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Advice offered by Marc Hebert, a founder of The Harbor Group Inc. The company is a registered investment advisor. If you have any questions about finance or if you’d like to suggest a future topic, email we******@wm**.com.
Maybe you received a nice monetary gift, and you don’t know what to do with the money. We are glad you are being careful about using it and would suggest the following considerations for your new funds.
Goals should be realistic and specific. Your goals are the guidelines for what to do with the money. For example, if you would like to purchase a house in the near future, the money might represent a down payment. Money to be used in the short-term should be held in more conservative investments than money needed further down the road.
A fund for unexpected expenses is always good to have. Financial advisors usually recommend three to six months of living expenses, depending on the individual’s unique situation. For example, a self-employed person may want more of a reserve just in case business is bad for a period of time. Money set aside for this purpose should be kept in a readily-accessible, conservative account.
Retirement is expensive. The earlier one starts saving for retirement, the better off he or she will be when retirement finally arrives. Depending on your needs, you might consider a contribution to a Traditional or Roth IRA. You will need to review the eligibility requirements for these plans before making a contribution. If your employer offers a retirement plan such as a 401(k) or 403(b), consider swapping the dollars. Make larger contributions to the plan in exchange for using the gift money to live on. Retirement plans often have both pre-tax and Roth contribution options. Utilizing an employer plan will put your money into a vehicle that can give you tax advantages and investment growth until you need it.
Your gift might represent the down payment on a home. Before you buy, consider all of the aspects of home ownership. The monthly mortgage payment is only part of the total expenses involved with owning a home. Factor in costs such as home maintenance, repairs, and insurance. Consider how long you might live at this location. In the end, you have to decide if home ownership is the right path for you.
The first step is to know to who and how much you owe. Make a list of the creditors, amount of the debt, monthly payment, interest rate, and due date. You can use your credit report to confirm the debts on your list. A monthly bill payment calendar could give you clarity on the situation. Next, decide which debts to pay off first. You might want to pay off your high-interest credit cards. Seek reputable professional debt counseling help if you feel you need it. As you pay off debt, you will have additional cash each month to use for other purposes, such as retirement or building that emergency reserve.
Consider reading a few of the many books on personal finance that are available today. This will help you see where your finances might need some work and get you started. “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko will provide some insight into wealth accumulation. “Get a Financial Life: Personal Finance in Your Twenties and Thirties” by Beth Kobliner touches on many areas of personal finance – even people past age twenty or thirty could benefit from reading it.
Life is about balance, and the same goes for your finances. Weigh how much to save for tomorrow versus having fun today. In view of this, you might want to spend a small amount on something you would have never done otherwise. Perhaps a nice dinner at a fabulous restaurant with a few friends would do the trick.
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