What’s a Side Hustle (and How Can It Help You Achieve Financial Freedom)?

Whether you want to pay off outstanding debt, save up for a house, or just have extra spending money, having a side hustle is a great way to reach your financial goals faster. The nice thing about side hustles is that they do more than just bring in extra income. Side hustles can be a source of fulfillment as well.

side-hustle

Before we discuss how to find the best side hustle for you and look at some ideas, let’s define what a side hustle is:

What’s a Side Hustle?

A side hustle is something you do in addition to your main employment, as a way to make extra money. Since a side hustle isn’t your primary source of income, it gives you flexibility to use it as an opportunity to explore something that truly interests you. If you aren’t in love with your full-time job, a side hustle could be exactly what you need to do something more fulfilling while making some money at the same time.

One thing a side hustle is not is a part-time job. If you seek hourly employment at a place like a retail store or fast food chain, that generally isn’t considered a side hustle. That’s just part-time employment. A side hustle is more of a venture that you embark on for both money and enjoyment.

How to Find the Best Side Hustle for You

The first step to find the best side hustle for you is to identify your interests. As previously mentioned, a side hustle is not only a means for extra income but also a way to explore a passion you may not be able to explore at your day job. When you decide to pursue a side hustle, now’s the time to decide what truly interests you. Do you have a passion for cooking? Are you fascinated by technology? These are just a couple of interests that could turn into a side hustle.

The next step is to identify your money-making skills. Not all of your interests may easily translate into a lucrative side hustle. To determine which skills are easiest to monetize, simply do a web search and see what other people are offering. For example, if your skill is writing, you can look up other writers’ websites and search for their rates. If your skill is coding, you can search on freelance job boards and see how much those types of projects are paying.

The last step is to evaluate the time commitment needed. Some side hustles require more time commitment than others. You want to find one that doesn’t require more time than you’re willing (and able) to dedicate.

A Few Ideas

Now that you know how to find the best side hustle for you, you may already have some ideas in mind to get started. In case you don’t, though, here are 10 that you can try:

  • Resell items on eBay – Make money by buying highly discounted items at places like yard sales or thrift shops. Then, resell them on marketplaces like eBay.
  • Sell crafts on Etsy – If you’re a crafty person, consider making keepsakes like scarves or figurines and then selling them on a marketplace like Etsy.
  • Freelance writing – If you’re a good writer and have subject matter expertise, freelance writing is an excellent way to bring in extra income. Sites like Upwork can be a great place to find potential jobs.
  • Drive for Uber or Lyft – If you have a decent car and a lot of spare time, you can spend a few hours each day driving for one of these ride-sharing services.
  • Rent a room on Airbnb – Renting out a room (or the whole place!) on Airbnb is a great way to take advantage of any extra space you have in your house.
  • Publish eBooks – If you know enough about a particular topic to position yourself as an expert, publishing eBooks can bring in passive income for years.
  • Create information products – You can go a step further and create other information products, such as online courses and training materials.
  • Tutoring – If you’re knowledgeable about a subject that is taught in school, such as history or math, you can seek out students to tutor on a regular basis.
  • Network marketing – Become a representative for a reputable company and sell their products to people for a commission.
  • Become a consultant – Leverage your skills from your day job to create a consulting business, where you advise people for a one-time fee.

Final Thoughts

When deciding which side hustle you’d like to explore, remember to consider both your skills and interests. In addition to being an additional source of income, a side hustle should be something that brings you enjoyment.

Another thing to consider is how much time you’re willing to commit. This may rule out certain side hustles that require a lot of time in order to make good money. Once you get the hang of things and begin bringing in a consistent stream of income, you can brainstorm ways to increase your income even more. One day, your side hustle income may even exceed that of your full-time job!


Dave Ramsey is Bad at Math

See also: Dave Ramsey is Good at Psychology

If you’re familiar with Dave Ramsey, then you’ve no doubt heard of his ‘snowball’ approach to paying down your debt. In short, Ramsey suggests that you make minimum payments on all but the debt with the lowest balance. Any additional money you have goes to that lowest balance debt. Once the low-balance debt is paid off, you add the dollars that had been going there to what you’ve been paying against the next lowest debt. And so on.

