windfall cash

Wise Ways to Use Windfall Cash

A windfall is considered as a rather substantial amount of money that you may have come into unexpectedly – some individuals may be fortunate enough to be heirs in a family will, while others may strike it lucky with their state lottery, for example. Regardless of how your windfall ends up in your possession, it will be wise to take the following steps so that you can make the most of the extra cash.

  1. Don’t Give up that Day Job Just Yet

While it’s certainly extremely tempting to ditch your day job after coming into a large sum of money, this may not be the wisest thing to do – especially not immediately. 

It’s too easy to underestimate the amount of money that will have to be invested to take the place of the income you’re currently earning. For example, to replace annual pay of $50,000, you’d require a nest egg of approximately $1.7 million – at a conservative estimate. 

Quitting your job will also cause contributions to your Social Security benefit to stop. In cases where your windfall investment experiences a downturn, you’d need to rely on Social Security to help cover that shortfall. If you’re genuinely unhappy in your job though, a windfall could provide you with the opportunity you need to take a short break and pursue a new career. 

  1. Set the Funds Aside Temporarily

Place your windfall cash into a relatively safe short-term investment option such as a savings account or CD. This will provide you with time to think and come up with a sound financial plan.

  1. Take Taxes into Consideration

In most cases, you’ll owe at least a portion of your windfall in taxes. It’s recommended that you consult with a qualified financial advisor before spending a penny, as this will help ensure that you won’t be faced with any nasty surprises from the IRS. A financial advisor will also be able to advise you regarding the best places to invest your money so that you get the highest returns possible. 

  1. Pay Consumer Debts and Set up an Emergency Fund

If you have credit card or student loan debt, it’s strongly recommended that you use windfall funds to help eliminate this – or at least reduce the amounts you owe substantially. This will help free up your income for other uses, such as investing into your IRA.

It’s also recommended that you set aside part of your windfall cash as an emergency fund – a minimum of three to six months worth of expenses should be covered in this account. 

  1. Treat Yourself

Make a list of items or experiences you and your family have wanted, but not been able to afford, and consider splurging on some of them. You only live once, so the luxury of a windfall can at least help you and your family to have a little fun after meeting your other financial obligations. 

Although coming into an unexpected sum of money can seem overwhelming, this need not be the case if you take some time to think and enlist the help of a qualified financial advisor. Contact us today to learn more about making the most of your windfall. 

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retirement-portfolio

Why your Retirement Portfolio must be Diversified

When a retirement portfolio is diversified, it simply means that your investments have been set up in multiple places to help minimize the risk of losing everything you have. This means that if one of your investments experiences a loss, you’ll still have the rest of your portfolio to fall back on – while still earning reasonable profit on the rest. While it can be challenging to correctly diversify your portfolio, it’s a crucial part of planning a successful retirement

The Main Aim of Diversifying a Portfolio

Although a number of individuals think that diversification is necessary to maximize their return on investment, the truth is that the main reason why it must be done is to limit the impact that a volatile market may have on a portfolio. For instance, if an entire investment is placed in bonds, a large enough return may not be possible to support a retiree’s lifestyle. Alternatively, if everything is invested in domestic stock, the stock market’s volatility could cause the loss of a large part of your nest egg. 

  1. Limit your Losses 

When investing for retirement, your main goal should be to keep abreast of market averages and ensure that you’ll end up with enough money available after you stop working. It will not only be necessary to focus on your gains; you’ll need to keep in mind that there’s always the possibility that losses will be experienced – a large loss can totally derail your retirement plans. As such, the more diversified your portfolio is, the less chance you’ll have of experiencing big losses. 

  1. Less Overall Risk

Some individuals show interest in investing in high risk places that can provide significant returns, but it’s important to keep in mind that equally large amounts of money can easily be lost this way as well. While it can be fun to watch your money grow at a quicker than average rate, it’s recommended that some of your funds be placed into safe investment options like an IRA or bonds. Doing this will allow you to take a chance or two, but not at the risk of losing everything. 

  1. Keeping you on Track

Another aspect that’s essential when diversifying a portfolio is rebalancing. This refers to the practice of allocating money between various types of stock to find the right balance between risk and investing conservatively. For example, you might choose to spend a quarter of your stock investment budget on real estate, 5% on foreign stocks etc. Thereafter, you go back once a year to see how your balance has performed – and speak with a financial advisor if any changes need to be made. 

