HSAs and Savings

Jay has an HSA with $5,000 in it. How does he account for that money as part of his emergency fund? Or is it just an extra savings?

QUESTION: Jay in Raleigh has an HSA with $5,000 in it. How does he account for that money as part of his emergency fund? Or is it just an extra savings?

ANSWER: You can count it as leaning toward the three-month mark of your three to six months of expenses. But other than that, I wouldn’t. You would put six months’ of expenses into your fund if you are self-employed or just one of you is working or if you are straight commission or there is an unpredictable income situation. If you see potential risks or problems, you lean to the six-month side.

In your case, you have part of one of the types of emergencies covered. So you can lean back toward the three-month side of it if you wanted to. But I wouldn’t say that is your emergency fund because you can’t use that to fix a car transmission. If what you have now represents three months of savings, then I’d say you still need to have about $20,000.

I want you to have at least three months of expenses saved separate from the health savings account. But if you want to say instead of doing four or five or six months of savings, do three because you have that money saved away. That would make sense. The problem is that you have other types of emergencies that come up that obviously are not health care.