Making the Most of Extra Cash
Whether planned or unexpected, a financial windfall take many different forms: an inheritance, proceeds from a sale, stock options, or even winning the lottery! Maybe you just received your bonus or news of a pending salary increase? With a little planning, you may be able to keep more of your money and grow the amount over time instead of spending it on “stuff” you won’t remember this time next year. Consider your short-term and long-term financial goals.
If you have high-interest-rate debt, consider using a portion of the extra money to pay down the debt. While you may pay more by not sheltering the funds in a tax-advantaged account, you can get relief from not having to pay high interest rates on the debt and you’ll gain peace of mind. Just be sure to get a budget in place to avoid taking on any new debt.
Short to Intermediate-term Goals
Start with the basics. Do you have emergency savings? If not, consider setting aside some of your additional income for a rainy day. While you won’t receive tax benefits by contributing to savings for emergencies, you will feel better knowing it is there if you need it. Other goals to consider include savings to buy a car, a down payment account for a house, or a family vacation. Planning in advance and setting aside money may be a good way to jump-start the savings funds and avoid having to take on future debt. Imagine how great it will feel to pay for an unexpected repair, pay cash for a car or to plan your family vacation knowing that it won’t wind up on a credit card.
Do you want to get the most bang for your buck? If you don’t have debt, consider using any additional monies to fund your long-term goals like retirement or building up your health savings account (HSA). If you don’t have an urgent need for the money, consider a tax-advantaged account like a 401(k), HSA or IRA. If you have not maxed out your contributions for the year, using a windfall can be a great way to fund your accounts. Which is better for you? Talk with an MSA Money Coach about your situation.
Consider the Big Picture when it comes to Taxes
Certain types of windfalls will have unique tax planning opportunities. Talk with an MSA Money Coach Tax Specialist to make sure you understand your options as it relates to your unique situation.
While it is much better to receive a windfall than a bill, be smart about how you handle your finances. Work with an MSA Money Coach to create an Action Plan to make the most of your money. Call 888-724-2326 to get started.
Information provided in this article is for informational purposes only and is not intended to offer specific personalized investment, financial planning, tax, legal or accounting advice. We recommend that you consult an attorney, tax advisor or accountant regarding your unique circumstances.
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