In Search of Greener Grass: Mulling Over Cash Flow

This week, while playing in my (beginner) golf league, I was pondering the green grass while learning how to play “best ball”. That led me to start wondering about how much water is used to keep things so green, what sorts of chemicals was I standing in and how on earth do they justify these courses in other, drier parts of the country? Then I channeled my late husband and hit a shot straight down the fairway and suddenly I was less concerned about all those environmental things…perspective is a wonderful thing.
 
So, let’s talk about those other parts of the country. At least once a month (and sometimes more often) I have someone comment to me that they are going to head West or South (not so much East) and get out of New York. Putting it right there on the table…yes, we pay some pretty decent size taxes here in the great state of New York. I’m not going to deny it. In fact, I’m going to embrace it. That being said, there is so much more to a cash flow plan than taxes—I can already hear some of you definitely drawing blood as you squeeze your fingers into fists of outrage but stick with me on this one. Let’s look at some other big-ticket cash flow items.

Health insurance: I let my fingers do the walking this week and did a little shopping for health insurance in three fairly popular transplant destinations. In North Carolina, the exact same plan as the one I carry is 60% more expensive. In Florida, the difference was 24% more (with a $2k higher deductible) and in Boise, while I’d be paying slightly less, I could be denied coverage (something not allowed in New York). I had a hard time believing that Boise, Idaho, was on a “Best Places to Retire” list so you can imagine my surprise when I found it on several. Another aspect to this research is access to medical facilities.  Comparable costs won’t do you any good if you have to drive more than an hour for a simple check-up or none of the local doctors are taking new patients.

Utility / water rates: As I think I’ve mentioned before, when my parents moved from Penfield to Avon, my mother nearly had a heart attack when they received their first water bill since, apparently, Avon pipes their water through gold pipes by way of Mars (there’s a whole story behind our water rates but we’re talking finances here, not politics). Thinking of heading West or South? Water rates for basic residential usage in Jacksonville, FL, average $43/month and can run more than three times that in some of areas further West. 

Vehicle incidentals: Let’s assume you are taking your car with you. If I were moving to Iowa, I could be paying more than $195 to re-register my car (versus the $55 check I just mailed). Heading south to Maryland, that’s going to be $135. Filling the tank on the way to the DMV, you’ll be paying ~$2.88/gallon for gas in Iowa and $3/gallon in Maryland. Sure, your car insurance in Boise is about half of what you are paying in New York but what they don’t tell you is that your coverage is less robust than what you enjoyed in New York because our mandatory minimums are higher than other states. 

Stepping lightly on a third rail, climate change: The changes we’re seeing in the environment can have knock-on impacts on your costs of living. For example, it’s getting harder and harder to secure cost-effective homeowner’s insurance along parts of the coast and in fire-prone areas. In some of these areas, it isn’t a matter of the insurance costing more, it’s a matter of not even being able to secure coverage.  Does your financial planning accommodate paying to rebuild your house? 

Finally, and perhaps most importantly, travel: If you are moving to state A and your loved ones are in state B, make sure you budget for travel back and forth to see them. It doesn’t do you any good to eliminate the NYS state and property taxes and end up spending more on Delta to visit those budget-busting grandbabies.

Of course, there are lots of reasons to move and I don’t want to discourage anyone who is thinking of moving from doing so. What I would encourage people to consider is that moving isn’t really a fiscal thing—it’s a deeply emotional one. Long before you put the numbers together, make sure you think through the “why” of your move. If you are pretty sure of your “why” the next step will be to build a Cash Flow Worksheet (remember those) as if you already lived there. Despite some pretty glaring faults, the internet is very useful when it comes to finding out how much something costs in other places. As with so much that has to do with our finances – it’s not about making the right or wrong choice, it’s about making an educated choice.


Health Savings Accounts: Both Scary and Useful

Now that tax season is behind us, we can take a little breather and think about actions we can take to help with next year’s taxes as well as better support our retirement prospects. Most companies’ open enrollment season starts in the Fall so this gives you plenty of time to evaluate whether or not a Health Savings Account (HSA) might work for you.

What is an HSA? Not only is it a tax-deductible account you can use to save money to cover medical expenses tax-free; it’s also a tax-deductible account you can save money into for retirement. In a nutshell, you can contribute money into one and take a tax deduction for that tax year, you can invest those dollars and let them build tax-deferred, and then, in retirement, you can draw them out tax-free. There really isn’t another type of account like it.
 
For the here and now—if you are a somewhat heavy user of medical services, and you have the nice low and consistent co-pays, it’s unlikely that you will pay enough in co-pays to be able to take advantage of the medical tax deduction because of the high threshold that deduction uses (7.5% of your AGI). By switching to a High Deductible Health Plan and using an HSA, you can fund the HSA with tax-deductible dollars then pay for those services from that account tax-free. Once you’ve met your insurance deductible, your insurance kicks in and pays for any additional services you might need throughout the year. Is it really that simple? Of course not, but very often it does make much more financial sense than the co-pay process. A little more work at first—yup.  A little more money in your pocket overall—more than likely. You can even complete a once-in-a-lifetime rollover from your IRA into your HSA to frontload your account.
 
