by Samantha Compton
Last month, in our discussion of a 3-Bucket approach to financial planning, we focused on the Growth Bucket. In review, the Growth Bucket plays a role in providing future (5+ years from now) unknown retirement expenses related to Healthcare, Inflation, and Taxes.
This month, I will take a slight detour and give you three things to think about doing NOW to help plan for and reduce expenses related to healthcare. By being proactive in this area, you can set yourself up to have more money available in your Growth Bucket for the future
1. START WITH GOOD HEALTH
I’m often reminded of the fact that I’m not as young as I used to be. However, I’m also not as old as I hope to be someday! Because of that, I’m becoming more aware of things I can do today that help me feel good tomorrow. Isn’t that the foundation for reducing healthcare expenses in every season of life? One of the best ways to help reduce future costs for healthcare is to incorporate healthy lifestyle changes that lead to better long-term health. Easy to say, harder to do. It takes intention and consistent daily choices. But, it is worth doing! Not just in consideration of how you’ll look and feel but also in how it protects your bottom line.
2. DON’T MISS TAX-FREE OPPORTUNITIES: UTILIZE A HEALTH SAVINGS ACCOUNT (HSA) OR A FLEX SPENDING ACCOUNT (FSA)
Contributions to HSAs are made with pre-tax dollars and work in conjunction with high-deductible health insurance plans to help offset some of the high-deductible costs. Interest (or earnings on the money) in the account is also tax-free. HSA accounts are available to both the employed and self-employed. Funds in these accounts can be rolled over each year, and as long as you spend the funds on qualified medical expenses, those funds can be used tax-free.
Contributions to FSAs are also made on a pre-tax basis and cover a broader number of things, such as child care if you designate the account as a Dependent Care FSA. Self-employed individuals are not eligible for an FSA account. Funds in these accounts do not earn interest and will not roll over to the following year. You will need to stick to the list of qualified expenses for them to be used tax-free.
Many people underestimate how much they spend on medical (including vision and dental) expenses and maybe under-utilizing these valuable tools. Especially if you have some children still in your home, you may want to take a second look at how much you typically spend each year on qualified medical expenses. Keep in mind; there are limits on how much you can contribute to these accounts. Check with your employer or tax advisor each year to see if there are changes to the annual limits.
3. EXPECT THE UNEXPECTED
One of the fastest ways to get derailed in your finances is to make the mistake of NOT expecting and preparing for the unexpected. Here are some suggestions:
Ensure that you have adequate emergency savings. Yes, I have said this before, and I’ll probably say it again! A good start is $1,000 with the ultimate goal of 3-6 months’ worth of living expenses saved. The emergency savings will allow you to pay for expenses related directly to healthcare emergencies. It will also provide the ability to continue to pay your bills if you cannot work for a period of time.
Consider long-term and short-term (if you do not have a fully-funded emergency savings account) disability coverage. If your employer offers these options, they can be pretty affordable due to group rates. Not having this kind of coverage if you needed it (especially without adequate savings) could be devastating to your finances. If you are self-employed and the primary income earner for your family, these plans are essential to consider. Long-term disability is of primary importance since it would help cover the most significant financial loss.
Just like many other areas of life, anticipating and planning for how you’ll reduce and pay for healthcare expenses – both expected or unexpected- will often result in significant financial savings over your lifetime. Plus, you get the added benefit of peace of mind which is truly priceless!
Take some time this week to consider the things I’ve mentioned above. Which are most important for you and your family in this season of your life? After you determine the highest priorities, choose one action you will take over the next 30 days to address them. Then do it!
Samantha Compton is an SWSM contributor and financial advisor. She is also a Senior Financial Advisor & Women’s Investment Specialist with an SEC Registered Investment Advisor Firm in the Kansas City, MO area. She places a high value on financial education and believes it is essential for creating and sticking to a well-written financial plan!
This article is written to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Wise Wealth, LLC and its representatives do not give legal or tax advice. Consult your tax advisor or attorney for advice specific to your circumstances.