Most days, we walk around this world with financial burdens to carry. The fact that there’s only 1% of the population who is truly rich means that you are not alone with your financial woes. Everyone is just working to survive or prepare for a retirement that doesn’t mean laboring until we’re 70 years old. In the rare times when we do get lucky to get a raise, a bonus, an inheritance, or a windfall, we find ourselves paralyzed. What do we do with this money?
After getting a side job for a convention staffing company in Idaho or other states, you’re suddenly left with a month’s worth of money in your bank account. You’re tempted to just spend it on something you really want such as a luxury item. You want to travel, too. You want to pay off your debts. There are too many options for you that you end up not doing anything at all. Soon, you find that money getting withdrawn for the most mundane of things—a dinner with friends, a gift for your parents, etc.
You end up with nothing then. After watching that money disappear from your account, you’ll get a sinking feeling that you have done something wrong. And yes, in a way, you have done something wrong. You have not used the money smartly.
Pay off Your Debts
Why wouldn’t you pay off your debts if you suddenly have extra cash lying around? That’s the smartest decision you can make for your money. You’re going to save yourself some money in the future because you won’t have to pay those high-interest rates. Everyone has debts. Even the rich are in debt to credit card companies and loan institutions. The best way to prepare for the future is to clear off your credit card debts. If you don’t have a credit card debt (lucky you), pay off a chunk of your mortgage.
Invest in Your Retirement
You’ve heard about the high returns of the stock market. You are planning to invest in stocks, but is this really the best thing for you? Stock returns have a higher interest rate than a tax-deferred Roth IRA. But remember that the tax is what will kill you. Over time, 24% of the returns from your stock investments will go to taxes, while your Roth IRA will remain tax-free. Yes, you won’t have to pay taxes when you withdraw it for retirement. You’ll get the full 8% return, while the taxable account will only get you 6.1% in returns.
Bulk up Your Emergency Fund
Financial experts say that you should have at least three to six months of living expenses in your emergency fund. This money is to be used when and if you lose your job and other means of income. If you get into an accident and could not work, this is also the money you are going to use. If you get hold of extra cash and you won’t have to use it to pay off debts, you can bulk up your emergency fund. You’ll sleep better knowing that you’re prepared for the next big emergency.
Not everyone is lucky enough to have extra cash lying around. You have to be smart where you put it. You may not be as lucky next time to have this extra money, so invest it well.