What would you do if you found an extra $500 in your budget? I mean, after you dry your tears of joy and dance around the kitchen (quietly, though, there’s a baby). After my salary was slaughtered this year thanks to an unpaid maternity leave and a bizarrely written contract that landed me with a prorated income for the remainder of the school year, I thought I had a handle on our finances. I didn’t like our much more meager budget, but I understood it. More importantly, it worked. So now where do I put the extra money?
Where I Won’t Put It
While I may not know where to put this extra income yet, I certainly know where I won’t put it. In my closet. I have not–and will not–ever declared a formal shopping ban. But for the past three years, I have enacted a moratorium on clothes buying and bags and accessories and shoes. With the exception of a few things that wore out and I didn’t already own their duplicates, I haven’t bought much. That even includes ten months of pregnancy (40 weeks equals 10 months, I don’t care what the baby books say!) and another seven months of nursing where I sprang for maybe a dozen items total. As much as I would love it, there is no shopping spree in my future.
Other things I am also not doing with my dollars:
- Swing by Vegas and put it all on red. Penny slots are all I can stomach. And I can’t imagine sitting in a casino long enough to blow through $500 that way.
- Splurge on home decor. We have maybe five wall hangings in our entire house, and I don’t buy knick knacks because we don’t have end tables in most rooms. Additionally, if we had a prenup, surely there would be a clause on throw pillows.
- Log onto Coinbitbasepursewalletthing and put it all on pretend money borne from an Internet meme. I refuse to invest in things I don’t understand. Unless Vanguard walks me through it. If they get on board, then I’ll come around.
- Eat my way through all the new restaurants I’ve been dying to try. Back in our YOLO days, we would eat out at least three times a week. Not only did we burn through hundreds of dollars a week, I finally gained the 15 pounds that never showed up in college. Getting 10,000 steps a day is hard enough. I’m not looking to up that number because I can’t say no to bread baskets.
Extra Investing
Our 403(b) options are still terrible, but we might throw more money in there. We could also max out our Roth IRAs early. If we go this route, though, I’m not sure what we will do with our tax-time windfall interest-free loan to the government that finally gets repaid. The other option would be to put more money toward our taxable account with Vanguard. I opened that as an experiment a while back, and it’s been fine, but I’m still too much of a white-knuckle investor to dump heaps of money into it. Plus, I’d rather look for more ways drop us into a lower tax bracket.
Extra Savings
We could add it to our emergency fund. We are currently sitting on approximately two years living expenses in cash. Most days, I feel that it is way too much money to have sitting in an account earning 1.5% interest. I’m losing money! But then there are days when I remember that we need to re-side our house and pop for new windows sooner rather than later. If we do those things, we can kiss the vast majority of that money goodbye. (Rent forever, you guys.)
Extra Mortgage Payoff
Hello, old friend. The final option that I could come up with for the extra income would be to add more to our mortgage payoff. We pumped the brakes on extra payments when we were stockpiling cash for my leave, opting to make a whopper of a payment at year-end instead. The thought of being able to regularly commit to paying 2.5 times our mortgage makes my heart sing. If we took this step, our budget would start to resemble what it did before my salary took a five-figure hit. I know that I will get more return on my money in the market (correction be damned) in the long run, but there is something about paying down this debt that makes me so happy.
So Tell Me…What would you do with an extra $500 in your budget?
All your options are good options, so I would choose the one that excites you the most! It sounds like you’re very motivated to pay off the mortgage, so if that motivates you to save more towards that goal even if you could technically make more in the stock market, I would do it.
That’s a great idea to factor in motivation or joy!
80-10-10: save or pay down mortgage with 80%. Spend 10% on you, give away 10%.
Or bet it all on Baby, aka 529. I don’t have a kiddo, but HP would be happy with that choice ?
I have an $13,000 college bill coming up in a few months (for half the year…) – I like Jover’s idea 😉 HP would like it! But I’d be using it to pay off one of our 0% credit cards right now. All of our remodeling and refinancing have zapped those “emergency” accounts!
I love that you use zero percent cards the same way that I do! I actually need to apply for a new one, but I’m still savoring my credit score. I’m so vain apparently!
I keep meaning to do a separate post on this. We put $350 a month toward his 529. We could really ramp it up, but I’m not sure. There are days when I want to give him all of the extra money. Hmm.
