Matt’s Unsolicited Financial Advice, Part 2
I had a couple more topics I wanted to discuss that will probably come up when doing financial planning, hopefully this helps if you have to make decisions related to the following. I also recently read Nudge and a lot of the advice is echoed in that book.
tl;dr
- Get a high deductible health insurance plan (this means lower premiums)
- Automatically move money into investment accounts (either with 401K withholding from your paycheck or scheduling transfers to investment funds)
- Automate paying bills, especially known fixed ones (like a house payment, or insurance)
Health Insurance
If you get insurance through your employer, there are usually a handful of options, but I’ll discuss the pros and cons of each.
Non HSA, “regular plans”
These plans have a deductible, an amount you must pay before insurance takes over, and possibly an FSA, or flex spending account. These FSAs are highly restricted, so make sure to save receipts if you intend to get reimbursed, but also try to use your card. Also FSAs are “use it or lose it”, and so they don’t roll over to the next year. They stink if you don’t spend spend them.
These health plans are usually the safe bet, with decent size premiums and co-pays etc. covered by most plans.
HSA Plans
I vastly prefer these plans for one simple reason: You control your own money. The HSA accounts are tax advantaged (always nice) and you can contribute $3650 for an individual or $7,300 for a family. The main disadvantage of these accounts is you end up paying if something catastrophic happens much more, so the first year can be scary.
But considering you are healthy and young, why not spend that first year building up the account to pay for medical bills. HSA plans have lower premiums, and definitely pick the high deductible one to reduce your premiums as much as possible.
If you are worried about getting sick and not being able to pay, stay away from these plans. But if you’re perfectly healthy, they’re amazing investments. Also as far as eligibility, beware the last month rule.
Besides the tax benefits you can also invest the HSA money. And automatically deduct it from your paycheck, so you don’t even have to think about it.
Also you can use your HSA for things like massages or LASIK. It’s rad.
How to save money
Budgeting
I’m not a huge fan of budgeting but I do have a lot of leeway (i.e. my expenses aren’t equal to my pay, so I don’t have to focus on it that much). That being said, if you are going to budget, I highly recommend an application to track your spending, since these days folks can spend money in many different ways, and a spreadsheet can be a doozy to maintain.
Apps like Mint or Personal Capital are free (they make money off your data, i.e. if you don’t pay then you ARE the product), but they are totally worth it if you want to see where your money is actually going. They do a good job of centralizing things so you have one view for your cash/investments/loans.
Automating
I believe very strongly in automation. What I mean by that is; if you want your money to be put away, then set up a deduction system that’s automatic, so it’s not just sitting in your bank account getting eaten alive by inflation, or worse, being spent on stuff you don’t need.
You can’t spend it if you don’t have access to it :)
401K
I’d deduct from your paycheck the max you feel comfortable with each pay period. The benefit is that once you hit the limit, you won’t be able to contribute more, so at the end of the year your paycheck will start to go up. I put about 10–15% in per paycheck personally. Also always match your employer contributions.
Roth IRA
At the beginning of the year, throw as much money into this as you can. I would even say spend an entire set of paychecks (however many it takes to get to the $6000), outside of rent/etc. that you have to pay. It will give the money you put into the IRA the max amount of money to grow. Do yourself a favor and throw your January and February paychecks into your Roth IRA, at least as much as you can. Then you don’t have to think about doing it for the rest of the year.
I’d automate this with a calendar event to transfer your paycheck in, in case you can’t do it and have to delay.
Other Investments
If you have other places to put money besides the Roth IRA and 401K, awesome! Then I’d automate those as well; basically having either a task every few months to move extra money into your investment account, or taking a portion of your paycheck each month and putting it into those investments. Either way works, but one gives you more discretion over how you spend.
Bills
I automatically pay every bill, so I don’t get late fees/ credit card interest. That being said, I don’t autopay my credit cards because folks have stolen my cards a couple times, so I always read through the statement before paying it. But I do have a task that pops up every month to pay them before any of the bills are due.
