True or Untrue: Can Health Savings Accounts be used to save for retirement?

True or Untrue: Can Health Savings Accounts be used to save for retirement?

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Before answering the question, let’s make sure we’re all on the same page with how Health Savings Accounts (HSAs) work: HSAs are funded with pre-tax income, meaning you don’t pay taxes on the amount you deposit into your HSA; HSA funds can then be used to pay for noncovered, qualified medical expenses like copays, deductibles, vision and dental care, etc. 

To be eligible to contribute to an HSA, you must be covered by a high deductible health insurance plan (defined as an annual deductible of $1,350 to $6,650 for individual coverage, and an annual deductible of $2,700 to $13,300 for family coverage).

While the most obvious way to take advantage of an HSA may be to pay for current medical expenses with pre tax dollars, HSAs can also be used as a way to save for retirement.  Particularly for folks whose income may disqualify them from making deductible contributions traditional IRA or utilizing a Roth IRA, an HSA can potentially provide you with additional tax-advantaged retirement savings capacity.

The reason HSAs can be considered retirement savings vehicles is that not only can funds contributed to an HSA account be saved and used to pay for medical expenses in retirement, but after age 65, you can  use HSA funds penalty free for nonmedical expenses as well.

What’s more, within an HSA, you have the ability to invest in the same types of investment options available in 401(k)s and IRAs, like index funds, mutual funds, exchange traded funds, etc. This means your HSA account can be invested to be part of your overall portfolio positioned for retirement.

Of course, how your overall retirement savings portfolio should be invested and allocated is a whole different topic. And whether saving into an HSA for retirement purposes makes sense for you depends on many factors related to your current and expected future financial situation. Need financial advice tailored to specifically to you? Contact us at 512-649-2383, or team@truefg.com, or book an initial consult with us here!

What’s the largest cost component of car ownership? The answer may surprise you.

What’s the largest cost component of car ownership? The answer may surprise you.

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We Americans love our cars. Especially shiny, brand new ones. And when it comes to calculating the cost to own, operate, and maintain our cars, there are several cost components to consider: fuel, insurance, maintenance/repairs, taxes, car loan interest – surely one of these items is the largest cost component of car ownership, right? Nope!

Would you believe the single largest cost component of car ownership is actually depreciation? That’s right, it’s the invisible cost that is difficult to recognize because unlike every other cost, you don’t write a check or swipe a card to pay for it. But depreciation is real and is something all car buyers should pay attention to.

 Source: ScienceDirect

Source: ScienceDirect

In their first year alone, new cars lose around 20% to 30% of their value (according to Black Book). That means if you spend $50,000 on a new car, you will lose $10,000-$15,000 in depreciation in the first year! Over the first 5 years of a new car’s life, the typical car loses 60% of its value (according to Carfax). Using that same example, a $50,000 new car today is likely to be worth $20,000 in 5 years. That is $30,000 lost to depreciation in over just 5 years. Ouch!

Not to worry, this cost can be avoided. All you need to do is consider a gently used car. Let someone else take the initial depreciation hit over the first several years of the car’s life and consider owning a car when the depreciation rate isn’t as steep.

For most of us, cars are a necessary part of our daily lives and we will likely be driving (and buying!) cars for many decades over the course of our lives. So we should understand the total cost of car ownership before we buy. Believe it or not, the way we approach car buying throughout our lives can have a significant impact on our ability to achieve our financial goals like saving for retirement, owning a home, paying for kids’ college, etc. Need help planning for your financial goas? We can help! Contact us (512-649-2383 team@truefg.com) or book an initial consult with us here.

Asset allocation:  what is it, and why is it important?

Asset allocation: what is it, and why is it important?

 Think you could snap this bundle of pencils in half?

Think you could snap this bundle of pencils in half?

To put it simply, asset allocation involves balancing risk and reward by diversifying among asset classes. If that sentence seems like it’s written in a foreign language to you, trust us, you aren’t alone! Asset allocation is a relatively complicated topic, but as investors, we need to not only understand it but also know how to use it to structure our investment portfolios.

According to Modern Portfolio Theory, asset allocation is the primary driver of portfolio return, with asset allocation accounting for over 90% of performance over time. That means other issues like market timing, individual security selection, and even fees, may be much smaller concerns for us as investors compared to asset allocation.

