Wondering what to do with that extra $1,400.00; are you wondering what you should do with a windfall? Want to know the power of that little check and how it can transform your child’s entire life, entire future? Read below to find out how that little $1,400.00 windfall can drastically change your family tree and turn you into a genius millionaire.
Hey LOYAL READERS! Today we have a great treat! My dad has volunteered to share some of his wisdom, wit, and cynicism. If you know me at all, or have been reading my posts, you will likely find plenty of quotes from my dad along the way!
He is passionate about money, retirement, and wise financial decisions especially when it comes to his kids! So, when I asked him to tell me the power of just $1,400.00 for my kids, he responded with a country song and an article! So, what is the power of $1,400? How can you be a part of changing your chid’s future forever? Check out his thoughts below!!
I COULD BUY ME A BOAT
Chris Janson’s country song, I Could Buy Me A Boat, laments that “he ain’t rich but that he wishes he had a rich uncle who would kick the bucket so that he’d be sitting on a pile like Warren Buffet.”
He goes on to say that he knows “money is the root of all kinds of evil, and you can’t fit a camel through the eye of a needle, but it could buy him a boat.”
Sure, money is the root of all sorts of evil, and it can’t buy happiness, but it can buy an awful lot of peace of mind and freedom.
YOU COULD BUY A BOAT OR YOU COULD CHANGE YOUR FAMILY FOREVER
Over the course of the last year, many people, and probably you included, have received additional stimulus, tax, or unemployment checks. While, some people desperately need those checks, others might not need them for their daily livelihood.
Nevertheless some of you received windfalls and don’t quite know what to do with it. What is a windfall? In the old days it referred to nuts or fruit being blown from trees so you could easily pick up the riches with little work.
So, this easy gain leaves you wondering what to do with this money? You could, like Chris Janson suggests, “buy you a boat”, or car, or couch, or tv, or one hundred other things that you might enjoy for a season.
Or, you might play the long game and use it as a jump start to becoming wealthy and changing your family’s legacy. Better yet, you might even use it as a way to make sure that your children are on their way to becoming wealthy!
WHAT TO DO WITH A WINDFALL
As you have likely already read, our family ascribes to the Dave Ramsey way of thinking about money. Thus, we believe that you should follow 7 basic steps to build wealth and freedom in your life.
1. First, set aside $1,000 in a temporary emergency fund.
2. Second, use the debt snowball to wipe out all of your debt forever, never to return. (To read more about how I used the debt snowball to banish more than $50,000 in debt, click here.) Remember, so long as you are in debt: The debtor is slave to the lender (Proverbs 22:7)
3. Build up 3-6 months of expenses into an emergency fund.
4. Invest 15% of your income into retirement.
5. Pay down your mortgage.
6. Save for your children’s college.
7. Live and give like no one else!
For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs. 1 Timothy 6:10
A good person leaves an inheritance for their children’s children, but a sinner’s wealth is stored up for the righteous. (Proverbs 13:22)
THE BABY STEPS
Let’s talk more about some of these baby steps and what you should do before you spend that windfall!
Emergency fund:
If you haven’t already saved it, then that $1,400 should go directly to the bank to fund your first temporary emergency fund of $1,000, and the rest should go to debt. We have all had those surprises when a tire blew out, or an unexpected medical expense that you didn’t have the money to pay for.
Instead of paying cash, you put it on a credit card, borrowed from friends or family, or horror of horrors, took a payday loan. Having that $1000 in the bank is a hedge against bad decisions. Only use it for emergencies, and if you use it, build it back up.
Pay all off debt
After filling up that temporary emergency fund, then use that money, and every other bit of spare cash, to pay down debt. No matter what “the money people” say.
Having amputated my debt myself, I can very honestly say that you will never believe the feeling you get when you don’t owe anyone any money. Sure, you aren’t making interest on your borrowed cash, but what’s yours is yours. The weight is lifted, and even your mind will feel so much better.
When you are out of debt, the money you make is your own –not the bank’s/credit card company’s/lender’s. Debt is more than math; it is psychological. Pay down all debt except your mortgage in baby step 2.
