If Trump Eliminates Income Taxes, Here Are 4 Things You Would Want To Do With Your Extra Money
Written by
Marc Guberti
Edited by
Amen Oyiboke
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President Trump has suggested that he wants to eliminate income taxes in favor of tariffs. Eliminating income taxes can provide a major windfall for Americans and make it easier to cover expenses. However, the only risk with keeping more of your money is succumbing to lifestyle creep.Â
If you continue to live in your current means while not having to pay any more federal income taxes, you can set yourself up for long-term wealth. These are some of the things you will want to do with your extra money to maximize its growth.
Pay Off High-Interest Debt
The first thing you should do with the extra money is pay off your high-interest debt. Credit card debt is notorious for high interest rates, and some people have more than 30% APR on their credit cards. Paying off these accounts first will minimize how much interest you owe.Â
However, you shouldn’t rush to pay off good debt, such as a mortgage, if you managed to secure it with a 3% APR before the pandemic. By eliminating bad debt, it becomes easier to build wealth since you won’t have to pay so much interest.
Put More Money Into Investments
After you have addressed debt with your tax savings, you should then focus on putting more money into investments. Stocks and crypto are some of the easiest assets to enter. However, some people may want to save up for a down payment on a real estate property.
Having extra income will make it easier to afford higher monthly mortgage payments. You can use this to your advantage and consider saving up for a rental property. The tenant can then pay rent each month to help you reach positive cash flow.
Build an Emergency Fund
If you don’t have an emergency fund that can cover 6-12 months of your expenses, now is a great time to get started. Not having to pay federal income taxes would make it easier for Americans to stock up.
You can save yourself time when building an emergency fund by searching for a high-yield savings account. Some of these bank accounts yield up to 4%. While you’ll still have to pay state income taxes on the interest, federal income taxes will no longer apply if Trump gets rid of income taxes.
Adjust Your Long-Term Financial Goals
If you don’t have to pay federal income taxes anymore, you will end up with a sizable income boost. The extra income can trigger lifestyle creep if you aren’t careful, but raising your long-term financial goals can keep that scenario at bay.
For instance, if you want to retire in 20 years, you can adjust your goal so that you can retire in 15 years. Reducing your target retirement age by 15 years means you have to invest more money into your portfolio each month. You also have to save more money and force yourself to become more financially disciplined.
Monitor How Your Tax Bill Changes
The government still needs money. If federal income taxes are eliminated, consumers may face a national sales tax or tariffs that increase the prices of goods and services.Â
In the long run, tariffs don’t have a 1-to-1 relationship in how much extra you pay. For instance, if the government imposes a 10% tariff, that doesn’t mean prices are guaranteed to go up by 10%. That’s because American consumers outspend other countries, making the U.S. consumer market too valuable for countries and companies to pass up.Â
Still, it’s important to see how your expenses change due to new policies. That way, you can gauge how much of your income you are keeping versus paying toward other taxes and adjust your spending accordingly.
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