Financial Planning for Young Families: Investments and HSAs

Noah is making smart financial choices, but should prioritize liquidity during his wife's transition to staying home.

### Navigating Financial Decisions During Major Life Changes
* 💬  Noah, at 25, is already on step five of the financial order of operations, successfully **maxing out his Roth IRA** with a balance of **$20K** and maintaining a **fully funded emergency reserve**.
* 🏡  He is considering refinancing his mortgage to **reduce monthly payments**, allowing his wife to **stay home full-time**, and is currently saving extra funds in a **high-yield savings account** instead of investing in an HSA.
* 💡  The discussion emphasizes the importance of HSAs, highlighting their **triple tax advantage**, which includes **tax deductions**, **tax-deferred growth**, and **tax-free withdrawals for qualified medical expenses**.
* 🤔  However, given Noah's upcoming life change, it may be prudent to **prioritize liquidity and maintain a cash-heavy position** as they navigate a potential **drop in income**.
* 💰  It is suggested that if refinancing leads to **lower monthly payments**, they could then redirect funds to the HSA, making up for any **lost time in contributions**.
* 🔍  The conversation also touches on the strategic choices regarding health insurance plans, encouraging Noah to consider both **high-deductible plans for HSA benefits** and **more comprehensive plans that may fit their family planning needs**.
* 📈  Ultimately, Noah is praised for making **sound financial decisions** at a young age, with the advice to **remain flexible and opportunistic** as his family’s circumstances evolve.

[Music] Okay, we've got a question from Noah coming up next. It says, My wife and I are 25, and we are on step five of the financial order of operations, maxing out our Roth IRA, which currently holds 20K, which is awesome. We have not yet invested in our HSA. Instead, extra savings are going into a high-yield savings account right now. We hope to refinance our mortgage and reduce our monthly payment so that my wife can stay at home full-time. Is this a bad plan? Would it be better to prioritize our investments? By the way, can we take a moment? I'll let you jump into the heavy stuff, but Noah, 25, yeah, with a wife, M, already on step five, meaning he's doing the Roth IRA. He's already got a fully funded emergency reserves, and they're even putting a little bit extra in a high-yield savings account. And then he throws this little sleeper in, and we're hoping to refinance our house. Ho, he's like, You're the contrarian to

everything we see in all the news articles and everything else. Noah, you're living your best life, and I just want to give you some praise before I let Bo do the heavy lift. I love a lot of what you were saying, Noah. That's awesome. First, let me speak to HSAs. We love them. We love them. When you say that you're in step five, you're doing your Roth IRA. If there were additional funds available for investing, we think that HSAs are an amazing tool to use because they are triple tax advantage. You get a tax deduction on the front end, you can then invest those dollars to grow tax deferred, and then if you use it for qualified medical expenses or you reimburse yourself for past qualified medical expenses, they are completely tax-free. So yes, we love HSAs. Does that mean that's what you should do? Unclear at this point. Let me tell you why. He did give an indicator though. Well, he said that his wife's about to stay home. He said his wife is

about to change anytime you go through like a major life circumstance. Now, if you're in step five, I'm going to assume that you have a fully funded emergency reserve. Step four is complete. You've got 3 to 6 months of living expenses. Even considering that if you are going through a big life change and your wife is going to be staying home and your income is going to drop, I am of the opinion this is one of those unique seasons in life where it's okay to be a little cash heavy. It's okay to be a little liquidity heavy because right now you don't know what you don't know. You don't know what other expenses you might incur or how that new budget might feel when the income goes down. So, as much as we love HSAs, when you do think about man major life change, maybe I should begin to think about storing up some additional cash inside that emergency bucket. And then if something does happen, if rates do fall and you are able to refinance your mortgage and refinancing your

mortgage because of the interest savings, and you keep it on the same timeline. Your monthly payment drops, then okay great, maybe that's a great time to begin then funding the HSA, and you make up for lost time, and you can do that. I don't think it's crazy to have cash on his side right now given this stuff. Oh for sure, but I talking about health savings accounts. There is nothing wrong. I think a lot of people think that you're actually hurting your employer when you reach open enrollment and you choose the Cadillac plan that has just like co-pays and is super great but doesn't qualify for health saf account, or you make the decision of doing the high heal high deductible health plan which puts more of it on your shoulders but then you get to that tax deduction and the triple tax advantage and all the other great things we love that make it part of step five with the health savings account. There is nothing wrong with being strategic with your choice with your health insurance with your employer. I even I have a we have a great

planner here who is for sure a financial mutant, and when I saw their choice on their health insurance earlier in the year, I was like, I wonder if their plan is doing some Family Planning, because it was just unique to see this financial mutant go from a high deductible Health Plan, loading up their retirement plan, and all of a sudden, they switch to the Cadillac health insurance. And I was like, Kind of makes you say huh, things that make you go hm. And sure enough, because now we're halfway through the year, and it has been shared with everybody at the firm that they are a growing family. I think it's brilliant, and that's what I would encourage you, Noah, if you're obviously FASTT tracking a lot of good decision-making, you're also doing a lot of Life very quickly. Um, there's nothing wrong with being opportunistic with your choices on your health insurance, so if it lines up with your family planning, um, you know, and the health insurance choices you have, nothing wrong with the HSA, but also don't look past that Cadillac plan.

If your employer offers that, because maybe that works for you in this season, then you can quickly jump right back into the high yield, I mean the health savings account and the high deductible health plan. A lot of hes there there um the very next year.

Is Refinancing Our Mortgage So My Wife Can Stay Home a Bad Idea?

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Noah and his wife, both 25, are on step five of the financial order of operations, maxing out their Roth IRA and saving extra in a high-yield account.

They plan to refinance their mortgage to reduce monthly payments, allowing Noah's wife to stay home full-time.

The financial advisors emphasize the importance of HSAs for their triple tax advantage and suggest considering them for additional funds available for investing.

Navigating Major Life Changes and Finances

Having a fully funded emergency reserve of 3 to 6 months of living expenses is crucial during major life changes.

It's okay to be cash-heavy during this transitional period, as unexpected expenses may arise.

Strategic choices in health insurance can also provide tax advantages and contribute to financial stability.

Unique Health Insurance Choices and Family Planning

A financial planner switched from a high deductible health plan to a Cadillac health insurance, raising questions about their decision.

Midway through the year, it was revealed that the planner is growing their family, making the switch seem brilliant.

The planner's approach highlights the importance of being opportunistic with health insurance choices, especially when aligning with family planning.

Utilizing Health Savings Accounts and High Deductible Health Plans

Employers may offer flexible options that allow employees to transition back to high yield health savings accounts and high deductible health plans.

This flexibility can be beneficial, especially if it aligns with the employee's current needs.

Many employees may find themselves in a similar situation the following year, making these options valuable.