scared of HSA’s because they provide tax free money for healthcare services AND you can keep the money forever.  People love signing up for Flexible Spending Accounts, and you can only use those funds within a year, so those are a little more scary.

No, people don’t have problems with HSA’s themselves, but have second thoughts about signing up for High Deductible Health Plans (HDHP’s), which you have to be enrolled in to be eligible for an HSA.

And they should have second thoughts.  HDHP’s are a big difference from the traditional health plans we’re used to.  You’ll have to pay out of pocket and in full for a lot of things you never had to pay directly for.

A visit to the local urgent care place?  Full price.  Have to pick up some medications?  No coverage yet.  A $1,000 visit to the ER?  Pay the full $1,000.  It’s almost like not having health insurance at all!  (It really isn’t though just keep reading.)

For a family plan in 2016, the minimum deductible needed to be considered an HDHP is $2,600.  That means that insurance will not cover anything until you have spent $2,600 on healthcare expenses for the year.  That sounds preposterous for some people, but it just requires you to plan a little better.

Are HDHP’s for you?

There are two questions you have to ask yourself to see if a HDHP is right for you.

First, are you pretty healthy?  That is, do you or any family member need to go to the doctor often or take a lot of medications.  If the answer is yes, then a HDHP is probably not for you.

But it still may be.  You just have to run the numbers.  It’s almost impossible to predict what your healthcare costs will be in the upcoming year, but looking at how much you spent in previous years can give you a good idea.

HDHP’s have lower monthly premiums than traditional health plans.  That’s one of their big selling points.  If you think you will end up spending enough on healthcare that it will negate those lower premiums, then you should probably go with a traditional plan.

The second question to ask yourself is do you plan to have a surgery or major procedure anytime soon?  If you do and you can do it early in the year, then an HDHP will DEFINITELY be the right choice as you will meet the deductible requirement early in the year and will have almost everything covered for the remainder of the year.

Not all companies accept will let certain elective procedures, like LASIK, be applied to the deductible so make sure to verify what will apply and what won’t.  If it can apply towards the deductible, an HDHP is a no-brainer.

Based on these two questions, I think most people will benefit from going with an HDHP.  So you get much lower premiums, great coverage once you meet the deductible and the biggest benefit of them all…the HSA!

Healthy, Wealthy and Wise

The minimum deductible for an HDHP family plan is $2,600.  The maximum amount you can contribute to an HSA  for 2016 is $6,750.  That means if you max out your HSA contributions for the year (which you should most definitely try to do) and get the pre tax contributions out of your paycheck, you will be able to fully cover the deductible in a little less than 5 months.  Doesn’t get much easier than that.

Remember HSA’s have a triple tax advantage: they are taken out pre tax, they grow tax deferred, and they can be withdrawn tax free for healthcare expenses.  After age 65, you can withdraw funds for any reason and you’ll owe income tax but no penalty.  Since HDHP’s cost much less for employers, many will sweeten the deal by contributing a certain amount into your HSA.

There is just too much good stuff going on here.

And let’s not forget arguably the biggest benefit: the ability for the account to grow tax free.  The default setting for most accounts is to have your HSA money in some type of money market account that earns 1% or less of interest.

That’s cute, but it’s not for me.  Nearly all HSA plans have investment options, and some of them have very good ones.  HSA’s stay with you for life, so if you can invest your funds appropriately you can stand to make a lot of money down the road.

Many would say that’s risky since the money is for healthcare expenses and not necessarily for retirement.  Fine.  What you can do (and this is what I do), is to find out what the out of pocket maximum of your health plan is.  This is the max amount you would have to pay for the year until all of your healthcare expenses are completely covered.

For most HDHP’s, this  number is around $6,500 or $7,000.  Whatever the exact amount is, put that much in the interest bearing portion of your HSA.  Put the rest into investments.  That way, even if everything goes to hell, you will have enough to cover your health care expenses for the year while still having some great tax advantaged growth in the background.

Bottom line, if you’re healthy and single, you have absolutely no reason NOT to be in a HDHP.  If you have a family there is more to consider, but an HDHP will most likely work.  If you have a family and multiple members see doctors and take medications regularly, it may not be right for you.

I don’t know what more I can say about the topic, but I’m sure I’ll revisit it again soon.  In the meantime, max out that HSA contribution!

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Digit: Save Money Easily and Automatically

An emoticon I can get behind

An emoticon I can get behind

America has a saving problem.  Not because we have an annoying habit of trying to save every country from themselves (that’s for another blog).  It has to do with Americans not saving enough money.

The personal savings rate in 2015 was found to be about 4.8%.  This rate includes retirement account savings, such as a 401(k).  Saving 5% into your 401(k)  alone is not going to get most people anywhere close to a comfortable retirement, so this is a scary stat.

Another scary number?  62% of Americans have less than $1,000 in their savings account.  This means that many many people in this country are not able to fork over $1,000 in case of an emergency.  They will have to resort to credit cards or loans to make up the difference.  And more debt is not the answer.

The answer: make saving automatic.

Enter Technology

In my own experience, automatic savings has been the backbone of my finances.  Automatic deductions from my check into my 401(k).  Automatic monthly transfers from my checking account into my savings account.  Automatic monthly student loan payments, which also gives me a slight interest rate deduction.

The beauty of automating this stuff is that the money goes where it needs to go, and I never have to worry about it being spent or disappearing into the ether.

But if you have read any of my posts, you’ll know I’m not perfect.  Some months may have different cash flow needs than usual, and as a result I have money just sitting in my checking account doing absolutely nothing.  It will get where it needs to go eventually, but I’m all about optimizing and efficiency and having money just sitting there doesn’t sit well with me (pun not intended but I walked right into it).

This is where Digit has made a big impact in my life.  I first heard about it while listening to an interview on the awesome Stacking Benjamins podcast a while back.  I tried it and fell in love.

The basic idea behind Digit is that once you sign up and link your checking account, Digit uses some fancy algorithm to analyze the transactions in your account.  After a couple of days of this, it is able to determine how much you can safely save and sends that amount to your Digit account, which is FDIC insured.

The money sits in there until you want it, at which point I usually send it to my emergency fund to beef up my savings account.  If you happen to be spending a lot that month, Digit will adjust accordingly and not take as much money out or not even take money out at all.  If you have a little more extra money sitting around, then they will save a little bit more.  If your account happens to overdraw because of Digit, which is exceedingly rare, they will reimburse you for the fee.

Accessing the money is easy.  You can just use their new mobile app to withdraw funds back into your regular checking account, or their traditional way of communicating through text messaging.  I use the texting currently because they update you periodically on how much you have in your Digit account and in your checking account.  They also send funny things once in a while to keep things lively.

And that’s pretty much it.  It’s a nearly pain free way to save.  It’s not useful for everyone, like those people who keep track of every single cent in their account (you know, THOSE people).

But it is a Godsend for those who have trouble saving anything, or those who would like to be a little more efficient with their savings, like me.

It’s very risk free to try.  If you’re not happy with it, you can just withdraw your money and close the account on their website.

And if you’re going to give it a try, I’d appreciate it again if you click here to register.  I get a tiny $5 bonus if you sign up.  Every little bit helps!

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