Retirement

IRA contribution limit 2023

IRA Contribution Limit In 2023 Has Increased

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In 2023, the IRA contribution limit will increase to $6,500. This limit is up from $6,000 in 2022. On the other hand, there will be no change to the catch-up contribution limit. The IRA catch‑up contribution limit for individuals aged 50 and over will remain $1,000. If you are in the position to contribute to your IRA, take advantage and boost your retirement savings.

IRA Contribution Limits For deductions

The IRS has announced that the IRA contribution limit will increase to $6,500 in 2023. The income ranges for determining eligibility to make deductible contributions to traditional and roth IRAs will also increase in 2023. Generally, taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. 

If covered by a retirement plan at work, the deduction may be reduced or phased out depending on filing status and income. If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs do not apply.

Phase‑out Ranges For 2023

Single taxpayers covered by a workplace retirement plan will have the phase out increase in 2023. The phase-out range in 2023 will be between $73,000 and $83,000, up from between $68,000 and $78,000.

Married couples filing jointly will also have an increase. If the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $116,000 and $136,000, up from between $109,000 and $129,000.

For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to between $218,000 and $228,000, up from between $204,000 and $214,000.

For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $138,000 and $153,000 for singles and heads of household, up from between $129,000 and $144,000.

For married couples filing jointly, the income phase-out range is increased to between $218,000 and $228,000, up from between $204,000 and $214,000.

The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $73,000 for married couples filing jointly, up from $68,000; $54,750 for heads of household, up from $51,000; and $36,500 for singles and married individuals filing separately, up from $34,000.

The amount individuals can contribute to their SIMPLE retirement accounts is increased to $15,500, up from $14,000.

Take Advantage

If you are able to increase your IRA contributions, do so. IRAs are one of the most effective ways to save and invest for the future. IRAs allows your money to grow on a tax-deferred (Traditional) or tax-free basis (Roth), depending on the type of account. If it is a Roth IRA or a Traditional IRA, move forward toward your financial goals.

Conclusion

Tax advantage accounts are one of the feet making up your three legged retirement stool. These three legs include your savings and retirement account, employer relate account such as a pension, and social security. In 2023, the limit on annual contributions to an IRA will be increased to $6,500. This total is up from $6,000 in 2022. On the other hand, there will be no change to the catch-up contribution limit. The IRA catch‑up contribution limit for individuals aged 50 and over will remain $1,000. If you are able to contribute to an IRA, take advantage and boost your retirement savings. Continue your journey to financial independence.

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401k contribution limit in 2023

401k Contribution Limit In 2023 Has Increased

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401K contribution limit in 2023 is now $22,500. In 2023, the 401k contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will be increased to $22,500. This total is up from $20,500 in 2022. If you have access to any of these plans, take advantage and boost your retirement savings.

Catch Up 401k Contribution Limit

The Internal Revenue Service (IRS) has also announced that the catch-up 401k contribution limit from employees will also be increased in 2023. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will be increased to $7,500. This total is up from $6,500 in 2022. 

Taken together, starting in 2023, participants in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan who are 50 and older can contribute up to $30,000. The IRS has also noted that the catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans will also be increased in 2023. For these individuals, the contribution amount will be increased to $3,500 in 2023. This total is up from $3,000.

401k Match

This change does not appear to affect the match for employers. As you may already know, an employer 401K match means that your employer contributes a certain amount. Typically, the 401k match is a percentage of your annual salary to your retirement plan. This is in effect, free money. For most employees, if you contribute to your 401K, your employer does also. Take advantage of the added limits to further boost your retirement savings on your journey to financial independence.

Conclusion

Tax advantage accounts are one of the feet making up your three legged retirement stool. These three legs include your savings, employer relate accounts such as a pension, and a retirement account. In 2023, the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will be increased to $22,500. This total is up from $20,500 in 2022. If you have access to any of these plans, take advantage and boost your retirement savings.

