By Professor Pennywise

The next time you head down the hall to the coffee station to see whether there are any leftover brownies from the chair's advisory meeting—you know you do that, so there's no point in denying it—try this mental exercise: Take stock of your colleagues' life situations.

Don't stop to read the latest cartoon that Professor Smudge has taped to his door. Think about your colleagues' lives, in all their complexity. Consider how many of them have child-care expenses, a parent living with them, or a health scare recently survived. Then ponder how much those things cost.

That is the secret truth known to every chair of every program at every university. I may as well let you in on it. It runs something like this: Stuff happens. The top problem faced by administrators, as far as Pennywise can make out, is not balancing budgets, writing mind-numbing strategic plans, or scoring decent tickets for bowl games. It is figuring out who can cover a certain course, committee, or position for another faculty member who is having a health crisis, a personal disintegration, or a family challenge. For department heads, that is a constant headache. For the people in crisis, it is a periodic budget buster, because unexpected outlays erode our income and savings.

Now take stock of yourself. What kinds of health care, parental care, or child-care expenses will you have in store in the coming year? Might those expenses be worth planning for? Stuff will happen, inevitably, but you may be able to minimize the financial pain.

That is why you should consider a flexible-spending account, if you don't already have one. Autumn, being the season of open enrollment, is the one time every year that most of us can switch our benefits preferences. That makes this an optimal time to consider an FSA.

Flexible-spending accounts are to personal finances what yoga is to your body. They provide a way of stretching your money a little further, for a better life. Both bring tangible advantages and a mystical peace of mind. (OK, forget the peace of mind. The supposedly-flexible FSA can actually be irritatingly inflexible. Still, FSA's are worth the hassle. More on all that in a moment.)

What is an FSA? There are two common types. One is for health expenses, the other for dependent care. They function similarly, and you are allowed to enroll in both, if you wish, or just one. The real point of such accounts has nothing to do with health care or dependent care. The real point is to reduce your taxes. With an FSA, you set aside money from your paycheck before you've paid taxes on it. That shields that part of your income from the tax man. Every dollar you put into such an account is not even reported to the IRS. The FSA is a tax shelter.

Example: If you make $74,000, and sock $2,000 into a health-care FSA and $4,000 into a dependent-care account, you will be taxed as if you made $6,000 less, lowering your taxable income to $68,000. That wouldn't alter your tax bracket—you'd be at 25 percent either way—but it would save you the taxes you'd otherwise pay on that $6,000, reducing your tax bill by $1,500. That will reduce the withholding to your paycheck. If the FSA deductions cause your gross income to fall under a lower income-tax rate, your savings will be even greater.

This is not tax evasion. It is legal, and brought to you by the Bush-Cheney administration. That origin may explain why these accounts are a tax advantage designed especially for the upper-middle class and wealthy. FSA's are complex, demand time, require organization, and are only offered in good jobs at employers that offer a plan—all factors putting them out of reach of many poor and working-class employees. But I digress.

Let's discuss how to make these accounts work for you. Start with the health-care version, used for medical expenses not reimbursed by your health-insurance plan.

You can't use the money in your health-care FSA to pay for health-insurance premiums, cosmetic surgery, or gym fees, but just about every other medical expense qualifies, including co-payments (those $20 fees you get hit with every time you take the kids to the doctor) and deductibles (the cost you pay beyond what insurance covers for knee surgery or emergency-room visits). Here is a long list of things a flexible-spending account can be used for: prescription drugs (say, for diabetes or asthma), over-the-counter drugs (ibuprofen, aspirin, antihistamines, antacids, cold medicine), eyeglasses, contact lenses, hearing aids, braces, dentures, in-patient treatment for alcohol or drug addiction, vasectomies, colonoscopies, abortions, infertility treatments, Lasik, acupuncture, chiropractic treatment, psychotherapy, and anything else that qualifies for the medical-tax deduction (Google "IRS Publication 502").

The best way to use a flexible-spending account is to plan ahead. That means waiting until the New Year to check yourself into the Betty Ford Center. I did that. Well, not the Betty Ford Center, I mean I did it for my daughter's braces. The price tag was a staggering $3,000, so we delayed the braces to the current year and dedicated that amount more to my FSA. Now it's as if we're getting braces at a 25-percent discount, courtesy of Uncle Sam.

Here is how a flexible-spending account works in practical terms. When you enroll, you set the total amount for the coming calendar year that you wish to have deducted from your paycheck. It will be deducted in regular monthly installments, but the total annual amount will be available to you instantly, at the beginning of the year. You do not have to wait until the end of the year to file for reimbursement. Typically, you save receipts and submit them to your university's human-resources office for reimbursement. Some employers issue debit cards allowing you to draw down the account for qualified expenses, reducing hassle (but the debit-card companies often want the receipts, anyway). Your employer will almost surely cap the flexible-spending account at $4,000 or $5,000, although Congress is likely to reduce that amount to $2,500 soon as part of the payment scheme for the national health-care-policy overhaul.

The hitch is that you must use the money or lose it. You must spend whatever you put into the FSA within the coverage period (with a three-month grace period tacked on at the end in which you can seek reimbursement for expenses from the prior year). Any amount you don't claim will vanish from your account and go straight into your employer's coffers. So to benefit from an FSA you must be somewhat organized, save receipts, and seek reimbursement. I do that by keeping a big manila mailing envelope near my desk into which I stuff every eligible receipt. It isn't pretty, but it works. If you get to the end of the year and realize that you have some untapped money in your FSA, you can buy a whole lot of acetaminophen—which you'll need. Or just be smart in advance and lowball your account to keep it at a bare-minimum level that you will always use up.

I have never had to forfeit any money, but as you can see, a flexible-spending account is a bit cumbersome. It doesn't take into account the unpredictability of life. What if you designate $2,000 but don't need nearly so much? What if you need a lot more? It would be nice to be able to add a big sum to your account after, say, a cancer diagnosis. But the FSA is, alas, inflexible. You must specify the level in advance of any given calendar year, and once you've made that call you cannot reduce or increase it in the middle of the year. For expenditures that you can anticipate, however, the FSA is a very good tool.

What about the dependent-care account? It works the same way, roughly. It is mostly used to pay for child care, although it can also be used for stay-home elder care or nursing-home care for parents who live elsewhere. There is a $5,000 cap by law on dependent-care FSA's. That is a household limit. Another main difference between a dependent-care FSA and a medical-expense FSA is that the former can only be drawn down as money is deposited into it.

None of this is as confusing in practice as it may sound. Nor is it a Shangri-La of socialized medicine. But a flexible-spending account, or two, could help you keep more of your income—at least in those foreseeable instances when you know stuff is bound to happen.

Professor Pennywise is a professor in the humanities who has taught from the Pac-10 to the Big Ten. He is merely a frugal academic, not a financial professional. Questions, comments, and suggestions may be sent to professorpennywise@yahoo.com.