The human race is a very interesting one.  The past few centuries of our existence have produced massive leaps in the areas of technology and exploration.  Just a few decades ago not many people had computers or cell phones.  Despite all of this progress, there are still dark things that always occur.  Violence, war and intolerance to name a few.  These have all taken on different forms in different eras but that self destructive nature is always there.  We are a true dichotomy and probably always will be.

These self destructive habits can be found in our individual lives and habits as well.  In our never ending quest for comfort, people still smoke and eat poorly despite knowing the harmful effects to our body.  We avoid doing things we know will be beneficial for us, while choosing things that are easier to do but may not be good for us in the long run.  While these individual flaws don’t have a global effect like wars and violence do, they can be minimized in the same way.

Society sets laws to limit our destructive habits.  For whatever reason, many people resort to things like theft and violence to get what they want.  Laws were created to prevent this and while they don’t eliminate it completely, it greatly reduces the amount of crimes that occur.  We all follow some types of law, be they religious or secular.  For the most part, they are there for our own good and for the good of society.  In essence, laws prevent us from making bad choices that we might have made if left to our own devices.

This same idea can be applied in order to improve our financial lives as well.  Most people commit a financial “crime” at some point.  Spending a little more than we would have liked on the coffee run.  Going out for an overpriced dinner while cooking at home would have been much cheaper and just as tasty.  Not contributing to our 401k plan because we need all the money we can get in order to pay the credit card minimums.  We know actions like these are not good for our financial health, but they end up happening anyway to a lot of people.  But just as society can set laws to keep the crime rate down, we can set some laws of our own to keep financial crimes from happening.  The two best laws to help us financially: setting up automatic transfers and creating a spending plan.

Automatic transfers:  The best thing to come from being able to bank online is the ability to easily transfer funds from one account to another.  It’s so easy to do and is the single best way to prevent financial crimes from occurring.  Why?  Because it takes the decision out of your hands.  By having a set amount of money transferred from your checking account before you ever get a chance to spend it, you’re taking away the potential of doing something stupid with that money.  Part of your earnings need to be earmarked for savings and investment.  Instead of stressing about how much you have left over to contribute to your savings, set a comfortable amount to be taken every month so you don’t have to worry about it.

We all need to have something saved for the future and the best thing to do is save early and often.  That means contributing as much as you can to your retirement account as soon as you can.  For those who can participate in a 401k plan through their employer, this is best done with deductions from your paycheck straight into your retirement account.  You won’t even have a chance to miss the money.  This is key since most people don’t like getting less money in each paycheck. If you start early and have it deducted automatically, you have to find way to make do with what you get.  In my own personal situation, the ability to automatically transfer money from my checking account into my savings and 401k has been the best thing I have ever done for my finances.

Spending plan:  The second way to keep yourself from committing a financial crime is to set a spending plan.  This can also be called a budget, but spending plan sounds cooler.  It’s really very simple.  Just take a look at how you spent your money the last 6 months or so.  The longer time period you analyze the more exact you can get, but 6 months will give you a good overview of how you’re spending your money.  Divide it up into categories and look at where you feel you’ve been spending too much.  This is where personal finance gets personal as everyone has different tolerances.  Some people love food and don’t mind spending a lot on eating out.  Others like a strong cell phone plan and will gladly pay for it.

The key is to optimize your spending.  Spend what you like (within reason) on what you value and cut what you don’t.  This takes a few minutes of thought but it will have a profound effect on your finances.  You can then set up estimates on how much you want to spend in each category and try to stay within those values.  The goal is not to hit that exact dollar amount every month, but to recognize where you’re spending your money and shift it to where you want.  Any money you save from those things not so important to you can be sent to your savings and investment accounts.  Knowing really is half the battle.

These are two of the best ways to hack your finances and keep yourself from making a costly mistake.  There are many financial “laws” you can set to protect yourself against yourself, so just experiment around and find what works the best.

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.

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 grass will soon be visible under the dark gray mounds of snow.  And the smell of fresh hot dogs will permeate the ballparks (I’m not sure how “fresh” a hot dog can be, but let’s go with it.)  I’m much more partial to following NFL and NBA games, but with football over and basketball being really boring until the playoffs start, baseball will have to do.

And if there’s one thing I love about sports besides watching them, it’s sports analogies.  I really think any philosophy of life can be explained through sports analogies.  The importance of teamwork in winning games and getting things done successfully in life.  Doing the hard work behind the scenes will usually lead to a good performance on the field and in your career.  The analogies are endless.  There is probably no sport more amenable to analogies than baseball.  After doing some thinking, there are a good number of analogies that can apply to personal finance.  Here are some of the better ones I thought of.