The idea is to pick up steam in paying down your debts by knocking them out one by one and piling up the payments that would have gone to each of the paid off debts in order to knock out the next one. Sounds enticing, but is it a good idea? (more…)


How to Get Out of Debt

On the way home from work the other night, I heard a radio commercial touting a debt reduction system that (supposedly) works like no other. As I drove along, I couldn’t help but chuckle. After all, they made it sound like there’s some sort of silver bullet out there that will magically make your debt disappear — for a fee, of course.

Guess what? There isn’t. That’s the bad news. The good news is that, with a bit of hard work and focus, you can do it on your own. What follows are some tips for making it happen.

get-out-of-debt

Recognize the problem

It may sound trite, but the first step in tackling your debt is to admit that you have a problem. Unless you’re willing to own up to your situation and commit to changing it, you’re going to be in debt for a long, long time. If you’re married, now’s the time to sit down and have a heartfelt talk about money.

Stop taking on new debt

This is a hard one, especially if you’ve become reliant on credit cards for making ends meet. If you want to climb out of the hole, you have to stop digging. If you don’t have the money to pay for something, don’t buy it. Period. If you have to cut up your credit cards in order to make this happen, DO IT.

Here, it’s important to understand why you are going into more debt. For some, it’s the unexpected emergency (see building up a cushion below). For others, it’s just steady overspending. One solution is to create and follow the dreaded budget.

It’s really not that bad, and there are several different ways to budget. Pick one that works for you. It may take some trial and error, but stay the course and you’ll get into a good rhythm in no time.

Build up a cushion

If you’re planning on living without credit, then you’ll need a cushion to handle unexpected expenses — i.e., an emergency fund. Debt reduction experts, such as Dave Ramsey, recommend saving $1, 000 for starters. Of course, this number might vary depending on your circumstances. If you’re single and on your own, you can probably get away with less than someone with a family.

Just remember, as important as your emergency fund is, you shouldn’t overdo it. Build it up, stash it in a local bank or online savings account, and move on. After all, your debts will just keep on growing until you start wiping them out.

Inventory your debts

In the interest of developing an effective debt repayment strategy, you need to know exactly what you’re up against. Develop a detailed list of who you owe, how much you owe them, and the associated payment terms (e.g., minimum payments, interest rates, etc.). Don’t leave anything off.

Ask for help

Call the creditors on your list and ask if there’s any way they can reduce your interest rate. As unlikely as it seems, this strategy actually works. No, they won’t all agree to it, but some will. And the worst they can do is say no.

Reduce your existing debt

There’s been a lot of debate over the best debt reduction strategies. Some say to attack your smallest debts first, whereas others say to focus on those with the highest interest rates. Guess what? How you do it doesn’t really matter. The important thing is to pick a method and get started.

In order to stay current on all of your debts, and thus avoid unnecessary fees, send at least the minimum due to each creditor every month. After that, take whatever money you have left over and attack your #1 target. As your debts begin to melt away, you’ll be able to direct more and more money toward your next target. Lather, rinse, repeat.

Accelerate your payments

If you’ve made it this far, you’re doing great. Now it’s time to ramp things up. Start by ditching any recurring, discretionary expenses, and cut back wherever else you can. Whatever extra savings you have should be directed toward your debts.

Some additional ideas:

Every little bit helps.

That’s all folks…

So, there you have it. A thumbnail sketch of my magical system for getting out of debt. And it’s all yours for the low, low price of… Free.


Paying Off Your Mortgage Early: Some Things to Consider

Paying Off Your Mortgage Early: Some Things to ConsiderLet’s talk about a somewhat controversial subject, at least in financial planning circles: paying off your mortgage early.

A great deal of conventional wisdom says you should never pay a mortgage off early. Well, I’ve gone against that conventional wisdom. Twice. I don’t know if that means I lack conventionality or I lack wisdom, but it seems to have worked out well.

First, I’ll explain why I thought it was a good idea, and then I’ll address some of the common arguments against paying your mortgage off early. Finally, I’ll give you some advice about what to consider if you face this decision.

It seemed like a good idea at the time… and still does

When I reached the point in life where I started to accumulate some meaningful savings, I was confused about what to do with it. It happened to be at a time when both the stock market and the bond market had made huge runs. I didn’t fancy the idea of putting the money into an overpriced market, so I was at a loss with where to put it all. My wife and I discussed it and, without hesitation, she asked, “Why not put it into the mortgage?”

Why not? Well, I was aware of a few reasons why not (but more on that in the next section). Personally, though, when I thought about the choice between putting money into some overheated financial markets or putting it into the roof over our heads, it seemed logical to do the latter.

