Money Musings 💭 a budget game changer
If you’ve been receiving these emails for a while, you know I’m a big fan of sinking funds. Sinking funds are money you set aside to “sink” and they smooth out our spending.
Instead of shelling out money for a flight at the moment I need the ticket, (leaving cash tight or forcing me to put the expense on a credit card to worry about paying later), I set aside money each paycheck into a travel sinking fund.
These are different from an emergency or rainy day fund in that sinking funds are to put money aside for a specific purchase (instead of something that may come up!).
I use sinking funds in my online savings account for taxes (I set aside a certain % of my income), my dog Simi’s medical bills, my larger annual business expenses, and summer camp for E.
Other people use sinking funds for the holidays, travel, medical bills (anything additional to your HSA / FSA), tuition, or a spontaneous / catch-all bucket (so you can say yes to the fun things that come up!).
Here’s an article on how to set them up and use them. As excited as I am about them, start simple with 1-3 and you can always work your way up from there.
MONEY MOVE OF THE WEEK
GET THE BENEFITS OF AN HSA OR FSA.
I shared about my experience using an HSA last week but it’s such an important and advantageous account that I want to revisit the basics!
An HSA plan stands for health savings account and anyone with a high deductible insurance plan (above $1,350) is eligible to open one. You can set aside a certain amount of money pre-tax into your HSA to spend on qualified medical expenses. In 2022 the contribution limit is $3,500 for an individual or $7000 for a family (or $7,000 if you’re over 55).
The “cool” part is that unlike a Flexible Savings Account (i.e. an FSA - we’ll get to this shortly), you don’t have to use the money that year or even in the next 10 years. Once your account hits $3,000 you can start investing the money in your account and it grows tax-free (like the money in your 401(k)). You can use the money from your HSA as needed for medical expenses and it can even be used to fund medical expenses in retirement.
A flexible spending account (FSA) is similar in that it allows you to set aside pre-tax money for medical expenses but the biggest differences are that 1) your employer has to offer the plan (you can’t open one on your own) and 2) the money in there is “use it or lose it.” You can usually either rollover $500 into the next year or sometimes there’s a 2.5 month grace period where you can spend (or try to spend) the remainder of the funds. Otherwise, you lose any leftover money you put in. The most you can set aside in an FSA account is $2,750.
This FSA account is specifically for medical expenses. There’s another type of FSA account that helps us set aside pre-tax money for dependent care expenses. Yipee!
YOU GOTTA SEE THIS
EQUAL PAY DAY FOR LATINAS.
Tomorrow, October 21st, is Latina Equal Pay Day. Latinas earn $0.55 for every dollar a white, non-Hispanic man earns. They’d have to work through October 21, 2021 to earn what a white man earned in 2020. That’s almost ten additional months of work!
53% of Latina mothers are the breadwinner in their family, so this pay gap means they have less money to pay rent, take care of their families, and send their children to college. Times Up Now shares a list of five things we can do to fight the pay gap.