What Extra Money Can Do For You

Do you know that feeling when you’ve had something hanging over your head for a long time — and then it’s gone? My husband and I have been enjoying that feeling. We just paid off our vehicle loan. What a relief!

Now we have the happy problem of what to do with the “extra” money that was once designated for the loan. Of course, it is not really extra; it just seems that way because its designated use is finally paid off. There are tons of things we could use it for, so my husband and I decided to put our heads together and make a plan. Here are some of our ideas:

Peace of mind

Ours is not a costly lifestyle: We try to stick to the basics and can often shun the extras. When we had children we agreed that I would work from home to avoid the expense of childcare costs (and to be with the kids, of course). This has eliminated a lot of the daily costs of working — car expenses, work clothes, and childcare — but freelancing income can ebb and flow. Our extra money can be there to fill in the holes during the ebbs.

Max it out: With the economy the way it is, we would like to slowly build our emergency savings account to cover our expenses for up to six months, instead of the three months we can manage now. By putting money in a place where we can easily reach it — a savings account, money market account or a short-term CD — makes it easier to get at should there be an emergency.
We will also contribute more to our Roth IRAs. Despite our initial nauseous feelings from investing during this shaky time, we have the luxury of time until we need the money. If market history repeats itself, investments will eventually start growing once more and we can again benefit from compounding interest.

Remaining debt: Alas, the truck was not our final debt. We still owe on our house and a student loan. Many financial experts call these “good” debts since you can write off the interest on your taxes, but I’d still like to see them taken off our plate. So until a windfall lands in our laps, we will keep chipping away at those.

Vacation: Anyone who has a boy in elementary school knows the lure the legendary Legoland. Our son’s dreams — and even our preschool daughter’s longing to visit “Princess Land” a.k.a. Disneyland — are more attainable now that we could put a little aside each month. We would prefer to go on vacation without leaving debt on our credit card.

The Other Side of the Coin

The hardest thing to do when there is any extra money lying around is to keep sticking to a budget. Isn’t this extra money an invitation to go blow it on something impulsive? Very tempting, but my husband and I agreed to stick to our budget and not do anything crazy. If possible, we would like to avoid:

Taking out another long-term vehicle loan: Our other car has been paid off for a few years and (knock wood!) will run for some time. Although we tried to avoid getting stuck in a loan that seemed like it lasted forever, the best deal at the time led us to that truck loan we just paid off. You can bet we will avoid taking on another long-term automotive loan next time if we can help it. Maybe we won’t need that second car when the time comes to replace it.

Taking on credit card debt: While we try to cover for every eventuality, things happen that need to be paid for right away — medical emergencies, car trouble, etc. That’s when a credit card is a lifesaver. However, our holiday shopping is something we would like to pay for now – not charge it on a credit card and letting interest build.

Moving to a bigger house: Even if the economy was vigorous, we love the size of our mortgage and do not want to increase it by purchasing a bigger home. Our home is small, but it serves our purposes for now and in the foreseeable future. Its smallness is offset by its great location – its close proximity to parks, schools and shopping means less time in the car and less mileage on our vehicles, so it actually saves us money.

Splurge without care: One might say that we should treat ourselves because we achieved one of our financial goals. We will likely mark the occasion and might go out to dinner, but the enjoyment we have from seeing a goal reached helps fortify us other impulse purchases.

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4 Responses to What Extra Money Can Do For You

  1. Julie says:

    When I paid my car off, I kept putting the same amount of the payment in a new car fund.(savings)

  2. crazyliblady says:

    I would probably devote it almost entirely to some kind of savings, like a high interest saving account. It will give you a backup if things get tough with your mortgage or other expenses. With the way the economy is going, having some kind of backup plan seems like a good idea. Currently, I have no savings at all. I can’t seem to keep anything in savings, as “emergencies” seem to pop up that suck it all away. Anyone have any ideas about how to make this work??

  3. baselle says:

    Definitely I would bulk up the emergency fund, but even after that, you want to think about the additional investment vehicles you have. The Roth is fine, but if you have maxed that one out, its time to re-visit adding to the 401K/403B, if you are currently under 16K (limit in 2009), and you have a 401K/403B to add to. A lot of financial advice implies maximizing the 401K to maximize the match. (usually 6% or 8%) You can go wayyy further, which will increase the size of your tax refund for 09, or will give you enough of a tax break to think about converting traditional IRAs into a Roth. Time to make hay while the sun shines.

    crazyliblady – perhaps think about funneling some of your emergency money (when you get it) into a savings vehicle that you can’t get at at all. Save some, and when you get to something like 300-400$, think about putting 50$ into an I-bond. Its something, and you can’t tap it for at least a year.

  4. ThiNg says:

    crazyliblady – I sat in the same loop until I create an emergency triage board. It’s a magnetic board on the wall, divided into three sections: On the Radar, Imminent, Critical. When something comes up, we create a note card (with magnet holder) and put it in the On the Radar section. Then when it gets closer to being absolutely required we move it to Imminent. Then finally Critical which needs to be done ASAP.

    The key thing was figuring out what the ‘real’ emergencies were, and what was ‘fluff’. I’ve been playing with seeing how long I can keep things in the Critical section before I action them…

    Basement toilet backing up and overflowing because the pump is broken – Critical. Vacuum Cleaner making burning smell – Not so much.

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