April 18, 2018 by Administrator
Congratulations! You received a tax refund, won the lottery, acquired an inheritance or earned a bonus for your hard work. It’s easy to let these unexpected windfalls feel like they are burning a hole in your pocket. There are so many ways to overspend, especially with unexpectedly found money.
But let’s take a minute and a deep breath. Now’s the time to use your financial savvy and make a solid plan for that extra cash, before you spend it frivolously or let it dwindle away in your checking account.
If you choose to invest the money, you can turn a one-time lump sum into a wealth-boosting asset. Or, you may feel it’s the right time to pay off some substantial debts or take the vacation of your dreams. Which road will you take to achieve your personal goals? Following are a few ideas to consider.
Add to or start your retirement fund
Many funds require a minimum to get started, and something like your tax refund could meet that minimum (usually $500 or $1,000). If you don’t have the cash on hand now, you can still l create the account and fund it when money comes in. As long as the funds are deposited prior to the tax return deadline (April 17th this year), you can include the contribution on your tax return even if the amount is not deposited prior to filing. Consider automating a regular contribution for each month moving forward. Even a small amount can create big results in the long run. Your monthly contributions may also reduce your tax burden because they are tax exempt. (The refund is not taxable, so you won’t save on taxes by investing it.)
Invest in a school fund – it’s not just for college anymore
Put your dollars to work with a 529 Savings Plan. This account helps you save money to pay for school for your children. A new law instituted this year allows qualified education expenses to apply to K-12 rather than college only. The money grows tax-free, and you can withdraw it tax-free if you use the money for tuition, books, or college housing.
Pay off high-interest debt
Today’s credit cards can carry skyrocketing interest rates of 18% or more. Paying them off gets you an automatic 18% return on your investment. That’s exponentially better than hiding your refund in a 1% interest-bearing savings account.
There’s another way to look at the payoff you’ll receive: Let’s say you make the minimum monthly payment on a $3,000 credit card balance at 18% interest. You may spend over $7,000 on interest by the time the debt is paid in addition to the original $3,000 you charged. Pay the debt with your new-found money and you’ve saved yourself thousands.
Plug the holes in your insurance protection
It’s easy to cut costs by spending less on insurance protection. Unfortunately, life’s worst-case scenarios often happen when you least expect them, leaving you vulnerable in the long run.
• If you rent, invest in a good renter’s policy to cover you for liability in case someone gets hurt in your home. Make sure you have enough coverage to protect all your possessions in the event of theft, fire or water damage.
• Review your car insurance liability limits coverage and your exposure based on your income and assets and upgrade if necessary.
• Revisit any optional disability coverage you may have opted out from at work to see if the policy makes sense for you now.
• Look at your life insurance needs and possibly up your coverage according to major life changes like engagement, marriage, new house or new baby.
Make an extra principal-only mortgage payment
As a homeowner, it may seem like the payments to your traditional 15- or 30-year mortgage will never end. But you can cut your term by several years and save tens or even hundreds of thousands in interest by chipping away at your principal every year with a lump-sum payment.
Prepay your vacation expenses
If you’re getting used to your budget, saving for a dream vacation is a daunting task–and it’s no fun to go into debt over travel. Use your refund to prepay your airfare, hotel, and other expenses, so you don’t add to the cost of your trip by charging it on a credit card. As a bonus, you’ll likely save money booking early and comparison shopping for the best travel deals.
It’s smart to take your time before you spend every penny of your financial windfall. There is professional guidance available if you want to learn about managing your money. Think about bringing in a financial professional who can give you some perspective and help you make the best decisions for your situation. Click http://www.changingourstory.splashthat.com and request to speak with a Prudential Financial Professional in your area.
Prudential Financial, its affiliates, and their financial professionals do not render tax or legal advice. Please consult with your tax and legal advisors regarding your personal circumstances.
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