19 Prudent Uses of $1000 and Choosing Between Them

October 12, 2010
300px Assorted United States coins 19 Prudent Uses of $1000 and Choosing Between Them

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I recently spotted an interesting question on Yahoo! Answers:  With an extra $1,000, should one hire an estate planning attorney or a financial planner?  This post will borrow from both disciplines to provide more specificity regarding many ways you can either begin to build or add to your solid financial foundation.

To properly answer, we must consider that financial and estate planning are not necessarily mutually exclusive of one another.  Instead, financial planning can generally be viewed as a compendium of five broad topics:  Investments, Insurance, Taxes, Retirement, and, our specialty, Estate Planning.

For general financial health, certain basic strategies should be implemented in each of these five areas before moving into anything more complex.  For example, setting up a dynasty trust before, say, buying auto insurance is not recommended since a car accident could greatly reduce the funds available for the trust.

Therefore, the proper answer to the Yahoo question should be more based on what is already in place rather than on which process should be deemed “more important”.

Below, we list no less than 19 ways to apply an extra $1000.  The first 12 are foundational strategies upon which you should build your financial and estate plans.  The next four are based around important personal decisions you might make.  The final three involve hiring professionals to help you choose from and implement all the other choices:

Foundational Strategies:

Investments

  • Pay Down Debt – limit consumer debt and instead use tax-deductible sources
  • Emergency Fund – several months expenses set aside in a liquid account
  • Put Into  Savings for Future Goal – such as education, a down payment, etc.
  • Diversify Investments – invest with short, medium and long term goals in mind

Insurance

  • Buy Life Insurance – enough to cover your most important priorities
  • Get Other Coverage – look to insure home, car, health and potential disability

Taxes

  • Make Charitable Donation – the more taxes you save, the more you can give
  • Pay Additional Creditable or Deductible Expenses

Retirement

  • Add to Retirement Plan – maximize funding for highest tax savings
  • Set Up and Fund Personal IRA­ – as a backup plan or for further tax savings

Estate Planning

  • Get or Update Will or Trust
  • Get Ancillary Documents – Powers of Attorney, Advance Medical Directives, etc.

Other Options:

  • Recreation
  • Gifting
  • Familial or Other Obligations
  • Start a Business

Professional Options:

  • Hire a Financial Planner – The financial planner is basically the generalist who balances your needs and goals and educates you about ways to fulfill them.  However, you must monitor and implement the planner’s recommendations, or your money and the effort will be wasted.  Additionally, implementation usually results in having to hire other professionals, since most financial planners cannot draft estate planning documents or prepare tax returns.
  • Hire an Estate Planning Attorney – As discussed throughout this blog, the lawyer is more of a specialist in estates and potentially taxes as well.  Your estate plan must be monitored and revised when necessary due to changes in life or in the law.  Most attorneys do not sell investments or insurance products, but may be qualified to recommend appropriate options.
  • Hire an Accountant – The accountant is mainly a tax specialist, but more and more are becoming lawyers and/or financial advisors as well.

Which of the 19 options is best for you?  This obviously depends on what you already have in place, but for simplicity’s sake, you might simply choose the individual item(s) that gave you the most powerful emotional response.

 19 Prudent Uses of $1000 and Choosing Between Them
 19 Prudent Uses of $1000 and Choosing Between Them

Scott

Scott R. Zucker, Esq. is the owner of The Zucker Law Firm PLLC, located just outside the Capital Beltway in Annandale, within five miles of the City of Fairfax, the county seat of beautiful Fairfax County, Virginia. The firm focuses mainly on estate planning services for Virginia, Maryland and Pennsylvania clientele, and seeks to do so in an affordable and approachable way. People interested in learning more can contact Scott by phone or email.

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6 Responses to 19 Prudent Uses of $1000 and Choosing Between Them

  1. October 14, 2010 at 11:41 am

    This is a very well-done article. Most articles on the subject preach about do-it-yourself estate planning, which is never advisable.

    I agree that a team of professionals (attorney, financial planner, accountant, etc…) is best to work out an estate plan. Estate plans are not static, the requirements change on a fairly regular basis.

    • Scott
      October 16, 2010 at 8:34 am

      Mr. Proy–

      What a good point about estate plans being dynamic. I wonder how many plans will need to be changed if Congress makes a decision about the estate tax and exemption.

      In addition, may more and more people see the benefits of hiring a team to help their financial health without succumbing to ad hominem attacks on professionals!

      Thank you for your comments!

      –Scott

      Mr. Proy is a distinguished estate planning and small business attorney working for clients in Baltimore and its surrounding counties. I am honored by him taking the time to comment here. Check out his site by clicking on his “Baltimore Estate Planning Lawyer” ID above or here.

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