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Retirement plan

Do not Become Someone Else’s Retirement Plan

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No matter how hard you work or how much money you earn, you are only a few bad choices from finding yourself in the poor house. Sometimes, the decisions that we make are in view of perceived obligations. For example, many financial decisions are made in view of obligations to family and friends. On your path to financial independence and early retirement, do not become someone’s retirement plan.

Focus On Your Retirement Plan

As the statement goes, put on our oxygen masks first before the person next to  you, including family. This also applies to your plans for retirement. You may be able to make head way in saving toward your retirement by living below your means, saving, and investing. However, it is also easy for a family member or two to constantly ask, manipulate or steal what you have saved. The stories are easily available if you perform a simply search, and should serve as a warning.

What Is Yours Is Theirs

There are so many stories of an individual or a nuclear family making progress by living below their means, saving and investing over time. As this family rises and increases their wealth, it is only natural for families and friends to notice, and notice they will. We can try all we want to hide success, but others will notice how you live your life. While you may try to be the millionaire next door, your close family knows better. While you may drive the standard car and live in a standard house, your family will be well aware of your job and will likely have researched your salary. It is only a matter of time before assumptions are made with regard to your wealth. With assumptions, it is common for others to begin to think that what is yours is also theirs.

As knowledge of your life is shared by family and close friends, you will be seen in a different light. When financial hiccups occurs, you become their bank. If they are having issues with housing, they will show up at your door. If you do not take steps to stop the initial requests or actions, you will pay for it later.

Of course, the proximity to family and friends will matter. The closer you are to those with a specific personality type, the faster the devolution into others thinking that what is yours is theirs. The further away you are, the less interaction and the less issues you may have.

Blocking retirement plan
Do not allow others to block your financial flow

Reason Does Not Matter

It really does not matter if you and others all had the same opportunities. It does not really matter if you choose to live below your means while others live it up. You may sacrifice all you want to maintain your life and that of your family, but it is simply human nature for those around you to think and believe that what is yours is also theirs. Especially when others believe that you have more than you need or that you do not deserve what you have.

What To Do

The fact is, you must learn to say no. You cannot become someone else’s retirement plan. You must stand up for yourself and your family. Others may claim that you are mean, but you must put your oxygen mask on before others. You cannot find yourself bank rolling other peoples lives, especially if these individuals do not understand how hard you have worked for what you have. 

It is all around us. Others have nice cars, vacations and homes that dwarfs the size and costs of yours. However, these are the first to reach out for aid and have a deep seated belief that what is yours is theirs. When times are hard, why do you have so much and they have so little, even though when times were good they had more than you and in effect wasted it.

We are not saying that you should be selfish and not help others. Help others and give. Success is not achieved alone and in isolation. What we are saying is, know what you are doing. Know the consequences of your actions. Know what saying yes today will mean for tomorrow. Do not become another person’s retirement plan. Know when to say no.

Conclusion

No matter how hard you work or how much money you earn, you are only a few bad choices from finding yourself in the poor house. Sometimes, the decisions that we make are in view of perceived obligations. For example, many financial decisions are made in view of obligations to family and friends. On your path to financial independence and early retirement, do not become someone’s retirement plan.

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When can I retire

When Can I Retire?

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When can I retire? How can I retire? Where can I retire? These are questions that we all have at one point or another. Sometimes, we begin to ask ourselves these questions once we are a few years into our careers, or at a career/life crossroad. At times, we ask these questions not because we “hate” our jobs. Of course, hating your job will no doubt lead to these questions. More times than not, we ask these questions as a matter of wanting freedom. The freedom to do whatever you want. The freedom to spend the limited time you have on this planet as you want. The problem, for many of us, when can I retire is not a question that is our decision alone. The decision to retire is intricately linked to your financial ability to support your retirement.

Can you retire?

Do You Have Enough 

If you are seriously asking the question of when can I retire, you must appreciate the financial factors that are driving whether or not you can retire. How much do you have in retirement savings/investments? This includes funds that are currently in personal accounts, retirement accounts and government sponsored accounts.

With regard to personal accounts, think about savings, property and investment accounts. With regard to retirement accounts, consider your tax advantage accounts such as roth accounts, 403(b), 457(b) and 401k or related like retirement accounts.  The third component to consider is the value of your government sponsored accounts such as your social security.

