4 October 2018
Today’s Marvelous Money topic is narrow in scope, but potentially huge in impact! It’s not something that was on my radar until John introduced the idea, and so I figured it might be the same for some of you. Basically, a Health Savings Account is the most “tax-preferenced” savings vehicle in the U.S. right now, and it’s something you should definitely consider taking advantage of! Let’s chat about why.
Of course, before you can take advantage of an HSA as a savings vehicle, you have to make sure it’s the right fit for you for its primary purpose: as a form of health insurance! That’s something only you can determine, but if you’re of average health, it’s worth considering.
An HSA is used in tandem with a high-deductible health insurance plan. A high-deductible plan means you pay a lower premium — the monthly cost of your insurance — but you are responsible for paying for expenses up to your deductible (currently defined as at least $2,700 for a family) and potentially up to your out-of-pocket maximum (at most, currently, $13,300 for a family). An HSA comes alongside your insurance plan to help you save for these expenses.
There are four main financial benefits of a Health Savings Account:
1. Your contributions are tax-free. Contributions to your HSA are 100% deductible (up to a max of $6,900 for a family in 2018). Because income is taxed after you make HSA contributions, you will be taxed as though you make less money — for example, if you make $50,000 per year and put $5,000 into your HSA, you will be taxed as though you make $45,000, lowering your tax burden.
HSA contributions are actually considered SUPER tax-free, because they are both income tax-free AND payroll tax-free! This all helps to reduce the amount you pay in taxes.
2. Your withdrawals are tax-free. Withdrawals to pay qualified medical expenses, including dental and vision, are never taxed.
3. Your earnings are tax-free. An HSA is an investment account (with the freedom to access mutual funds, stocks, or other vehicles of your choice) with the expectation that the money you invest will grow over time to help you pay medical expenses in the future. If and when it does, and you use it to pay qualified medical expenses, you won’t pay any taxes on it.
4. The money is yours. Unlike a flexible spending account (FSA), unused money in your HSA isn’t forfeited at the end of the year. It rolls over and continues to grow tax-free year after year.
Basically, an HSA combines ALL of the best tax advantages possible, while giving you the opportunity to save for future expenses you will almost certainly incur — since the average couple retiring at age 65 will spend $280k in medical expenses over the course of their retirement.
And, if at age 65 your HSA investments are super-successful and you have more money socked away in your account than you could ever need for medical expenses? You still have the option of withdrawing the money for any purpose and only paying regular income taxes (as you would with a traditional IRA). If you do so before 65, you’ll pay a hefty penalty.
As you may have guessed, an HSA and high-deductible plan is the health insurance option we’ve chosen for our family! Thanks to John’s employer, we are lucky to have a low out-of-pocket maximum, which makes an HSA pretty much a no-brainer for us. When we first opened the account, we started by contributing the out-of-pocket maximum each year (for us, lower than the IRS limit). Now, we’re able to contribute up to the limit — it’s our second savings priority after making sure we get our 401k employer matches. (Our mortgage savings account is third.) As with all investment accounts, the more we can put in now, the more time it has to grow, and the more we can make our money work for us!
P.S. If your health insurance is through your company, check to see if your employer will contribute to your account – many do!
Friends, I’d love to hear: do you have an HSA? Have you been able to take advantage of it as a savings vehicle?
More Marvelous Money:
The cost of our first year with a baby
Managing money together
26 ways to save money
Our car fund
11 September 2018
When we shared a few months ago that Southern Weddings was retiring, I promised that I’d always be available to offer wedding planning advice. After all, weddings are my first love, and I’ll never tire of chatting about them! Today’s Marvelous Money topic is giving me the perfect opportunity, falling as it does at the intersection of celebrations and personal finance. From Judy, the reader who emailed me:
I’m engaged and getting married in just a month, and I’ve been thinking a lot about how the wedding fits into our overall financial priorities. My fiance and I are lucky to share similar views as you and John – pay off debt fast, save a lot, and spend only on things that bring joy. I am so excited for the wedding, but I’ve been having a hard time justifying some expenses in the perspective of our broader financial goals. Should we really pay for several hundred dollars of chair rentals, or just deal with less-than-ideal chair covers? Should I feel guilty about wanting peonies in my bouquet? Will prettier chairs actually be better than putting that money towards a vacation or retirement?!
