Financial Creativity

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

My wife and I are on the same page when it comes to our financial goals.  We both realize the importance of a strong emergency fund, as well as, saving for retirement.  This is driven by solid communication between the two of us.  I am the numbers guy in our household.  I know all of the ins and outs of our financial house.  My wife understands it all, but isn’t into the details like I am.  Given that we are on more of a solid financial footing now, than we were a few years ago, it is starting to become harder to increase our savings rate.  Life has a way gobbling up any money that is lying around.  That’s why I have begun to get creative in how I go about increasing our savings.  Take my recent opening of an HSA as an example.

Stealth Savings Increase

When we enrolled in the high-deductible healthcare plan, we were allowed to open an HSA.  We had been using a flexible-spending account (FSA) previously, so there was some money already being set aside, about $1,500 per year.  If I had just maintained that amount, the company was kicking in $800; I would have already increased my savings.  Instead, I am saving the maximum amount I can, $6,550.  That’s an increase of $4,050.  Granted, the company is kicking in $800 of that, but still, that’s not too bad.

It represents about 3.5% of my gross income.  Since, I can use the HSA dollars in retirement without penalty; I am considering this money as part retirement savings.  If I withdraw the money during retirement for medical expenses, there is no income tax; otherwise any withdrawal is subject to ordinary income taxes.

Am I Spending Less?

As I said earlier, it’s harder to eliminate our lifestyle inflation.  We’re still going to have fun with our hobbies and stuff like 888casino games once in a while.  So, the trick was to figure out a way to increase this savings without impacting our monthly budget.  In this regard, we were fortunate.  We received a serious of windfalls, for lack of a better word, in 2013.  Our original plan had us setting aside $5,000 for future medical expenses.  Given our son’s condition, it seemed a prudent idea.

When I was looking into the HSA, I realized I could use that dedicated money to fund the contributions for the HSA.  The contributions reduced my take-home pay about $225 a month, but my expenses wouldn’t be going down $225 a month.  So, what I’m doing is simply transferring the $225 out of the medical expense savings bucket into my checking account each month.  This allows me to continue on as if nothing happened.  The goal being as I receive my salary increases to reduce that shortfall as soon as possible.  I also intend to allocate some of my annual bonus to the medical expense savings bucket until that is accomplished.

This exact scenario played out over the last few weeks.  It is this time every year that I find out what my bonus will look like and whether there is a salary increase.  The salary increase was minimal this year, so all of it is going to reduce the difference from the HSA changes.  That increase will bring the difference down to $170 a month when the raise takes effect in April.  I was also able to allocate a portion of the bonus to the medical savings.  This should allow me to continue the transfers from savings to checking for at least a few years.

Just Save

In the end, it does simply come down to spending less than you earn.  My wife and I were not that good at that equation a few years ago, but we have improved.  It has also helped that I was able to increase my salary such that we could grow the gap between earning and spending.  By doing those things together, we’ve been able to increase our net worth into the 6-figure range in just 5 years from the negative territory that it was in.