So what does asset allocation accomplish in our portfolios? Asset allocation is a means for achieving diversification, which allows us to minimize our risk compared to an undiversified portfolio. Imagine you’re holding a single pencil between your hands and try to break it in half – should be pretty easy, right? (If it isn’t, you should get our iron levels checked!). Now imagine you’re holding a whole bunch of pencils in your hands and are trying to break that stack – unless you’re The Hulk, you’re probably not doing much damage to the large bunch of pencils.  Asset allocation gives you a whole bunch of pencils instead of a single pencil in your portfolio, which when executed properly should achieve a lower overall level of risk.

Consider asking yourself the following questions about your own asset allocation: does your current portfolio match your risk tolerance? Is your current allocation maximizing return for your given level of risk?  Do you have a strategy in place to adjust your allocation as your risk tolerance changes over time? Do you have a systematic and/or strategic rebalancing plan in place for your portfolio?

If you answered “no” or “I don’t know” to any of these questions, you might benefit from some professional help when it comes to managing your investments. Send us a message (team@truefg.com) or give us a call (512-649-2383) to learn more.

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Building Wealth as a Homeowner

Building Wealth as a Homeowner

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If you recently bought a new house, congratulations! Or, if you've been a homeowner for a while now, this post is for you too. 

From replacing the flooring to finding that perfect accent piece, your days have been filled with equal parts fun and exhausting as you work to make your new house a home.

Beyond the roof and four walls that you have purchased lies an investment (and potential money pit if you aren't careful!) that will likely have a significant impact on your ability to build wealth over time. 

As financial planners, we have seen many financial successes and failures related to home ownership. Below we highlight some of our top tips for homeowners when it comes to building wealth:

1.       Consider a 15 year mortgage (or if you have a 30 year, consider paying it like a 15 year). That 30 year mortgage payment sure looks nice compared to the 15 year equivalent, but when it comes to building equity, the 30 year mortgage is not your friend! Consider the following hypothetical example: 

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In the example above, you would be paying over $100,000 more when borrowing $300,000 over 30 years vs. 15 years! In addition, in the first 5 years of home ownership in the above example, approx. 68% of your payments on your 30 year mortgage will be going to interest (rather than principal pay down). On the 15 year mortgage, that percentage going to interest is 45%. If you already have a 30 year mortgage, you can simulate the equity build of a 15 year by simply paying extra towards your mortgage each month. 

2.       Proceed with caution on home remodeling/upgrading projects. If you jump into home remodel/upgrade projects with the justification that "we will get a return on all of these when we sell our house", you might think again. Although it sounds reasonable that any work you put into your house would result in a higher selling price, it's possible that when it does come time to sell that he upgrade you have made is already outdated, or that a buyer’s taste/opinion differs drastically from yours (i.e. you: I LOVE white cabinets, let’s invest in replacing our current ones vs. potential buyer: “I HATE white cabinets, we need to account for the cost of replacing these in our offer)

Our take on remodeling/upgrading projects? Do them if you will get enjoyment/use out of them, but don’t fall into the trap of considering every home improvement project as “a good investment.” 

3.       If/when you decide to move again, consider keeping your current home as an investment property rather than selling. It’s never too early to start planning your next move (literally, in this case). Start thinking about whether you like the idea of diversifying your net worth and investment portfolio with a rental property. Not sure if your current house would make a good investment property? We can help you run the numbers.

Overall, home ownership is a great opportunity for both enjoying life and building wealth. From a financial perspective, many factors need to be considered before a home purchase as well as during the years of home ownership.

For a customized analysis of your personal situation - when it comes to home ownership and all areas of financial planning – contact us at 512-649-2383 or team@truefg.com.

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Should you be saving more into your 401(k)? Maybe not.

Should you be saving more into your 401(k)? Maybe not.

Photo by TheCrimsonRibbon/iStock / Getty Images

For 2018, the maximum annual 401(k) contribution was increased from $18,000 to $18,500. If you’re someone that maxes out your 401(k) each year, you may consider taking advantage of this increased retirement savings capacity. Whether you’re currently contributing a lot or a little to your 401(k), increasing your 401(k) contributions may not always be the best use of your money. Consider the following:

-The 401(k) is a powerful retirement savings vehicle, but it isn’t the only retirement savings vehicle. Once you’re contributing enough to capture the entire employer match (if you’re offered one), it might make sense to consider utilizing other retirement savings vehicles such as Roth IRAs for additional retirement savings contributions. Also, if you’re saving aggressively with the hope of retiring early, you may consider funneling a portion of your retirement savings into account types that don’t carry penalties for distributions taken before a certain age. Many factors go into a decision of whether to utilize only a 401(k) or to incorporate IRAs and other types of accounts into your retirement savings plan. Make sure your strategy matches your personal situation.

