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Health Spending Accounts

In today’s world of rising health care costs, premiums, and deductibles, most people with health insurance do not know what their actual health care costs are. It has also become more difficult and limited to find providers that they can use.

Most individuals are grouped into a network of doctors and hospitals. Some people know what their co-pay and deductibles are, but most have no idea what the doctor actually charges and what they pay.

Congress enacted a bill called Health Savings Account Availability Act, which went into effect in 2004. This was done in order to give people direct control over their health care costs, which allowed them to choose the doctors and hospitals they wanted to see. It also created the Health Savings Account (HSA) which has nice tax benefits tied to it.

Traditionally, the money put into the plan is before taxes, including Social Security and FICA. Otherwise, it is called an above-the-line deduction, meaning you do not have to itemize your deductions to get the tax break. This also means that the deduction is not subject to phase-out rules that make many itemized deductions unavailable to people who earn higher wages.

The plan is set up like an IRA. An IRS approved trustee must be used. Money put in the plan will then grow tax-free and funds withdrawn for qualified medical expenses are also tax-free. Unlike the older version called Flexible Savings Account, only offered in employer plans, you don’t have to spend the money put into the account by year end or lose whatever is left. This was known as “use it or lose it.” HSA money can be rolled over from year to year.

In order to qualify, the individual or family must purchase a high deductible health insurance policy. These are policies that have a minimum yearly deductible of $1000; up to a maximum of $5000 for an individual and $2000/$10,000 for a family.

The money in the HSA cannot be used to pay the premiums for this policy except when you are basically unemployed. It is meant to meet the deductible, co-pays, drug costs, eyeglasses, or any other medical expense that could be itemized on an individual tax return as a medical expense.

Money withdrawn, unless the owner is disabled or over 65, in excess of qualified medical expenses is taxed as income and subject to a 10% penalty.

If started early, when you are still young and healthy, a substantial amount of money could accumulate to either meet higher medical costs as you get older or to use to supplement your income as a retirement plan.

It pays to compare the costs of a HSA with your current health insurance. Possibly a HSA would be a better idea given the tax benefits and the ability to carry it from job to job without losing any contributions, while allowing you to choose the provider, cost, and quality of your health care.

 

Tips to Cut Down Monthly Home Expenses

Making simple and inexpensive home modifications can improve the value of the home and help save money each and every month.

Begin with outside modifications and work your way into the home. Pick out the ideas that best suit your home and situation.

Use common sense too; do not buy a top of the line energy efficient washer for $1500 if one that is slightly less efficient in energy costs is only $300. The difference in price justifies a few dollars a month in extra expense.

Try Some of These Ideas:

  • Plant vines on the southern and western walls to help cut the summer heat but lose their leaves in the winter to allow more sun
    exposure to the home.
  • Cover turbines on the roof during the winter, which let out summer heat.
  • Insulate the attic and walls; this can help save with both heating and cooling. Try insulating the hot water heater and the water pipes, too.
  • Turn down the temperature on the water heater and/or use an instant water heater or timer to save energy when not being used.
  • Close shades and drapes to keep the heat in during the winter and the sun out in summer.
  • Use an electronic thermostat which turns the heat down when you're sleeping. Close vents to unused bedrooms and up to 1/4 of the vents in other rooms like the living or dining rooms.
  • Use a 220-volt air conditioner (if your house is wired for it) since it is more efficient than a 110 volt.
  • Use fluorescent light bulbs to save up to 66% on lighting costs.
  • Use carpet and padding instead of tile or laminate to cut down on heat loss.
  • Buy a carpet machine for rugs, furniture, and car upholstery rather than renting one or having to pay for someone else to come and do it.
  • Turn off or lower the settings to the furnace during the summer to save on wasted fuel.
  • Wash and dry full loads of laundry. Remember to clean out any filters between each and every load.
  • Use a low-flow showerhead to save on water and electricity from lowering the amount of water used.
  • Use an aerator in faucets to help maintain water temperature for dishes, washing your face, and it makes water conservation easier.
  • Buy home appliances, refrigerator, TV, microwave, stereo, dishwasher, washer/dryer, etc., with the lowest energy usage rating.
  • For homeowners and renters insurance, ask for discounts for burglar alarms, smoke detectors, and energy efficient homes.
  • Save receipts for warranties.
  • There are many ideas on how to improve your home and lower your bills but only do the things that you are comfortable with and do not ever sacrifice your safety or well being.
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Harmful Money Decisions...

