Submitted by Karen Codman
Investment Advisor Representative, Karen Codman/FSC Securities
By now, you may have already received your tax refunds from the federal government, along with the “economic stimulus” checks authorized by Congress in response to the recent economic uncertainty. So after the initial celebrating, you catch your breath and ask: what should I do with the money?
While it is tempting to blow the cash on impulse buys, you should think things through first. While it may feel good to buy that new plasma TV or handbag, will the good feeling still be there a month from now? Six months? A year? A sudden windfall like a tax refund makes it easy to have some short-term fun, but it also is an opportunity to strengthen your financial foundation for the long term.
In general, you should consider between four options: keeping money in the bank, paying down debt, making necessary purchases, and investing the money for the future.
Do you have a cash reserve or liquid savings account for emergencies? Unexpected expenses come up, and it makes sense to plan beforehand. It’s a good idea to keep between one and three months worth of living expenses easily available. That way, you can give yourself confidence in your future and avoid the stress of living close to the edge.
Do you have a lot of credit-card debt? Right now, the average credit card has an interest rate of about 13%, but can go over 30% in some cases. Paying down your debts is a little like getting a guaranteed rate of return that’s higher than the stock market. One exception: if you are the kind of person who always charges up a balance, no matter how many times it is paid down, you should probably look further down the list for now. Gaining control of your credit is important, but there are many ways to reduce the risk of your financial future. Find a place to start that works for you.
Are there critical purchases or repairs around the house to do, or medical needs that you’ve been putting off? Staying in good health is the most important thing for your financial freedom, as well as your happiness. And some costs become more expensive the more you put them off. Keeping ahead of the curve can pay off in a big way.
Finally, are you following an investment plan for the long term? The earlier you start saving for the future, the easier it is to achieve your goals. Adding money to your retirement fund is often a smart move. If you don’t have a tax-advantaged retirement account like an IRA, you can start one for as little as $25 a month. It’s easy to think that investing is something to do after everything else is taken care of. But the truth is that you don’t need to choose-even starting small can pay off in the long run, and it can give you the satisfaction of feeling in control of your financial future.
Consulting with a financial advisor can help you gain clarity when looking at your financial picture. A good advisor will help you understand what areas you need to work on, and how best to position yourself to accomplish your future goals. But make sure that the advisor takes the time to understand your unique circumstances, instead of giving you stock answers.
Managing your finances is all about making smart decisions and keeping track of what’s important to you. So when your refund check rolls in, don’t be afraid to have a little fun-but also don’t be afraid to experience the satisfaction of working toward your financial goals.
Karen Codman/FSC Securities is located at 1165 East San Antonio Drive, Suite G in Long Beach. The office phone number is (562) 728-5800 or you may visit them at www.karencodman.com.