 -Are you someone that saves into a 401(k) but also carries credit card debt? You might want to reconsider the amount you’re contributing to 401(k) until you can eliminate your credit card debt due to the high interest rate you’re most likely paying on that debt. You may benefit from a financial plan that involves getting a handle on your household cash flow, aggressively paying off debt, and then focusing more heavily on retirement savings.

Is the amount you’re saving into your 401(k) or other retirement plan sufficient? Are there other retirement saving strategies that you should be utilizing? For help navigating your own personal situation, feel free to contact us! (Email: team@truefg.com  Phone: 512-649-2383)

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New Year’s Resolutions: Why you might NOT want to make one this year

New Year’s Resolutions: Why you might NOT want to make one this year

Happy New Year from True Financial!

According to research, nearly half of us will make New Year’s resolutions this year, with “better financial decisions” ranking as one of the most popular. But of those making resolutions, less than 10% are actually successful.* We don’t love those odds, so what’s our advice? Don’t make a New Year’s resolution!

But before you kick your feet up and relax all next year, consider this:

New Year’s resolutions tend to be generic and vague (“get healthier”, “make better financial decisions”) and lack a specific way to measure progress. Below is a list abstract New Year’s resolutions we often see folks making versus a tangible, measurable goal you can set for yourself:

New Year’s Resolution vs. Actual Goal

  1. Make Better Financial Decisions vs. "Create a financial plan with at least 3 specific financial goals to work towards"

  2. Spend Less Money vs. "Develop a monthly budget and track actual spending to evaluate progress"

  3.  Save More Money vs. "Calculate annualized cash flow and determine additional funds that can be allocated towards savings each month

  4. Create More Wealth vs. "Calculate your net worth and identify at least 3 decisions you can make that will increase your net worth over time

As financial planners, one of the many roles we play is that of “accountability partner”, helping our clients execute on the financial plans that we create together. If you’re someone that could use help setting financial goals and having someone help you follow-through on them (or even help figuring out what your financial goals should be!), send us a message (team@truefg.com) or give us a call (512-649-2383).

*According to Statistic Brain New Year's resolution data, 2017

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Are you prepared for holiday spending?

Are you prepared for holiday spending?

Happy Holidays from True Financial!

How much do you plan to spend this holiday season? According to a National Retail Federation (NRF) survey, consumers plan to spend an average of $967.13 this holiday season. And since that’s the average, many Americans will be spending well above that amount! When it comes to your own holiday spending, consider asking yourself these questions:

-Do I have a plan (i.e. specific budget)?

-Do I have a strategy in place to stick to that plan?

-Is my holiday spending budget reasonable given my specific situation?

Too often we see major expenditures, including holiday spending, take folks off track when it comes to meeting their financial goals. Financial planning can help keep you on track! Send us a message (team@truefg.com) or give us a call (512-649-2383) to learn more.

In the meantime, here are two ideas to help manage your holiday spending:

-Save in advance. Although this won’t help you out for this year’s holiday season, next year you can be well prepared by saving systematically throughout the year. Consider setting up a separate savings account dedicated to holiday spending, and put money into the account each month. For example, if your holiday spending budget is $600, plan to put $50 per month into your new “holiday account”, and by December you will be ready to tackle holiday spending!

-Gift experiences rather than things. We all want our holiday budget to be money well spent. To get the most bang for your buck, consider gifting experiences to the folks on your shopping list. Research suggests that experiences, rather than things, provide us with more happiness and satisfaction (for a variety of reasons, such as experiences enhance relationships, experiences form a bigger part of our identities, and experiences evoke fewer social comparisons).* So instead of a new toy or gadget that may end up on a closet shelf somewhere, consider gifting a loved one with tickets to a local theatre production or classes/lessons to try a new hobby.

Happy Holidays everyone!

*Source: Cornell University study by Prof. Thomas Gilovich, 2012

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