If you have fairly predictable expenses for day-care or medical needs, there’s a tool you can use called medical and dependent-care flexible spending accounts (FSAs) which offer opportunities at minimum, hundreds of dollars in savings a year.

What’s especially great about these is they’re tax free while you are able to save $250 for each $1,000 you spend on care. that’s not all the benefits of its though. You can also save on your Social Security taxes because you don’t have to pay that when putting away this money either.

Are there any tricks or unintended consequences here which could hurt you financially? None at all, but you do need to manage it responsibly to protect yourself.

While that sounds scary what I just said, in reality all it means is you need to put money into the FSA somewhat conservatively because when the end of the year comes you don’t get back what’s left because of the benefits you get.

This should never be a problem with daycare, and for other medical expenses, you should be able to manage that fairly well from past expenditures on a yearly basis or if there are certain medical needs you have that have fixed costs.

The point is you shouldn’t try to game the system here, because if you put too much in it’s gone. Use it responsibly and you’ll save hundreds of dollars a year, and possibly from a thousand to two thousand, depending on what you pay out.

Why this is so great is you will have to pay these expenses anyway, so it just makes sense to pay for them through an FSA so you can take advantage of this great plan.

Eventually you’ll get a reimbursement check for your taxes. The key is to put it away for savings, which is the reason you use an FSA in the first place.

As always, don’t be tempted to take your windfalls and go spend them as soon as you get the check in hand.

If you want to occasionally reward yourself that’s a real must, just do it on a limited basis and occasionally. Keep the long term strategy in mind and know that if you commit to your savings plan and are responsible with it, there will come the time when you can buy almost anything you want for cash and never feel the weight of debt or spending what you really don’t have to spend.

An FSA is one great tool you can use to reach those savings goals.

Tags: saving money, saving strategies, Savings Tips

This entry was posted on Friday, February 19th, 2010 at 7:00 am and is filed under tips. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

• Save Time, Money and Space in Over 80 Ways If you're looking for handy gadgets, tools and various items that can save you time, money or space (or all three!) this list of more than 80 top products is just what you need. Everyone's got saving money on their...
• How is your Christmas savings fund doing? We received a call from my oldest son's football coach last week who informed us the first football practice of the season starts tonight. Tonight? Wait, it's not even...oh wait, it is August already. Whoa, school starts in 3 weeks....
• What is the Estate Tax Trap High Net Worth Individuals Fall into? Irv Blackman is an experienced CPA and lawyer who specializes in estate planning, business succession and asset protection.. He is the founding partner of Blackman & Kallick, the largest independent CPA firm in Illinois. He is the founding Chairman of...
• Saving for a Rainy Day Having a few easy and down to earth concepts and ideas for spending less, cutting expenses and socking money away is a good way to start putting together a rainy day fund. This freed up money can be applied to...
• How I Save $4,000/year The first thing I did when I received my first paycheck was pick my jaw up off the floor. Sure, I have had jobs before. But never have I had to pay taxes like I am now. I viewed this...