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In the past, I've had separate line items for drugs, medical expenses (e.g. copays for doctor's visits), and insurance premiums. However, I now have a medical FSA and am paying most of my medication and copays out of that.

I'm also realizing that I probably allocated too little money for my FSA this year and, as I understand it, it's too late to change my mind about my contribution for this year, so it's quite possible that I'll spend more than I'm actually contributing to my FSA some months.

Given that the amount I spend on health care isn't necessarily the same as the amount I contribute to my FSA, how should I account for that on my budget?

My first thought was to just include the amount that I'm actually spending (i.e. the amount that's withheld from my paycheck every month) on my budget. If I did that, is there a way to avoid the whole "out of sight, out of mind" thing and make sure that I'm actually controlling that expense? (I'm truthfully already having at least some difficulty not viewing stuff I charge to my FSA as "free money" in a sense, even though I do realize that I'm still paying for it in the end).

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Just like Pete, for me, a simple budget is good. My budget is probably more complicated than some, but for medical expenses, I only have one budget item titled "Medical." However, if you've already been breaking it out further than that, and you are happy with it, there is no need to change now.

Something you can do is to separate your budget categories from your money accounts. Here's what I mean: let's say that last year at this time, before the FSA, you had $500 total allocated to your various medical budget categories. This year, you can do the same. The only difference is that $300 of that just happens to be in your FSA, and $200 is in whatever account you kept your medical money in last year. Then when you have your next medical expense, you'll subtract it from one of your medical budget categories (which tells you how much you have left to spend on medical expenses), and you'll also subtract it from whichever account you actually spent the money (so you know your current account balances). You'll want to spend your FSA money first, since it's use-it-or-lose-it.

If that seems like a lot of work, a good budgeting software program, such as YNAB, EveryDollar, or Mvelopes, will do most of the accounting for you, separating your budget category balances from your bank balances. They allow you to split up your money without having to worry about which account you are paying from.

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One thing that kept me from doing a budget for years is how complex some people make it. For example you list your gross pay, then deduct the taxes, 401K, FSA, etc... Why? Those are pretty consistent.

For me, the way this is budgeted is I list my net pay, and go from there. If you were perfect in predicting your FSA, you would have no medical expenses on your budget! Simple, easy budget!

Now this year, you will probably have to pay out of pocket for some expenses. Can you predict how much? Can your disposable income absorb the overages? If not you will need to start a sinking fund. That is put a sufficient amount of money into a savings account each month to cover the shortage.

Keep in mind you can go over a bit on your FSA contributions. If you find yourself near the end of the plan year with extra money, you can also claim mileage reimbursement for your medical appointments. Since your FSA has a history of those, it is easy to calculate your mileage from your home to the DR's office and submit a claim.

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