The Health Savings Accounts

The government allows individuals to invest into a Health Savings Account.You have to enroll in a high-deductible health insurance plan. And then an individual can put money into this account in order to save for future health care expenses. It is basically a sinking fund for your health care expenses.

I believe in getting ahead of your money. This just means saving money for large purchases you are going to make in the future.

House, car, iphone etc.

Create a savings account for everything in your life that you know you are going to spend money on. Then start allocating money toward those goals. Prioritize which ones are more important. But make sure the bucket is fully funded before you make that car or iphone purchase. The idea is to help you avoid bad debt and built up wealth over time.

The government limits how much you can put into this account. Individuals can contribute $3650 in 2022. Why?

Because the funds you add to this account are tax deductible. You subtract this amount from your annual income. The government is incentivizing you to save for healthcare expenses. But they also do not want you to do too much because they still want their income tax money.

When you 'spend' the money from you HSA you are only allowed to spend on medical expenses and you will not have to pay any tax on that money. Unlike a deferred tax retirement account.

Essentially you earn money from you work and get a tax break from you income and then spend the money tax free. The government never gets a piece of the money going into this account.

My favorite part is you can invest the money into the stock market.

If you do not have medical expenses today then you can invest the money inside your HSA into ETFs, Mutual Funds or Individual Stocks.

Over time that amount could grow very large.

You could choose to 'front load' this account. Every Jan. 1 max out the $3650 and get dividends over that period. Or you can choose to dollar cost average into this account.

If you have medical expenses today you pay for those expenses out of pocket and keep the receipt. 10 years from now if you still have those receipts you can 'reimburse' yourself for the medical expenses that you paid out of pocket.

You can then use that money for what you need to spend money on. But only if you have those records of medical expenses that you have built up along the way.

Only certain banks/institutions offer HSA accounts.

And most of them have fees.

Your employer may offer you a bank partner and allow you to direct deposit into an HSA bank account. Be careful. There may be a fee for that privilege.

I use Fidelity. This is not an endorsement, just informational about what I do.

My account is self directed. So I have to put money into the account and then decide which investments I want.

But there is no fee to do this versus paying a monthly maintenance fee like others.

It is a little bit more work, but I like having more investment choices and having lower fees.

This is for you to decide.

I like to think of my HSA as a long term savings account. That means that you could be a little bit more aggressive with you investments like individual stocks. Because you might have decades in the market.

Or if you have more health problems you may just want to keep the money in cash or bonds.

Or you could choose something in the middle like a total stock market ETF.

I am always a fan of keep a certain amount, lets say $1,000, in cash. One portion in ETFs, lets say $3,000, and then anything over those 2 amounts can be invested into stocks I believe in.