How To Use Your Hard Earned Money To Quickly Reach Your Goals

How To Use Your Hard Earned Money To Quickly Reach Your Goals



How To Use Your HardEarned Money To Quickly Reach Your Goals
So you have a​ few dollars to​ save, payoff debts, or​ invest for​ the​ future .​

What do you do with the​ money, so you can reach your goals in​ the​ quickest and​ ​ easiest way possible and​ ​ not waste time or​ money on poor decisions?
Step One Your Emergency Fund
You have received an​ inheritance of​ $50,000 .​

What do you do with the​ money? Yes, you could buy that big screen TV and​ ​ sound system, and​ ​ take a​ major vacation but what if​ ​ you wanted to​ make huge progress on your goals, and​ ​ not let the​ money waste away, bit by bit?
You have $500 left after your monthly bills and​ ​ other fixed expenses are paid, and​ ​ you set aside money for​ gas, food, clothing, and​ ​ other necessary expenses .​

You could spend this money on little luxuries, pay extra on your mortgage, or​ save for​ retirement .​

How do you make the​ decision?
The first priority should be setting aside money in​ your Emergency Fund .​

Yes, even before you pay off your credit card debt unless you are in​ default or​ delinquent on your bills then first pay them enough to​ bring them up to​ date.
Regardless of​ how much credit card debt you have, the​ first step in​ creating a​ prosperous future is​ to​ change your habits .​

When the​ unexpected bill comes and​ ​ it​ always does, you should have money in​ your Emergency Fund to​ pay that bill, to​ avoid racking up additional credit card debt .​

if ​ you have spent every extra dollar attempting to​ pay off your debt & have no money set aside, when something unexpected happens, you will rack up even more debt and​ ​ be right back where you started.
Your Emergency Fund should contain three to​ six months of​ your actual bottomline living expenses .​

or​ more .. .​

I ​ have some clients with up to​ one year of​ cash set aside; typically, they are generally risk adverse, are selfemployed, or​ have a​ fluctuating income stream .​

Your amount is​ not three to​ six months of​ your salary it​ is​ the​ bills and​ ​ necessarily expenses you would have if​ ​ you were unable to​ earn income .​

These funds should be maintained in​ a​ cash account, typically a​ savings or​ money market account .​

The Weinstein family Emergency Fund is​ in​ an​ ING Direct Orange Savings Account.
A home equity line of​ credit HELOC does not count .​

Yes, you could use a​ home equity line, or​ take out a​ loan on your house, if​ ​ you were unable to​ earn income or​ had emergency expenses .​

But, it​ would just rack up your monthly expenses and​ ​ debt even further .​

And, since interest rates have risen, even the​ tax deduction does not compensate for​ the​ high expense of​ using the​ HELOC.
Once you have a​ wellestablished habit of​ saving money each month, and​ ​ have your Emergency Fund set aside, we can move to​ the​ next step prioritizing debt and​ ​ your life goals.
Action Step One
Open up a​ dedicated savings or​ money market Emergency Fund account .​

Set aside a​ fixed amount of​ money each month whether it​ is​ $50, $500, or​ $5,000 until your fund is​ at​ ​ three to​ six months of​ your living expenses.
Step Two Pay Off Bad Debt
Youve set up your Emergency Fund, and​ ​ created a​ wonderful habit of​ saving $50, $500, or​ $5000 each month .​

We dont want to​ let that habit disappear .. .​

so where do we put your money next?
Step 2 is​ to​ pay off any bad debt .​

What that means really depends upon the​ person, and​ ​ your tolerance for​ debt .​

Some people are not particularly bothered by debt, so their only bad debt are those with high interest rates, or​ minimal tax advantages nonmortgage and​ ​ nonstudent loan debts.
There are two situations where I​ ​ may ignore the​ interest rate, and​ ​ recommend the​ client pay off the​ debt ASAP.
1 Loans from family or​ friends .​

These loans, while low interest, may be eating away at​ ​ the​ relationship, without you even knowing it .​

They may reduce the​ relationship to​ a​ formal, strained, moneybased transaction, instead of​ a​ loving, friendly, supportive bond .​

You may know the​ debt is​ a​ problem, or​ ask other relatives to​ see if​ ​ the​ debt is​ a​ problem in​ culture of​ the​ family if​ ​ so, pay it​ off quick.
2 Debt that is​ keeping your up at​ ​ night, or​ making you feel unsuccessful .​

Debt may be the​ new American way but it​ is​ not right for​ everyone, or​ even most people .​

Monthly payments, or​ even the​ idea that you could be repossessed or​ foreclosed upon, may be eating you up at​ ​ night .​

You may feel venerable, or​ like you have never achieved any of​ your goals until that debt is​ paid off.
If this is​ you, then your debts may become a​ high priority, even over other goals, like college funding or​ purchasing a​ new home .​

Whether your debt should be paid off as​ a​ high priority, depends not just upon the​ interest rate, but upon the​ mental and​ ​ emotional interest rate you are burdened with each month you are making loan payments.
Action Step Two
Take a​ personal inventory of​ your debts, and​ ​ how much they are costing you in​ mental and​ ​ emotional energy .​

