Saving Money - Charlotte Financial Planning & Advice

Category: Saving Money

HSA = Tax Triple Play!

Tis the season to select your health insurance plan either through your employer’s offering or the private insurance market. If you’re considering a high-deductible health plan (HDHP), keep in mind that many (but not all!) come with the fantastic opportunity called a Health Savings Account (HSA).

We love HSAs because they do two things:

They help you pay for your medical costs either today or in the future
They are triple tax advantaged

The government makes these accounts triple tax-advantaged because they want to incentivize you to save for your future medical costs. We know as the nation greys and gets older, we need to have a pot of money set aside to cover our potential out-of-pocket costs.

Here’s the triple tax saving advantage:

When you have an HSA account attached to a high-deductible plan, you get to take a tax deduction on your current your contribution. For families, it’s $6,900 in 2018 ($7,000 in 2019). This means you get to lower your adjusted gross income by $6,900, a tax savings of potentially around $2,000 if you take into account state and federal income taxes. That’s $170 of savings each month if you do a little rounding. That’s pretty incredible. That’s step 1 – you get a tax deduction in current year. If you’re age 55 or older, you eligible for a $1,000 “catch-up contribution” so your can lower your AGI by $7,900 (thus lowering your tax bill by ~$2,300 or $190 a month).
Layer two of the triple tax advantage is it grows completely tax deferred meaning it is growing without taxation on any appreciation, any dividends, or any income that’s going on a long as that money is sitting in the HSA account.
Here’s the third layer and really the knockout that makes it an awesome savings tool for the future. If you use the money in the future for medical expenses, your HSA distributions are completely tax free.
(Here’s another cool thing. Once you reach retirement, you don’t have to use your HSA for medical expenses, but if you want them to be tax free, it needs to be medical expenses.)

Be careful when you select a high-deductible health plan (HDHP) to make sure it qualifies for HSA eligibility:

HDHP minimum deductibles: self-only $1,350; family: $2,700
HDHP maximum out-of-pocket amounts: self only $6,650; family $13,300

HSAs can be one of your best friends for the future.

Class of 2018: Financial Advice That will CHANGE YOUR LIFE

The following is a brief excerpt from the commencement address by Dr. Chris Mullis to the graduating class of Providence Day School on May 31, 2013. The full text of Dr. Mullis’ speech, that includes career advice, financial guidance, and a few pearls of wisdom, can be found here.

At my investment advisory firm, we developed complex computer algorithms and use them to manage our clients’ investment portfolios. But the basic steps you need to take to manage your own money well are deceptively simple. First, live within your means and avoid being caught up in rapid lifestyle inflation. You will not live like your parents when you first start out. Second, save and invest your money wisely. Let me elaborate on this point.

Wealth accumulation depends on three factors: how much you save, the rate at which your money grows, and how long you save. That last factor, time, is very, very important. There’s an urban legend that Albert Einstein once said that compounding interest is the most powerful force in the Universe. That quote is likely misattributed but the message is spot on. If you save $5,000 a year for 40 years and earn 8% annually, you will eventually have $1.3M. But if you delay starting for merely 5 years, your results after 35 years will be only $860k. That 5-year delay preserved $25k of short-term capital but ultimately cost you >$400k in the long run. Time is the most powerful lever in the machinery of investing. Nothing else comes close to it.

So what do you need to do? Start saving and investing right out of high school regardless of how hard you think it hurts or how unpleasant the tradeoffs. Even if you set aside only 5% of your paycheck starting out, do it to get into the habit of saving. Delaying getting serious about investing until my 30s was a significant financial mistake on my part. No one ever sat me down and explained how important it is to start investing early. Now that we’ve had this little talk, you’ll never be able to say that no one told you.

Salary You Need to Afford the Average Home in Your State

The map above from howmuch shows how much salary you need to afford the average home in your state. This a quick snapshot of housing affordability across the United States.

