The news media is reporting that in January 2018, many Americans will be seeing a larger amount of money in their paychecks. This is due to a decrease in the tax withholding that Payroll Departments employ on behalf of Federal and State governments.
Three possible Wealth Building Impacts:
- Unconscious Increase in Spending – In my experience as a human being (and as a financial advisor) extra money in ones checking account is similar to spilled water on pavement at noontime in July. It evaporates quickly. Wealth Building Impact: Zero.
- Conscious Increase in Spending – A family that is already saving 20% of their gross income. After working with a tax professional, they make the decision that you will use the extra money to increase your lifestyle. The key here is intention and that you make this decision as you’d make any other important decision in your household. After all, the tax break given in 2017 could be the tax break taken away in 2021. Wealth Building Impact: Zero.
- Increase Your Savings – Many families struggle to save the 20% of their gross income towards long-term Wealth Building. Especially in the DC Metro area that are living in one of THE most expensive place to live in the U.S.A.(1) For those receiving a tax-break, an easy, pain-free way to increase your savings this year is to redirect the extra funds into long-term Wealth Building. Wealth Building Impact: GAIN!
Families that are leaning towards #3, my recommendation is that you capture that cash flow immediately before it evaporates. Families that have access to a 401(k) plan can easily capture the extra cash flow by increasing their contribution by 2%.
Why the 401(k)? From purely a Cash Flow Management standpoint, it directs the cash flow towards an accumulation bucket and away from the spending bucket. Then, schedule time to determine the best long-term place for those funds. If you determine the 401(k) isn’t optimal for the newly found cash flow, its easy enough to redirect somewhere else.
Need help with your Cash Flow Plan? Please contact my office today by clicking the link here and I’d be happy to meet you either in-person or via a Web Conference to assist you.
Thank you for reading.
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1) DC Metro Area - 10 Most Expensive Places to Live
https://www.marketwatch.com/story/10-most-expensive-places-to-raise-a-family-in-the-us-2015-08-26