What we got out of it immediately was a feeling of satisfaction and peace of mind. We’ve always looked at debt as something that you don’t simply try to manage, but something you strive to get out of as soon as possible. That may sound terribly old-fashioned, I know. But years later, having witnessed a housing crisis in which too many people lost their homes because they had failed to build equity, I can tell you I’m even happier for having played it safe.

Why not? Here’s why not…

The following are three reasons financial planners often give for not paying off a mortgage early, followed by my arguments against those reasons.

  1. You’ll lose the tax deduction. Yes, mortgage interest is tax deductible, but do the math. If you have a four percent mortgage and you’re in a 25 percent tax bracket, you’re effectively paying 4 percent to save 1 percent. Also, the deduction on interest you pay will be somewhat offset by taxes on what you earn by having the money invested instead, which leads to the next point…
  2. You’ll miss out on investment opportunities. This was a popular argument in the 1990s when investments seemed to go straight up. It holds less water now, though. While mortgage rates are low, at around 3.5 percent, CD and savings account rates are even lower. Bonds are below 2 percent across most of the yield curve. As for the stock market, well, let’s just say it’s had a rough decade. You can take your chances, but remember that by investing borrowed money, you are essentially leveraging your portfolio, which increases your risk level.
  3. Don’t tie up liquidity. This is a fair argument. A house is an asset, but not a very liquid one. You shouldn’t put so much capital into it that you have no money left over for unexpected expenses, emergencies, etc. On the other hand, when people have liquidity, they tend to find a way to spend it. Putting money into your house helps to make sure that money saved stays saved.

Questions to ask before acting

Of course, virtually no financial advice applies universally. Facts and circumstances matter greatly. Here are three things to consider before you pay off a mortgage early:

  1. Are there prepayment penalties? Actually, it’s best to ask this question before you sign up for a mortgage. If you can minimize prepayment penalties, it will give you more options down the road.
  2. Is your income solid? This is essential for making sure you don’t run into a liquidity problem by putting too much into your mortgage too soon.
  3. Have interest rates fallen or risen? If interest rates have risen (and assuming you have a fixed-rate mortgage), you might do better by investing at higher rates while continuing to pay a low rate on your mortgage. If rates have fallen, you face a choice of paying down the mortgage early or refinancing, which leads me to my final suggestion.

Not sure? Consider a hybrid strategy

If interest rates have fallen since you got your mortgage, consider a hybrid strategy of refinancing to a shorter-term mortgage. This will allow you to get an even lower interest rate (15-year rates are lower than 30-year rates) and pay down your mortgage faster without immediately tying up your liquidity.

In the end, as you ponder this decision, just remember that having these options is an opportunity, not a problem.


Are High Deductible Health Insurance Plans a Good Idea?

When looking at different health insurance plans, one of the biggest decisions you’ll likely have to make is whether or not to enroll in a high-deductible plan. Regular health insurance plans offer more predictable medical costs and often more comprehensive coverage. Unfortunately, the monthly premiums for these plans can be out of budget for a lot of people.

That’s why some look to high-deductible health insurance plans in order to cut the costs of healthcare. Let’s take a look at exactly what a high-deductible health insurance plan is, as well as its benefits and drawbacks.

What Is a High-Deductible Health Insurance Plan?

A high-deductible health insurance plan is defined as a policy in which the amount an individual must pay out-of-pocket for medical expenses before the health insurance coverage kicks in is “high.”

What is considered “high” is determined by the IRS. For 2017, the annual deductible for a health insurance plan must be at least $1, 300 for an individual and $2, 600 for a family in order for it to be considered a high-deductible health plan.

High-deductible health plans (HDHPs) do cover preventive care whether or not you’ve met your annual deductible. This is required by federal law. However, you’ll have to pay for all of your other medical expenses out-of-pocket until you reach your annual deductible.

After that, the health insurance company will pay for your healthcare according to the benefits outlined in your health plan. After you’ve met your annual deductible, medical expenses are usually then covered at 100%.

Benefits of a High-Deductible Health Insurance Plan

There are several benefits to being enrolled in an HDHP. The main benefit is that you save money on monthly premiums. Generally speaking, the higher the deductible, the lower your monthly premium will be. If you don’t have any chronic conditions that require frequent doctor visits or don’t plan to have any major medical expenses in the coming year, you can save a considerable amount of money by choosing an HDHP and enjoying lower monthly premiums.