The constant fear of, “How will I pay off my unsecured debt?”, convinces some people to take drastic measures and make poor decisions to pay off that debt.

Some of these decisions could be obtaining a home equity loan, dipping into retirement savings, and stretching to purchase a home are some of the worst money decisions to make when in debt. They may seem to be a good idea at the time, but here is the true reality of such decisions.

This three part series will start off by examining what the reason is to why some people choose these loans, what these loans truly do, the dangers of each type of loan, why you should or should not use them, and what to do instead.

Some home equity loans or lines of credit are often advertised as a quick and easy way to free one’s self from debt. Often saying that you can get money to pay off bills and receive a tax break, too.

Most current home equity loans are advertised with extremely low interest rates that need to be locked in now! While all of the statements are based on truth, the actuality is that the targeted individuals who need to pay off large amounts of debt are the ones with less than perfect credit scores and will not qualify for the extremely low interest rates being offered.

By taking out a home equity loan to pay off current unsecured debt, you are just converting all that unsecured debt into a secured debt.

This means that besides being hounded by collectors trying to collect on unsecured debt they can now threaten or actually repossess your home if you default on the home equity loan. You could lose your home if on the new home equity loan, some type of hardship occurs and you are unable to make the payments.

Some people use a home equity loan in order to off set higher property taxes believing that the tax break of the new loan will offset the higher taxes. Even though the equity loan interest is tax deductible, in most cases, and may provide some type of tax break, the actual tax break is so insignificant that it does not justify this reason.

Check with the IRS in order to see what types of purchases with equity loans qualify for tax breaks. Buying a luxury item with an equity loan can actually disqualify the possible tax break.

The biggest misconception is the interest rate that is advertised for such home equity loans. The advertised interest rate for the home equity loan is based on qualified credit scores and disposable income.

While the lender may promise to do the best they can in lowering the interest rate, it is highly unlikely, since there are requirements to such interest rates. Either you meet the requirements or you do not.

The lender may promise to lower your monthly payments while giving you more money, but think about it. How can someone give you more money and not expect to be paid back? It is impossible. They cannot stay in business if they give away money.

Do not try to rationalize the higher monthly payments since there will no longer be any unsecured debt to pay. Old habits die hard. The most common problem is people finding themselves in the same financial trouble in less then two years after getting such home equity loans to payoff existing debt.

Remember that banks will tell you how much you can borrow, not how much you can afford. Most people will borrow the maximum amount offered, even if it is not needed. This is dangerous since you are now creating additional financial debt, and secured debt at that, compared to the previous unsecured debt.

Another problem is that current home values can fall short or decrease in value over time and now you may owe more than what the home is actually worth.

So if there was a natural disaster, for instance, and insurance paid for the current value of the home, which is less than the mortgage and equity loans, you are still responsible for repaying the balance of the loans.

A home equity loan or line of credit can be used to pay off creditors and can work for some individuals who have found him or herself in debt. But, over 70 percent of the time the debt problem has been increased and the cost of not paying has magnified.

Make sure to read all the fine print to help determine whether this type of borrowing is a wise decision for you.

 Next Month…

We’ll continue examining why dipping into retirement savings
does more financial harm than good and why stretching to
purchase a new home can be some of the most harmful
money decisions to make when in debt.

 

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Having Problems With Impulse Spending?

When people find that they are unable to save money for special things, such as: a house, car, vacation, retirement, etc., it is almost always due to improper budgeting and impulse spending. If any of the following questions are true, you are probably a victim.

Does it seem that you are living paycheck to paycheck? Do you always buy more items when going to the store than you anticipated? Are you surprised to see that you had spent more money than you previously thought after reviewing account statements from the bank or credit card company? Do you buy everything that is advertised as on sale, even if you didn’t realize you needed it until you saw the advertisement? Is your storage space filled up with items that you have never used or used only once?

It is nice to have new things but it is not always necessary. Just because the item is new, exciting, or may be alluring, it does not mean that it is better or that it is needed to improve your life.