I would love to hear your perspective on how you decided which parts of your vision were worth it, what you chose to forgo for practicality, and how you dealt with any complicated feelings about spending extra money on a wedding instead of saving for retirement or other more “practical” things. I know weddings are worth spending money on to honor the sacrament of marriage and celebrate with friends and family, but it’s so hard to know what it worth it, and what’s too far!
I love this question, because it has legs far beyond wedding planning — it will come up over and over again for anyone who follows a budget or has big money goals. (For us, currently, it looks like deciding how much we should prioritize making aesthetic upgrades to our living room.) But let’s break down Judy’s specific question a bit:
How we decided which parts of our wedding vision were worth it:
It sounds like a bit of a circular answer, but our spending priorities were the things that brought our vision most powerfully to life. In the first place, we had a very clear vision for how we wanted our easy-elegant-classic-garden party-seaside wedding to feel. From there, we identified the things we thought would add to it most strongly: our location, our tent, our band, and our caterer and chosen method of catering. A view out to the ocean, an airy, elegant tent, a live band playing swing music, and waiter-passed food versus a sit-down dinner: these things were fitting for our story as a couple and created a memorable experience for our guests, and so they were worth spending on (for us).
Don’t get me wrong: the micro decisions, like chair covers or peonies, were in some cases excruciating to make! But circling back to our overall vision always helped us align our priorities.
What we chose to forgo for the sake of our future finances:
We cut back or saved in areas that would not contribute significantly to our vision or the experience of our wedding. We served just beer and wine at cocktail hour, we added no decor to our beautiful chapel, I made our signage with scrap paper and addressed the envelopes myself, we played a custom CD at cocktail hour, we drove our own car instead of renting a vintage one, and I sold my dress to recoup more than 50% of the cost — to name just a few things.
We also knew the exact budget we had to work with, so we knew if we wanted to splurge somewhere, we’d have to cut back elsewhere. A money mindset shift that helped when we were feeling sorry for ourselves: it’s not that we couldn’t afford XYZ, it’s that XYZ wasn’t a priority for us. (This is a powerful shift for all budget followers!)
One major area where we did splurge without regret was our photography and videography. As someone who has consumed wedding images daily for literally decades, I have extremely high standards and very particular opinions. I wanted our wedding captured in a particular way, and I am so grateful we prioritized it – the photos and videos match perfectly with how I remember our wedding, strengthening my memories even six years on.
Why we decided to spend money on a wedding at all:
Our wedding was a magical day, a touchstone we will return to for the rest of our lives. It was a chance to honor and celebrate our community, to paint a picture of the beauty of the gospel, and to say to the world, this is who we are and who we will be, and this is what matters to us.
For all these reasons and more, we placed a high value on celebrating our marriage, and so we made it the first financial priority as we began our life together — as important as saving for a down payment or paying off student loans. Those things were so important to us, too, but only after the most important relationship we’ll have in this life was honored in the way we felt best.
You may or may not feel the same way. (I have two dear friends who chose elopements, and that was the perfect choice for both of them.) This all might sound incredibly silly to you, even!
Though I’m confident we could have celebrated well with a bigger or smaller budget, I don’t regret the amount we spent. After all, the point of budgeting and saving money is to have money for what’s most important to you. As people passionate about personal finance, John and I tend to highly prioritize our future selves. Our wedding was a good reminder that we only get one chance at certain things in life, and they don’t always line up neatly with when we have tons of extra cash lying around. From one frugal person to another: spend on the things that matter deeply to you — you’ll never regret it as long as you only spend money you have.
