Extra $ - What would you do?
Find a Conversation
| Mon, 03-07-2005 - 7:07pm |
Hi all! I have posted here a few times and you are all so helpful!
I didn't make very much last year, and only got about $400 in tax return.
My question is, what to do with it?
The only debt I have left is my school loans. (About $27K ish)
My monthly bills are current, but I don't make much money and I live paycheck to paycheck, sometimes paying my bills a week later than they're due, etc. What I am saying is, even though I am "current", it is still TIGHT.
So, my three ideas for this "extra" $400:
1) Put it in checking account and use it pay bills on time comfortably each month until it runs out. (But I'd be scared I'd spend it on other things!)
2) Put all of it on school loan.
3) Pay a bill in advance, like car insurance. Then just pay my bills month to month, but have one less bill to pay for several months.
I am leaning towards 1 or 3. I know I should chip away at my debt, but a one-time payment of $400 isn't going to reduce it by much. It wouldn't be an *ongoing* overpayment that would reduce it, KWIM? I know every little bit helps, but I think being more comfortable month to month would make me feel better.
So, what would you all do? (A couple years ago, I got almost $4,000 back!!! Those were the days..
~ Kiya

I agree with Mattgirl.
MYM
#3 sounds like a viable option, and if you're happy with that, then go for it.
Another option would be to use it to jumpstart a new plan that will give you a long-term reprieve from the "just making it" scenario.
I once read (I think it was Mary Hunt) that everyone has a financial comfort zone sort of like the time comfort zone (yes, this actually has a point, I'll get there eventually, LOL). Think of it this way: We all have friends who are always 15 minutes late, no matter what time you tell them to arrive--the friends that are told an earlier arrival time than everyone else, because you know they're going to be there fifteen minutes after they are told to arrive. Even when the time changes and they get a "free" hour, they are still 15 minutes behind. Well, that fifteen minutes late is their comfort zone.
In the same way, some people have a $1000 savings account and that is their comfort zone. If they get extra money, they spend it. If they have to use part of their savings, they replenish it before they start spending again. Others may have a $1000 debt comfort zone. Many of us start our journeys with a much deeper debt comfort zone--once our debt is reduced to whatever amount we are comfortable with, we start spending again.
But the trick to living comfortably instead of paycheck to paycheck, is to change our comfort zone. And the only way I know to do that is to start tracking spending, and to set spending allowances for different categories.
It's pretty time consuming at first, but here's something you can do to start moving permanently away from that brink. Sit down with your accounts for the past twelve to twenty-four months. Figure out how much you spent on, for instance, car maintenance and repairs. Divide it by the number of months, so you have an average over that many months. Do the same for every category of spending--power bills, gasoline, clothes, groceries, etc.
Now set up a budget that includes that average amount for each category. In any month where you do not spend the full amount, put the difference in a savings account (I use ING Direct, which has a great interest rate, and also allows you to have as many accounts as you want and give them all nicknames--I have about twenty, with names like "contingency," "auto," "work clothes," "child #1 birthday," "Christmas," "Vacation," "Homeowner's Association," etc.).
You can then use the $400 to get current on your bills so that you can begin to do this. Once you are current and begin setting aside the same amount each month for each category, you will begin to build yourself a comfortable buffer that stops you from always being on the edge. The more it builds, the more you'll get used to that level of comfort, and the less tempted you'll be to spend money just because you have it.
If you discover that your total monthly average expenditure is more than your monthly income, you may have to cut back on some categories. Groceries are usually a good candidate for this. At any rate, it's better to know now when you can do something about it than to find out in a month where you have enormous expenditures that you don't have money to pay for.
On the other hand, you may discover that your average monthly expenditure is less than your monthly income. In that happy event, you can then budget a small (or large) amount to go directly into a "contingency" fund. This is the fund that you leave alone and don't ever touch except in dire emergency--lost job, for instance, or expensive and debilitating illness. This is another way to pull yourself back from the brink and start building a comfortable buffer.
And if it's all built into your monthly budget, you won't be as tempted to spend more money when you have it, and you won't have to stress out in the months when your expenses are higher, because you'll already have the money set aside for it.
Good luck with whatever you decide. A little extra cash is a nice thing, and a benefit as long as you don't just fritter it away. Any of the three things you suggest seem like a good investment to me.
Blessings,
Heather
Thank you all for the responses. I really appreciate it!
Heather ~ I liked your suggestion a lot, and that is something I am working on. I am current with my monthly bills, and my income is more than my expenses, but not by much! I am going to work on a budget, but it is so overwhelming! My only debt right now is my school loans, like I said, and I want to work more on my "comfort zone" like you said, before I start paying extra on those. I have $25 in savings and that's IT! No 401k, nothing! So, I want to start saving, but for now, I just want to pay my monthly bills on time!
So, with the extra money, I decided to pay the rest of the bills that are due this month (I had 2 more to go, neither of which were late) and I also paid a couple bills due next month. That way I am done for the month of March and already have a couple paid for April, so whatever money is left next month due to the absence of those bills will go to savings, and it gives me 3ish weeks to start working on a budget. :)
The checks have all been written, signed and sealed (delivered tomorrow) so the money is all accounted for and spent already. :)
Thanks again for the suggestions!
~ Kiya
I would do #3. Sounds like a good plan. :-D
Pat