Whether you will be enjoying a 3.1% military pay raise, a hearty tax refund, or a pay raise in your civilian job, make sure that you make the most out of new money coming in. While it may be tempting to enhance your lifestyle immediately, making a plan for the extra cash can help you accelerate your financial goals in the long and short term.
Before you buy that luxury item you know you don’t really need, ask yourself these four basic questions:
Q. Are you saving, or are you investing?
A. Determine your objective: Savings are about liquidity, not growth. Savings accounts may include checking, savings, CDs, or money markets: low-risk accounts that will ensure the money is there when you need it.
Most savings account interest rates do not offset inflation over time, so a savings account is best for immediate needs or emergencies. Our experts recommend that you have three to six months’ worth of living expenses in your savings account, enough to cover any bills that may unexpectedly come up.
Investments, on the other hand, are about growth. Investment accounts may include markets, such as stock, housing, commodities, or currencies. Investment accounts may be volatile in short periods, so you would not want to rely on them for immediate needs or emergencies, but over long periods they provide larger growth rates that offset taxes and inflation, which is important for developing wealth.
Regardless of your objective, putting away even just half of your new money can put you miles ahead in the future and keep you in the practice of living within your means.
Q. Are you keeping it simple?
A. Make sure that you continue to do the basics. If you are living within your means and communicating with your spouse to agree upon objectives – and paying bills on time -- then you already are on track to financial success in 2020. Financial planning does not have to be difficult. In fact, according to our experts, it should be boring. MOAA expert and Certified Financial Planner, Shane Ostrom, USAF (Ret), explains:
“If you find your finances exciting, stressful, angst-ridden, you are doing something wrong—or taking on too much risk for your situation. Use realistic and proven methods to build your plans. Don’t fly by the seat of your pants and speculate how things may turn out.”
Q. Are you preparing for the future?
A. How far are you from retirement? Are you maxing out your 401(k) contributions? If you are not, and you now have the means to contribute more, you should. This will allow more money to grow through compounding and provide stability for your future.
As you go into 2020, make sure you are educated on The SECURE Act, which includes retirement account reforms that may provide additional flexibility for those nearing retirement.
Q. Are you getting the right advice?
A. No matter where you are financially or in your career, MOAA offers resources to ensure that you are making the most out of your money. Our exclusive publications and subject-matter experts are here to guide you and answer any questions that you may have. Financial publications available to Premium and Life members include:
- Financial Planning Guide
- Estate Planning Guide
- The MOAA Investors’ Manual
- Personal Affairs Guide: A Personal Inventory for Peace of Mind
Take advantage of these and other benefits by upgrading to Premium or Life Membership now.