Podcast Summary
Investing unexpected windfall: Consider investing or saving an unexpected financial windfall for future financial security instead of just increasing your current lifestyle.
When faced with an unexpected financial windfall, it's essential to consider how to make that money work for you in the long term, rather than just increasing your current lifestyle. Molly, a new mom who recently received a 40% salary increase and no longer needs to pay for daycare, is looking to make her money grow. She and her partner, who also has a good income and flexible work schedule, aim to maintain their current lifestyle while saving the extra income. They feel positive about their financial situation overall but are concerned about the rising cost of groceries. Molly's windfall of $60,000 was not included in the discussion, but it's crucial to consider how to invest or save that money for future financial security.
Diverse savings and investments: Having a mix of cash savings, retirement funds, liquid stocks, and investments like a 529 plan can offer financial security and flexibility. Prioritize based on accessibility, liquidity, and potential returns.
Having a diverse range of savings and investments can provide financial security and flexibility. The individual in this conversation has a combination of cash savings, retirement funds, and liquid stock from a public company. They also have debt from a car loan but are considering keeping it due to potential investment returns. They prioritize saving for their children's education through a 529 plan and have an emergency fund of around 75,000. It's important to note that the accessibility and liquidity of each savings and investment type can vary, and financial decisions should be based on individual circumstances and potential returns.
Emergency Fund: An emergency fund, covering 6-7 months of expenses, is crucial for financial security and should be easily accessible in case of unexpected events
Having an emergency fund is crucial for financial security. This fund, which should ideally cover six to seven months of living expenses for both incomes, should be easily accessible in case of unexpected events like job loss or health issues. The speaker in this conversation currently has a significant amount of savings, but it might be beneficial to separate it into an emergency fund and other savings or investment accounts. The emergency fund should not be a large portion of retirement savings, as it's intended for immediate use. The speaker's current situation, with various accounts from different jobs, demonstrates the importance of keeping track of all financial assets and understanding their purpose.
Financial foundation: A solid financial foundation requires smart money management, hard work, and planning for the future. Focus on financial objectives and maintain a disciplined approach to make the most of your income.
Having a solid financial foundation comes from a combination of smart money management, hard work, and planning for the future. This individual's upbringing, education, and partnership played a significant role in shaping their abundance mindset and work ethic. They aim to avoid lifestyle creep and continue saving towards short-term goals like upgrading their house or contributing consistently to their children's 529 funds. By staying focused on their financial objectives and maintaining a disciplined approach, they are able to make the most of their income and secure their future.
High-yield savings accounts: Individuals should consider opening a high-yield savings account to earn more on their savings than the rate of inflation and use the excess funds to pay off high-interest debts, build an emergency fund, or contribute to savings goals.
Having a high-yield savings account is crucial for growing your money and keeping it in line with inflation. The discussed individual was keeping their savings in an account with an annual percentage yield (APY) of less than 1%, which is not ideal as inflation typically grows at a higher rate. Opening a high-yield savings account, such as the one with Publix offering a 5.1% APY, would result in earning more on the money. The excess funds could be used to pay off high-interest debts, build an emergency fund, or contribute to a 529 plan or other savings goals. The individual had approximately $175,000 in savings and was bringing in an additional $2,000 a month. Based on this information, it was suggested to put $20,000 in a high-yield savings account for an emergency fund, pay off a car loan with a 6% interest rate, and consider contributing the remaining $500 a month to a 529 plan or other savings goals. Short-term treasuries could also be an option for growing savings, offering around 5% APY for a 26-week treasury.
Stock loans and borrowing strategies: Borrowing against high-value stocks or taking out securities loans can help investors access cash without triggering immediate taxable events, while short-term treasuries offer a high-yield alternative for cash needs.
There are strategies to tap into stocks without incurring immediate taxable events, such as borrowing against the stock or taking out securities loans. This can be an attractive option for those with high-value stocks and a need for cash, especially considering potential long-term capital gains taxes. Additionally, short-term treasuries are a current high-yield investment option, providing around 5% interest, and can be easily purchased through apps like Public. This is a simpler alternative to traditional methods like Treasury Direct.gov. Remember, while these strategies may offer advantages, it's essential to consider your individual financial situation and consult with a financial advisor before making any significant decisions.
Investing in bonds or treasuries: Earning interest by lending money to the government or a bank is a way to grow your wealth over time. Shop around for the best interest rates and consider short-term and long-term goals when investing.
When you have extra money coming in, you can put it to work for you by creating a clear plan for saving and investing. When you lend money to the government or a bank in the form of bonds or treasuries, you earn interest as a reward. By setting up automatic deposits into savings accounts and investment vehicles, you can grow your wealth over time. It's important to shop around for the best interest rates and consider your short-term and long-term financial goals. Remember, even a small amount of money saved and invested consistently can add up to significant gains over time. So, take the time to set up a plan, and invest in yourself by taking control of your finances.