Now that you have an inventory of your accounts and their value, consider how much you currently spend? What is your projected spending during retirement? When you retire, will you continue to work part-time or will this be a complete retirement? What you are trying to get an estimate on is your cost of retirement and can you afford it. Well, can you?

Location, Location, Location

You have heard this before? The three things that matter in property is location, location, location. Location not only matters when it comes to property, location also matters when it comes to your retirement. Location matters because it will significantly impact your cost of living. Consider not only the cost of goods but also healthcare and taxes. Also, I forgot, location will also impact the type of life that you will have during retirement. Do you want to be sitting on the beach or do you want to be on a farm? Again, location, location, location.

Your Health

There is no point to wealth if you do not have health. I figure you would not want to be hooked up to an I.V drip while having millions of dollars in the bank. If you do not have good health, it is likely that your retirement will be a very expensive endeavor. So have you been taking care of your health? Who will pay for your healthcare? Are you old enough to be covered by a government subsidized plan or will you be paying out of pocket for an expensive premium? This could seriously impact your retirement plans. So when you ask when can I retire, think not only about your financial health but also your literal health.

When Can I Retire?

When can you retire? Well, it depends at least on the above. It depends on what you have saved for retirement. It also depends on what government sponsored programs you are eligible for, the location where you will retire and also your health. It all matters. Once you are able to assess where you are financially, location wise and your health situation, you will have a very good view of when you can retire. Of course, no plan is perfect and life is unpredictable. Who thought we would have a pandemic in 2020 and the related impact. But as is famously stated, “a dream without a plan is a wish.” Evaluate the situation and have a plan.

Conclusion

When can I retire? How can I retire? Where can I retire? These are questions that we all have at one point or another. Sometimes, we begin to ask ourselves these questions once we are a few years into our careers, or at a career/life crossroad. At times, we ask these questions not because we “hate” our jobs. Of course, hating your job will no doubt lead to these questions. More times than not, we ask these questions as a matter of wanting freedom. The freedom to do whatever you want. The freedom to spend the limited time you have on this planet as you want. The problem, for many of us, when can I retire is not a question that is our decision alone. The decision to retire is intricately linked to your financial ability to support your retirement. Can you?

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Start investing

How To Start Investing Now

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On the journey to financial independence, you will need to save and invest. Once you have saved for your emergency fund, the question is, how to start investing? You start by first investing in yourself. Whether this is by investing in your education to obtain a better job/career option, or doing your due diligence to make appropriate decisions. Investing in yourself is the key to success.

Investing in your future is an extension of investing in yourself. Once you begin to look to the financial markets, when asking how to start investing, look to learning more about the opportunities that are available to you. Educate yourself.

How To Start Investing For Retirement

No matter your age, you should begin thinking about your retirement and related investment options. In thinking about your retirement, you will no doubt hear about traditional IRAs, roth IRAs, SEP, roth 401Ks, 401Ks, 403Bs, 457Bs and TSPs to name a few. Do not simply get lost in the alphabet soup of different retirement plans. Do your due diligence. An investment in your retirement plan education is invaluable to your financial future.

Your retirement plan will depend on (1) whether or not you are an employee vs self-employed and (2) whether or not the retirement plans are employer sponsored or self controlled. It is incumbent upon you to fully understand the plans  that are available to you, their contribution limits, mandatory withdraw, age of withdrawal, tax position and penalties associated with early withdraws. It is also incumbent upon you to take advantage of any matching benefits provided to you. For example, a 401K match. 

The 401K match provides free money from your employer and is a sure-fire way to achieve financial independence early. Employer 401K match can come in a variety of shapes and sizes. In one instance, the employer will match a portion of your contribution up to a limit. Typically, this limit is represented as a percentage of your salary. Further, an employer may match your contribution if you contribute or irrespective of if you contribute. If your employer provides a 401K match only if you contribute to your 401K, ensure that you are contributing at least up to that threshold. An employer 401K match is free money. Take advantage.

