As they get older and advance in their careers, many professionals find they have more money in their pockets. If you’re in your 30s or 40s, this might sound like you.
Those late nights and sacrifices you made to climb the corporate ladder have finally paid off. For the first time in your life, you now have endless financial opportunities and the means to take advantage of them.
You could buy a new home, go on vacation, or buy a new car. On the other hand, you might discuss whether debts should be paid off or put more money into your retirement plan.
So what should you do?
Avoiding debt may not be optimal in a long-term financial plan, but finding the right strategy for managing your money depends on many factors.
In this article I will look at some processes and recommendations on how to approach your financial well-being now that you are making good money.
Assess your financial goals and risk appetite
Before making any major financial decisions, it’s important to understand how your financial goals and risk tolerance interact to make financial decisions. Typically, financial advisors try to understand what your goals are and what your level of risk is.
Goals are how much money you want to make from your investments or how much you want to have saved for retirement. On the other hand, Risk relates to your tolerance for investments that go wrong. For example, younger people can tolerate a higher level of risk because they have more years of work to make up for bad investments.
Although this is a relatively simplified version of investment theory, it gives you a starting point to start thinking about how you should manage your finances. You can build a solid financial foundation at a young age and benefit from advance planning later in life.
In the next few sections, we’ll look at some ways you can do with the extra money you bring in.
Most Americans have an emergency fund, but over half didn’t save enough money. An emergency fund is an important first step in building your financial security. Opening a checking account is one way to boost your rainy day fund. According to recent polls 78% of respondents would open a new bank account for a $100 bonus. A hundred more dollars can go a long way in starting your savings fund! However you slice it, an emergency fund is necessary for everyone. Regardless of your position in life, you should prioritize saving some money in case you come across any unexpected expenses.
Buy a car
When you find that you are earn a lot of moneybuying a car can be one way to spend that extra money.
Contrary to popular belief, cars don’t just have to be a liability. For example, when you buy a vehicle for your business, you can usually write off the cost. Getting a new car can also sometimes be necessary – depending on where you live, you may need it to get to work.
But having a car means having expenses. You may be charged with a new car loan; You have to pay for insurance, gas, annual service, repairs, etc Total cost of owning a car before you buy one.
Another option is to take out life insurance. Life insurance is a good way to ensure you’ll continue to have an income if you become disabled. In many cases, financial advisors consider life insurance to be the cornerstone of financial security.
Think about it like this; When financial planning is about understanding your risk, the biggest risk is losing your income. A solid life insurance helps to reduce this risk. After all, we cannot prevent ourselves from getting old or getting sick, but we can actively take steps to prevent the worst from happening.
Buy a house
Buying a home can be a controversial investment decision. Many millennials, for example regret the purchase her first home. Homes aren’t always a great source of equity. Some financial experts even consider them a liability, especially when you find you can’t make mortgage payments. On the other hand, unlike rent, all of your mortgage payments go toward building equity. It pays to sell the house you already own to buy a bigger one and build your wealth.
One of the best things you can do with your extra cash is find a way to invest it. Use a retirement calculator to find out how much money you need to save for retirement. Interest-bearing bonds or investments that pay dividends can be a great way to generate extra cash and grow your portfolio. Or you could consider riskier investments and invest your money in crypto. After seeing some wins, you can sell your crypto and increase your capital. Just make sure you choose investments that match your level of risk and desired return.
If you still have no ideas how to use your money, why not use it to have fun? Maybe a date night is in order and you can spend it with a nice dinner. Think of it as a way to reward yourself for all the smart financial planning you’ve done.
You can also take vacations. More and more Americans are feeling stressed these days. So if you’ve got the cash, why not give yourself a much-needed break?
Finally, remember to support a cause you care about. Keep in mind that donations to charitable organizations are usually tax deductible Save money on your taxes AND do something social good.
Put everything together
These are just a few ways you can maximize where your money goes once you are financially stable. If you’re considering either of these avenues, remember to carefully consider your long-term goals and the risk you’re willing to take. If you follow these two simple principles, you will surely find your way to financial success and happiness.
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