Tuesday, March 30, 2010

What to do when you're New Money!

So, if you've already figured out what to do with your savings, and you're aware that you should pay yourself first. But the question is what to do when things get busy and you're already on automatic with your money?

Even the best plans need some occasional changes and tweaking. So, make sure that you're taking the opportunity to revamp your freedom fund and expense estimates each year. I find that the best time to do that is tax time.

This year, I reduced my additional increase from 3.0% to 2.0%. Inflation seems to be in check and fortunately, things seem to not be expected to change in the near term. So, I determined that I needed to save approximately an additional thousand dollars in my freedom fund in order to stay current.

Then I did something similar for my emergency fund (or e-fund as some like to call it). Once those two were satisfied, I had to decide what to do with any additional funds that I might have available. One option that many like to use is to finish up contributions to the ROTH. I have not maxed out my retirement accounts and there certainly could be no good argument against doing so.

Furthermore, I still have some student loan debt which could be paid off rather easily. However, I have a debt snowball on this debt and I didn't want to accelerate the payments further. So, instead, I opted for a taxable account invested in mutual funds at Vanguard. I've had good experiences so far and I chose a very low risk account and decided that this would be better long term than leaving it in a bank with a paltry 1.25 or so interest rate.

Along with the minimum to open the account based on that type of fund, I also set up a monthly automatic investment. I like the idea of this being automatic just like my 401k and Roth IRA so that there is no temptation to skip it some months. So far, I'm pleased with the dividends and since it is a relatively lower risk fund, I think that it will easily outpace my ING direct account...and for money that I can afford to take some risk with, that is not too bad.

What do you do when you come into new money at this point?
Would you ever forego retirement contributions with extra money?

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