Countdown to Financial Fitness: What to do with a Windfall?

Countdown to Financial Fitness: What to do with a Windfall?: My husband’s company gives out bonuses on Valentine’s Day if the previous year was profitable. Since 2019 was one of those years, we’re lo...

What to do with a Windfall?

My husband’s company gives out bonuses on Valentine’s Day if the previous year was profitable. Since 2019 was one of those years, we’re looking forward to the windfall.

Employees have the option of diverting some of their profit-sharing funds to their 401k accounts and/or their health savings accounts (HSAs). Or they can take the whole payout in cash—minus taxes.

This year, the company provided a calculator on their website so employees could estimate how much they’d be receiving and make their elections accordingly. It was interesting to watch how the numbers changed depending upon how much was allocated to the 401k and HSA. Although the amount of the final check decreased, so did the taxes. The more we pledged to put to work in tax-deferred accounts, the larger our piece of the pie.

My husband will eventually have to pay taxes when he withdraws the money from his 401k, but hopefully, the additional earnings from having more invested will make up for it. And as long as we use the HSA funds for medical, dental, or vision care expenses, they will never be taxed.

A lot of people can expect windfalls this time of year. Whether it’s an annual bonus or profit-sharing check from your employer, or a large tax refund from the IRS, it’s nice to see some extra cash. Instead of blowing it, look for ways you can maximize the opportunity to get ahead.

If you can’t put the money into your 401k or HSA, what about funding an IRA (Individual Retirement Arrangement)? Or, if you have children, think about putting something into their college funds or 529 accounts.

Could you retire some debt or shore up your emergency fund? If you’re debt-free and have plenty of reserves, why not invest? (But be sure to research potential investments first rather than just handing your surplus cash to a broker.)

Maybe you’ll want to use the money for a well-deserved vacation. You can pay for it up front rather than charge everything and accumulate more debt.

Or perhaps you need a new car, and the windfall check can be used for a down payment. Maybe you can finally tackle those home repairs you’ve been putting off, or purchase a needed appliance or piece of furniture.

Whatever you decide to do with the money, have a plan. Before you start spending, think about how best it can improve your life.

What would you do with a windfall? I’d love to hear your comments.

For more tips on handling a windfall, read Live Well, Grow Wealth.

Countdown to Financial Fitness: A Brand-New Year

Countdown to Financial Fitness: A Brand-New Year: Tomorrow we begin a brand-new year. Maybe even a brand-new decade, depending on how you calculate it. This is traditionally the time when ...

A Brand-New Year

Tomorrow we begin a brand-new year. Maybe even a brand-new decade, depending on how you calculate it. This is traditionally the time when we review our accomplishments, failures, and missed opportunities over the past year and make resolutions to be better in the future.

Among the most popular New Year's resolutions are weight loss, physical fitness, and financial fitness. All of these goals are admirable and none are easy to achieve. That's why many people give up after the first month or so.

These goals can complement each other. If you attain a healthy weight and physical fitness, you might spend less money on doctor's visits and prescription drugs to treat weight-related illnesses. You can save money by cutting out junk food and empty-calorie snacks, which will also help with weight loss.

You can torpedo your financial goals by investing in an expensive weight-loss program or joining a gym, and then letting those self-improvement resolutions fall by the wayside. As a lifetime member of Weight Watchers (now rebranded as WW), I've watched year after year as standing-room-only January meetings shrink in half by March. Gyms experience the same scenario. In fact, managers have no problem overselling memberships at the beginning of the year; they count on a certain percentage of new members not showing up. Think of all the wasted money on the weight-loss and fitness industries! If you're going to shell out hard-earned funds, stick with the program to protect your financial investment.

I believe financial motivation has kept me at free-lifetime status with WW as much as the desire to maintain a healthy weight. As long as I attend at least one meeting a month and weigh in at goal (or within a two-pound grace weight), I maintain my free status. If I miss a month or tip the scales too much when I check in, I have to pay until I get back to goal. That fear prevents me from straying too far from the plan.

It's fine to pay for a program that will help you achieve your goal. For some, it's the only way, as WW was with me. Do some research first, to ensure you're getting the best value, and that the program is something you can realistically follow and reap benefits from. And then commit. Sticking with the plan can be a financial resolution as well.

What are your resolutions for 2020? I’d love to hear your comments.

If achieving financial fitness is one of your goals, read Live Well, Grow Wealth.

Countdown to Financial Fitness: Live Like a Millionaire

Countdown to Financial Fitness: Live Like a Millionaire: Most millionaires don’t amass their fortunes overnight. Of course, there are exceptions: lottery winners, beneficiaries of a huge inherita...

Live Like a Millionaire

Most millionaires don’t amass their fortunes overnight. Of course, there are exceptions: lottery winners, beneficiaries of a huge inheritance, business owners whose products rocket to instant stardom.

Adjusting to sudden wealth brings its own set of problems—especially how to keep it—but that's the subject of another post.

More common are the millionaires who earned their money slowly, by practicing healthy financial habits all their lives. They might live or work alongside you, á la The Millionaire Next Door. They reside in modest houses, drive practical cars, shop at discount stores. By living below their means, spending and investing wisely, they’ve gradually built up their wealth. By continuing to live below their means, spend and invest wisely, they’re able to hang onto their wealth.

Some have-nots believe living like a millionaire means owning the biggest mansion on the block, driving an expensive sports car, wearing designer clothes and flashy jewelry, over-tipping, showering friends and relatives and acquaintances with gifts, never comparing prices or caring how much anything costs. But if you keep spending more than you’re bringing in, you won’t stay a millionaire for long.

Here are some habits that will help you build wealth and keep it:

1. Always pay your bills on time.
2. Keep debt low and use credit to your advantage.
3. Never spend more than you earn.
4. Save a portion of your income each month. Treat saving like another bill, i.e., pay yourself first.
5. Comparison shop. Never pay more for a product or service than you have to.
6. Don’t spend money on junk you don’t really need or want.
7. Don’t be wasteful.
8. Plan for contingencies.
9. Let your money work for you.

Like losing weight, building wealth can be a slow, gradual process. But by following a plan and developing healthy, lifelong habits, you’ll continue to make progress toward your goal.

What are your suggestions for building wealth? I’d love to hear your comments.

For more saving and investment tips read Live Well, Grow Wealth.

Countdown to Financial Fitness: The High Cost of Poverty

Countdown to Financial Fitness: The High Cost of Poverty: It’s wonderful to reach a point where you can stop working and let your money take over. And if you manage to spend less than what your mo...