The following is a post by staff writer Crystal at Budgeting in the Fun Stuff. Her blog covers living expenses, saving for your future, and the fun stuff in between.
As a zero-based budgeter, I am sometimes asked what we do with any windfalls that may pop up. A few years ago, I wouldn’t have been able to tell you, but now we have a plan.
Mr. BFS and I sometimes have a few hundred dollars at the end of the month that is just leftover – extra cash after all our savings goals and expenses are covered. Most of this extra usually comes from the sports officiating Mr. BFS does after work but now a little of it is from my blog as well. :-)
Anyway, for almost a year we just socked the extra away into the emergency fund, but hubby once complained that his extra work didn’t seem to be bringing him any extra money (“fun” money specifically). I don’t have as many hobbies as Mr. BFS, so I had never really thought about it like that. After talking about it, we came up with a system that has worked really well for us so far.
We put 50% towards our emergency savings and/or mortgage depending on how much is in the emergency account. If we don’t have at least $10,000 in the emergency fund, we put it all towards that since $10,000 is the bare minimum for us to feel secure. If that is taken care of, we split the 50% between the emergency fund and the mortgage as we see fit. Another 25% goes to our vacation account and the last 25% is split between our two individual fun money accounts.
This has been working well, but we will now be getting four “extra” paychecks each year – we are both paid biweekly on the same day since he got his new job. We agree (in fact, hubby brought it up) that $2500 just seems like a ridiculous amount to add to fun money accounts, so we will probably be putting those four paychecks a year into a second Roth IRA.
As I was writing this up, I noticed that Daniel even has noted in that he was thinking of putting some “extra” money either in savings or towards a want, specifically an iPhone.
I also came across 4 Ways to Maximize Your Stop Loss Pay at No Debt Plan and thought Kevin had some good ideas too:
1) Put it Where Your Budget Needs It
2) Pay Down Debt
3) Save It – emergency fund or Roth IRA
4) Buy a CD and think about your options
What do/would you do with some monthly extra? Would that answer change if it was a few thousand dollars or more?
Very good question. Hmmmm….
I would probably invest half in something. (Not sure what because the market scares me right now.) I would then take the other half and put it toward the mortgage.
What a wonderful position to be in! Things seem to keep popping up and eating away at our savings plan. (Another computer just broke last week – argh!!!)
@Everyday Tips, since when does the market scare you?
Notice I did say “usually”…lately we haven’t had much extra either and we “need” another laptop soon since the one we got 5 1/2 years ago seems to be dying a slow death…I understand your frustration! :-)
I really liked how you split up the extra and to see that your savings and planning habits are rubbing off :) Right not with my extra I split it between making extra payments to accelerate paying down debt and for fun stuff (after all expenses and current savings are met). If I had a few thousand extra I think I might honestly spoil myself and my girlfriend a bit. A night out, a Cirque du Soleil show, and a little gift gesture just because. I think you need to do things like that every once and a while to maintain a balance in the rigorousness that is financial planning. I might by some kind of tech toy too for the office..you know..to make me more efficient – that’s how I’d categorize it anyway.
@Nunzio Bruno, I love the spoiling stuff too (we are huge fans of the Transiberian Orchestra and go to that every year around Christmas). We use our vacation account for those splurges. :-)
All my extra money is going towards a down payment on my first home and towards updating my business clothes wardrobe.
@Jenna, good ideas! I really love owning a home – it just feels different than renting to me…
If all of the ‘necessity’ types of budget items are taken care of, then I am absolutely pro spending some extra money towards something fun. The responsible budgeter deserves a reward every now and then :).
@Lauren, good point! I must agree since I do have an Ipod Nano now that I didn’t have a couple of weeks ago, lol. :-)
I could have sworn I replied to this this morning. I wonder what happened…
My extra consulting money just goes into the general coffers. DH puts his in his allowance, but sometimes chooses to do something like pay down the mortgage with it or put it in general stocks that benefits the entire family if it is a large amount.
Oh, and I’ll be updating on our extra “windfall” from an expense we saved for that ended up not happening next week. It’s amazing how “needs” for the money just happen when it’s sitting there with easy access that might not have happened had the money been put away someplace safe. Did we make the best use of the money… maybe maybe not.
@Nicole, I find that overthinking it just leads to headaches (and sometimes a few really dumb arguments). I am personally trying to automate as much as possible and stick to our plan so that everything just works smoothly (and with as few stupid disagreements) as possible. :-)
We don’t really have a system. My consulting work always goes back into the general coffers. DH’s goes into his allowance (though if it is large he’ll often choose to put it towards something joint like the mortgage or the stock market). The 24K we had saved up and didn’t end up spending has been whittled down to something much smaller; we’ll be posting about it next week sometime. It’s amazing how extra expenses can crop up when you haven’t put a name to extra money.
@Nicole, yeah, I have to squirrel away our extra money so “needs” don’t just pop up and claim it. :-)
I like the IRA plan, very practical. I however would without a doubt throw it at my debt as Dave Ramsey would say. I am trying to knock off my debt fast. The sooner I am debt free, the sooner I will own a home:)
@myfinancialobjectives, if we had any other debt, we would be throwing that “savings” half towards that instead. I think that’s a great idea! :-)
Pay off DEBT! Actually, this summer we randomly got a 3K scholarship (but I already have grad school tuition paid for plus my assistantship stipend). What to do? We decided to split it up a little, so as to enjoy it a bit. We put 1K towards debt, gave 500 bucks to charity, used 500 bucks to remodel the bathroom, and save 1K for my hubby to start taking an online Masters course.
@Amanda, I think the way you split it up made a lot of sense! Congrats on getting rid of some debt!
I definitely put my extra into savings account. For now, building higher interest rate is a priority for me. And I intend to deposit an everincreasing amount of money to my savings account. The increase will depend on the amount I earn, but it should not be below 5 %.
What do you think of my plan?