Harness Money

At some point in our lives we are all going to need health care. And the cost of that healthcare is going to be more expensive tomorrow than it is today.

The best way to prepare for tomorrow’s health care costs is saving money today. The best way to save money for health care costs is through an HSA. For a basic overview of a Health Savings Account go to this article here. Using an HSA you can save money for future qualified medical expenses. You can also invest the money you put into your account.

You can invest that money into the stock market and let it grow for decades. And then a bigger sum of money will be there for you when you need it money. When you have an unexpected expense. Or you need the money to supplement your Medicare expenses in retirement. Or you need an expensive prescription. There are a lot uses you will find for this money.

But like many other investments the most important ingredient that you need to give your money is time to grow in the market. Time for that compounding to happen.

I have learned the hard way to plan ahead. When I did not plan ahead I found myself broke and looking for a job.

The maximum that an individual may contribute to their HSA account in 2022 is $3,650. This contribution amount may increase over, but that is not guaranteed. You may not be able to afford to set aside $3,650. It is a lot of money. When I opened and started funding my HSA I did not put in the full amount. I started putting in $20 a month.

The money really adds up over time. You can contribute the full amount all at once, but most employees will need to make it a habit to put money into this account as they earn more money.

Many employers allow funds to be taken out of your check and deposited directly into your HSA, just like money is deposited directly into your 401k. This is the principle of pay yourself first. If the money is out of site it is also out of mind. These funds are also tax-deductible which means when it comes time to pay your taxes your employer will report that this money was removed from your paycheck and it is not subject to be taxed.

The downside is that if you decide to allow your employer to direct the funds, your employer will only direct the funds to the HSA provider of their choice.

Only certain banks offer Health Savings Accounts. Not all banks provide this type of account. Your employer will have an HSA provider preference.

Your HSA provider matters, because not all accounts are created equal. Different banks have different fees. Have different minimum cash requirements. Have specific investment options.

If you start investing into an HSA with one bank and want to switch to another it is not an easy process.

I learned this when the hard way when starting my HSA. I used the bank my work preferred, but there was a high service fee. And then my investment options were limited to mutual funds, which also had fees. I was not allowed to invest into individual stocks or ETFs. Then when I learned of my mistake it was not easy to switch to a better provider.

Review your HSA provider before you decide to put money into it.

You want to make sure that your financial institution is going to help you achieve your financial goals. Not all of them do.

You want a provider that offers:

– Low fees

– Easy to use: deposit and withdraw money

– Lots of investment options: stocks, bonds, ETFs

Let’s talk strategy.

We want you to maximize your HSA funds. Which means giving your funds time to grow in the market.

Remember that mistake I made when I opened my first account. I was excited to invest in the stock market and then I realized that my provider only offered mutual funds, not great.

I do not like to invest in companies or assets that I do not believe in or align with my values.

So I switched to a better provider.

The downside of choosing your own provider.

If you choose your own provider your employer will not auto deposit the money for you like your 401k. You will need to set up the money system yourself, from your checking out to the HSA. And then keep track on your contributions when it is time to reduce that amount from your taxes.

It is a little bit more work on your part. But in my opinion the juice is worth the squeeze.

Cash

I have a separate bank account set up where I keep cash to pay for medical expenses, we will get to the reason in a moment.

For now, I try not to spend any money from my HSA. I want to money to grow. Which means that my current medical expenses will be coming out of my pocket.

I would recommend that keep a minimum amount of cash in your HSA in cash of emergency or if you need make quick purchase. My number is $5,000. That may seem like a lot or a little to you based on your needs. Come up with a number that works for you.

Pay for your medical expenses out of pocket today and keep those receipts. You will use those to reimburse yourself from your HSA account later on.

Invest those HSA funds

I am relatively young, a person in their 30s. My goal is to use this HSA when I am older so I want to invest my HSA funds now and let the compounding happen before I need to withdraw that money.

Life happens, so I am using so of my current HSA funds to pay for my recent appendectomy.

But the majority will remain in investment stocks.

Do you want to invest more conservatively or more aggressively?

If you want to be conservative invest in an S&P 500 ETF like VOO and bonds or a bond fund.

If you have time on your hands you may want to invest in individual stocks like the FAANG stocks or dividend aristocrats.

Ask yourself: What is my investing temperament?

– Can you handle volatility emotionally?

– Do you have a family to support?

– Are you able to come up with a strategy and stick with it over time?

You need to answer these questions before you invest your HSA funds. Because we want to make sure that your investments are lining up with your financial goals and we want to make that you do not lose those hard earned dollars.

I like to diversify my investments into stocks that I believe in, but also assets help preserve capital like Gold and Bonds. If in doubt diversify. 

Once you have your investment strategy, make it your goal to max out HSA every year. It also a good idea to max out your ROTH IRA. Learn about that over here.

Your future self will thank you.

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