Money Advice No One Wants to Hear

1. Invest the maximum possible in your health savings account

When it comes to retirement planning, most of us have heard that we should max out our IRA or 401(k). But a just-as-helpful retirement tool that you should also max out is your health savings account.

An HSA is a tax-advantaged savings account created in 2003 to help people with high-deductible health plans pay for out-of-pocket medical expenses. Although the purpose of an HSA is to save money for inevitable healthcare expenses, you can just as easily use your HSA as an investing tool.

An HSA is the only account that allows you to pay no taxes at all on contributions, growth, or withdrawals. Invest your HSA funds and avoid reimbursing yourself for those expensive braces or doctor visits, and you'll come out ahead in the long run. Also, if you leave your HSA money in your account until age 65, you can withdraw your HSA funds for non-medical expenses at any point.

2. Put your investments on auto-pilot

After juggling work, family, and hobbies, the last thing most of us want to think about is actively trading a portfolio. That's why one of the best ways to set yourself up for the future is through an employer-sponsored retirement plan. These are attractive, passive options that most employees can take advantage of. All you have to do is select how much of your paycheck you want contributed each pay period. The best strategy is to put your investments in a total market index fund or exchange-traded fund, and then forget them.

3. Avoid lifestyle creep

After a salary increase, many people immediately consider upgrading their house or vehicle. However, studies have shown that cars, houses, etc. can become quickly acclimated to, so the uplift in happiness is short-lived. If you can avoid this tendency for lifestyle creep and instead boost your savings and investments when you get a raise or bonus, you can significantly decrease your financial stress. 

4. Start saving for retirement as early as possible

To see the importance of investing earlier rather than later, let's look at this example : Two people save $100 a month for retirement, each has a 5% annual compound rate of return, but one starts at 25 and the other starts at 35. The one who started at 25 will have saved nearly twice as much by age 65.  The person who started investing at 25 will have roughly $162,000 in their account, while the person who started at 35 will only have $89,000. This is the power of compound interest. The 25-year-old investor would have only invested $12,000 more of their own money, yet they would have over $70,000 more than the person who started at 35.

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