What is a Health Savings Account (HSA)? The Top Reasons You Should Have One!

Feb 24, 2020 | Budgeting, Budgeting Tips, Finances, Video

A health savings account, or HSA, is such an invaluable account that you should have! Tax-free money saved for your medical bills? Yes, please!

Doctor's stethoscope, money, and a a health savings account sheet, from Fun Cheap or Free

If you know me, you know I'm a fan of having multiple bank accounts. In fact, I recommend having AT LEAST seven accounts, though my family has over 20 at this point (true story). Are you hyperventilating yet? Don't! I promise it's not that weird!

My “7 Bank Accounts Every Family Should Have” post has broken the internet several times, because apparently, it's super weird for people to think about having lots of accounts. Let me tell you from experience that the more accounts you have, the EASIER it is to manage and organize your money.

One of those 7 accounts that everyone MUST have is a health savings account. Want to know more about that? You're in luck! I've got a quick little video that I recorded back in 2017 that'll explain exactly what that is, along with why you should have one!

WatchΒ the health savings account video online or click and watch below:

See, that wasn't so bad right?? Now let's go over exactly what a health savings account is to really tip you over the edge to run and get one! πŸ˜‰


WHAT IS A HEALTH SAVINGS ACCOUNT?

No! An HSA, or health savings account, is not a virus. It's a legitimate, life-saving (literally, in some cases) TAX-FREE savings account that helps make healthcare more affordable for you and your family!

Think of it the same as any other bank account that you have… It's YOURS! You, your spouse, your family, and even your employer can deposit money into it. Your employer will deduct the amount that you want to contribute to it from each paycheck and deposit it into the account before you get paid, meaning that you're not taxed on the money that goes into that account!

You're able to save your HSA money and then pay for qualified medical expenses when they arrive, such as:

  • Medical care
  • Vision care
  • Dental care
  • Prescriptions
  • Long-term care and services

Getting the itch to join the cool kids and get a health savings account already?!


HOW TO GET AN HSA

You can get one through your employer, healthcare provider, bank or credit union when you are enrolled in a high-deductible health plan. This can really save you some money! If your family rarely gets sick, then you should consider moving from the low-deductible health plan. You can then take part of that money that you were paying monthly and put it towards your HSA. Throw the rest of it to your budget to help pay off other things!

(Note: I don't recommend doing this if your family gets sick often or if you have medical reasons that you have to visit the doctor regularly. You're better off with the low-deductible health plan!)


WHAT IF I DON'T QUALIFY FOR AN HSA?

A woman pulling money out of a wallet for a health savings account from Fun Cheap or Free

I believe that everyone should have a health savings account, even though everyone may not qualify for one. How can you do this? Make one on your own!

If you don't qualify for a formal HSA, I recommend having a savings account, and setting money aside just for medical expenses. Sure, it's not tax-free like an HSA is. But the concept of setting money aside so a medical bill doesn't eat up your grocery budget is INVALUABLE. A real HSA is top choice, obviously, but second best is a good ol' savings account, just for medical expenses.

And a bonus? Whatever money you put in your HSA with after-tax dollars is tax-deductible! So you may not be getting the benefits of it being tax-free, but you can still deduct the money that you contribute from your gross income on your tax return, which will help you out with your taxes for the year. Score!


HOW TO USE YOUR HEALTH SAVINGS ACCOUNT

With your HSA, you'll get a debit card to use when you go to the doctor or buy your prescriptions. If you're billed in the mail, you can also call in and give them your debit card number to pay, just like with any other card. It's so convenient to use!


HOW MUCH CAN YOU PUT IN AN HSA?

There is an annual limit with how much you can put in your HSA. A single individual can contribute up to $3,500, and a family can contribute up to $7,000. If you're 55 or older, you can bump those amounts up by $1,000.

The good thing? If you don't use everything that's in your health savings account by the end of the year, it'll roll over to the next year! There's no worrying about losing out on that money if you didn't have to use it all. So you could end up having more in your account than the yearly amount that you contribute.


Now you see just why the health savings account is so. darn. important. to our family! It has really changed our life and I can bet that it will do the same for yours!

Image that reads "What the HECK is an HSA and why everyone should have one" from Fun Cheap or Free

While you're here, don't forget about my fun video program, Budget Boot Camp! In this online budgeting program, I go into detail on the 7 bank accounts principle, plus many others.

You really don't wanna miss out on this fun! Plus, use the code FCFBLOG at checkout to get 10% off, just because. πŸ˜‰

Wanting some more great budgeting ideas?

  • Save money fast by doing a spending freeze… this week!
  • Learn how to spend, save and invest on ANY income by applying the 70% rule.
  • Need more help focusing on your finances? Do these weekly challenges and get your finances in order!

Happy saving!

