In today’s economic climate, amidst the global COVID-19 pandemic, it’s become more important than ever to prep for the unknown.
Unexpectedly falling ill and having to spend a few days in the hospital, or even in the comfort of your own home, is bad enough. But what happens when there are medical bills and prescription necessities on top of that? Add in all the day-to-day inconveniences of life—oh, there’s a leak in your basement? Classic.
Once the dust settles and the financial realizations set in, you’re probably left wondering…
How will I afford this?
Life happens. We all know that. So what if you have to fork out hundreds of dollars for a car repair? Unexpectedly visit the emergency room or have an extended hospital stay? Come up with a small fortune to fix that darn leak at home?
This reality puts millions of Americans in difficult financial positions every day. This is where the versatility of a health savings account (HSA) can get you on the right track.
Why my HSA?
Well, your HSA lets you set aside pre-tax dollars in order to help pay for qualified medical expenses. So right off the bat, you save. And yes, in order to take advantage of an HSA you must be enrolled in a qualifying high deductible health plan (HDHP).
But don’t let the high deductible worry you. Many high deductible health plans feature much lower monthly premiums than traditional health plans, allowing you to save more money now and build for emergencies later. HSAs for the win.
Is this really a spending account with superpowers?
Yep. Think of your HSA as a money account for all of your health needs. Like I mentioned earlier, you can start setting aside money into the HSA pre-tax, if you have employer payroll deduction, or you can capture that tax benefit when you file your annual income tax return. You can use your funds for things like doctor’s visits, prescriptions, glasses, and contacts, and even dental care. You can check out the full list here.
Are there constraints around when I can use my funds?
Nope. Unlike flexible spending accounts (FSAs), which have a “use it or lose it” rule, funds in your HSA never expire. The money rolls over each year, allowing you to build more and more cushion for your financial future.
You can even take the money with you into retirement! And once you turn 65, you can use the funds in your health savings account for anything. You’ll just pay regular income tax if it’s not for qualified healthcare expenses. Pretty cool, right?
Okay, so an HSA is really like an emergency fund?
Yep. It can be. If you need to use your HSA for an emergency purpose, it’s got you. But before we get further into that, let us back up a little.
If you have the means, the best way to pay for your health expenses is always with money you have on hand. That’s because the longer your dough hangs around in your HSA, the better, as not only is the money you put into the HSA pre-tax, but it also grows tax-free!
But always save your bills. They’ll come in handy later, as I’ll explain.
Okay, back to your HSA as an emergency fund. Let’s say you or a loved one are diagnosed with an illness and after a short hospital stay, you end up with a bill of $1,300. If you are able to cover the expense with your checking account and can get by without touching your health savings account, that $1,300 continues to grow in value. Great.
Fast forward four years down the road, when your car stalls out in bumper-to-bumper traffic on the way home. You’re going to require $1,000 in repairs. The problem is: you don’t have $1,000 to bring your ride back to life. Enter your HSA.
Remember those receipts you saved from the medical bills a few years back? You can reimburse yourself for the $1,300 in healthcare costs, letting that money go right into your checking account. And pay that car bill no sweat.
Your HSA helps you make the most of your money
Money is a valuable asset, there’s no denying it. And we all know how hard you work for that paycheck, and how much it means to you.
So why not save a little more? Make sure you’re prepared for the unexpected? Perhaps these examples will have you taking a closer look at your finances. Maybe you’ll find that an HSA is a perfect way to help you prep ‘n plan… and even use that money in the event of an emergency.