I hope you enjoyed your President’s Day holiday yesterday. If you were not off, it’s OK – you worked for the rest of us. Consider this –
“Investors like to get rich quick, like to gamble and have too much faith in their own analysis, so stocks that look like lottery tickets are particularly appealing.”
It’s a quote in one of today’s WSJ articles, Kraft-Unilever Deal Is Off, but Warren Buffett’s Anomalies Live On. The quote reminds me of how our own human behavior can sometimes make us the worst investors. But, there’s hope – if you can be aware of your human biases, you can try and position yourself to be a good investor, like Buffett.
I say this to you because you might be preparing for a windfall of cash to hit your account, or you’re sitting on it already, from a tax refund or bonus from your job.
Before you go and plop all of your money into the market, here’s a few things to remember:
- Determine whether it’s best to pay down debt, invest, spend, or save. I know this seems like a tough action, but you can do it. Ask yourself what your number one priority is? If you have high-interest rate debt, then paying it down should be a priority since it’s crippling your ability to do much else. Put at least a little dent in the debt nugget if your interest rate is greater than 6-8%. I choose this range because it’s hard to find a return on your investments higher than this range over prolonged periods of time. As such, if you choose to invest the money instead, and only earn 5%, the cost of your debt is higher than this, which means that all of your investing gains will be eaten up by the debt payment.
- Take your time. Many people feel as if they have to go out and use their windfall of cash right away. We often infuse our own arbitrary dates to take action, but I recommend spending some time to truly think about all of the wonderful possibilities. If you need a few more smart ideas to do with your money, check out this Kiplinger’s article on “10 Smart Uses for Your Tax Refund.”
- Talk it up. Often you are thinking about your situation in your head. Talk to someone you trust, and who knows a little something about money matters. This could be your financial advisor or a friend/family member who acts smartly with their money. By discussing your situation and desires with your pot of cash, you’ll be surprised what other ideas might arise. Furthermore, you can contemplate the benefits and costs of your actions.
- Indulge in spending GUILT-FREE. If you want to spend your money on something you’ve been saving up for, go do it. Just remember – the best money spent is that which is guilt-free.
I’m looking forward to hearing about what you are doing with your potential extra cash. Leave a comment on my blog and let other members know how you’re planning to use your money.
It was 70 degrees in Chicago this past weekend, so I got outside a lot. I hope the sun shined on your this weekend too. Have a great week!