How does the Affordable Care Act affect me? You may be impacted even if you have employer health insurance.

KJ: With this year bringing a lot of healthcare changes we wanted to dedicate a post to some of the changes that have occurred and what you may be going through (or will go through).

We stumbled across a nice little decision site where Mint.com partnered with TurboTax to help you understand your options when it comes to healthcare coverage this year. Check out the site at: TurboTax and Mint.com health care considerations.

Heap Of Dollars With Stethoscope

So, what has changed? Well the most obvious change is that (generally speaking) you are now required to get health insurance, otherwise you could face some stiff penalties. See the below excerpt directly from the healthcare.gov website:

    The penalty in 2014 is calculated one of 2 ways. If you or your dependents don’t have insurance that qualifies as minimum essential coverage you’ll pay whichever of these amounts is higher:

      1% of your yearly household income. (Only the amount of income above the tax filing threshold, $10,150 for an individual, is used to calculate the penalty.) The maximum penalty is the national average premium for a bronze plan.
      $95 per person for the year ($47.50 per child under 18). The maximum penalty per family using this method is $285.

    The way the penalty is calculated, a single adult with household income below $19,650 would pay the $95 flat rate. A single adult with household income above $19,650 would pay an amount based on the 1% rate. (If income is below $10,150, no penalty is owed.)

    The penalty increases every year. In 2015 it’s 2% of income or $325 per person. In 2016 and later years it’s 2.5% of income or $695 per person. After that it’s adjusted for inflation.

    If you’re uninsured for just part of the year, 1/12 of the yearly penalty applies to each month you’re uninsured. If you’re uninsured for less than 3 months, you don’t have to make a payment.

    You’ll pay the fee on your 2014 federal income tax return. Most people will file this return in 2015.

Current coverage can still mean changes coming
However, just because you have coverage through your employer doesn’t mean you won’t be experiencing any changes! I didn’t see a whole lot of changes with my employment (other than more behind-the-scenes changes to deductibles, calculation of out of pocket maximums, premium costs to the employer, etc.), but it really means there was an increased cost for the employer. And, we should all know what that means – a cost that would ultimately impact the employees over time.

Expanded options in many cases
More options are always better, right? Well, it can be. But it seems like sometimes we have decision overload with so many options. Think of the last time you went to the grocery store and were selecting cereal. There are literally hundreds of options, so sometimes the choice is a no-brainer while at other times you are balancing budget/taste/craving/amount-before-it-expires/health.

For Angela’s changes at work, she had quite a drastic change in her health insurance options that were available. They took the approach of how the public health insurance exchanges work. The end result – SIGNIFICANTLY more options for coverage. Not only did we have to decide about the particular insurance type to analyze (bronze, silver, and gold level plans), but we then had to select the individual carrier too within that framework! Some insurance providers were a clear winner (or loser) while others were very close. How then did we decide how to proceed?

As with everything else that applies to personal finances, you have to run the numbers and calculate the differences. It required quite a bit more work in terms of analyzing what the potential out-of-pocket costs would run under a normal year, taking into account how it would be different if there were a catastrophe or significant medical costs. The key with this calculation is to also evaluate what the monthly premium costs are too that come out of your paycheck. If you know you have certain prescription costs, regular doctors visits, or an upcoming surgery, be sure to include those as well. So, it should look like:

    Monthly Premiums
    + Estimated Doctors Visits Costs (noting generally preventive and annual visits would be excluded)
    + Surgery Costs
    + Copays
    + Prescription costs
    = Total Estimated Out of Pocket for the Year

In some cases, you may notice a significant rise in costs over the prior year depending on your situation, but you may also be able to identify ways to reduce your out-of-pocket costs.

Be sure to balance the impact to your bottom-line
Whichever option you chose, take into consideration your cash flow needs and emergency fund available. If you select the lower out-of-pocket health insurance costs that is coupled with a higher deductible, be sure you have the cash and emergency fund to handle that increase! If not, work to make it your goal for this year to build that up even greater, so you can take advantage of the lower premium options in future years.