Friends, I’m laughing at myself because I tried to make this post as concise as possible and it’s still a novel! I hope it’s helpful, whether you’re currently planning a wedding or debating some other noble use for your money! I’d love to hear: if you’re married, what was the best thing you spent money on at your wedding, large or small?
P.S. Our sixth anniversary is on Saturday! I have another wedding-themed post coming up later this week :)
All photos by the wonderful Tanja Lippert
23 May 2018
Three years ago, I wrote a post about preparing financially for a baby (my most-requested Marvelous Money topic at the time!). I promised in that post to revisit the topic at some point in the future when I actually had children, and I’m so happy to do so today! My angle: what it actually cost us to add a baby to our family in the first year.
Several of you have shared that you think of me as a “big sister” going a few steps ahead of you, which is wonderfully sweet and a title I take seriously. I want to share these numbers not because you’ll be able to copy and paste them into your own life, but because if you’re thinking about having children and wondering how it will affect your finances (hand of my younger self raised high!), it is incredibly hard to find useful numbers.
I hope this post offers some hope, helpful perspective, and fodder for conversation with your spouse! :)
First, a few details about the parameters I chose:
— Our daughter was born in January, which is excellent for sharing numbers, since we budget every dollar on an annual basis. I’ve included all of the June-related costs from 2016 here (unless otherwise noted), as well as the June-related costs from 2015 that we incurred while preparing for her arrival.
— I have not included the retail price of gifts we received, items we borrowed, etc. here — just what we actually paid out of pocket. Obviously, there is a HUGE range of prices for everything baby-related, and it can make a big difference how much you buy used or buy at all. This is not meant to be a universal cost breakdown but just a glimpse at one family’s expenses based on our unique circumstances and priorities.
— I did not include any healthcare costs, as those were paid for by savings in our HSA and I don’t consider them “out of pocket.”
— I did not include “shelter” costs (i.e. our mortgage) or transportation, since we would have had those anyway. I also did not include any portion of our grocery budget, because it did not change in June’s first year with us.
That should cover the preliminaries! Here’s the breakdown, with explanation following…
Birth: This included our birth class and our doula.
Books: I bought four pregnancy and parenting books – my favorites are here!
Childcare: This is by far the largest portion of the total, but I have not even an iota of regret about spending this money! There is almost nothing I would rather spend on than making sure June is safe, loved, and well cared for when we’re not with her, and we were so happy with the school we sent her to for her first year. This covered about eight months of care post-leave.
Clothing: We were incredibly lucky to receive LOTS of hand-me-downs from Nancy and my sister. The majority of the rest of June’s clothing was purchased at my favorite twice-a-year consignment sale, with a few additional special items here and there. I think this is a category where we saved a lot of money, especially considering we had a girl – ha!
Diapers and wipes: We almost exclusively used Water Wipes and Up&Up diapers and were very happy with both.
Feeding: This included our Kiinde supplies and some formula. Thankfully, breastfeeding dropped this category wayyy down!
Gear: This category included everything that we didn’t borrow or receive as a gift, including our baby monitor, our bassinet, a console for our stroller, a convertible car seat, baby gates, and more. You can read about some of our favorite gear at different ages in these posts!
Nursery: This was the only category whose total surprised me a bit, but we did have several large expenses that added up! The good news is that these purchases were the LEAST important, so they could easily be forgone if you’re on a tight budget. Larger purchases included the light fixture ($120); the glider, fabric, and upholstery ($475); a quilt for the twin bed ($110); and the Liberty fabric for the crib skirt ($154 – that stuff ain’t cheap!).
Personal care: This category included diaper cream, Nose Frida supplies, burp cloths, a thermometer, body wash, toothbrushes, and other toiletry type things!
Toys, gifts, and fun: Thankfully, babies don’t need too much to have fun :) This category included her beloved action stackers, a few books (we received SO many as gifts!), cups and a ring stacker, and the ukulele we got her for her first Christmas.