Do they bother you? How much? if​ ​ so, regardless of​ how low the​ interest rate is, paying them off should be a​ high priority .​

Start today pay an​ extra $10, $100, or​ $1000 on the​ principal each month .​

Even better, set up automatic bill payments in​ your online bank account billpay system to​ make automatic regular extra payments each month or​ quarter.
Step Three Goals Funding Base Level
Now you have set up your Emergency Fund, and​ ​ paid off your Bad Debt, including a​ loan from a​ family member, a​ highrate credit card, and​ ​ an​ old debt from college that was really bothering you.
You have a​ bunch of​ goals retirement, paying off your mortgage, buying your next house, launching a​ new business, and​ ​ sending the​ kids to​ college.
Which comes first? Retirement? the​ kids? Paying off your debts? How do you decide?
Step 3 of​ Where to​ Put Your Next $1 is​ to​ fund your goals, in​ order of​ priority, at​ ​ the​ base levels the​ amount of​ money you need to​ satisfy the​ minimum requirement of​ your goal.
For example, how much money do you need to​ pay your bills in​ retirement not live an​ extravagant lifestyle, or​ play golf every day for​ 20 years, or​ travel the​ world but how much to​ keep out of​ a​ cardboard box and​ ​ live comfortably?
How much money do you need to​ save to​ send the​ kids to​ State College, as​ opposed to​ Ivy League? How much would it​ cost for​ the​ house you need, as​ opposed to​ the​ house you want?
Then fund the​ minimum, base level of​ those goals in​ order of​ priority .​

This may mean you start by contributing to​ your retirement plan or​ IRA, then contribute to​ a​ 529 Plan for​ the​ kids college education, then set aside money in​ a​ CD to​ start a​ business in​ 3 years, and​ ​ then, finally, invest to​ raise funds for​ a​ bigger house.
How do you decide the​ order of​ priority? First, determine if​ ​ there is​ another way to​ pay for​ the​ goal, besides your own savings if​ ​ so, then it​ is​ probably a​ lower priority than goals for​ which you have no other alternative .​

For instance, there are loans easily available for​ college education, but not for​ retirement with the​ exception of​ a​ reverse mortgage .​

Also, you could obtain investors or​ take out a​ loan to​ fund a​ new business, and​ ​ pay them off with the​ new income stream.
Second, evaluate if​ ​ you are giving up free money by not utilizing pretax or​ matching savings or​ retirement plans .​

if ​ you can save pretax, the​ federal government is​ contributing to​ your goal since you dont have to​ pay those taxes, and​ ​ if​ ​ you dont take advantage of​ this each year, you are leaving money sitting on the​ table .​

Similarly, if​ ​ you are lucky to​ be employed by a​ company who matches a​ 401k plan, you may want to​ contribute at​ ​ least the​ match, to​ let your employer help fund your retirement.
Action Step Three
Make a​ List of​ Your Goals, in​ order of​ priority .​

Look at​ ​ your #1 Goal is​ it​ really your most important, or​ is​ it​ just first in​ order of​ time? Any special types of​ accounts or​ matching available for​ this goal? How much will your goal cost? Whats the​ base level for​ that goal?
Set aside money each month to​ fund the​ base level of​ your #1 Goal use your automatic savings or​ investment plan help you execute this weeks Action Step.
Step Four Above and​ ​ Beyond ...
Youve maxed out your Emergency Fund, paid off your bad debts, and​ ​ funded the​ minimum levels of​ your most important life goals .​

Great job! Whats next?
Step 4 is​ to​ fully fund your goals, in​ order of​ priority .​

For example ...
* Max out your Roth IRA, if​ ​ you are eligible.
* Max out your 401k and​ ​ IRAs yes, you can do both, the​ IRA just might not be deductible.
* Purchase ESPP stock and​ ​ dont forget to​ regularly sell and​ ​ diversify.
* Contribute to​ a​ 529 Plan and/or taxable investment account for​ college education.
* Invest in​ taxable or​ taxadvantage accounts for​ miscellaneous future goals, or​ additional retirement funds.
* Buy investment real estate and/or rental property.
* Pay off your mortgage.
* Purchase CDs or​ Bonds for​ specific, time dated goals.
* Leave money sitting in​ your Health Savings Account, invested and​ ​ taxdeferred, until you can roll it​ over to​ an​ IRA in​ your retirement.
Wow, do you still have money sitting on the​ table? Wonderful! if​ ​ your goals are already funded, then dont forget to​ enjoy your money now .​

Take a​ firstclass vacation, hire a​ errand service for​ a​ few hours each week, buy a​ new sound system, or​ make a​ significant donation to​ your favorite charity .​

Balance saving for​ your future goals with living life now.
Action Step Four
Choose your highest priority goal from Step 3 .​

Have you fully funded this goal, to​ achieve your ultimate dream? Evaluate whether you have funded the​ minimal level of​ your other goals .​

if ​ you have, then choose an​ action step from the​ list above .. .​

and enjoy your prosperity!




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