Yes, There Really Is Free Money!
The other day I was paying a bill for a visit to the doctor's office. The bill was unexpected and was for over $100, so this was painful. I set the bill in front of me as I had my morning coffee. I wanted to examine the bill to see if there were any extra charges included that I could ask to have removed, but there was almost no information on the bill other than the amount that needed to be paid and the due date. After thinking about the bill for awhile, I realized that I could use my Health Savings Account (HSA) to pay all of it instead of taking money from my very limited checking account.
I had forgotten about my HSA. My contribution comes out of my paycheck every time and I don't even see it. My balance had reached nearly $2,000. This is a nice cushion for health care expenses.
Health Savings Account- Get 34% Free Money
The Health Savings Account is a program where you can put pre-tax money into a dedicated savings account and use it for health expenses. The "pre-tax" part is where the free money comes in. The Federal income tax rate is about 25% and the state income tax here in Iowa is about 9%. This means that I gain about 34% on money that I put into the Health Savings Account- not bad. So if I put in $1,000, about $340 of this is free money- it would have gone to taxes otherwise. My HSA plan even allows you to invest the money in the HSA into investment funds so it can grow until you need it for health expenses.401k Plan- Get More than 50% Free Money
There are some other sources of free money that I am using to build wealth. The big one is my 401k program at work. My employer will match retirement contributions at 50% up to 4% of my salary. So if I put in $2,000 and my employer will put in $1,000 of free money. I like free money and always contribute enough to get the maximum employer matching funds.The other free money aspect of the 401k plan is that you contribute pre-tax money, and the money invested grows without taxes, at least until you take it out. Unfortunately, you have to pay taxes on the gains when you withdraw from a 401k fund.
I also contribute to a ROTH IRA investment using post-tax money. This is money that I have already paid taxes on, but I will not need to pay taxes on my ROTH IRA funds when I take them out someday. I like the idea of not paying taxes on my gains, so I have some ROTH retirement investments in addition to my 401k investments.
529 Plan- Get Free Money For College
Another way I am using free money to build wealth is my 529 plan contributions. A 529 plan is a way to save for college that provides some significant tax benefits- more free money. Gains on investments in a 529 plan are not taxed. In addition, Iowa and many other states offer state income tax offset for contributions. This is a great way to save money for college and take advantage of free money for college.It Takes Money to Make Money...
All of these ways to get free money require investing your own money to get the free money. For the Health Savings Account, you need pre-tax funds to contribute. For the 401k plan, you also need pre-tax funds to contribute, and for the ROTH IRA you need post-tax funds to contribute. And for the 529 education program you need post-tax funds to contribute.Where can you get money to contribute to take advantage of the free money? You may need to pinch pennies in your budget to free up funds to contribute to these programs. One of the reasons that these programs provide free money is to encourage people to save and build wealth.
Find ways to save money on things you don't really need and put this toward saving and investing- and get your free money. You can start small, with only a few dollars each month. The important step is to get started and watch your account balances grow over time.
If you need some ideas on how to get money to invest, here is my free book: 101 Ways to Spend Less Money Now.
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