January 24, 2019
Did you land a year-end bonus? Even better, a nice raise? Or, perhaps you’ve been working a side gig and have some extra income to put to work? Also, I know many of you will soon be receiving big federal tax returns.
Without a game plan for how to make the most of a cash windfall, you run the risk of just spending it on whatever. Then, you end up frustrated with woulda/coulda/shoulda regrets.
To make the most of a cash windfall, I want you to devise a long-term plan for how you will always handle extra income.
In addition to using any cash windfall to jumpstart your savings, I also want you to set up an automatic monthly deposit from your checking account into your emergency savings account. It’s free to do this, and it is the best way to stay committed to building this foundation of your financial security. How much you save each month is your call. I will tell you that when you get as much pleasure from saving as you do spending, you will be on the road to lasting financial wealth. I hope that helps push you to save more.
If you have a workplace retirement plan that includes a matching contribution from your employer, that’s the best, first place to save for retirement. And if your workplace plan offers a Roth 401(k), I strongly recommend you consider using it, rather than a Traditional IRA. You know how much I love Roth IRAs…well, Roth 401(k)s are even better because you can save more. In 2019, anyone under the age of 50 can save $19,000 in a 401(k); the limit is $25,000 if you’re at least 50 years old. And there’s no income limit on who can save in a Roth 401(k). Everyone is eligible.
If your workplace plan doesn’t include a Roth 401(k), it still makes sense to contribute to the Traditional 401(k) up to the point of the match. Then do more retirement saving in a Roth IRA. You can contribute $6,000 this year ($7,000 if you are at least 50 years old).
If you are single and have income below $122,000 or married with joint income below $193,000, you can contribute the maximum in a Roth IRA this year.