Top five places where you need the highest salaries to afford the average house:

Hawaii: $153,520 for a house worth $610,000
Washington, DC: $138,440 for a house worth $549,000
California: $120,120 for a house worth $499,900
Massachusetts: $101,320 for a house worth $419,900
Colorado: $100,200 for a house worth $415,000

Top five places where you need the lowest salaries to afford the average house:

West Virginia: $38,320 for a house worth $149,500
Ohio: $38,400 for a house worth $149,900
Michigan: $40,800 for a house worth $160,000
Arkansas: $41,040 for a house worth $161,000
Missouri: $42,200 for a house worth $165,900

Source: howmuch

Location, location, location!

As we head into the spring real estate season, many of our clients are busily buying and selling properties. As the old adage goes, location, location, location. The fascinating visualization above underscores the importance of geography in median housing prices and land valuations.

Blue dots represent the value of an acre of land, and the red circles indicate the median value of a home. The bigger the blue dot and the larger the red circle, the more expensive it is to become a property owner. Small circles and dots likewise indicate a very low cost of purchasing property.

A couple of things stand out:

An acre of land is much more valuable in the Northeast compared to any other part of the country
Median home prices generally high in the Northeast as well
There’s a noticeable decline of both land and housing prices in southern and midwestern states

Source: howmuch

Medicare 101: “The What’s”

Medicare is the federal health insurance program for people who are 65 or older, certain younger people with disabilities and medical conditions. The different parts of Medicare help cover specific services:

Medicare Part A (Hospital Insurance)
- Inpatient care in hospitals
- Skilled nursing facility care
- Hospice care
- Home healthcare
Medicare Part B (Medical Insurance)
- Services from doctors and other health care providers
- Outpatient care
- Home health care
- Durable medical equipment
- Many preventative services
Medicare Part C (Medicare Advantage)
- Includes all benefits and services covered under Part A and Part B
- Usually includes Medicare prescription drug coverage (Part D) as part
  of the plan
- Run by Medicare-approved private insurance companies that follow
  rules set by Medicare
- Plans have a yearly limit on your out-of-pocket costs for medical
  services
- May include extra benefits and services that aren’t covered by Original
  Medicare, sometimes for an extra cost
Medicare Part D (Prescription Drug Coverage)
- Helps cover the cost of prescription drugs
- Run by Medicare-approved drug plans that follow rules set by Medicare
- May help lower your prescription drug costs and help protect against
  higher costs in the future

We’ll cover the when’s and how’s of enrolling in forthcoming articles.

Source: medicare.gov

Start Early to Raise Money-Savvy Kids

Three out of four American teens can’t decipher a pay stub. The financial literacy of American 15-year-olds is marginally average in an international, widely-cited assessment.

Since only 17 states require a high-school personal-finance class, the burden of teaching our kids about money falls on us parents.

A comprehensive review of the academic literature shows that basic financial habits are generally set by age 7. Children as young as 3 can comprehend basic financial concepts like value, exchange, and choice.

Some parents are terrified by the notion of teaching their kids about money because they feel their own knowledge of the subject is thin. But you don’t need to be a Certified Financial Planner to show your kids the advantage of saving a dime out of every dollar, comparing prices, and avoiding high-interest credit card debt.

MoneyAsYouGrow.Org
The website MoneyAsYouGrow.org is a fantastic resource that pulls together the best research and educational materials available into a manageable list of 20 financial rules of thumb. These pearls of wisdom are organized by age and include activities to bolster the learning process.

So if you’re a parent or grandparent, seize the opportunity to shape your child’s future by nurturing their financial savvy.

The first step is to start talking to your kids about money. So grab your talking points from MoneyAsYouGrow.org and get to it!

Source: WSJ

Code Red! 8 Ways to Permanently Wipe Out Your Retirement Savings

Dana Anspach at MarketWatch wrote about 8 financially devastating mistakes (aka “Code Reds”) that must be avoided:

1. Believe in a stock
The company you work for is doing well. You understand the potential of the business. You should own a lot of company stock. After all, it shows your level of commitment, right?
WRONG! CODE RED!
You can lock in lifestyle by taking risk off the table. If trusted advisers are telling you to reduce risk, listen. You can’t take your “belief” in your company stock to the bank. Owning a lot of company stock doesn’t demonstrate a commitment to your company; it demonstrates a lack of commitment to your own personal financial planning.