For the big upcoming medical events—another strategy is to use an HSA in anticipation of big medical events. Let’s say you are a young healthy person but you know you’re going to want to start a family (we’ve already talked about Baby Talk and how expensive giving birth is and you can count on spending many times more than that that if you need help to get pregnant), or perhaps you’ve been having a hip / knee / shoulder / reproductive / nasal / digestive / etc. issue that you know you’ll need to deal with at some point. These are big-ticket medical expenses where most insurance policies require a significant contribution from the participant. You could fund an HSA every year, with the contributions rolling from one year to the next and building along the way because you’ve invested them in a conservative allocation. Then, when your planned for event finally happens, you use the balance in one fell swoop when the bills come in.
 
For retirement—want to get the most out of this type of account? Fully fund an HSA and let the dollars roll until you need them for those hearing aids and dental care in retirement (which aren’t usually covered by Medicare). Sure you could contribute to your company retirement plan or an IRA and take the tax deduction now but then you’ll pay taxes when you take the money out, something you won’t do with an HSA. You could also use a Roth IRA but you won’t get a tax deduction now like you do with an HSA. This strategy requires a little more budgetary attention since you’ll want to cover your current medical expenses out of pocket to make the most of the strategy but that’s not out of the realm of possibility with a little prep work.

Want to make the most out of this strategy? Fund your company retirement plan up to the maximum you need to get the match, fully fund your HSA, and then throw additional dollars into your Roth or post-tax investment account—three legs of your retirement stool all set and ready to help you later in life.
 
Of course, there is a catch to all of this. In order to use a Health Savings Account, your health care plan must be a high-deductible one, not one of those co-pay plans, and that’s not always the right type of an account for everyone, which is why I bring this up now. In order to do our taxes for 2020, many of us had to at least take a peek at what we spent on medical costs for last year. Take an hour one day and do the math so you are ready for your next open enrollment. Which is better for you—using a High Deductible Health Plan and an HSA or using a co-pay based plan? While there are pros and cons to each, make sure that you are making the decision based on the numbers and not the emotions. Some people find the idea of a high deductible plan to be a little scary and I get it. Tackle those fears by looking at the numbers and building a plan. There is no insurance fairy godparent looking out for you so it’s up to all of us to make a well-informed choice.

First Comes Love, Then Comes Marriage

May makes me think of June and June makes me think of weddings. This week, let’s chat about getting hitched…tying the knot…plighting one’s troth (there’s one for the literary crowd out there). 
 
For the majority of human history, weddings were small, family and/or village-based affairs more along the lines of church potluck events. Only a small percentage had a wedding reception, as we currently think of them, and they were usually the wealthiest of the local community. The upper upper echelon in the largest of cities held grand affairs and they were primarily for political reasons. Over the last couple of centuries, as the middle class developed, these larger ceremonies crossed economic layers and became more common for more people. That being said, they were still fairly modest because there was no such thing as credit cards, retirement accounts, or home equity lines of credits (heck, there were barely banks as we know them).
 
It wasn’t until after World War II that big weddings became more popular across the board and the idea of overspending on the event rose in alignment with the phrase “Keeping up with the Jones.”  In 2019, the average wedding cost was over $28,000. That’s essentially $60 of necessary expense (the marriage license) and $27,940+ of discretionary expenses—and we all know how Kitty feels about discretionary expenses. In an interesting economic turn, prior to this point, the biggest expense of a wedding was often the groom’s suit, which was traditionally the first for the young man (and sometimes the only, just like his beloved – LOL!). I find it interesting that purchasing something practical for the family was the focal point of the wedding expenses, which certainly isn’t the case now. Now, tuxes are rented and expensive wedding gowns are rarely (if ever) worn again. 
 
How about the engagement ring? Throughout history, exchanging jewelry (usually but not always a ring) has been a part of the ceremony as a symbol of the contract being agreed to (bridal parties willing or not). It wasn’t until the Edwardian Age that engagement rings were exchanged. Even then, it wasn’t until the Roaring 20’s that anyone other than the “one percenter’s” exchanged rings that even remotely compared to what is routinely exchanged today. Of course, that lasted for about a decade before the Great Depression meant we once again exchanged simple bands. Then, along came De Beers who launched their “a diamond is forever” marketing campaign in 1948, and, suddenly, diamonds became part of the wedding culture. Once again, like Hallmark holidays or owning versus renting a home, our traditions were created by marketing teams.
 
Of course, a wedding is something to celebrate—a joining of souls who managed to find each other in this crazy madcap world is a wonderful thing. Both my parent’s and my own wedding pictures are part of my screen saver so I’m not a total Ice Queen. The question I pose is: are the events of one day really something to go into debt for? Raise your hand if, looking back through the years, you might think twice about spending so much money on the wedding (yours or your child’s) when you could have put some of it down on a new home, or paid rent for a year(+), or paid off school loans, or done a family VRBO, or, or, or. I would also suggest that dipping into your own savings to cover the costs of your child’s wedding should be done only after a thorough examination of your own long-term financial stability.
 
Let’s start a new tradition…have a simple pre-WWII wedding and throw a full-blown 10-year anniversary celebration. Since the average American marriage lasts ~8½ yrs., you do the math….