Many people practice what is called mental accounting when dealing with cash from different sources. Mental accounting is the tendency to regard money differently based on where it came from. For example, are you more likely to squander a cash windfall from a work bonus or a lottery ticket? The following are tips to help you think more prudently about your assets, regardless of their source.1
- Set up a strategic allocation plan for all income sources (e.g., half for necessary expenses, a quarter for savings and a quarter for discretionary spending).
- An unexpected windfall can be divided similarly, saving the necessary expense portion for a periodic bill such as property taxes.
- Instead of using a cash windfall for an impulsive indulgence, apply it to a planned indulgence, such as a vacation.
- When it comes to savings, seek to max out all of your tax-advantaged accounts each year — making them a great receptacle for excess discretionary income.
At Safe Harbor Financial, we’re committed to helping pre-retirees and retirees do the planning that helps them optimize their retirement portfolios. And that can mean taking small steps now to make that happen. We offer a complimentary consultation in our office with the Jim Byrd team, and also periodic dinner seminars, all designed to help ensure your retirement is the best it can be. Don’t wait. Email us today or call 251-625-1226.
1 Raymond James. 2019. “Are you paying too much attention to detail?” https://www.raymondjames.com/mind-matters/mental-accounting. Accessed Feb. 8, 2019.
Content provided for Safe Harbor Financial by Kara Stefan Communications.