How To Start Investing – Brokerage Account

After establishing your retirement accounts, it is time to begin thinking about other investment options. For example, brokerage accounts. Brokerage accounts are investment accounts that allow you to buy and sell investments such as stocks, bonds, mutual funds, and Exchange-traded funds (ETFs).

There are a number of different brokerage firms where you can set up a brokerage account. These brokerage firms are well known and include Fidelity, Merrill, E-Trade, TD Ameritrade, Robinhood and Vanguard to name a few. Essentially, the brokerage firm is an intermediary that holds your brokerage account and act as an intermediary between you and the investments that you buy and sell.

Once you set up a brokerage account, which is usually free, you will be able to deposit money into that account that you can use to buy investments. Once you begin investing, you can buy and sell investments through your brokerage account. Do your due diligence prior to trading on the different platforms and understand the risk associated. Knowledge is power.

Investing In Education

Once you have done your research and have established your own investment plan, begin thinking about your legacy, your children and their future. Think about a 529 plan. By contributing to a 529 plan, you are able to offset some or all costs associated with a college education. In many States, two 529 plans are available, an investment plan or a prepaid plan.

  • The investment plan allows you to contribute by buying and selling shares offered by the State or the State’s agent (similar to investing in the stock market).
  • The prepaid plan is based on the cost of attending a college. Here, you are prepaying the cost of attendance.

While 529 plans are not deductible on your federal tax filings, many States allow you to deduct a set portion of your 529 contribution from your State tax filings.

How To Start Investing – Caution

Once you have educated yourself and have made the decision to invest for yourself, with a financial planner or with an advisor, you will begin using different investment accounts to your advantage. Pay special attention to the fees and the taxes associated with each account.

One of the biggest item that you should pay attention to is the fees associated with your retirement accounts and the investment options. Whether that is the fees charged by an investment fund, your advisor or related financial professional. 

It is important to remember that over time, fees can cripple your financial growth. While paying 1% of your total investment per year may not seem like a lot when you begin investing, Think long term. Project the number of years until retirement and also the amount of funds that you will have in that account. Paying 1% in fees each year can be a significant detriment to your financial growth, imagine if you are paying more. As always, do your due diligence and think long term in your financial decisions.

Conclusion

On the journey to financial independence, you will need to save and invest. Once you have saved for your emergency fund, the question is, how to start investing? You start by first investing in yourself. Whether this is by investing in your education to obtain a better job/career option, or it is doing your due diligence to make appropriate decisions. Investing in yourself is the key to success. Continue investing by educating yourself about the financial markets, plan and execute your plans.

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401K Match

401K Match: Free Money For You

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Prior to accepting a job offer,  you should evaluate not only the salary offer but also the total compensation package. In some cases, a job’s salary may be lower, however, total compensation may be higher in comparison to another job. The reason for this may be the employer’s health care plan, bonus structure, stock option and retirement plan. With regard to a company’s retirement plan, it is important to pay particular attention to whether or not your future employer provides a 401K match.

An employer 401K match means that your employer contributes a certain amount, typically a percentage of your annual salary to your retirement plan. This is in effect, free money. If you contribute to your 401K, your employer does also.

Your Employer’s 401K Contribution

Employer 401K match can come in a variety of shapes and sizes. In one instance, the employer will match a portion of your contribution up to a limit. Typically, this limit is represented as a percentage of your salary. Further, an employer may match your contribution if you contribute or irrespective of if you contribute.

If your employer provides a 401K match only if you contribute to your 401K, ensure that you are contributing at least up to that threshold. An employer 401K match is free money. Take advantage.

Calculating Your Employer’s 401K Match

If we assume that your employer offers a 100% 401K match on all your contributions each year, up to a maximum of 5% of your annual income. If you earn $100,000, the maximum amount that your employer would contribute to your 401K each year is $5,000. 

This $5,000 is typically spread out over the entire year. As such, if you are paid bimonthly, that is approximately 26 pay checks. This means that each paycheck, your employer is willing to match you up to $5,000/26 paychecks, which equals $192. As such, to obtain your full 401K match, you will need to contribute at least $192 to your 401K per pay check.

