- There are 3 big money decision areas you should seek counsel on: taking on debt, investment related decisions, and transition decisions.
- There are good and bad types of debt, and it really depends upon your personal situation and financial health.
- You can invest your money in assets that have tax advantages, so it’s important to know what areas carry these advantages.
- Ultimately, when you are faced with one of these big money decisions, it’s best to seek out help to ensure you know your options to make the best decisions with your money.
It’s very sad to hear when someone dumps their whole 401(k) and gets hit with a 10% penalty and a 30% tax, for a total of 40% of that money going away, when they might have actually spent that money on something they need. That’s a big money decision that you should seek counsel on to see if maybe there’s a better way.
There are 3 big money decision areas you should seek counsel on: taking on debt, investment related decisions, and transition decisions.
1. Taking on debt. Check out my earlier posting on good and bad debt to find out more about them, but there are four kinds of debt you want to seek counsel on:
- Student debt – This can be good or bad debt based on what it will do for you in your return of the money you spend in that institution to get your degree.
- Credit cards – Generally, this is bad debt that you don’t want. There’s just too much money that ends up going towards paying off interest.
- Auto loans – Also generally bad debt, but you might need it in order to get from point A to B with an automobile.
- Home ownership – This is typically good debt to have. You can write it off on your tax return, which can be a very low cost for a long period of time.
2. Investment related decisions. There are three things to consider here:
- Tax awareness – You want to invest in things, if you can, that are tax deductible, tax deferred, or tax free. That way, you are keeping more of the money you earn.
- Investment allocation – You want to make sure you’re allocating properly for your risk, your goals, and your short, intermediate, and long-term criteria.
- Structure of your investment portfolios – This focuses on what you have for the short term to spend the money, what you have for intermediate goals from 3 to 5 years, and long-term goals for farther out in the future.
3. Transition decisions. There are three categories here:
- Family – Maybe you get married, then have children, maybe you need to help your parents, siblings, or other relatives out. Things come up when we have family that can end up being big money decisions.
- Your job – Besides being in the right job for you, doing what you love to do, there are benefits and salary that can be very beneficial to you. Moving from job to job can have a big effect on these things, so you’ve got to be careful about those moves.
- Unexpected events – The death of a loved one, a disability or accident, divorce, and other unexpected events have a big impact on your money.
Looking back at my opening about 401(k)s: many companies have 401(k)s where they will accept moving money from another 401(k). Also, many of them allow you to take a loan of up to 50% of the balance. That 50% could be just the amount of money you need, with no penalty, to take care of a particular spending or investment need.
It’s important to seek out help for these bigger money decisions you will face in life so that you are aware of your options, you are putting your money where it needs to go to best optimize your future wealth, and you are able to prepare for any issues that may arise in the future.
Until next time, enjoy!