Another benefit is that you’ll be eligible for a health savings account (HSA). An HSA is a tax advantaged savings account that’s used for medical expenses. HSAs are tax advantaged because contributions are tax-deductible. Earnings also grow tax-free, and withdrawals are untaxed.

Because of all of this, you can experience a lot of savings over time by enrolling in an HDHP and using an HSA for your medical expenses.

Learn More: Why We Are Sticking With Our HDHP (and an HSA)

Drawbacks of a High-Deductible Health Insurance Plan

There are several drawbacks to being enrolled in an HDHP, as well. The main drawback is the possibility of a large medical bill. For example, if you’re in an accident and have to have a major surgery worth thousands of dollars, you’ll have to pay your entire deductible upfront before your health insurance covers its share of the cost. Unless you’ve been saving money for medical expenses in an HSA or other account, this large medical bill could seriously hurt your finances and even put you in debt.

Another drawback is that you may be more likely to forego medical care because of the upfront cost. If you enroll in an HDHP in order to save money, you may not be able to afford one-off visits to specialists or even a trip to the emergency room. If you find yourself avoiding necessary medical care because you can’t afford to pay the full cost up to your annual deductible, then it may not be a good idea to enroll in an HDHP.

Final Thoughts

Given these benefits and drawbacks, there’s a lot to consider with it comes to enrolling in a high-deductible health insurance plan. The savings benefits are definitely worth looking into. In addition to paying lower monthly premiums, you can take advantage of an HSA, which offers multiple tax benefits. The monthly premium savings coupled with the HSA could be a good setup for people who want to have more control over how they spend their healthcare dollars.

This is less beneficial for people who visit doctors frequently, are planning to have babies in the near future, or otherwise expect to spend a lot of money on medical expenses. Instead, these folks may benefit from a health insurance plan with a lower deductible.

I’ve personally been enrolled in both types of plans at different points in time. My preference is to have a regular health insurance plan that offers comprehensive coverage. I’d rather pay a little more each month than have to worry about being sent large medical bill if an emergency happens.


How to Improve Your Gas Mileage (and How Not To)

With gas prices on the rise, I thought I’d highlight an article I found on Consumer Reports about ways to save on gas… and ways not to. Given the results of my latest experiment on improving gas mileage, I can vouch for pretty much all of these.

1. Drive at a moderate speed. Keeping a lid on your speed is the #1 thing you can do to improve mileage. In their test car (a Toyota Camry), CR estimated that mileage dropped from 40 mpg to 35 mpg when they increased cruising speed from 55 mph to 65 mph. Speeding up to 75 mph dropped mileage another 5 mpg. While the extent of the drop will vary across makes and models, keeping an eye on the speedometer — especially when driving on the highway — will save gas.

2. Drive smoothly. Avoid rapid acceleration and hard braking. Once up to speed, try to maintain a steady pace. Jackrabbit starts burn excess gas, and unnecessary braking just converts energy gained from burning gas into heat (and it wears out your brakes).

3. Reduce unnecessary drag. Even empty roof racks can reduce mileage. Try to keep your luggage inside your vehicle, and if you’re not using your roof rack, remove it.

4. Don’t use premium fuel if you don’t need to. If your car is designed to run on regular unleaded, putting in premium won’t help. Using premium won’t hurt, but you’ll be spending an extra $0.20 per gallon for no reason.

5. Minimize driving with a cold engine. Engines run most efficiently when warm. Try to group errands together. This not only minimizes back and forth trips, but also maximizes efficiency by not letting the engine cool off too much.a

6. Keep tires properly inflated. Underinflated tires can cause a number of problems, not the least of which is reduced gas mileage.

7. Buy tires with lower rolling resistance. Less friction = less wasted energy, which translates into more miles per gallon. Believe it or not, this can account for a 1-2 mpg difference.

8. Avoid idling for long periods. If you’re burning gas, but not going anywhere, you’re getting zero mpg.

What Doesn’t Make a Difference

And here are three gas myths that don’t help at all:

1. Morning fill-ups. I’ve heard on more than one occasion that you should buy gas in the morning because it’s cooler, and the gas will be denser. The argument goes that this will result in more gas for your money. Problem is, it’s not true. Gas is stored underground, and the temperature barely changes at all over the course of the day.