It’s all a balancing act, and one you can only truly know with 20/20 hindsight, but that doesn’t mean you should just keep everything the same year-after-year. Take a look at what the numbers would end up being. It isn’t going to be perfect, but the more you project, the more you learn how to project, so use each projection as a learning experience of how you can improve your analyses!

    Have you had any changes to your health insurance coverage?
    How did you decide which option to select?
    Hopefully the TurboTax tool will help you with your decisions!

Image courtesy of Baitong333 / FreeDigitalPhotos.net.

How does the Affordable Care Act affect me? You may be impacted even if you have employer health insurance. is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.

What does cash flow mean and how do I apply it to my life?

Stack of Bank Note and Pen Calculator On Note Book
KJ: One of the most critical concepts to managing your family’s finances is to understand cash flow. What it means, how your family receives it, and how to plan around it. We’ve dedicated a post to helping you understand this financial metric and how you can apply it to your personal situation.

Definition of cash flow
Cash flow is essentially a look at all of the monies deposited into your account from whichever sources derived less all of your expenses and cash outflows – in whatever form it may be.

Make an inventory of your cash inflows
Make a list of your income and income cash flows. It may be earned income or it may be considered “unearned.” Include specific information about the regularity of the cash flows (weekly, biweekly, semi-monthly, quarterly, yearly) as well as the level of certainty (regularly recurring, one-time payments, variable payments (commissions, bonuses), etc.). Below is a list of a few common income flows:

    Salary
    Commissions
    Bonuses
    Child support
    Alimony
    IRA distributions
    Income from bonds paid to you*
    Income from stocks paid to you*
    Income from other investments or business interests*
    Income from a savings account paid to you*
    Credit card bonuses or rewards (we save ALL of these!)

*Pay particular attention to only include these items in your household’s cash flow if there is some regularity to them and the amounts are paid to your checking account and not reinvested within the account. If the amounts are simply reinvested or paid within an account you don’t use for your expenses or cash flow, then counting them is not going to help improve your cash flow!

Make an inventory of your cash outflows
Prepare an equally detailed list of all of your expenses. Pay particular attention to the timing, amounts, and frequency of each expense that you may have in a year. Below is a list of common expenses to consider:

    Rent
    Mortgage (including interest, taxes, and insurance)
    Homeowner’s Association dues (HOA)
    Insurance (life, health, auto, disability, etc.)
    Food (groceries, dining out, fast food)
    Utilities (television, internet, phone, water, gas, electricity)
    Charitable donations
    Pet (grooming, food, veterinary)
    Medicine/Doctor (medication, doctor visits)
    IRA contributions
    401(k) contributions
    HSA contributions
    Savings account contributions
    Investment account contributions
    Taxes (state and federal income tax – can be yearly, quarterly, and/or withheld from a paycheck)
    Travel (hotel, estimated food, airline)
    Credit card payments and interest (hopefully you’re not paying any and the cards are paid off!)
    Child support paid
    Alimony paid

Evaluate the net number
Add up all the income sources and subtract out all of the expense categories for each month. If you find that you come up with a negative number, then something’s gotta give – no wonder you’re having cash flow issues!

If you and your family have a complicated cash flow situation with irregular income payments, then consider projecting out all of these items throughout the course of a year.

Even if your calculation turns out positive, doesn’t mean you’re on the track that you need to be. Look closely at the savings contributions (IRA, 401(k), HSA, savings, investment account) to make sure you are putting aside the amount of money you need.

Having a comprehensive view of where all of your expenses are going will allow you better decision-making power to choose how to reallocate those scarce resources. It could allow you the knowledge to know when, where, and how to cut out certain items from the budget if something unexpected happens – like a roof repair, fallen tree, or garage breakdown!

