Ben Kirchner, AAMS© / Financial Advisor
It’s that time of year where you might have found yourself with some unexpected or additional income. While you may receive a bonus at any time throughout the year, now is the most common time when questions roll in about what to do with that money. Questions like: Do I pay down debt first? Do I save it for a family vacation? Do I spend it? Do I put it into my retirement savings?
All these questions can be answered beforehand with a concept we call the Windfall Plan. So that by the time you get your bonus, you've already got a dispersion method in mind.
What it really comes down to is figuring out the percentages of dispersion. Here’s an example:
There are three different categories of places your money could go with assigned percentages that make up the entirety of that bonus cash. Spending, debt, and savings.
In the example above, we would allot 15% to spending, 25% to debt, and 60% to savings.
Let’s say, your bonus is $15,000:
15% or $2,250 would go towards spending.
This could be vacation or just general lifestyle spending money.
25% or $3,750 would go towards paying down debt.
If there’s one thing doctors are all too familiar with, and that is debt! Student loans, real estate, and owning your own practice can saddle you with all sorts of debt. When some additional cash comes around, we absolutely want to utilize that to keep our interest burden lower and take a chunk out of some of our principals.
The exception to this rule here would be high interest debt.
60% or $9,000 would go toward savings.
In a well-built financial plan, you should already be saving a certain amount monthly; this is just the irregular payments you're getting–the things that are outside of your normal day-to-day expenses.
If you’d like an individualized Windfall Plan or need help dividing up the savings portion, we can certainly help you decide what is best for you. Having a plan with determined percentage breakdowns, means you don't have to put more brain power into decision-making.
We hope this helps to provide more efficiency in your life, so you can spend more time on what really matters to you.
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Ben Kirchner, AAMS© / Financial Advisor
After starting his career at two Fortune 100 companies, Ben joined MD Financial in May of 2018. Ben advises over a hundred doctor households, helping them achieve their financial goals. He is passionate about serving. Ben enjoys making sure all of our doctors thrive financially and have a great experience every step of the way. He can be reached at Ben@mdfinancialadvisors.com.