2. Get reeled into real estate
Rental real estate is a good way to build wealth with someone else’s money, isn’t it? I mean, that’s what the infomercials say.
WRONG! CODE RED!
Investing in real estate is a profession in and of itself. With real estate prices on the rise again, don’t get reeled in with the lure of easy passive income. It isn’t as easy as it looks.

3. Follow a Tip
An opportunity to double your money is an investment opportunity worth pursuing. It could change your life, right?
WRONG! CODE RED!
Tips are great for your waiter or waitress. But where you family’s future is concerned, avoid the tips, and stick with a disciplined and diversified approach.

4. Change lanes — every year
Smart investors watch the market and frequently move money into the latest high performing investment, right?
WRONG! CODE RED!
You’ve probably noticed if you constantly changes lanes on a backed up highway, always trying to inch ahead, you usually end up farther behind. Driving this way isn’t effective; investing this way isn’t effective either. Pick a disciplined strategy and stick to it. Jumping from investment to investment is only going to slow you down.

5. Play the currency cards
Experts can deliver higher returns, right? Find someone who knows how to trade, and you’ll be set.
WRONG! CODE RED!
If experts could generate such high returns, why would they need your business? Don’t play the currency cards, the expert cards, or fall for any kind of outlandish promises. I’ve yet to see one of these programs work the way it was marketed.

6. Follow your ego
Better investments are available to those with more money, right? If you get the opportunity to participate in something exclusive, it is likely to deliver better returns.
WRONG! CODE RED!
If someone appeals to your ego, walk away. When it comes to investing, the only thing I’ve seen egos do is help someone lose money.

7. Follow their ego
You can trust prestigious people in your community. That’s why you should do business with them, right?
WRONG! CODE RED!
Checks and balances are good in government and in investing. One way to make sure checks and balances are in place is to work with an investment adviser that uses a third party custodian. The third party custodian sends account statements directly to you. The investment adviser can make changes in your account, but the transactions are reported to you directly by the custodian, who isn’t and should not be affiliated with the investment adviser.

8. Leverage up
Borrowing at low interest rates and investing in high growth assets is an excellent way to accumulate wealth, isn’t it?
WRONG! CODE RED!
Think twice before borrowing to invest. It causes ruin more often than it causes riches.

Visit MarketWatch to read Anspach’s full article.

Class of 2017: Financial Advice That will CHANGE YOUR LIFE

529 College Savings Plans — Your 30-Second Primer

529 plans are the best college savings option for most families. Here’s a 30-second primer on how to choose the right one for your family:

529s are funded with after-tax contributions; growth and distributions taken for higher-ed are tax free.
Essentially every state has its own 529 program. You’re free to select whichever state’s plan you like.
If your state gives you a significant tax deduction on contributions (dark green in the map below), it’s worth reviewing your state’s 529 first.
If you don’t get a state tax deduction OR if it’s <5% OR your state offers tax parity (any color except dark green in the map below), go with the best plan available nationally.
Utah’s 529 is NorthStar’s favorite in the nation because of low fees, great investment choices, no contribution minimums, and very easy setup.

Need help making the best 529 choice for your kids’ future?
Give us a call at 704-350-5028 for a free consultation.

Auto and Homeowners Insurance? Shop Regularly

It’s important to shop most of your insurance policies on a regular basis. We recommend yearly for auto and every two years for homeowners.

Insurance rates vary by hundreds of dollars or even thousands per a year among insurers for the same levels of coverage. Get quotes from several companies on a regular basis to make sure you’re getting the best deal.

There are two ways to get competitive quotes: one-by-one via telephone or multiple quotes at a single go online. The latter is faster but don’t go there if you’re not comfortable getting spam in your inbox. If you’re a telephone kind of person, call three of the big providers like Allstate, Progressive, USAA, GEICO, and State Farm. If you prefer online, try insurancequotes.com or carinsurancequotes.com.

When you do your comparison shopping be sure its on an apple-to-apple basis — same level of coverage and save deductible. Also avoid asking for a new quote within 6 months of your last attempt. Insurers usually quote lower rates to “new” customers (i.e., those who haven’t asked for a quote in the last 6 months).

So, if you’ve never shopped your auto and homeowner’s insurance, or it’s been a while, don’t put it off any longer because you’re probably leaving money on the table.

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