A friend recently told me that all he wants to know about his finances is how much money he needs before retiring. He doesn’t care about understanding his spending—or even looking at it! He knows his spending is high today, but he believes he can reduce it at any time, and the best time seems to be retirement. This mindset will not lead you on the path to financial success.
Having more income than you spend feels good, yet it’s crucial for us to recognize that this is, in fact, necessary. If you ever want to spend any time without income in your life – whether it’s retirement, a sabbatical, or whatever – then you must earn more than you spend.
Health Savings Accounts (HSAs) are available if you are in a High Deductible Health Plan. In other words, if you are in a health plan that qualifies as a cheaper plan with a high annual deductible, you can open an HSA along with it.
So, you want to live comfortably in your future years and you’re not so sure it’s going to happen. What to do? The best step is to maximize your savings. If you’re not already putting the most you can into your retirement accounts, consider starting now.
How much will you spend in the future? This is an important question, and we can get nearly there by looking at your current expenses. However, the biggest determinant of your future spending is actually inflation.
Traditional Retirement Accounts are tax-deferred. This means you get a tax deduction when you put money in, and you pay tax when you take money out (usually in retirement). Most typically, these are your Traditional 401k and Traditional IRAs.
How much will you spend in retirement? This is an important question, and we can get nearly there by looking at your current expenses. However, the biggest determinant of your future spending is actually inflation.
How much time do you have left?Knowing the answer to this question would greatly ease your financial planning process. But, of course, this is one of the many variables we don’t know.
Do you want a guaranteed investment return? If you answered yes, I hope you added the condition that it depends on who is providing the guarantee and what that guarantee actually is.
Life insurance is used to pay for things you would pay for yourself if you were alive to do it. Therefore, we only want to buy insurance to replace actual income you expect to earn during your lifetime.
This tip is not for everyone, but if you are happy using a high deductible health plan, then you have access to a Health Savings Account or HSA. Further, if you have excess savings and you have cash piling up in your savings account, you should be using this accumulation strategy with your HSA.
The goal with taxes is not to pay the least amount of tax – it’s to keep as much as you possibly can. There are lots of strategies out there designed to minimize taxes, and unfortunately, many of them also minimize what you take home.