Ooh, I love these posts. Wish I really had the extra $500. But we actually have an extra $1600 this year because we paid off our apartment in Chile!! and car loan!! and are spending less on groceries! whoo hoo! So, I guess I could tell you what we’re doing with that. $200 goes to a travel fund. $700 goes to emergency savings to build up our cash reserves (we’re not at a year yet, so I’d like a little more in there). $700 goes into taxable investment accounts. Well, actually, no. It’s going into the emergency fund and I’m going to pull it out when I decide exactly what to do with it, but the idea is that it will eventually go in taxable investments. If I had yet another $500 extra, I would probably do everything I could to max out my i401K with it, as I’m only putting in $833 a month now. I’m actually the opposite of you, Penny. I tend to funnel all my extra money into investments and not keep enough cash and then run into cash-flow problems. But that’s my default. I love, love, to pad those investment accounts! 🙂
Personally I’d go straight for the tax-advantaged investments (so the 403(b)). I looooove getting extra tax savings – instant return! Plus, in our case, contributing more to these types of accounts helps us qualify for the Retirement Savers Credit (or make the credit bigger if we already qualify for it), so that’s even more tax savings/return. Love it love it love it. 😀
If the fees weren’t so high, I’d say it was entirely a no-brainer for the reasons you give. My husband can only invest with AXA…annuities and fees, oh my (oh barf).
Ah yes, I saw in some of the other comments (posted after mine, I think, or I just missed them) that you have crappy investment options. That’s gross, I am so sorry. 🙁
In that case… I’d probably go with the mortgage. In our personal case, my next target after all the retirement accounts are maxed will be my student loans, so that’s roughly equivalent (though my loans are a higher rate – 4.75%, so that leans me toward them). Though, if the mortgage rate is real real low… then I’d probably lean toward the taxable account. Though, I too feel weird about that. And I don’t really know why. “White-knuckle” is a good description. It makes me weirdly nervous, even though it’s just index funds in my case. WHY WOULD THAT MAKE ME NERVOUS? Brains are weird.
I would opt for investing. That $500 will be between $2500 and $3000 in 20 years. If you find $500 once per year for those 20 years and you’d have a cool $25k in savings. I promise you, you’ll need it then too 🙂
When I get an extra $500, I put it in the Wells Fargo savings account that gets almost no interest, but that most of our expenses that still require checks comes out of (ex. music lessons). I guess that’s sort of like the emergency fund option? (We’re also refilling the emergency fund after a new car purchase, but I’m fine with the emergency fund refilling with just our regular paychecks.)
In your case, I’d put it in the IRA and then reevaluate when the tax refund comes (that would either go to 403b or mortgage depending on how bad the 403b is).
This is my favourite money problem!
At the moment, I’d put it towards my line of credit, which I’m hoping to have gone by the end of the year. Once that’s gone, I’d probably just throw it retirement savings. I max out my tax-advantaged savings (RRSP and TFSA), so it would go into a taxable account.
It’s always nice for me to hear someone say something negative about home ownership. Renting for the win!
Do you have a 457? Assume not. If not, 403b!
I don’t currently because the only one my district offers is through AXA. In their annuities. Hold my eyeballs so I can’t roll them too hard.
Right now, we are working on creating a 3-6 month cash reserve in our joint savings account and then opening up a joint taxable account. But that’s after we’ve already maxed out all retirement accounts available to us. For you guys, it seems like you have plenty of cash for now and have a plan for the Roth IRAs, so I would be putting it into your 403(b)s! Especially when you’re worried about the solvency of your pensions 😉 With your mortgage 3.5%, the 403(b)s do seem like a good idea…
..if only her 403(b) wasn’t a big scam inside of an investment account: aka expensive Annuities.
Am I remembering that correctly, Penny?
If that’s the case, I would recommend some taxable then, balancing with the mortgage. Especially if she thinks she’s behind in saving for retirement.
Yes. Annuities and fees out the wazoo. Trying to make Fidelity or Vanguard options happen!
Ooh, what a joyous occasion! Extra moolah. 🙂 Any time we have extra money in the budget, it always goes to student loan debt. We should be free of the nasty stuff by 2019. 🙂
That is so awesome. A year (or less?!) to go!
I loved this post! I’ve just recently found your blog through twitter and I just have to say, I love the way you think!
For me personally, I think I would put that extra $500 towards servicing our car and getting a new tyre… I can just dream about that luxury!
Again, loved this post!
That’s so kind of you, Corinne. It sounds like you have a good plan!
Invest, invest, invest the majority. And use some to make your life easier/simpler. Or travel, I love travel, but you maybe less so with a babe in tow.
I really like the idea of finding a way to simplify life. That’s definitely why I still shell out for a cleaning service 2/month.
Yes, 40 weeks is 10 months!
What I would do with an extra $500? Right now, either pay down CC or rebuild EF. I’m getting to answer this question in a big way soon and I’ve been thinking about it for months.
I cannot wait to see your answer, ZJ!
80% off my debt 10% emergency fund and 10% gifts/charity!
I’m so glad you said that, Karen. We didn’t reduce the charitable giving part of your budget when we scaled back, BUT that doesn’t mean we shouldn’t increase it!