2. Air conditioning vs. opening windows. While air conditioning can reduce your mileage, so does opening the windows. But in their tests, CR concluded that both effect were negligible. Note, however, that this testing was done at highway cruising speeds. I suspect that air condition might have a larger effect in stop and go traffic.

3. A dirty air filter. A popular recommendation at oil change places is to replace your air filter since a dirty filter supposedly reduces mileage. That being said, CR’s results indicated that, unlike the case with older cars, the mileage of newer models is unaffected by a dirty filter. The reason for this is that modern engines can compensate for a dirty filter and keep the air/fuel ratio constant.


The Best Places to Invest for Retirement

A reader named KC recently wrote in with a question about investing for retirement:

I’m 28 years old with a wife and a six month old baby. We’ve always been money-conscious, but would really like to focus our efforts. We both have Roth IRAs, but are not satisfied with them. They are heavily loaded, and we weren’t that familiar with them when we were advised to set them up. My question is where you would recommend I go for a long-term investing vehicle? I always hear to go with no-load mutual funds but would like your opinion.

This is a great question. I’ve said it before, and I’ll say it again… Friends don’t let friends pay mutual fund sales loads.

My personal preference when it comes to long-term investing centers is low-cost, no-load mutual funds. When I say low cost, what I’m really talking about is “passively-managed” index funds that seek to match the market as a whole, or some segment thereof.

Now the question is where you go to find low-cost index funds. Here you have three general options:

  1. Mutual fund company
  2. Discount Broker
  3. Automated Investment Service (a.k.a. robo advisors)

Let’s take a look at all three and the pros and cons of each.

Mutual Fund Companies

As for my favorite places to invest, Vanguard is at the top of my list. We also have some money with Fidelity and have been quite happy with their offerings. A third option would be Schwab, who has a bunch of low-cost mutual funds with a low minimum investment of $100.

It’s important to understand that not all mutual fund companies are created equal. Vanguard, for example, specializes in index funds. It also has three tools to make investing easy:

  • Target Retirement Funds: Simply pick the fund that corresponds with the year you plan to retire (e.g., Target Retirement 2060), and Vanguard takes care of the rest. It allocations your investments between stock and bond index funds. And as you near retirement, it shifts more of your money toward safer bonds.
  • Lifestyle Funds: These are similar to Target Retirement Funds in that Vanguard handles the allocation of your money and rebalances your account. Rather than picking a fund based on when you plan to retire, however, you’ll pick one based on the allocation you want between stocks and bonds (e.g., 80/20). This allocation does not change unless you change it.
  • Vanguard Personal Advisor Service: For a fee of 30 basis points (0.30%), Vanguard will manage your investments for you. For those looking for hands-on advice, it’s one of the best deals out there. You do need a minimum of $50, 000 to invest, so this service may be more suitable for those converting a 401k to an IRA.

Fidelity offers similar retirement fund options, although not all mutual fund companies do.

Discount Brokers

A second option is to open an IRA at a good discount broker. This approach is ideal for those that want to invest in individual stocks or ETFs. The major mutual fund companies do offer brokerage services, but they generally don’t compare to the online brokers who specialize in this service. Here are a few of our favorite options:

Robo Advisor

Finally, robo advisors have become an excellent way to invest in both taxable and retirement accounts. These low-cost services make investing easy. They help you select a portfolio that meets your needs. They then automatically rebalance your investments.

These services offer IRA accounts. Two of my favorite options are Betterment and Wealthfront.

Of course, there are other options to consider, such as opening a Treasury Direct account so you can buy Treasury securities such as T-Bills, T-Notes, T-Bonds, Series EE Savings Bonds, Series I Savings Bonds, etc. This will allow you to purchase these securities direct from the Federal government with no middleman.

Just keep in mind that the optimal composition of your portfolio depends on many factors, so you really need to give a lot of thought to your time horizon, risk tolerance, etc. before you make any major moves.


Review of the Discover it Card and Its Cash Back Bonus

Have you heard of the Discover it credit card yet? This highly-rated cash back credit card makes it easy for those with mid-to-high credit to jump on earning great rewards. Plus, it has an interesting matching bonus offer happening right now.

Discover it Card Basics

This card offers a great 5% cash back on bonus categories, which rotate quarterly. You have to activate the categories each quarter in order to earn your cash back, but Discover will send you emails to remind you to sign up.

