Naked With Cash is an ongoing series at Consumerism Commentary in which readers share their households’ finances with other readers. These participants benefit from the accountability that comes from tracking their finances publicly and the feedback of the four expert Certified Financial Planners (CFPs).
This year, we have four participants who will share their financial reports, exposing the results of their financial choices. Each participant is paired with one of our Certified Financial Planners. The experts will provide insight and guidance that will help our participants take their finances to the next level by the end of 2014. Learn about this year’s participants and experts.
Betsey works as a government analyst. She is single, and lives with roommates to keep costs down. She is an aggressive saver, and plans to retire early enough that she can start a business specializing in craft beers. (Read her update from last month.)
After reading Betsey’s comments, you can see video commentary from Sara Stanich, CFP. Sara Stanich appears courtesy of Stanich Group and Cultivating Wealth. This month, Betsey will share information about her emergency preparedness efforts.
Betsey’s Net Worth Statement
Betsey’s Income Statement
Comments and analysis from Betsey S
This was an expensive month for me, between attending two weddings and some work travel. I’m glad I had been saving up money for the weddings because the expenses of attending definitely added up, especially being a bridesmaid in one.
The work travel was reimbursed (shows up in my “other” income for this month), but it still made my spending in a few categories (travel, transportation, restaurants, etc.) look higher than normal.
I also had some dental work done and will have a few more related medical expenses in August. I’m planning to “borrow” money from my cash savings to cover the expense and pay myself back once my HSA account has a few more months of contributions in it. I am definitely seeing the value in being able to set aside money for health expenses in this account and plan to increase my contributions in future years.
In terms of a financial emergency, I would say that most of the money I have set aside for a house down payment ($10,000) at this point doubles as an emergency fund. Although I’d be hesitant to use my retirement savings, a 401(k) loan or Roth IRA withdrawal would also be an option. And I have offers on a number of credit cards for 0% balance transfers lasting about 15 months, which would be another option if I really needed money in a bad situation.
That’s really the extent of my emergency planning. I don’t have any cash on hand in case of a natural disaster, which I probably should start keeping just in case. I’ll typically prepare for predicted events (snowstorm, hurricane, etc.) by stockpiling a small amount of food and water beforehand. I have lots of camping and outdoors gear (tents, ropes, sleeping bag, cook stove) stored in my apartment, including backcountry first aid kits and survival supplies. I usually take this stuff on rock climbing or hiking trips, but I suppose it could double as emergency gear in a true natural disaster as well.
Feedback from Sara Stanich, CFP
Sara talks about Betsey’s extra spending in the month, and points out that she has prepared adequately so that these types of extras don’t break the bank. Sara also talks about emergency preparedness and offers a few tips.
Feedback from Luke Landes
I like how Betsey is planning to use her Health Savings Account. The concept of the HSA is nice. You can set aside some of your income on a tax-free basis to pay for health-related expenses. So when you set aside money in a HSA, it reduces your taxable income, as long as you qualify. But I don’t like that they’re often tied to high deductible health plans. A high deductible health plan is a limited type of insurance. And with their introduction, health insurance companies feel vindicated by offering a type of low-cost insurance that doesn’t actually do what insurance is supposed to do — pay for your expenses by pooling resources from a large group of insured users.
Health Savings Accounts also allow investments, which seems like a risky way to deal with money you intend on using within a year for health expenses. What happens if the market crashes? Well, one might have other resources to draw from, so some people may be led to just look at HSAs as a way to invest for the long-term in a tax-deferred account. And if you wait until you’re sixty-five before withdrawing, you can avoid the penalty tax.
Because I generally chose HMO or PPO health insurance plans, I never really had an HSA available to me, as far as I remember.
Betsey mentioned a 401(k) loan as a potential source of emergency funds, but I’d only turn to that as a last resort. Even credit cards can be a better source than a 401(k) loan. There is too much that is outside your control with your 401(k) loan. If you lose your job — and maybe you’re in an emergency situation because you did lose your job — your 401(k) loan will become due immediately. That could put an additional financial strain on you at a bad time. A withdrawal from your Roth IRA is a much better choice. You can even replenish the account to some extent if you are no longer in an emergency situation within the same year.
Despite your increased expenses this last month, you’re in really great financial shape. I can’t wait to see what your balance sheet looks like at the end of the year, if you keep up the good work (which I’m sure you will.)