Save 3-6 Months of an Emergency Fund
This year, better than most, has taught many people about the value of a healthy rainy day fund. Millions of people have lost their jobs or at a minimum, reduced their incomes.
Those setbacks are the reasons for the stimulus checks. Not enough people had money in the bank to hedge against rainy days…or better yet…monsoons.
Baby step 3 is to save 3-6 months of expenses in a separate account for days/months/years such as 2020. To read more about my baby step 3 journey, read here.
THE POWER OF $1,400.00, AND WHAT YOU SHOULD DO WITH A WINDFALL.
If you have already completed baby steps 1, 2, and 3, then let’s divert and consider what the best use of $1,400 might be for you. Let’s talk about using that $1,400 windfall for investing in your children.
The Power of a $1,400 windfall in your child’s education.
Even Dave Ramsey and the Ramsey personalities will agree that one of the best things you could do for your children is to invest in their education. Provide them with trade or education that allows them to become independent and prosperous.
Helping them get a marketable skill or education without going into debt is one of the most financially important things that you can do for them.
Now, the average cost of even in-state tuition in 2021 is estimated to be more than $40,000 for 4 years of school. Vanguard estimates that if you have a baby this year, you can expect to pay at least double that for in-state tuition in 2039.
When you look at those projections and $1,400, you might believe that this money is insignificant. But never underestimate the power of compounding interest!
If you take that $1,400 alone, invest it in a good market fund over 18 years in an ESA, and never add another dime to it, you can still have more than $5,000 at the end of 18 years.
Better than a poke in the eye, this $5,000 investment could pay for your child’s first semester, books for all 4 years, or even some living expenses. This sounds a whole lot better than the $0.00 you are projecting right now. (1)
If you add only $50.00 per month to that $1,400 for the next 18 years, your child may have a college savings account worth more than $30,000. Now, your child has most of his or her college paid for simply because you deferred a small amount of pleasure.
What if you took the entire $5,000.00 for college savings?
But, suppose you (on behalf of your entire family) received $5000 from this stimulus package or from all three of the stimulus packages combined. If you invest that money in a good S&P 500 market fund in a 529 ,growing tax free, for just 15 years, you could fund your child’s entire college education.
The S&P 500 has made right at 12% a year over the last 30 years. If you were to get a conservative 9% return and added 50 dollars a month to that fund, you could have $38,110.00 at the end of those 15 years in your child’s ESA and never have to pay tax on it. With just the measly $5,000 stimulus checks and $50.00 per month.
What a tremendous gift and blessing it would be to present your child with more than $38,000 in college savings upon graduation!!! The Power of $1,400 in your child’s retirement.
However, suppose you weren’t worried about education, already paid for it, or your child is already through college. Suppose instead that you use just $1,400 to boost your or your child’s retirement.
The Power of $1,400 in your child’s retirement.
If you put only $10,000.00 in your own Roth IRA.at the same savings rate as above, but added only $130.00 a month, you could be on your way to becoming a millionaire.
If, say, you are only 35 years old and have never saved anything else or added anything else to the numbers above, by the time you reached retirement age you could have added only about $50,000 in contributions, but you would have more than $450,000 in your retirement account.
Further, if you were to take that same $10,000 and never add anything to it, your child could have $3,000,000.00 in her retirement fund as it grows over 65 years.
Yes, you read that right. $10,000 invested in a conservative fund with a long track record, could yield THREE MILLION DOLLARS for your child by the time she retires around 65.
Your Financial Legacy Will Be Reflected In Your Children
Consider taking your $1,400, your $5,000, or your collective $10,000 and changing your family forever. Just a little investment and deferred gratification can make you or your children millionaires. Choosing what to do with that little windfall could drastically change your and your children’s lives.
Just putting that $5,000.00 into your child’s account for forty years still yields a conservative $593,239. If you had that much money in your account today, don’t tell me that you wouldn’t enjoy it, appreciate it, or have a more peaceful family life because of it.
The power of that $1,400 check and its stimulus brothers and sisters is to buy a boat, a tv, or to change your family’s legacy forever.
So, your decision: build generational wealth and freedom, OR you could buy you a boat.
(1) https://www.daveramsey.com/smartvestor/investment-calculator
