Yesterday, I sat down and tried to figure out how much money to put into my FSA for the year. For those of you who are already confused, in brief, an FSA, or flexible spending account, is a way for employees to set aside a portion of their earnings pre-tax to be used for qualified expenses. It’s a great deal, but the hard part is figuring out just how much money to put into that FSA every year.
This is a “use it or lose it” plan, meaning that whatever I don’t use by the end of the year (well, the end of the grace period, which is mid-March) disappears. So I want to try to estimate as closely as possible, but not go over. Sure, if I have a little bit left at the end of the year, I can restock my medicine cabinet with Aleve and sunscreen and those sorts of things, but one only needs so many OTC medications.
One perk that I learned about with my FSA is that I can use the money before it’s technically there! Let’s say that I decide to put $260 into my FSA this year, which would be $10 out of every paycheck. And then on January 15, after only one paycheck, I have a medical expense of $100. I can use that $100 to pay the bill, even though I’ve only contributed $10. Because I have already agreed to have a total of $260 taken out of my paycheck, I can spend that entire $260 before it’s there.
But trying to estimate my medical expenses is harder than I thought it would be. Regular prescriptions are easy to figure out, as is the cost for my disposable contacts. But beyond that? It’s tough. I might be excessively healthy next year. I might be not so healthy next year. Who knows! So I used some reasonable estimates, made some wild guesses, and picked a number. And now it’s a game to see how close I managed to come.
Megan is a 30-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.
I’m doing that now too. It’s so hard to know what the right amount is!
Don’t forget that you can load up on other sundries if you have money leftover. Things like sunscreen, contact lens solution, I think perhaps even vitamins. So if you have leftover moolah and the end of the year is approaching, just stock up and cut down contributions for the next year.