Impulse spending can be damaging to personal finances, future goals, and could cause undue strain on relationships. There are a few steps in order to identify and correct impulse spending.

The best way to identify if there is a problem with impulse spending is that you are unable to meet important financial goals, anywhere from buying a house to paying off monthly debt. Another clue is that there is no money to put into savings or no savings exists because of this type of spending.

Once you have realized that there is a spending problem, it can be corrected by following a few suggestions. Learn to recognize “needed” spending with “wanted” spending. This may be confusing and hard at first, but within a short period of time, you may be amazed.

Start off by analyzing the products that you buy on impulse. Was it due to the packaging, advertisements, lighting, or unfamiliarity of the product? Learn to recognize the difference in advertising which attempts to appeal solely to your psychological needs and not the practical ones.

If there is a product that you must have, write down what it is, go home and do some research on it. Find out how good itworks, how long it lasts, and does it have a warranty. Wait a week or so and see if you are still interested in that product.

To help stop impulse buying you must set boundaries and guidelines when shopping. The best thing to do is set specific financial goals and make an outline on how to accomplish these goals. Find out what is important and necessary for living responsibly and debt free.

Then start a budget. For help in doing this, refer to the free financial workbook, “Simplified Guide to Financial Life Skills,” offered by Pioneer Credit Counseling. By setting goals and limits to spending, it is easier to resist wasteful spending. When setting goals, remember to set a small amount of money aside for reward spending. Do this when you have reached one of your goals and want to “reward” yourself. This money can also be used to buy that occasional unplanned item without ruining your financial goals.

A very good practice in money management is to start to use only cash to make most purchases. What you have in your pocket is what you have to spend, unlike credit cards where it is easy to forget or misplace a receipt and not be aware of how much was spent.

If you do not keep proper records on your credit card spending you can easily spend more than you thought. Remember, credit cards do have legitimate purposes and special insurances when making certain purchases, just don’t forget to keep records.

With patience, proper planning, and time, impulse spending can be corrected. By learning the difference between desires and needs, setting a budget, and controlling wasteful spending urges, you will be able to change the practice of impulse spending and become a responsible consumer.

 
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Toys & Tiny Tikes

Teaching the concept of money to Tiny Tikes is a very important life lesson, even if they do not fully understand everything at that time.

With the national consumer debt at $1.98 trillion, according to the IRS and does not include mortgages, it is time to start teaching the concepts of money to Tiny Tikes in order to correct this trend of debt.

A child may learn the concept of money in that they need it to buy something but they do not completely understand the value of money yet and how it works. Have you ever caught yourself saying, “Maybe Santa will bring that for your birthday or Christmas?” Especially for the items that cost an arm and a leg. It is these underlying hints that sidetrack the true value of money and the issue of how much items actually cost.

When buying toys for your Tiny Tike or when they buy their own toys with hard earned money, try and steer them into buying an
inexpensive toy as a reward for their efforts of saving money.

Do not let them spend their money all at once! Teach them the concept of budgeting. Then with the money saved, over time, buy them toys that help teach them life skills.

The toys that help them count, add, and multiply or include science and basic chemistry. Even reading and writing are valuable tools.

These types of toys do seem to cost a little more but they are truly worth the extra money since they have intellectual value.

It is nice to have big and expensive toys but how often have you bought a huge toy and the kids had more fun with the box? A good idea to save money is to buy materials for building toys, like arts and crafts. This would be more challenging and cheaper.

 

Try:
Get a box and build a toy cash register and use paper to make toy money. Play with your children and play by their rules, just help by throwing in the occasional true fact on how money works.

 
 
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Teen’s 1st Job

Allowance money just isn’t adding up. As you get older, it is time to get a REAL JOB! Taking on that first job is a BIG step in growing up and may be the main purpose to help save up for a car, computer, or for college. This first job will most likely need to be part-time in order to work with school. When in school, jobs that occur in the evenings or on the weekends tend to work best since your education is always more important than a part-time job.

Finding that first part-time job can be a scary experience if you are not fully prepared. Begin by figuring out when you are able to work and for how long. Will future school activities or obligations interfere? Are your grades high enough to undertake a new job? Do you have proper transportation to get from home to school to work? Now you will need to find a job that works with your schedule, while at the same time, you are qualified to do.