The 5% Cashback calendar may change from year to year, but generally sticks to a common sense pattern. For instance, they typically offer bonuses from Amazon.com towards the end of the year (think holiday shopping!). Other bonus categories include restaurants, department stores, gas stations, and home improvement stores.

discover-it

Unfortunately, all good things have their end, and the Discover it bonus cash back is no different. Your 5% cash back only applies to the first $1, 500 in purchases for every quarter that you activate your rewards. So, you can get up to $75 per quarter in cash back rewards.

What happens once you’ve maxed out your $1, 500, or when you’re making purchases in non-bonus categories? Well, you’ll get 1% cash back on all other purchases, with no limits. You can redeem rewards for cash back on your account balance at any time, or you can use your rewards, penny for penny, for Amazon purchases.

First Year Matching Bonus

Right now, new cardmembers can get a great matching bonus. Discover will match, dollar for dollar, any cash back earned during the first year of your card membership. So, even if you just max out your $1, 500 bonus category each quarter, that’s a $300 bonus at the end of your first year as a cardholder — you’d get $600 instead of just $300!

And the matching bonus also applies to that 1% cash back, on top of the quarterly categories. So, you could earn even more bonuses in your first year as a cardholder.

No Annual Fee

Unlike many credit cards with 5% cash back bonus categories, the Discover it has no annual fee. This makes it a valuable addition to many wallets.

Introductory APR

This card currently offers a 0% introductory APR on both purchases and balance transfers. The introductory APR on purchases is good for 12 months from account opening. The introductory APR on balance transfers is available for 12 months from the date of the first transfer for any transfers posted to the account by February 10, 2017. The balance transfer fee is 3% for each transfer.

After the introductory period, the standard APR will be 11.24% to 23.24%, depending on creditworthiness. Cash advance APR is 25.24%.

Other Benefits

Discover offers several other cardholder benefits, including:

    • Freeze It Switch:You can easily freeze your card to prevent new purchases or balance transfers on your account. Since you can do this online or through the mobile app, it gives you some peace of mind if you should ever misplace your card. Plus, if you find your card before ordering a new one, you can easily un-freeze your account so you don’t have to wait around for a replacement in the mail.
    • Free Overnight Card Replacement: If you can’t lose your card or it gets stolen, you can get a free overnight card replacement to most U.S. addresses.
    • FICO Score Tracking: Track your FICO credit score online and on your monthly statements for free.
    • Card Monitoring Services: If activity on your card looks sketchy, Discover will call, email, or text you an alert.
    • Late Payment Protection: You won’t pay a late fee on your first late payment with your Discover it card. And you won’t get an APR hike on your account because of late payments, either.
    • No Overlimit Fee: Spend a little too much? No problem. Discover it has no overlimit fee to worry about.
    • No Foreign Transaction Fee: A somewhat unusual trait for a general cash back card, the Discover it doesn’t charge additional fees for transactions made in foreign countries.

The Bottom Line

The Discover it card has good review around the internet for a reason. It offers benefits that many other basic cash back cards don’t, including a 0% introductory APR offer and no foreign transaction fee.

If Discover’s rotating bonus cash back categories mesh with your spending patterns, this card could be a great way to get more rewards where you’re already spending. The 1% cash back on all other purchases isn’t stellar, however. If you’re really looking to squeeze all the cash back rewards possible out of your credit cards, you might look elsewhere for an everyday use card for purchases like groceries and gas.

Still, signing up for the 5% rotating cash back categories is easy. And the first year matching bonus offer going on right now effectively turns that 5% bonus cash back into 10% back, and the 1% cash back into 2% cash back. That’s a great offer for a card with no annual fee!

So, whether you’re looking to pay down credit card debt with a 0% APR balance transfer offer or just want to earn rewards on everyday spending, check out the Discover it card. It may be just what you’ve been looking for.


11 Great Books About Money That Everybody Should Read

Editor’s Note: This post was originally published in 2007. However, we feel that the books listed here are timeless, and still provide a wealth (pun intended) of information. Each and every one of them on this list is still highly recommended, and many of them still hold the top spots for personal finance best sellers.

11-books

I’ve been on a bit of a reading kick lately, so late last week I decided to solicit book recommendations from a few of my fellow bloggers. I asked each of them to recommend one (and only one) financial book, and to also provide me with a sentence or two describing why they chose that particular book. Amazingly, there was very little overlap in their recommendations. The end result was the following list of 11 great books about money.

