We want to be healthy, both physically and financially. For better or worse, the two go hand-in-hand. Those who are physically healthy spend less money on their health, leaving more to save. Those who are financially healthy have more to invest in their bodies. And the reverse is true. It’s a vicious or victorious cycle.
If you want better physical and financial health, here are four moves you can make.
Stop Spending on Your Health
Too often, we think of “spending” money on our health. Here are ways we “spend” on our health:
- Health Insurance Premiums
- Health Insurance Copays
- Health Insurance Out-Of-Pocket Maxes
- Prescription Drugs
- Medical Equipment
We also spend time on our health, but not in the way we might think. Take these examples:
- Driving to the Doctor
- Waiting at the Doctor’s Office
- Meeting with health insurance people (agents, billing, claims, etc.)
- Driving to get prescriptions
- Missed time at work or with family due to illness
Health care, or more accurately “sick care,” is very expensive, both in time and money. If we want to have more of both, we need to stop spending on our health and start investing.
Invest In Your Health
Part of optimizing our health and finances is changing our mindset from spending to investing. Spending has a negative connotation, which is somewhat deserved. We like spending on entertainment but deplore spending on bills. Let’s change the narrative.
We do not spend on our health. We invest in it. Here are ways we can invest money in our health:
- Gym or Health Club Membership
- Competitions like the Senior Games
- Healthier Foods
- Vitamins and Supplements
- Home Fitness Equipment
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Far too many of us don’t want to “spend” money on any of these items. We think we are saving money by withholding our money from these items. But by not investing money in our health, we lose our health and start spending more money on the items in the last section. Which would you rather do?
|Health Insurance Premiums||Health Club Memberships|
|Max Out of Pocket||Maximizing Physical Potential|
|Prescription Drugs||Vitamins & Supplements|
The money will go toward health regardless. We have to choices. We can:
Reactively spend on getting our health back.
Proactively invest on optimizing our health forward.
The choice is yours. Now to get practical.
Utilize a Health Savings Account
A Health Savings Account is the best account in the United States. It’s better than a Roth IRA. It’s better than a 401(k). And most people are not using it properly.
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HSA’s have three major benefits:
- Contributions are Tax Deductible
- Balances Grow Tax Deferred
- Distributions are Tax Free
We call this the Triple-Tax Advantage.
Here’s how the HSA compares to other accounts:
|Brokerage/Bank||Traditional 401(k)/IRA||Roth IRA/401(k)||HSA|
|Contributions||Taxable ❌||Tax Deductible ✅||Taxable ❌||Tax Deductible ✅|
|Growth||Taxable ❌||Tax Deferred ✅||Tax Deferred ✅||Tax Deferred ✅|
|Distributions||Taxable ❌||Taxable ❌||Tax Free ✅||Tax Free ✅|
Only an HSA gives us the tax advantage at all three stages, and yet most people save for their health expenses in a bank account, which gives us none of the advantages. But here is the biggest opportunity we are missing.
HSAs can be Invested
If your HSA is in the proper place, you can invest an HSA just like a Roth IRA. Most people are missing this! If they have an HSA, the put $1,000 a year into it while maxing out a Roth IRA or putting extra money in their 401(k). This is because they treat it like a bank account instead of an investment account.
But if you invest your HSA, you can take full advantage of the tax benefits like a Roth or 401(k) can’t.
Here is the general order in which most people should save for their retirement:
- 401(k) up to the employer match.
- HSA up to the limit.
- Roth IRA or Additional 401(k) contributions, as per your financial plan and tax situation.
All investing and accounts include asterisks and “it depends.” There are restrictions and requirements for investing in and HSA (and an IRA or Roth, for that matter). Consult your Financial Planner for all of them, but a key asterisk here is that you must be enrolled in a High Deductible Health Plan to contribute to an HSA.
This scares many people away from the plan and the account. They see the deductible and think, “I don’t want to have to pay that!” They choose a more expensive plan with a lower deductible. Which brings us to our last health investment.
Reduce Total Health Costs
Far too many people view health care as a matter of health insurance. They look only at premiums and deductibles, and not total cost. By looking at the total amount you want to spend or invest in your health over time, we can reduce the total cost you spend overall.
Take a High Deductible Health Plan. The eponymous name emphasizes the high deductible, which scares people off. But it could just have easily been called the “Low Premium Heal Plan.” It just doesn’t aliterate as well.
What if you took the premium saved by switching to this kind of plan and invested it into an HSA. And then would if you took the taxes you saved by investing in an HSA and invested in a health coach?
If you put the maximum $7,750 into an HSA for 2023 ($8,750 if you’re over 55) while in a 22% Federal and 5% State Tax Bracket, you’ll save $2,100 a year. Can you hire a coach for two grand? Yes. Could that coach help get and keep you healthy so that you were unlikely to need medical care? Yes.
Even if you’re on Medicare, similar rules apply. What if we spent less on Medicare Supplements so that we could invest more in building our health? Wouldn’t we require less Medicare?
Don’t just focus on your health insurance. Focus on the total amount you are putting toward health, and then discover how to proactively allocate that toward increasing in, rather than reactively trying to get it back.
Stop spending on your health. Start investing in your health. Utilize and HSA. Reduce total health cost. You can make these money moves to have better health and finances. But you must move some money to do it.
Create a plan to make the most of your financial and physical health. You’ll end up with more of both, and feel better while doing it. A great financial planner can help.