Budgets and Planning

Uncommon Sense: Some Money Rules That Might Surprise You

By Candace Bahr, CEA, CDFA and Ginita Wall, CPA, CFP

Most money wisdom is pretty straightforward. You simply have to use your common sense to figure out that it’s good to save for a rainy day, spend wisely on things you really need, and keep a hopeful outlook for your financial future.

Sometimes, though, a money rule comes along that calls upon your “uncommon sense” and requires you to look a little deeper to see the sound wisdom it carries. Let’s take a look at a few important ones that start out sounding puzzling and contradictory:

1. When the stock market goes down, it’s a good thing.
   If you have money to invest and at least ten years before you need your money, a drop in the market can actually increase your holdings.  By investing a set amount of money each month (called dollar cost averaging), you acquire more shares when the price is low and fewer when the price is higher. The result is a lower cost per share than if you bought a set number of shares each month. And you won’t have to guess which way the market will shift or decide when to buy or sell.
   
   
2. Getting a big tax refund each year is not a good money strategy
   If you look forward to a tax refund each year, you are missing an opportunity to benefit from your own hard-earned dollars. Instead, you are merely giving the IRS an interest-free loan until tax time. You can adjust the amount you pay the IRS during the year by changing the withholding on your W-4 form if you are an employee or adjusting your quarterly estimated tax payments if you are self-employed. Put the extra money you would have given the IRS each month into savings and earn some interest that is yours to keep!
   
   
3. Rushing to pay off credit card debt may set you back financially
   In some cases, it may not be your best financial move to put all your resources toward paying off credit card debt. If you have debt on a no-interest or low-interest credit card, you might be better off putting money away in a 401(k) account with a company match first. Contributing to a 401(k) can reduce your income taxes and the matching funds you receive are free money for your retirement savings.

Using your “uncommon sense” for money management simply means figuring out what the real bottom line is for your dollars.

Financial Freedom: At WIFE we welcome your comments. Please feel free to contact us.

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