Congratulations! You were responsible and completed your taxes early! So what should you do with it...?
If you are like most people, when we receive money, we start listing off all the projects that we have been putting off or the shiny new items that we want (the new iPhone and Apple Watch look good together). Sure those things are immediately rewarding and provide that temporary satisfaction but is that what is really best for you and your family in the long run?
Prioritizing how you are going to use your tax refund could potentially impact your finances for the rest of the year. Every situation is going to be different but that is when talking to a financial professional about where your money will bring you the most value.
Ok. This was probably going to be the most obvious answer and you were probably expecting it but according to BankingRates.com 34% of Americans have $0 saved and only 35% of people have less than $1,000 in their savings. That is almost 70% of all Americans who don't have at least $1,000 in their emergency fund. I recommend for my clients to have at least a $1,000 in their Emergency Fund. Why? An average house repair or auto repair usually comes in under $1,000. Better to have this money in there than having to put it on a credit card. If you have $1,000 in your emergency fund, then move to the next step.
Pay Off Debt!
This is no surprise but debt is crippling our country, both in the government and in the financial home. With the average household having multiple credit cards and multiple student loans, debt stops us from being able to have the financial freedom that we desire for our families. There are debt strategies that "advisors" suggest but I believe that creating a plan of attack for eliminating debt needs to be determined on an individual basis. Again, you should be talking to your financial planner on the best method for eliminating your debt.
Wait, didn't we just talk about this? Nope. I believe that building your financial home requires two forms of savings. The emergency fund that we have available is strictly used for those "break glass in case of emergency" but I am talking about building and saving your cash. There are multiple reasons for doing this but for a majority of folks it involves these two goals:
- Saving for a goal (i.e. down payment on house, buying a car, or any large item purchase)
- Diversifying your financial assets in the event of a downturn in the market. Cash protects you from downturns in the market and can be a tax-free form of income.
Your savings amount is completely up to you. For some people, this number is 3 months of salary and for others it is a number ($10k, $50k or $100k). That number is up to you and your family. There are reasons as to why both of these strategies work for people but your savings amount should be done because of the plan you have in place.
Invest For Your Future!
If you have made it past the first three strategies and are ready for the next step, CONGRATULATIONS! You have shown that you are serious about your financial future and want to be different than the other 70% of people in the United States. This is where speaking with a comprehensive and independent advisor becomes valuable. Working with this type of advisor will help show you all of your options and customize a plan that is tailored to your families needs and goals.
If you need help with any of these steps or want a second set of eyes on your financial plan, let's talk. Onward Financial was created to provide this type of service to families. You can call me today and we can talk more about your goals and strategies.
If you want to be different than 70% of the people around you, then let's start TODAY!