Ensuring that you have a diversified retirement portfolio won’t only help you get the best possible return on investment; it will also prevent you from losing too much money if a portion of your investment experiences a loss. If you are keen to discuss your retirement portfolio with a professional advisor, call us to set up an appointment today. 

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kids-saving-money

Why it’s Essential to Explain the Link between Work and Money to Kids

Financial experts agree that it is crucial for kids to learn about the value and appreciation of money from the earliest possible age, and the best place for them to obtain this information is at home from their parents. Children who have been taught the fundamentals of earning and saving money from a young age will be far more confident and successful as adults.

  1. Working Teaches Kids the Relationship between Money, Time and Possessions

It’s crucial for children to learn from a young age that money has to be earned. As such, parents or caregivers should discuss how important it is for them to work for their money, and one of the best ways to demonstrate this is to provide them with paid jobs that can be done around the house (not to be confused with regular chores though). For instance, younger children can be paid to clean baseboards or wash the family car. Older children can be encouraged to seek paid working opportunities like walking neighbor’s dogs or mowing lawns.

When children are working for their money, they will also realize that there is time involved with earning it. As they become more accustomed to working and earning money, they often realize that the plastic toy that they initially ‘had to have’ wasn’t worth the hours of labor they put in to buy it. 

  1. Teaching the Concept of Saving

Once children have earned money, they will usually be tempted to spend it right away. However, this is the right time for parents to teach them that they need to save a portion of each amount they earn. This can be done by implementing a rule stating that 20% of their earnings must be saved for a rainy day and a further 10% for charitable causes that they are passionate about. They should then be allowed to spend the remaining 70% however they like.

The above-mentioned percentages are merely a guideline – parents should adjust these accordingly if needed. Establishing this financial routine will help children learn to spend less than they earn, which will go a long way in preventing them from accumulating consumer debt as adults. 

  1. Part-time Jobs can Teach Time-management Skills

Many parents think that children should not have part-time jobs because ‘it will interfere with their education.’ However, many children’s schedules will allow for anything up to 10 hours of part-time work per week without it affecting their study time. 

Along with learning time-management, having a part-time job will also teach children valuable social skills, responsibility and work ethics – skills that are essential for them to succeed as adults. 

Teaching children the importance of working for their money from a young age will also help them deal with the discomfort of the fact that although not all work is pleasant, it simply has to be done. If you would like to learn more about investing for your child’s financial future, contact our team today.

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financial advisor

Questions to Ask your Financial Advisor while Planning your Retirement

Retirement planning is not something that should be taken lightly, which is why you should meet with your advisor regularly. If you’ve set up an appointment to chat with your financial advisor, chances are that you have a few questions to ask them. Below are some examples of questions you should be asking to help ensure that your retirement portfolio will be able to cater for your needs once you stop working.

  1. Can Debt Affect my Retirement?

Unfortunately, any type of debt will have a negative effect on your retirement, so this is something you should speak to your financial advisor about, If you’re saddled with high levels of consumer debt, you can work with your advisor to help find ways to reduce the amounts you owe as quickly as possible. It’s best to reduce or even eliminate debt before you stop working.

  1. Are my Retirement Savings on Track to Achieve my Goals?

Ensuring that you are keeping close track of your retirement savings plan is probably the most important thing to do – you won’t be able to retire as planned if you haven’t been saving enough money. As such, you must ask your advisor if the amounts you’re currently saving are sufficient or if any changes will need to be made to achieve your retirement goal. It’s also important to know how much interest your savings are accruing over time from compounding interest. 

  1. What Percentage of my Current Income can be Replaced when I Retire?

Most individuals have spent a few years or even decades earning a fixed paycheck, so it’s recommended that you ask your advisor if this will be changing after you’re no longer working. An adjustment to your income is serious business, so it’s important that you be prepared for when it happens. However, any reliable advisor will be able to let you know what your approximate income will be when you retire

  1. At what Age should I Take Social Security?

Knowing what it’s the right time to take Social Security forms an important part of a good retirement plan, and being aware of just how long to delay taking it will enable you to get the best benefit possible. Taking Social Security too early will have a negative effect on your retirement finances. 

  1. What Age will I Qualify for Medicare?

One of the biggest costs to take into consideration when doing retirement planning is health care. Although Medicare was established to help retired individuals cover medical bills, you’ll need to discuss with your financial advisor when the best time will be to sign up for it. 

Asking these questions will help ensure that you get the most out of an appointment with your financial advisor. These professionals address all aspects relating to retirement, so they form an essential part of your planning process. If you would like to learn more about being able to afford to retire comfortably, contact our team today.

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