AJ: The need to “find” money in order to cover additional expense costs in a given month is my ongoing motivation for budget tracking. What comes in is pretty consistent in our household but what goes out is always variable. We’re constantly making improvements to our home, getting involved in charitable opportunities and going out with friends and family, so variable expenses are the name of our game. Without understanding the in there’s no way to stay ahead of the out.

KJ: One reality you may be living is you could have a very positive net worth or savings targets, but your cash flow is very tight in certain periods throughout the year – particularly common for what I call “lumpy” cash inflows throughout a year. Figuring out both when and why those happen can help you single out what can be done. Maybe it’s keeping more in a readily accessible savings or emergency fund or maybe it’s switching the timing of some of your expenses (as able) to help get you on track. Try funding those irregular expenses into a specific account each month to make sure there is sufficient cash there when the expense is ready to be paid. This can be very common with life insurance premiums, quarterly taxes, or real estate taxes, but you may find you have other expenses like this.

    What tools have you used to build a cash flow statement for you and your family?
    Are you cash flow positive or negative?
    Share with us the tools you are using to get on track or to stay on track.

Image courtesy of khunaspix / FreeDigitalPhotos.net.

What does cash flow mean and how do I apply it to my life? is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.

Would you take a job with more money or more flexibility?

Words Show Choices of Family Career and Work
KJ: Surely the job that would pay you the most should be top priority and make the decision of what path you take an easy one, right? The reality is that most of us at some point in our lives or careers will be faced with this dilemma. Is it better for you and your family to accept the higher paying position at the expense of flexibility? The answer for you may be much different than your young-self had always imagined. Since few people have both a rich income and the flexibility they need to fit their lifestyle, the reality is that most of us will be faced with this decision at some point.

Given the unique answer for each of us, this post has a slightly different format where we propose a series of questions to reflect upon.

How much more money?
Are you talking a modest bump or a leap?
Is a lot of the increase based on an uncertain stock payout, bonus, or other variable payment?

What flexibility are you losing?
Are you losing out on the ability to break away from work an hour or two early to go to a doctor, pick up a sick child, or take time off when you’re sick?
Can you work from home or is your access restricted?
Do you have one pool for time off, or are they compartmentalized to sick days and personal days?
Does one of the jobs have “flex” time – where you can work 7-4, 8-5, 9-6, etc.?

Is part-time what you are seeking?
Does your family need someone to stay home with children or the care of a parent or sibling?
If a higher paying job doesn’t allow you the part-time flexibility you need to be able to care of those in need of your support, is it more important to be there with them to provide support or is the income support your primary goal?

Which job has better long-term prospects?
Sometimes a smaller step now could lead to a much bigger step in the future (if that’s what you’re looking for).
A college graduate may be intrigued by a shiny, high profile job right away (with often little to no future growth), but what about the path that gets you ahead of the curve 5 to 10 years later instead?
Sometimes it can be a challenge to balance the here-and-now versus the uncertain future on where the opportunities may rise.

    Have you had to contemplate a higher paying job versus a job with more flexibility?
    What caused you to lean one direction or the other?

Image courtesy of Stuart Miles / FreeDigitalPhotos.net.

Would you take a job with more money or more flexibility? is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.

Why a Roth and a taxable account are a young saver’s best friend

Wood chair on beach
KJ: We recently wrote about: Financial independence: a new concept in lifestyle retirement planning, but how do you know where to save and how to save to reach financial independence? Especially if you are a young saver, some of the retirement account types might restrict you too much on how and when you can ultimately use the funds.

Only saving to a pre-tax account can cause you to lose flexibility
If you save ONLY to traditional retirement vehicles like a regular pre-tax 401(k), traditional pre-tax IRA, Simplified Employee Pension (SEP), etc. then you might find that you have the savings and ability to be financially independent, but you may not have the ability to live off of the money and withdraw funds from these account types before age 59 1/2 without incurring significant taxes or penalties. So, how do you build flexibility into your lifestyle so you can more quickly reach – and realize – financial independence, whether that is at age 35, 40, 50, or 55?