In the above scenario, if you set up your 401K contribution to contribute at least 5% of your pay to a 401k account, you will ensure that you will get at least the match. However, note that as your salary increases, it is important to ensure that you are contributing enough, but also not too much, such that you are able to obtain your full 401K match.

Ensuring That You Get Your Entire 401K Match

It is important that you monitor how much you contribute to your 401K on a yearly basis. This is important because if you place a high percentage of your salary into a 401K account, you can potentially max out your 401K before your employer hits their 401K match.

In the year 2020, your contribution limits for a 401K is $19,500 (catch-up contribution limit for employees aged 50 and over is $6,500). If your employer’s 401K match is contingent on your contribution, they will only contribute to your 401K if you do. As such, if you hit the 401K contribution limit before the end of the year and can no longer contribute to your 401K for that year, your employer will also not contribute.

To ensure that you will not hit your contribution limit before the end of the year, divide the contribution limit by your salary and multiple by 100. This will provide the maximum percentage of your salary that you can contribute to your 401K without exceeding the contribution limit. In the example above, $19,500/$100,000 = 0.195. 0.195 x 100 = 19.5. As such, with a $100,000 salary and a contribution limit of $19,500, if you keep your yearly contribution at or below 19.5% of your salary, you will not hit your contribution limits before the end of the year. This will ensure that your employer will pay the full match.

Conclusion

Prior to accepting a job offer,  you should evaluate not only the salary offer but also the total compensation package. In some cases, a job’s salary may be lower, however, total compensation may be higher in comparison to another job. The reason for this may be the employer’s health care plan, bonus structure, stock option and retirement plan. With regard to a company’s retirement plan, it is important to pay particular attention to whether or not your future employer provides a 401K match. The 401K match provides free money from your employer and is a sure-fire way to achieve financial independence early. Journey to financial independence by ensuring that you receive your employer’s full 401K match.

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Video Summary

Money Beyond

Saving The Next $50,000, You Can Do It Now

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On the journey to financial independence, each milestone is fuel for the next. One of the greatest initial milestone is that of accumulating funds over time. Once you have accumulated your first $50,000, it is time to think about saving the next $50,000 and beyond.  The biggest step on your journey to financial independence is the step you take today. Take the next step.

The Plan – Saving The Next $50,000

Just like enacting any plan that requires a change in habits or direct action, implementation of your plan to financial independence can be difficult. If you choose to save by cutting back on eating out, this will no doubt affect your social life. If you decide to work a side hustle, this will take time from other activities. To journey to financial independence, you will make sacrifices. 

However, by the time you begin saving the next $50,000, you have already made changes and can now use the momentum that you have build up saving your first $50,000 and further optimize your strategy. Because of the habits formed saving your first $50,000, saving the next $50,000 will be easier to achieve.

Your Emergency Fund

By the time you are on the path to saving the next $50,000, based on your lifestyle, your emergency fund may now be fully funded or very close to being fully funded. This is a huge step and should provide comfort for you and your family. Saving 3 months, 6 months, or one year of expenses in your emergency fund is a huge step and you should feel very proud of yourself for achieving this milestone. Further, you should be motivated by the fact that you can do it. You can do this. The steps taken to financial independence is paying off.

You got this
You Got This!

Once you have achieved a fully funded emergency fund, do not stop saving. Continue the same habits. Do your homework, research and optimize your plan. Achieving financial independence takes time and consistency.

Once you have fund your emergency fund, instead of putting money into an emergency fund, you are now able to contribute that money to another area of your plan. Will you be contributing more to retirement, paying down debt if you still have debt, or invest?

Contributing To Retirement

Once you begin to save, you should attend to your retirement fund, especially if your employer is providing a match. No matter how little you may contribute, contribute to your retirement. 

Now that you are saving the next $50,000, begin to increase your retirement contributions, especially if you have already paid down debt. In the year 2020, your contribution limits for a 401k is $19,500 (catch-up contribution limit for employees aged 50 and over is $6,500). The contribution limits for an IRA is $6,000 ($7,000 if you’re age 50 or older). As such, you are able to put away $25,500 ($33,000 if you are aged 50 or older).

