Welcome to the 17th issue of Metrix that Matter, a weekly newsletter from WEALTHMETRIX that helps you focus on what matters most for building and sustaining wealth. Every Saturday, we share an educational essay with actionable takeaways to guide you on your journey to financial independence.
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What you’ll learn in this issue:
- Why a large amount of cash brings more questions than answers
- How to use the proceeds to take care of immediate & short-term needs
- How to use the proceeds for long-term goals
- The importance of maximizing this opportunity
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So, you just sold your house.
Shortly after, the title company wired you a large sum of money. Quite possibly the largest amount of cash you’ve ever seen in your bank account.
Suddenly, your financial situation feels completely different.
But now you face a new problem as you start experiencing conflicting feelings of excitement and fear, hope and anxiety.
Then the questions start rolling in.
What are we supposed to do with this money?
Go on vacation? Save it? Invest it?
You start asking people around you for help. What would your closest friends and family do with the money?
Before you know it, you have 10 different answers from 5 different people.
You’re back to square one wondering what to do.
These are all common questions and feelings people face after selling their home, especially if they aren’t planning to buy another one.
How do you confidently make decisions on what to do next with the money?
Focus on the present first
First and foremost, you need to carve out a healthy emergency fund of at least six months’ worth of expenses.
Spend $5K a month? You need a $30K emergency fund. Spend $10K a month? You need $60K.
Open a high-yield savings account and transfer the funds there. This is for two reasons.
First, you will earn more interest there than in a traditional brick-and-mortar bank.
Second, it puts a small barrier between your day-to-day money and your emergency fund, reducing the temptation to tap into it regularly. Transfers between banks can take a few business days, which is just enough of a barrier, while also keeping it easily accessible.
Next, you need to look at your remaining debts.
What percentage of your income is being used for debt payments? Considering you just sold your home, hopefully it’s a low number.
Regardless of the payment amount, if you have high-interest credit card debt, you need to prioritize paying that off as fast as possible.
If you have auto or student loans with competitive interest rates, you may not need to be as aggressive with your repayment plan.
Ultimately, you need to figure out if your debt payments are keeping you from saving and investing a healthy amount of your income. If so, wipe them out.
Next, look to the near future
Once you establish good cash savings and clear any high-interest debts, you now have a strong foundation to build from.
But before you get too aggressive, you need to consider any big short-term goals you have within the next three years.
Are you planning on buying a home again? If so, you’re going to need a significant down payment.
Are you planning to fund college education for your teenage children in the next few years?
Will you need to purchase a vehicle soon?
Figure out how much you will need for each goal and keep these funds in cash as well. You don’t want to risk losing money and potentially not being able to fund your goals just because you tried to earn a little more in the stock and bond markets.
Finally, look to your long-term future
After accommodating your immediate and short-term needs, you can start taking steps toward your long-term future.
Maybe that involves opening, funding, and/or increasing savings into retirement accounts.
Maybe that involves investing money outside of retirement accounts for added flexibility.
Maybe that means setting up college savings plans for your young children.
The answer is going to be different for each family based on their own situation and goals.
Make the most of this opportunity
Most importantly, be intentional with your money. Selling a home is likely one of the few times in your life where you will experience a significant infusion of cash in your bank account.
It’s easy to mindlessly spend the money little by little thinking you still have plenty left.
A vacation here. A renovation there. Before you know it, you end up with half of what you started with.
Take care of the big stuff first. Lay a solid foundation. Set yourself up for long-term success in the future.
Then have some fun with what’s left.
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READY TO IMPROVE YOUR FINANCES?
Thank you for reading. If you are ready to take the first step towards improving your finances, I invite you to click the link below to gain access to our financial planning tool, Elements.
After signing up, you will be guided through a series of basic questions about your income, spending, debt, and account values. Once complete, Elements will provide a snapshot of your current financial health, as shown below.
You will then have the opportunity to schedule a complimentary meeting with me (Zoom or in-office), where I will review your current situation and discuss a few ways to make improvements.
CHECK YOUR FINANCIAL HEALTH IN 10 MINUTES
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WEALTHMETRIX
https://www.mywealthmetrix.com/
(972) 267-7526
102 S. Goliad Street, Suite 101
Rockwall, TX 75087
16475 Dallas Parkway, Suite 840
Addison, TX 75001
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