Consider What To Do With Extra Money - Information From American Financial Resources

It can take considerable effort to live beneath ones means, or to spend less than you make, but this is crucial for building wealth. Most Americans have something they want to save for, be it a rainy day, retirement, a vacation, next year's holiday gifts, or a child's education (maybe even all of these!) The tough part can be deciding how to allocate the funds left over each month after all the bills are paid and essentials are purchased. Should that extra money be saved? Should it be invested? Should it be used to pay down debt? The answer is extremely personal and no one can make this decision for you, but here are some factors to look at.

A few things to think about when deciding how to use extra money.

• Interest rate paid or earned - It is important to look at the interest rate you are currently paying on outstanding debt and the rate of return you are likely to see on savings or investments. Any extremely high interest rate debts such as credit cards are good candidates to be a top priority for available funds. Eliminating those interest charges as soon as possible will have a dramatic impact on your future net worth. Most savings accounts currently pay very low interest rates (disclosed as Annual Percentage Yield or APY). Putting money in CDs, the stock market, or other investments is likely to yield a higher rate of return.
• When you may need access to the money - Whenever possible you should keep three to six month's worth of expenses relatively easily accessible in the event of a job loss, illness, or other large expense. You might prioritize paying down high interest rate debt, but ideally you will have access to additional credit if needed. If you have had credit issues it might be tough to get a home equity line or credit card if needed for unexpected expenses such as a major home or auto repair. If you are using a credit account as your rainy day backup plan it is smart to have 2 open accounts in case one is closed by the credit holder (which can happen even if your account is in good standing). If you are saving for something that is several years in the future investing might be your best bet.
• Risk Level - In general the greater the risk, the greater the potential for reward - you have to decide what level you are most comfortable with. When paying down debt you know exactly what your return will be - you can simply calculate the savings over time of not having to make those additional interest payments. Though you are not seeing your bank account balance grow immediately you are impacting your overall wealth by decreasing your liabilities. Savings accounts offer a very low rates of return but little risk (make sure you are depositing with an FDIC insured institutions, and talk to a banker if your account goes above the insurance limit.) Investments have a wide variety of risk and no one can promise a specific return. You can look at the historical performance of the investment you are considering and discuss options with a broker or financial advisor you trust to help figure out what makes the most sense for you. When you do invest it is important to have a diverse assortment of investments so that your net worth is not dependent on only one market or industry.

Whether you plan to use extra money each month to save, pay down debt, invest, or some combination of the three let American Financial Resources see if we can save you money each month on your mortgage payment by refinancing. Give us a call at 800-316-9508, request a quote for current mortgage rates, or get started online.

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