On the path to financial independence, by consistently contributing to tax advantaged retirement accounts, it is possible to join the 401k millionaire club.

Paying Down Debt

Once you begin to save, you will  also need to attend to debts. You will definitely want to keep your accounts current by paying at least the minimum. Once your emergency fund is fully funded, it will be time to pay more than your minimum. 

Remember, the best way to obtain a 16-18% return (the average interest charge on a credit card), is to pay off your credit card debt.

It is advisable to pay down debts having the highest interest rate. This will lower your interest payments as you pay down the debt. Another approach is to pay down the smallest debt first, such that you have a snow ball effect of paying the least balance to highest balance. The method used here is up to you. Which method will motivate you to pay down your debts faster?

Paying down debt in the early stages of your journey to financial independence typically provides the greatest early return. Paying down debt yields exponential benefits as it frees up funds for contributing to retirement and investment accounts such that you are able to take advantage of the power of compounding.

Ride The Wave – Saving The Next $50,000

As you are able to fund your emergency fund, pay off your debts, and contribute to your retirement, you will begin to have more funds available to further your race to financial independence. The funds that went to your emergency fund can be used to pay down debt, contribute to retirement fund, and/or invest.

Do not feel the need to “reward your self.” You do not want to fall into the trap of lifestyle creep/lifestyle inflation. You do not want to raise your standard to living as you earn more/have more disposable income. There are lots of folks who save the same amount when making $100,000 as they did when they were making $50,00. If you follow this path, this will be a detriment to your ultimate goal of financial independence. 

As your income/disposable income increases, the amount you save/invest should be increase as well. Live below your means, and journey to financial independence.

Conclusion

On the journey to financial independence, each milestone is fuel for the next. One of the greatest initial milestone is that of accumulating funds over time. Once you have accumulated your first $50,000, it is time to think about saving the next $50,000 and beyond.  The biggest step on your journey to financial independence is the step you take today. Take the next step.

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Growth

The Journey To Financial Independence Is A Marathon, Not A Sprint

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It is best to begin saving and investing as early as possible. The earlier you begin to save and invest, the more time you have to take advantage of compounding. It only makes sense, so while we can all appreciate this simple concept, why do we ignore our financial future until retirement? The journey to financial independence is a marathon, not a sprint. Begin the race today.

The reason we do not begin saving early is often because (1) we think we cannot begin saving because of lack of funds, (2) instant gratification or a combination of (1) and (2).

The Belief That You Do Not Have Enough To Save

Let us dispose of point 1. The thought that we cannot all begin to save “now” is often a fallacy. If you are without an income stream point (1) may be valid, however, this is usually not the case. No matter how little you earn, I can guarantee that if you look back over the past month, you have wasted more than $5. Whether it be on an event, food, dinks, or a random purchase that was not necessary. Saving can start small. Start small. Pay yourself first.

Instant Gratification

The issue we all tend to have with regard delaying saving, is one of instant gratification. Saving is boring, it is slow. If you are beginning at $0, growth will be incremental and slow. For example, if you are beginning the process of fully funding your emergency fund, then process can be a slow and painful process. Painful because to contribute to your emergency fund if you have not been doing so previously, you will now need to change your habits, make a sacrifice and deliberately save. If your aim is to save a year of income, let’s say $65,000, beginning to save will be painfully slow. 

For example, If you begin by saving $500 per month, in 3 months, it is only $1500 without interest. In your mind, you are so far away from your total that it is inevitable that you will become discouraged. In 5 months you will have only saved $2500 without interest, still over $60,000 to go. At this point you may begin to think, what is the point? You may begin to believe that the sacrifices that you are making is too great. This is the point where many quit saving and revert to their old ways.

If you quit your savings plan, what you and many others fail to realize is that the math is simple and true. If you are saving $500 a month, that is $6,000 a year, that is $60,000 in 10 years, that is $120,000 in 20 years. None of the above includes the added compounding interest or the prospect of you getting a raise as you progress in your career, or investing a portion of your savings.