Save to Roth accounts
Roth accounts currently have a very nifty feature for young accumulators. If you were to ever need to withdraw funds from the account(s) before turning age 59 1/2, then you CAN withdraw some funds without taxes OR penalties. In fact, any withdrawals are treated as first coming from whatever money you put in before dipping into any earnings on the account. To illustrate, if you collectively had put $50,000 into a Roth account, and the account is now worth $75,000, then the first $50,000 you withdraw would be tax-free return of your capital contributed (read no taxes or penalties). If you began to dip into the remaining $25,000 before age 59 1/2, then you would of course have to pay hefty taxes and penalties.

Overall, it still builds a lot of flexibility in your plans to reach financial independence because your first dollar withdrawals are tax-free and can further push you closer to the 59 1/2 age where you would then be able to take remaining funds out without taxes or penalties.

Contrast this with regular 401(k) accounts or Traditional IRAs where any funds withdrawn would trigger income taxes as well as penalties if removed before age 59 1/2. Even after age 59 1/2 you still have to pay income taxes on withdrawals from a Traditional IRA, but at least you avoid the penalty!

For a Roth account, as long as your income is below a certain level (approximately $180,000 for married couples in 2014 ), then you can save up to $5,500 per person for a Roth IRA (with an extra $1,000 if you’re over age 50). If that’s not an option, save to your employer’s Roth 401(k) feature if they have it since that could allow you to save up to $17,500 each year (and an extra $5,500 if you’re over age 50). If that’s still not an option, look at the regular investment account outlined below.

Save to a regular investment account
Lots of people think that once they save to their 401(k) or 403(b) and/or an IRA that they can no longer save for retirement. This is NOT TRUE! Sure, you may not have any more specifically tax-advantaged ways to save for retirement, but you can still be setting money aside for retirement in what is called a regular, investment/brokerage account. With an investment account, you pay income taxes in the current year on certain gains and income generated, but you still have the ability to focus on more long-term growth strategies to keep the investments and account with some tax-efficiency.

Contributions are limitless. Seriously. There are not any maximum contributions (or distributions for that matter!) on what you can save to a regular investment account. If you get to the point where you’re bankrolling $100,000 per year in extra income (would be nice wouldn’t it!), then you could be setting it all aside in a regular investment account. The more quickly you set aside money, the sooner you will be able to reach financial independence. Plus, you can use the funds whenever and however you would like. Save enough to reach financial independence at age 45? Not a problem! Money you withdraw does not have penalties. Sure, if you sold an investment to be able to make a withdrawal you could have some gains or tax implications but generally much less so than a regular pre-tax account, AND there aren’t any IRS penalties.

No age restriction. Yep, you read that right. There are no age restrictions to when you can access the money or time waiting periods. You don’t have to keep the money in the account for even a year, and you can withdraw at age 25, 30, 40, 50, etc. as needed to fund your goals.

Talk about ultimate flexibility! So, even though the funds don’t grow as tax efficiently as they would in a pre-tax IRA, 401(k), 403(b), or a Roth IRA, you ultimately have 100% control of when and how you use the funds without Uncle Sam getting involved.

Especially for the young accumulator that is really building their portfolio for long-term success, this type of account will ultimately help you build the flexibility you need to reach financial independence at an accelerated rate.

So, are you convinced yet? What’s stopping you from opening and saving to a Roth or regular investment account?

    Are you taking advantage of an employer 401(k) or 403(b) Roth?
    Do you have a taxable investment account for long-term growth?
    Share with us what is stopping you from building more flexibility into your savings goals.

Image courtesy of khunaspix / FreeDigitalPhotos.net.

Why a Roth and a taxable account are a young saver's best friend is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.

Financial independence: a new concept in lifestyle retirement planning

Sea Wave on Beach
KJ: One of the biggest topics in the media today is retirement. With thousands of baby boomers reaching the official retirement age each day, it’s all a lot of us think or talk about. How do you get there, how much do you need? What happens when you get there, and why is it called “retirement?” What’s so great about that point in time? Especially for us young savers, the normal retirement age could be DECADES (20, 30, 40 years) away, so what can you do now to really help you get on track and realize this flexibility sooner? Few people want to completely sacrifice today (and every year thereafter) until you get to retirement and can “live the good life.” It’s important to have periodic milestones along the way to celebrate life and youth.

