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10 Smart Ways to Deploy Your Extra Cash

By U.S. News & World Report

There are so many bad ways to use your money. However, what if you have made the responsible decision to handle your money wisely? Where should the next dollar of free cash flow be deployed? Should it be used for savings, paying down debt, saving for retirement or helping your kids go to college? Here is checklist to help you determine where your next dollar should go.

[Read: How to Balance Retirement Saving With Other Financial Goals.]

Take care of immediate needs. You first need to ensure that you are on stable ground for surprises. You need to make sure that, at a minimum, you have $1,000 readily available in emergency reserves. After the $1,000, you want to make sure that you can cover your insurance deductibles. Insurance on your house, car and health usually requires that you pay a base deductible before the insurance company starts pitching in and paying. After that, you want to make sure you have saved three to six months of living expenses. It is important to build up enough rainy-day funds to protect you from the impact of losing your job. If you’re trying to determine where you fall in the range between three to six months, do a quick career analysis to estimate how long it would take to find another job. Other factors to consider are whether you are a two-income household, what variables exist in your monthly budget and what your risk tolerance is.

Credit card debt. When you don’t pay off your credit card each month, you are making the banks smile from ear to ear. It is not surprising to see interest rates on consumer credit cards at 15 percent or higher. Their fees and interest rates are devastating to your ability to build financial independence. If you struggle with paying off the credit cards monthly, you may need the help of a debt specialist.

Build financial independence. There is no better time to start planning than today, and your older self will be thankful for your current sacrifice as you live the life you have worked so hard for.

Take advantage of your employer match. How many opportunities do you get to make 100 percent on your money? This is what happens inside your retirement plan if your employer offers a match. It is “free money,” and, in most circumstances, it is crazy to walk away from it.

Roth contributions. Keeping with the concept of “free” … how about tax-free growth? This is what you get with Roth IRAs or the Roth option in your employer-provided 401(k) or 403(b). The only negative to Roth accounts is that you do not receive a tax deduction for contributions this year, but if you consider the power of tax-free compounding interest, that is a small price to pay for such a big benefit. Imagine investing $10,000 in an S&P 500 index fund in your 20s that potentially could be worth over $60,000 at retirement. That $50,000 of growth will be tax-free within the Roth account, assuming you are over 59 1/2 when you want to access the assets. Currently, you’re allowed to save $5,500 a year in a Roth IRA if you’re under 50, and $6,500 a year if you’re over 50. Employer-provided Roth accounts have substantially higher limits at $18,000 for those under 50 and $24,000 for anyone over 50.

[Read: The 7 Best Tax-Advantaged Accounts for Retirement Savings.]

Debt prepayment. Debt, by its very nature, is an obligation, and a large part of financial independence is being free to live your life unencumbered and on your own terms. There is a tremendous psychological benefit when you know that you own your life. To help with the decision of when to accelerate payments on tax-favored debt (such as mortgage and student loans), make sure that you first have a healthy retirement savings strategy. You can consider paying down these long-term debts early once you are comfortably allocating 15 to 20 percent of your gross income to long-term savings and investments.

Aspirational goals. Once the basics are covered, it is time to lay the groundwork and plan for your financial empire. These are the behaviors that will not only help build a great life and financial independence, but also help you fund your favorite organizations and charities and set up the next generation of your family.

Max out retirement accounts. In 2017, salary deferrals are capped at $18,000 in 401(k)s and 403(b)s for those under 50, with a $6,000 catch-up contribution for those over 50. However, if you are self-employed or work at a business with a profit-sharing structure, the total contribution limit for both the employee and employer explodes up to $54,000 for those under 50 and $60,000 for those over 50. These savings levels may be a dream for most, but they can be included as an aspirational goal.

Funding education for family members. There is an entire industry set up to help students fund educational goals with scholarships, grants and student loans. Unfortunately, there is no such thing as a retirement or financial-independence scholarship. Make sure you have your financial household in order before jumping to fund a child’s college education. The best long-term gift you can provide them is to be self-sufficient.

[Read: How to Prioritize Retirement Versus College Savings.]

Setting up charitable giving accounts. Technology has made the job of being generous much easier. In the past, only the rich could take advantage of complicated foundations and other structures that would fund their favorite charities and provide them with a tax benefit. Now, with a minimum of $5,000, you can open a charitable account with Fidelity or Schwab that will allow you to donate cash or appreciated assets and make charitable requests as small as $50 to just about any 501(c)(3) public charity.

Going through the exercise of creating a plan and thinking about the future is, unfortunately, unique in our society. By following this list of funding priorities, you will be well on the road to creating a fulfilling life, both financially and through the peace of mind it creates for you and your family. The road map for the adage of “living like no one else so you can live like no one else” is found throughout this list. If you focus on where that next dollar should go, you will be amazed as you watch your financial empire grow.

Brian Preston and Bo Hanson are fee-only financial planners who host the podcast “The Money-Guy Show“.

More from U.S. News

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10 Ways to Get Ready for Retirement After Age 50

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10 Smart Ways to Deploy Your Extra Cash originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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