Because the math is so simple, if we are able to find easy ways to take our minds off the slow process, we will be able to make progress.

Set It And Forget It

To keep our minds off the slow process of accumulating wealth at the initial stages, it may be best to set it and forget it. For example, automatically deposit a portion of your income into a savings account. As this is an automatic process, this means that you will at times forget the process. When you remember this process, you will be surprised by the amount that have accumulated. The gratification of seeing this progress working will  no doubt encourage you to continue the process. A feed forward cycle will emerge. 

Dream big
Keep your eyes on the future and your goals

Further, money begets more money. This may be in the form of investing a portion of your savings or the general power of compounding. Your greatest asset in wealth building is time. Keep your eyes on the future and your goals. Think long term.

Take the first step today and begin saving for your future. Set up an automatic deposit of $5. If you are able to contribute more, do so and increase your contribution over time. 

Conclusion

It is best to begin saving and investing as early as possible. The earlier you begin to save and invest, the more time you have to take advantage of compounding. It only makes sense, so while we can all appreciate this simple concept, why do we ignore our financial future until retirement? The journey to financial independence is a marathon, not a sprint. Begin the race today.

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Video Summary

Do the math

HSA and FSA

Money Maroon

As we come to the end of the year, based on your health insurance, some are rushing to the doctor to use their use it or lose it funds, while others are making appointments for the next year. The group that you are in depends on your health insurance coverage. Do you have a Health Savings Account (HSA) or a Flexible Spending Account (FSA). While similar in some aspects, FSAs and HSAs are very different. However, both HSAs and FSAs are tools for your financial independence toolkit. Take advantage of these plans if you can. 

HSA

HSAs are savings accounts that are available to those covered by a high-deductible health plan. A high-deductible health plan is defined by the government, but is typically an insurance plan that only covers preventive services before a deductible is charge.

Minimum Deductible For HSA Account
Year Single Family
2019 $1,350 $2,700
2020 $1,400 $2,800

For 2019, the minimum deductible for a high-deductible health plan is $1,350 for an individual and $2,700 for a family. For 2020, the minimum deductible for a high-deductible health plan is $1,400 for an individual and $2,800 for a family. If your health insurance plan meets the minimum deductible noted above, you qualify for a HSA account.

In view of the deductibles associated with HSAs, outside of preventive services, the amount you pay for covered health care services before your health insurance plan kicks in is high when compared to other plans. However, HSAs allow those eligible to save on a pre-tax basis to pay for qualified medical expenses, for example deductibles, copayments, coinsurance, and other expenses.

Contributions
Year Single Family
2019 $3,500 $7,000
2020 $3,550 $7,100

With an HSA account, both you and your employer will contribute to the account.  In 2019, you can contribute up to $3,500 for self-only coverage and up to $7,000 for family coverage into a HSA. For 2020, you can contribute up to $3,550 for self-only coverage and up to $7,100 for family coverage into a HSA. Importantly, HSA funds roll over year to year if it is not spent. Further, an HSA may earn interest or other earnings, and can be invested. As such, a HSA account can be used to grow  your money tax free. As an additional benefit, after age 65, your contributions can be used for non medical expenses without penalty.

HSA is said to provide a triple tax advantage:

  • Contributions are tax-deductible;
  • Withdrawals are tax-free if used to pay for qualifying expenses; and
  • Once you reach age 65, non-medical withdrawals are taxed at your current tax rate

FSA

FSAs come as part of a benefits package from an employer and can be used to cover medical expenses. FSAs allow you to set aside money, on a pre-tax basis, for certain health care and dependent care expenses.

Contribution Limits

Like HSAs, the government determines the limits of FSAs. For 2019, FSAs are limited to $2,650 per year per employer. Your spouse can also contribute up to $2,650 in an FSA with their employer as well.

Once you have elected to contribute a certain amount into a FSA, the amount is incrementally taken out of your paycheck. Interestingly, the amount you elect to contribute in a FSA account is available following enrollment for use. As such, if you elect to contribute $2,650, and have $2,500 in qualified expenses, that expense will be covered immediately. However, if you leave your employer in the middle of the year, you will likely need to pay back the funds that you have spent that was not yet taken out of your pay check.