Throw out the concept of retirement
I’m starting to get a little tired of the word retirement. It seems to imply that you’ll work all your life – tirelessly – to get to some point in the future where you can stay home, play computer games, and eat Cheetos until your heart is content. Or, maybe it means laying on a beach sipping piña coladas without a worry in the world. Sure, that sounds like fun for a period of time, but why wait until retirement to do any of that?

Many people who get to retirement realize it isn’t what they thought it would be. After all, what are you going to do to stay active (and not just turn into a vegetable on the couch!)? You may quickly realize you would like to spend time doing something meaningful by taking on a part-time job, another full-time job, or volunteering for a cause that is closest to your heart.

Instead, reach for financial independence
Financial independence is a very similar concept to retirement, and it’s my preferred term for what people are doing to try and accomplish this “lay on a beach and sip drinks” utopia.

What financial independence means is not so much not working at all, but rather the concept of working because you want to and not because you have to and need the income. Maybe your savings numbers are much the same as the traditional concept of retirement, but look to get to a point where you can live off of your savings and investments indefinitely. There are lots of studies designed to help you figure out what that number could be, so work with an advisor to help understand what it really means and what you need to save.

Even though 60 is the new 50, sacrificing it all today for that one point in time seems ludicrous. Set goals for you and your family and include some fun checkpoints along the way. Maybe it’s reaching a net worth of $100,000, $250,000, $333,000, $500,000, $1,000,000, etc. Even though these numbers can just be figures on a page, it can help you learn to celebrate what you’ve accomplished. Crack open the bottle of champagne, go to a fancy restaurant with your significant other, or take a nice trip.

How financial independence is different than retirement
It helps bring the concept of retirement into perspective for younger generations. By understanding where you are heading and what you need to do to get there, you can make the changes today to get you on the right track.

Financial independence helps bring the concept of retirement to what you can actually do today that can have an impact. Saving blindly to a 401(k) just *hoping* to get to retirement decades from now can often be very burdensome and unfulfilling. So, put it in terms of what you spend today. Looking at it from the perspective of working because you want to and not because you have to may mean to make a few different career or lifestyle choices to more quickly build flexibility in your life. The lower you keep your expenses, the lesser amount you need to sustain your lifestyle, and the quicker you can get to financial independence. If you get raises or bonuses, use it to sock more money away and get ahead – not use it for that expensive car or to subsidize the cost of a pricey home!

Cut your expenses for the next five years
Maybe this means cutting your expenses for the next five years, so you can take a year or two sabbatical to travel or spend more time with family. Stopping work on a whim would be ill-advised, so planning ahead to have this type of flexibility is important.

Think ahead for your five year future. Maybe you’re a two income household and are looking to start a family in the near term. What is life going to be like when you lose one income? Will it be temporarily for a few weeks, months, or years? Thinking about this ahead of time will allow you to plan ahead and save for those contingencies. Instead of a 3-6 month emergency fund, maybe it’s a 12-24 month fund you need!

Save more, spend less
To me, the concept of saving 5-10% of your income will take you forever to get to financial independence. If you have children and education goals and/or goals to get to financial independence quickly, saving 10-30% of your income isn’t unheard of.

If you found that saving an extra 5-10% of your income could shave off years of your goal for financial independence and allow you sooner flexibility to take a sabbatical, European trip, or Bahamian beach vacation for weeks, would you do it? We sure would!

    What does financial independence look like for you and your family?
    What are you doing to ensure your success in reaching financial independence?
    Share with us what your goals are to get to financial independence.

Image courtesy of porbital / FreeDigitalPhotos.net.

Financial independence: a new concept in lifestyle retirement planning is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.