Jordan Page Signature from Fun Cheap or Free

14 Comments

  1. Valerie K.

    Your title is very misleading because “EVERYONE” should NOT have an HSA. EVERYONE CAN’T have an HSA. Only those with high deductible plans can. My husband is not self employed. He has an awesome job with awesome health coverage. Last year we maybe spent $300 for our family of 4 on health care costs because our deductible is so low. This year I will be having a baby and 100% of my maternity care will be covered. And we will spend much less than $6000 on our premiums because his employer pays for 70% of the premiums. So yes, if I needed a high deductible plan, I would get an HSA, but for those of blessed to have great health coverage by our employers, an HSA is not even an option or good idea.

    Reply
    • FunCheapOrFree

      Good call – I shouldn’t have said everyone, because it’s true, not everyone can (or should!) have one. That was poor wording on my part, simply didn’t think it through! Thanks for your comment!

      Reply
      • Valerie K.

        Thanks for the clarification. and i like the idea of having money set aside just for medical expenses. Yes, I would love for it to be tax free, but I’m just thankful that we will still spend much less using our current health plan than we would with a high deductible plan. Having great employer sponsored insurance is more and more rare, so I’m thankful for the savings that provides for my family. Love your blog, excited to implement some of your strategies this year and be debt free except for our mortgage by 2018! Hurray!

        Reply
  2. Stacey

    Hey Jordan. In Canada we don’t have or need an HSA, but I’m commenting because you mention having like 20 bank accounts. I’m wondering if this is similar to what I do and would like to learn more. I need to find a way to squeeze an extra $70 per month out of my budget and I’m struggling. I’m wondering if we could even make it work on your budgeting system. I’m not sure we could live on just 70% of our income. Our only debt is our house, thankfully, but we are a family of 6 living on one income. Any advice? I already budget every dollar that comes into our hands. We live within our means.

    Reply
  3. Katrina

    Hey Jordan! My family recently signed up for a Christian Health plan called Samaritan….something or other…. its basically a coop for paying medical bills. Do you know if getting an HSA is an option somewhere else?
    My husband works for a very small local business, so I’m confident its not an option there. Thanks!

    Reply
    • FunCheapOrFree

      Honestly, I’m not sure! I’m not familiar with co-ops. I know you can get an HSA through a credit union, bank, employer, or health insurance company – but you qualify only if you have a high deductible plan. So I’m not sure how that would work with co-ops, might be worth a few phone calls to find out though!

      Reply
  4. Allison

    Hey Jordan! I loved this post particularly because my husband and I work for the same school district which contributes to our HSAs for us. I also contribute out of my pay check more because we knew we were ready to start having a family. One thing that I am looking into is can I use my husband’s HSA on my medical expenses as I am expecting our first child. He signed up for his as a requirement of employment before we were married. I would also love to see a post on questions to ask your insurance provider when you are pregnant.

    Reply
  5. Rachel

    I looked on united healthcare and only could see short term plans. Is that what they classify them as? Only short term options?

    Reply
  6. Kamryn Carlson

    This is something totally new! I am so glad. Thanks!

    Reply
  7. Heather B

    I really appreciated this video! When I first watched it, I think it was the first time I really understood what an HSA was! Haha

    Reply
  8. Christine

    I am curious, what would be considered “high deductable” ? Also if my daughter has insurance thought my ex-husband would I be able to use money from my HSA if I signed up for one to pay her medical/dental expences? Thank you!!

    Reply
    • Fun Cheap or Free

      There are different types of health plans, such as HMOs and PPOs. The HDHP, or high deductible health plan, is what you can get an HSA through your insurance provider with. You would need to ask your insurance provider what kind you have if you’re not sure. You would also want to check with your insurance provider on if you could use the money from your HSA to pay for someone in your family who isn’t on your insurance. From a quick Google search, it looks like you could pay for your daughter as long as she’s a tax dependent, but whatever you pay wouldn’t go towards his deductible. But again, talk to your health care provider about this to be sure! πŸ™‚ If you’re not able to get a “real” HSA account and make your own savings account for this, then you could definitely pay for her expenses without a problem!

      Reply
  9. Emily

    Do you have any advice about FSA’s? I was fortunate to be able to benefit from an HSA because I had a qualifying high deductible healthcare plan. Sadly, that’s no longer the have but my employer offers an FSA. Any tips?

    Reply
    • Fun Cheap or Free

      Usually, the biggest difference between the two is you can roll over any unused funds in an HSA from year to year. But usually you can’t roll over any unused funds from an FSA, unless your employer allows a rollover and those are usually capped by the IRS at $500. So you have to be careful with how much money you’re adding to it a year. An FSA also usually won’t transfer with you if you move jobs unless you’re eligible for a continuation through COBRA. If you usually come pretty close to using all of your funds by the end of the year, then an FSA probably wouldn’t be a bad option for you. But if you don’t usually use them and you more want the funds for peace of mind, then you may be better off just getting a savings account and putting a certain amount of money in it each month for those major UH OH moments that you hope never happen. You could also set up the FSA for the minimum amount that you usually do use during the year, and put more money into a savings account for peace of mind for those hope-they-never-happen moments. Hope this helps! πŸ™‚

      Reply

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