If you’re a visual person, here’s the breakdown in pie chart form:
And one with the major categories besides childcare:
There you have it! If you’d like to share, I’d love to hear how our breakdown stacks up to your own spending, or where you were able to save if you also have a sweet baby! Thank you, as always, for being so kind and thoughtful, friends!
Affiliate links are used in this post!
24 April 2018
As I wrote the How We Do It series, there were many topics – big and small – that I knew I would want to revisit at some point in posts of their own. When I got a few questions about how we jointly manage our finances in this post, I knew it was a great one to start with!
Using this beautiful image from Cultivate What Matters of the new Finance Goal Guide, launching today! If you have money goals you’re working toward, I think you’ll love this product!!
Many of the questions centered around why John and I have separate checking accounts. The short answer is that there’s no good reason – ha! Here’s the longer answer:
John and I have separate checking and savings accounts because we opened them before we were married, and there didn’t seem to be any good reason to open a new joint one after saying “I do.” After all, our accounts are at the same bank (and linked, so that we can access each other’s through our own dashboards!), and we of course have each other’s passwords. All accounts opened since our wedding day have been joint ones.
I know many people have strong opinions on joint versus separate accounts. I think many of the opinions, though, stop short of what’s truly important: the state of your heads and hearts trumps the practicalities of how your accounts are set up any day. All of the joint accounts in the world can still lead you to a dead end if you’re not pulling in the same direction.
There is no “his money” and “her money” in our marriage. We have never valued each other or set individual spending levels based on what either of us make at our jobs. The idea of spouses effectively living at different income levels within a marriage is shocking and sad to me, as described in this recent Atlantic article:
They’ll help each other out?? Marriage means joining your financial future just as surely as it means joining your lives. I supported both of us while John searched for a job, and he put money toward my student loans for years without a peep of complaint. Were one of us to lose our job, we would not receive a “handout” from the other person – we would both adjust and bear the burden together.
On a practical note, the main reason there is no “his” or “her” money is that ALL money is fed into our family budget. At that point, we simply have one lump sum of money that we need to decide what to do with, together – it literally no longer matters who brought in how much. Because we’ve set the budget together, if it says we have a certain amount to spend, then that’s how much we have to spend. A budget is a great equalizer in this way, and if you need yet another reason to get on the budget bandwagon, there you go! :)
But back to the Atlantic article:
To that I would say, I don’t believe the money I bring home does or should “fully belong to me” — it’s shared with my husband, just as his money is shared with me.
Unsurprisingly, the arguments in the Atlantic article for why a couple wouldn’t merge their finances aren’t that compelling to me. There is one argument that I think does have validity, at least at the outset, but I don’t think it’s a situation that’s tenable longterm for a healthy marriage. If the two of you don’t have aligned beliefs on money, and aren’t consulting each other on where you’re hoping to go in life, then merging your finances absolutely will be a mess and will lead to arguments. The solution, though, is not to keep things separate — it’s to do the work to get on the same page.
John and I have a bit of an advantage here because we formed our thoughts on money alongside each other, but we also work actively to make sure we stay on the same page. (Hence our regular conversations and bimonthly net worth meetings!). Our friends Nancy and Will found themselves in the opposite situation: they came into marriage with VERY different ideas about how money should be managed. Financial Peace University helped them reach common ground, and they are some of the most inspiring financial stewards we know!
A final note, should you need more convincing: a joint budget not only determines your day to day spending on groceries, clothing, lawn care, and more, but it sets and guides your financial big picture, like how much you’re saving for retirement, how soon you’ll be able to get out of debt, when you’ll squirrel away the amount for a down payment goal, or how much you can give away each year.
And those big picture things? You want to work on them together, because then you will succeed together (and a lot more quickly than if you were working on your own!). There are few things more unifying in a marriage than reaching a major goal together, and if you’re not merging your finances, you’ll miss out on them.
Whew! Clearly this is a topic I’m passionate about, and that Atlantic article brought it all bubbling to the surface! To finish up, I’d love to hear: what goal are you working toward in your finances right now?