Emergency Fund-The Healthy Kind
Many financial bloggers and respected personal finance experts out there recommend having an “emergency fund” for those events in your life that come up unexpectedly. They will cost you money that you have not planned for, a good example is if your car breaks down. Very few people have money budgeted aside for your car breaking down, this is where the almighty emergency fund comes shining from the heavens and makes that $800 estimate from the mechanic a little easier to swallow. Nobody wants to shell out $800, but it makes life a little easier when you have the funds set aside for just this occasion. The good news is you will not have to pawn your TV, create a mountain of credit card debt, or make the 18 mile walk round trip to work without your ride, emergency funds are certainly a must have for everyone. I will write about that another day, today is a different kind of emergency fund, the healthy kind.
I currently have an emergency fund much like the one discussed above, but I also have what I call my “medical emergency fund”. It also has a more common name, Health Savings Account.
What is a Health Savings Account?
The simple one sentence answer is: it is a tax-advantaged medical savings account for those who are enrolled in a high deductible medical plan. Many of Americans out there are using this medical plan, especially those in the 18-45 range who make less frequent visits to the doctor because in the early stages of life we are in better health than later in life when our body breaks down a little more.
What the Health Savings Account allows me to do is make tax-free contributions like a 401K before any taxes are taken out. This money can be used for a wide variety of medical expenses including dental expenses and eye glasses to name a couple. I use the health savings account just like any emergency that would happen, just on the medical side.
Last month I had my bi-annual cleaning and checkup with my local dentist to promote preventive care that can certainly be the key to great health. Then out of nowhere they tell me I have a cavity!!! The humanity, the costs, the time spent, what ever will I do? I went back and set up my appointment for next time and they let me know it was going to cost $200, after my dental insurance coverage. The first thing I did was open my wallet to check and see if my HSA card was still in there, it sure was, emergency averted. That was it, that simple, the next time I was at the dentist, overlooking Lake Michigan, enjoying my massage chair, listening to my dentist provided noise cancelling headphones on there ipod, while getting shot up with Novocaine, I knew that this little medical emergency, was nothing more than a quick swipe of the HSA debit card, problem solved.
Ultimate Medical Emergency Account
For those who have access to use a HSA account, I highly recommend it. It has become my emergency fund for medical expenses, it’s amazing. I have the added perk of my company contributing a lump sum payment at the beginning of each year to help out with costs, so it would be hard to pass up the free money being sent my way just for signing up. I currently use my HSA as an emergency fund, but when I am finished with my battle and back to Even Steven, I plan to use this account as an tax free investment account much like the Madfientist suggests here. He calls it the ultimate retirement account, for know my HSA is my ultimate medical emergency account, but either way I think each person needs to check out if it is offered at your place of employment.
Do you have a Health Savings Account? Is there a reason you would not use the HSA if it was offered?
photo courtesy of jpfarley.com