Further, unlike HSAs, contributions to a FSA are typically use it or lose it. Meaning, if your contributions are not spent in that  coverage year, that amount does not roll over. However, employers are allowed to:

  • provide for a roll over of at most, $500; or
  • provide an additional two and a half months to use the money.

Therefore, if you have a FSA, it is important to select a correct contribution limit.

Conclusion

While similar in some aspects, FSAs and HSAs are very different. However, both HSAs and FSAs are tools for your financial independence toolkit. Take advantage of these plans if you can.


HSA FSA
EligibilityHigh deductible health planEmployee benefit package
Minimum Deductible2019 Single: $1,350
2019 Family: $2,700
2020 Single: $1,400
2020 Family: $2,800
Use It Or Lose ItUnused balance rolls over to the next yearUse it or lose it, unless Employer allows at most 500 to roll over to the next year
Taxes & Contributions Contributions are Tax deductible and Pre-Tax when taken out of payContributions are Pre-Tax
Taxes & Disbursements Disbursements and growth are untaxedDisbursements are untaxed
Contribution Limits2019 Single: $3,500
2019 Family: $7,000
2020 Single: $3,550
2020 Family: $7,100		2019 Single: $2,650
2019 Family: $2,650 per account
Determine Contribution AmountYou can change amount to contribute within the contribution limits at anytimeYou can change amount to contribute at open enrollment, a change in employment, or a change in family status

Use the tools available to your advantage on your journey to financial independence.

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Money Mindset

Money Mindset

Money Maroon

Money & Human Nature

When we have painful decisions, it is only normal to delay. It is human nature. For you to journey to financial independence, you must change your money mindset. You must be aware of your default reaction and consciously make a change. Change how money decisions are made.

Think of your last painful or difficult decision. Whether it was a decision that would have resulted in conflict or one that would have caused you to make a sacrifice, it is only natural for you to delay. Our first reflexive action is to avoid making difficult decisions. This reflexive action typically results in employing a delay tactic where other decisions are made but not the ultimate decision. We make difficult decisions only when we must make the decision.

With money decisions, the same occurs. The science behind it all is undeniable. Let us use the example of shopping vs saving. 

Shopping

The neurotransmitter dopamine surges when you are considering buying something new. This dopamine surge is a result of purchasing the new item and the anticipation of getting that new item immediately. With online shopping, the dopamine surge is on another level. For online shoppers, there is the joy of making the purchase, the anticipation of getting the new item, the built up anticipation of receiving that item and receiving that item in the mail. Shoppers are therefore more excited when their online purchases arrive in the mail than when they buy things in store. As such, online shopping can be as exciting or more exciting as in store shopping.

As you can guess, the retail industry is acutely aware of this effect and take the necessary steps to exploit our biology.

Saving

When saving for a long term goal or financial independence, we do have some dopamine release related to attaining that financial target. However, saving falls into the category of delayed gratification. For delayed gratification,  dopamine signaling declines as the delay to the large reward increases. As such, the thought and planing related to having financial independence is gratifying. However, because of the long time period  between the thought of financial independence and having actual finical independence, we typically do not carry through on our plans. 

This is why we spend so easily but find it so difficult to save. We all know that we should save and invest for the future, but very few do.

Saving for the long term is counter to our biology.

Remedy

Change Your Money Mindset

In view of our natural reaction to delayed gratification, to achieve financial independence, we must consciously realize our default actions and change our mindset.

Based on the science of our reward system, we are more likely to succeed on our journey to financial independence if we have a long term goal (financial independence), intermediate goals, but also short term goals. The short term, intermediate and long term goals allow for short term, intermediate and long term dopamine fueled rewards.

Conclusion

When we have painful decisions, it is only normal to delay. It is human nature.

For you to journey to financial independence, you must change your money mindset. For a more successful financial journey, create and achieve your short term and intermediate goals on your journey to financial independence.

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