If you are already struggling to keep a “C” average, taking on a new job can possibly be too much. Make sure you have proper transportation and support from your parents. Unlike school, if you are late too many times you will not get detention you will get FIRED. This is not a good way to start out in the work force.

A good place to start looking is your guidance counselor’s office and see if they have any recommendations. Then try the local Career Center, Job Service, newspaper, and www.groovejob.com, an online teen job search. You can even try going to the businesses that you like and submitting an application or resume. Even if you do not have work experience, an "Activities and Interest," resume is a great way to impress a possible new employer.

Make sure your grades are good before you start work. Allow yourself time to get from school to work and work to home. You will still need time to do homework and to sleep.

Recap; make sure you are dressed professionally, even if the job is fast food. Have a neatly typed resume. Ask questions and inform the employer of your commitment to school activities and obligations.

 
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Where to Start?

An accident has occurred or an unforeseen illness strikes within your family, when all was thought to be well.

This trip to the hospital, along with treatment and follow-up care, can prove to be costly even if you have health insurance. According to Pitney Bowes 2004 study, the average hospital visit costs $10,600. With most insurance deductibles and co-pays, patients are responsible for a minimum of 20% of the bill; this is if they have health insurance. Otherwise the uninsured person has to take on the burden of the full amount.

Some type of medical debt causes half of all bankruptcies in the United States by those with health insurance according to BCSAlliance. It is easy to become overwhelmed with medical debt collectors, so what should you do?

To manage medical debt, promptly contact the creditor and communicate with them of your intentions to pay. Try to be polite and courteous when speaking with the individuals with whom the debt is owed to. Be patient since this process may seem to take a long time. This may be your only bill, but they are possibly dealing with several accounts daily.

By initiating contact you are making a good faith effort to resolve the debt. This can go a long way as long as you stick with the plan that was agreed upon and you are honest. Never promise to pay more than you can afford just to stop the collection calls since this practice will only increase the calls and create a more severe problem by breaking any trust that was established.

Do not take a quick and convenient solution by turning 0% interest accounts into interest bearing accounts like transferring the debt to a credit card, obtaining a home equity, or personal loan in order to pay for the incurred medical debt.

Medical debt is less damaging to your credit report than a credit card debt or loan default. Remember NO DEBT is good or okay to have so your intentions should be to pay off the debt as quickly as possible.

When medical debt has occurred, the best thing to do is review all the medical bills carefully and to check for mistakes or overcharges. You may need to set up a meeting with the billing department in order for them to explain the charges or codes on the bills.

If you have found an error on the billing, report it immediately, make sure it is in writing, to the billing department and insurance company if applicable. Remember to keep copies of all the incoming bills, statements, payments, disputes, and resolutions that have come in or have been sent out.

If unable to receive help from the billing department, you may need to seek out an attorney that deals with medical debt or some sort of arbitration.

The debt is still the responsibility of the individual and should be paid even if parts of the bill are being challenged or questioned. There is no consequence for overpaying on a bill and overages are credited back, but if you do not pay, the problem may become more severe and reflect poorly on your credit report.

Even if you have insurance, it is still important to review all the bills and charges since this can possibly drive up out-of-pocket expenses, co-payments, drug costs, and future health coverage cost.

An important issue to look at is that your health insurance may have a lifetime payout maximum on the current policy and these types of errors or mistakes can eat up that amount quickly.

Medical debt usually comes at the worst time, when you least expect it. The best ways to prevent or minimize the effects of such debt is to set aside a small portion of money into a medical savings account or emergency fund each time you get paid in order to pay for such occurrences. Otherwise, take an active roll in communicating with the creditors so as to have a positive relationship and to show a good faith effort. Be polite and courteous to all the people you may encounter when dealing with medical bills.

Things to keep in mind:

1. Make a good faith effort
2. Maintain honesty
3. Be Polite
    Prompt
    Courteous
    Patient
4. Guard your credit history
5. Don’t be tempted with easy solutions
6. Stick with it!

If you have really found yourself in trouble and you need professional help check out these websites for guidance:

www.lawhelp.org
www.freeadvice.com
www.kff.org
www.bbb.org

For immediate counseling call Pioneer Credit Counseling at:
1-800-888-1596

 
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