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Thursday, July 30th, 2015


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Dollar.Sense

Finally, you’ve got some extra cash. Use this guide to put that money to work, whether it’s a few spare bills or a sizable bonus.  To help you decide, check out these strategies.

BIG MONEY

Imagine this . . .

1. A local bank offers you a low-interest loan to help you get started in your career.

2. A financial services company offers you a super low-interest loan as a soon-to-be commissioned officer.

3. The military offers you a hefty enlistment bonus.

Do . . .

Pay off any debt with a higher interest rate than your low-interest loan. If you have big bills from past spending sprees or college expenses, prepare to clean the slate. Use a big bonus, windfall, or low-interest loan to unload credit-card baggage. After you settle your plastic bills, you can pay off other debt, like student loans, car loans or cash you’ve borrowed from family members. “Paying down debt represents one of the safest and best returns on investment,” says certified financial planner Jack Oujo.

Set up an emergency fund. Put at least three to six months of living expenses in a money market account. You’ll earn interest each month and have easy access to the cash when you need it, explains Isabel Gonzales, a USAA financial advisor. If you have money in the bank for unexpected expenses like four new tires, you’ll be less likely to have to rely on your credit card, which probably has a double-digit interest rate.

Don’t . . .

Invest all the money, particularly if you have debt and no cash stashed. Gonzales adds, “Investing borrowed money, which you’ll have to pay back, is not usually a good idea.” You might think that plunking $25,000 on your favorite hot stock is a fast way to earn a big return. But it’s really a bad move. “Don’t think you’re going to immediately double your money in the stock market,” says Gonzales. Rather, think of investing as a long-term relationship with plenty of ups and downs. If you invest a little at a time and you stick it out, the potential for returns may be better.

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BONUS

Imagine this . . .

1. You inherit $5,000.

2. You get a holiday or performance bonus the first year on the job.

3. You get a signing bonus when you accept a new job.

Do . . .

Pay down debt. If you have the weight of credit cards on your shoulders, you won’t get closer to any short- or long-term savings goal. Even if the bonus won’t eliminate all your debt, it’ll make a dent and save you interest money.

Invest. You could open a Traditional or Roth IRA if you have earned income. You can contribute $5,000 to either in 2008. Remember, this is a long-term investment. Generally, any earnings withdrawn from a Roth or any withdrawals from a Traditional IRA prior to age 59 1/2 are subject to taxes and penalties.

Don’t . . .

Book an expensive vacation. If you’ve already gotten rid of your debt and you have a growing bank account, you can afford a vacation. But before you make any reservations, think about other financial goals this money can help you achieve.

Buy the newest tech gadgets. Do you really want to spend your bonus on something that will soon be outdated? Wait a while for the price to plummet. It always happens, and the early adopters kick themselves for jumping too quickly when the price was sky high.

POCKET CHANGE

Imagine this . . .

1. After you’ve paid your bills and funded your emergency account, you have about $50 a month in your budget to play with.

2. You give up a few little luxuries and find a consistent positive balance in your bank account.

3. You made your last monthly payment on a credit card bill.

Do . . .

Put your savings and investing on autopilot. Go online to arrange to have a set amount deducted from your bank account each month and consider investing in a mutual fund. When you invest in a mutual fund, you’re actually pooling your money with other investors. A money manager at your financial services company studies the market and purchases investments on your behalf. Mutual funds may be the perfect choice for most inexperienced investors. Very few people have the time or expertise to actively manage their own investments.  Consider mutual funds that are no-load, which means there’s no sales charge, but other fees may apply.

Set up an emergency fund. Start an account that you can dip into for special occasions, whether it’s for a weekend getaway or a wedding gift for a friend. If you save regularly, you won’t have to scramble for cash or charge your expense.

Don’t . . .

Buy lottery tickets. Of course, the thought of winning a $250 million jackpot is tempting, but the chances are extremely remote. Instead of gambling your hard-earned money, invest it so you can potentially earn a steady return over time.

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One Response to Dollar.Sense

  1. gid says:

    this is good advice. paying off high-interest rates is way better than playing the stock market. for example, I have a 5 yr car loan at 10.1% (because i didnt have a long credit history…1 credit card and no debt /sigh). Paying it off 2-3 yrs earlier would save me alot more than investing in a potential risky market. With that being said, I do setup savings and investment deposits automatically. nothing major, but better than nothing. I also tend to treat them as a ‘bill’ in my budget…so it always gets paid and i dont treat it as money i have (well, until i need it for an emergency).

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