(A fair warning for those who don’t like baseball or don’t get sports analogies.  Just turn back now.  This could get ugly.  Read a Financial Commandment and call it a day.)

Good pitching is essential, but you need to score runs to win

Increasing your personal cash flow is a simple proposition.  Increase the amount of money coming in and decrease the amount of money going out.  Make more money and spend less of it.  In baseball terms, that means score more runs and don’t let the other team score runs.  Having a good set of pitchers and sound defensive play from your fielders will keep the opponents runs to a minimum.  But this alone is not going to win you the championship (That’s why we’re playing the game isn’t it??!!).  You need to be able to put runs up on the board in order to make up for any small inevitable mistakes from the defense.

This means that having a budget and watching where your money goes is not enough in itself.  Sometimes we spend too much on food in a month.  A car repair is needed.  An impromptu vacation is booked.  Things fall through the cracks sometimes so it’s important we put a lot of effort into making more money as well.  It can make up for any small mistakes we make and keep our cash flow going higher and higher.  You can save only so much money.  But the ability to make more money is endless.

Want proof?  The Boston Red Sox scored 853 runs last season, more than any other team in the league.  They also ended up winning the World Series.

As far as allowing the least runs by opponents?  The best 3 teams were Atlanta, Pittsburgh and the LA Dodgers.  All had pretty good regular seasons, but couldn’t quite go all the way.  Shows you that having a good spending plan is necessary and puts you in a great position, but it is consistently increasing your net worth that will get you to the promised land.

You’re eventually going to swing and miss.  You just have to learn from it

Legendary Boston Red Sox player Ted Williams famously said, “Baseball is the only field of endeavor where a man can succeed three times out of ten and be considered a good performer.”  A 30% hit rate is awesome in the baseball world, but is terrible in everything else.  Something useful can be gleaned from these words though.  Which is that failure is inevitable.  You can literally plan for it.  There is no one who has never made a mistake at some point when it comes to their finances.  Be it a poor mutual fund selection, higher than expected credit card bills, or a home improvement project that just won’t stay under budget, mistakes will be made. 

The important thing is to, of course, learn from them.  But it is also important to read blogs just like this one to read about others financial blunders and try our best to avoid them.

Put your pitcher in the best position possible to win the matchup

A common predicament for baseball managers is when their starting pitcher is getting tired and has just let up a couple of hits.  The opponent is threatening and it’s clear your pitcher is gassed.  It’s time to go to the bullpen and choose the best relief pitcher for the situation.  Who to choose can be a tricky choice.  Some pitchers pitch better at home.  Some are better at night.  Some are terrible against certain hitters.  All these variables must be considered before choosing the pitcher that will give you the best chance to win.

Personal finance is no different.  Someone who has a lot of credit card debt and someone who has none should not be doing the same thing with their money.  The person with a lot of debt should try to get by with a smaller emergency fund while paying down their debt, while the person with no debt can save up for a more comfortable emergency fund and invest some money as well.  An professional looking to pay less taxes could opt to put more money in their 401k and HSA accounts.  Everyone has a different situation, and there is no one answer to solve everyone’s issue.  The best action is to analyze where you are and where you want to be, and find the most efficient way to get there.  Simply running the numbers will tell you what you should be doing in many cases.

The season is a marathon, not a sprint

A Major League Baseball team has to play 162 games in the regular season.  That’s a whole lot of games.  Players can get worn down and team morale can take a hit.  The important thing to do is to keep the goal in sight.  If your goal is to win the World Series, brooding over that fluke loss you suffered 2 months ago will not help you get there.  Conversely, reveling in a win against a hated opponent can be your undoing if you lose 3 games in a row right after.

Baseball teams are in it for the long haul, and so are your finances.  For example, if you make an awesome plan to repay your student loan debt, focus on paying off that debt going forward rather than looking at the past few years where you didn’t get around to it.  If you are able to make the extra payments for a whole year, be proud of that but make sure to do it against next year.  Not making your monthly payments a couple of times can derail your plan and your confidence.  As the most overused cliche in the world tells us:  Slow and steady wins the race.

All right well I’m all analogied out for now.  Hopefully those of you who enjoy sports analogies got something from this post.  And those that don’t like them hopefully read this far somehow.  Until next Opening Day.