Many people are paid every two weeks, so August may be one of the two months this year you will get an additional paycheck. If you are married and your spouse works outside of the home and paid the same way, then that may mean 2 extra paychecks this month. However, if you don’t plan, this money will just get absorbed by your spending.
What to do with extra money: tax refunds, bonuses and extra paychecks: Here is your great opportunity to get ahead in life. This doesn’t happen often, so take serious advantage of it.
- Invest $100 in a financial class: Take a financial class; it will only cost you $100, such as Dave Ramsey Financial Peace University. Go to his website and search by your zip code for a class near you. I promise you, your investment of $100 will return you many thousands of dollars. I am not kidding you: you will get much more back than you will ever receive in tax refunds.
- Put the money in a savings account, all of it! If you need to remove the temptation right away, open up a separate account at a bank where you don’t have any accounts; otherwise, you will spend it, maybe all at once, or slowly transfer it into checking and it will dwindle away.
- Plan for needs and not wants: Do not spend it on vacations, large screen TV’s or vacationing if you have debt and no savings. If you have been doing without for quite a while because finances have been tight, this extra money will make you feel a sense of elation. When we feel this way, we end up spending more money. Our emotions tell us that good times are back for good, even though it is a temporary thing.
- Make a list of all of your savings and debts.
- Make a list of the things you really need: If your car’s tires are bald, or you need money for upcoming things for medical, children’s needs, savings for Christmas in 9 months–set it aside. Now prioritize your list. Don’t forget to include tithe (10%). If you do all of these things right, you will have more money every month in the future, not just once per year.
- Put $1,000 in savings, if you don’t have any. This is to be used if you have a real emergency, for example, the car is on fire or a family member is bleeding. I’m exaggerating of course, but this is not for the emergency pizza. You will have a car repair or other emergency need in the future; this is your ‘rainy day’ savings so that you don’t have to borrow to make it–you see, we are trying to avoid the trap of debt.
- Now look at your needs list again and prioritize the really immediate needs and debts. See how many loan payments you get get rid of by paying off some debt, and use that freed up monthly payment that you don’t have anymore to pay off the other debt each month until you are debt free (this is called debt snowballing).
- Put 6 months of expenses in savings for big financial setbacks like job loss. This is if all non-mortgage debt is paid off, and your $1,000 emergency fund is established. Every financial planning book says to do this, and it is really smart.
- It is okay to use a small part of the windfall for fun, but instead of blowing $100′s, take a few bucks a buy some steak and a nice bottle of wine and have a home date and watch a video.
- If you have done all of these things, you are ready to plan for intermediate things, like car replacements, or long-term needs like retirement and college education.
- Give money to a charitable organization or tithe. Regular tithers may not think to tithe on this extra paycheck, but it is a good idea to tithe all bonuses, monetary gifts, extra paychecks, or if you win a drawing.
Just because you got a nice chunk of change, it isn’t time to live big, but by being wise you can make great decisions, and maybe this year you will advance to a stage in life of living smarter with less stress. This is what the wealthy have learned to do, and if you want to accumulate wealth, this is what you will do. Poor people blow it and a few months from now wonder were it all went; they never seem to get ahead. You may get ahead if you do these things.