We were reading through a good article today about investment mistakes that people make, including nearly 200 comments from people who related their own investment mistakes over the last year (lots of good lessons there, if you’re interested). One reader mentioned (it’s the 4th comment, fool.com doesn’t have the ability to link to specific comments) that his biggest mistake was investing rather than setting aside cash for emergencies…
My worst investing mistake was, well…investing. I ignored (until recently) putting aside 3-6 months worth of living expenses in my money market fund. So going forward I am building up my cash reserves by setting aside a set amount each month that will remain untouched unless needed. My “wake up” call was my wife’s $700 Rx for an ongoing issue and as these “uncontrollables” keep coming at me, cash is needed…since you never know what will come at you next…
This is a perfect place to point out the value of a Health Savings Account (HSA). If you have access to one, funding it is definitely a good idea. Since most people get their health insurance through their employers, HSA qualified plans are only available to them if the employer has opted to offer one. If yours doesn’t, you might want to request that they do. If you are purchasing your own health insurance and are in good health, an HSA is well worth considering.
With an HSA, you can choose to invest your money just as you would in another retirement account, based on your own risk tolerances and preferences. The money stays in your account, growing from one year to the next, until you need it for medical expenses. Once you’re on Medicare, any money that is still left in the account can be withdrawn (and is taxed at that point, similar to a traditional IRA). The contributions you deposit to your HSA are tax deductible, and money you withdraw is tax and penalty free if you use it for medical expenses.
The number of people with HSA qualified plans has been steadily increasing over the last few years, and the plans are very popular with our Colorado clients who purchase their own health insurance. For anyone who doesn’t want to have to choose between investing and saving for a medical emergency, HSAs are a perfect fit.