Whether you’re looking for a book (or two) for yourself, or hoping to pick up a gift for someone else, there’s bound to be something of interest on this list… (more…)


The Triple Tax Advantages of a Health Savings Account

With the rising cost of healthcare in the United States, many are looking for ways to save on medical expenses. Employers are continuing to push healthcare costs onto workers, making monthly premiums higher than ever.

In addition, high-deductible health insurance plans have become increasingly popular. For these reasons, people turn to health savings accounts for savings on medical expenses. Let’s discuss what a health savings account is and explain its triple tax advantage.

What Is a Health Savings Account?

A health savings account, or HSA, is a medical savings account with tax benefits. HSAs can be used for eligible health expenses including medical, dental, and vision. HSAs can’t be used for health insurance premiums, however.

You’re only eligible to contribute to an HSA if you’re enrolled in a high-deductible health insurance plan. High-deductible plans are defined as health insurance plans with an annual deductible of $1, 300 or more for individuals and $2, 600 or more for families in 2017.

1. Contributions Are Tax Deductible

The first tax advantage of an HSA is that contributions are tax deductible. When you contribute to an HSA with after-tax money, you can deduct those contributions on your tax return for savings. You have until the tax deadline of the following year to contribute to an HSA for the current year. For example, you will have until April 18, 2017 to make contributions for the 2016 tax year.

Related: HSAs are One of the Four Savings Accounts that Everyone Should Have

The contribution limits for HSAs in 2016 are $3, 350 for an individual and $6, 750 for a family. For the 2017 tax year, the only change will be that the contribution limit for individual accounts will increase by $50.

In some cases, employers may allow employees to contribute to HSAs with pre-tax dollars through automatic payroll deductions. In this case, the contributions won’t be tax deductible. However, your taxable income will still be reduced throughout the year because of your HSA contributions. Employers can, at their discretion, make contributions to your HSA as an additional benefit.

2. Earnings Grow Tax-free

Did you know you can invest the money in your HSA? Yep, you can invest in mutuals, ETFs, etc.

Let’s say you have $10, 000 saved up in your HSA but have only spent $2, 000 of that balance. The remaining $8, 000 can be invested in the stock market so that it can grow while you’re not using it. Any gains the account experiences are tax-free. You won’t pay tax on the investment earnings.

Learn More: Using Your HSA as a Retirement Investment Vehicle

This is a major tax advantage because of the power of compound interest. Instead of paying taxes on your investment gains, the money will continue to grow. Those investment gains will build up over the years as you continue to contribute to your HSA and let the unused funds grow. If you contribute the max to your HSA each year and continue to have an unused balance, you can see how the account can grow a considerable amount over time. Since HSAs don’t expire, you can use these funds for medical expenses into retirement.

3. Distributions for Qualified Medical Expenses Are Untaxed

When you use your HSA for qualified medical expenses, your money won’t be taxed at that time. For example, if you need to pay for a $20 prescription, you can use your HSA debit card and make the purchase with your tax-free money. Or, you can pay from one of your regular accounts and then reimburse yourself from your HSA for the full $20. In this way, the distributions for qualified medical expenses are untaxed.

Your HSA provider should be able to provide you with a list of qualified medical expenses. Optum Bank, an HSA provider, provides a brief description of some qualified medical expenses as well as some expenses that don’t qualify.

Given the rising costs of medical expenses, especially in retirement, this advantage can result in sizeable tax savings.

Final Thoughts

As you can see, the triple tax advantage of HSAs really adds up. By not paying taxes on contributions, earnings, or withdrawals, you are effectively paying for medical expenses completely tax-free! For this reason, an HSA is a powerful tax saving tool.

HSA contributions reduce your taxable income each year you contribute. The best thing to do is to set up automatic contributions and contribute the maximum amount allowed by the IRS each year. Remember, since HSAs don’t expire, you can use any unused funds all the way into retirement for medical expenses.

Don’t forget that HSAs allow for tax-free investment growth. When you consider how much you’d pay otherwise in capital gains taxes, you’ll see that this is a huge tax benefit. You can choose from a wide range of mutual funds, bonds, etc. to invest your money.

The one drawback is that you’re only eligible for an HSA if you have a high-deductible health insurance plan. If you have determined that a high-deductible health insurance plan fits your needs, then an HSA is a wonderful tool to use.