Picture this. You got an inheritance of a few thousand dollars and do not know what to do with it.
Most individual will receive an amount of cash at one point in their life; either from the selling of a property, an inheritance, or a bonus from work. The question is, do you know what to do with it?
If your first thought is to go out and buy a bigger TV or a new car, you might want to think twice. It is ok to splurge some money but only after you have gotten your household finances in order.
Keeping true to our name thefinancialmd.com , we will tell you what is best for you. What you do after is up to you.
1- Pay down debt
I would say the number one thing to do is get rid of debt.
-Pay down that credit card debt! This is the unhealthiest debt you could ever carry.
If you want a map and some guidance click here for more info.
-Student loans would be my second debt to get rid of since you cannot even write it off in bankruptcy. If you need more help in how to pay off your student loan debt click here. I know a thing or 2 after me and my wife paid off nearly $500k in student loans.
2- Build an emergency fund
As 2020 taught us, the future is uncertain. You need to be prepared for anything life throws at you. Having a 6 months of emergency fund is crucial.
If you, like me, have a job, then we are "Just Over Broke". You need to be able to have a cushion to fall back on in case the biweekly checks stop coming in. The government as we learned will not bail you out. They will bail out big corporations but not you my friend.
The 6 months emergency fund will help you pay the rent/mortgage, groceries, and gas until you scramble and come up with plan B.
3- Start an after-tax brokerage account
Say you have accomplished steps 1 and 2, Step 3 is actually quite important. I will explain why.
Currently, there are 3.8 trillion dollars in 401k fund assets in the US. The age at which you could take money out from the 401k without Uncle Sam penalizing you is 59 1/2 years old. If you want to take money out before, you will pay a 10% penalty fee on top of whatever taxes you will owe. Now lets say hypothetically the government raises the age to 65 or decides to tax it at a higher bracket, now what? Not only will you have to work longer but the money you keep might be less. Here comes the after-tax brokerage account. If you keep the money invested for a longer period of time the taxes are more favorable. It also depends on the tax bracket you file on. Bottom line, the government cannot penalize you for taking your hard earned money from the account. You are free to do as you please. Plus, the taxes for an after-tax brokerage account are favorable.
Where can I get an after-tax brokerage account? You can go to brokerage firms like Fidelity, E-trade or Vanguard and open one. They will ask you where to put your money. You can read here and see where to put your money. Remember this is money you will not need in the next 5 years.
4- Invest in real estate
Perhaps you do not like or do not understand the stock market and want to invest in real estate. But the amount of cash iss not large enough to buy property, then read here to learn how to invest in real estate without the large moolah.
We all know real estate tycoons, stock market investor tycoons and entrepreneur tycoons. But I am yet to find an individual that made a fortune keeping cash in the bank in a savings account or RENTING. If you want to move along in life and become financially healthy, you need to take on calculated risks. We are here to help educate you of what the choices are.
Till next time,
Disclaimer - This blog is meant purely for educational discussion of finance. It contains only general information about financial matters. It is not financial advice, and it should not be treated as such.