When you have been living from paycheck to paycheck for the past couple of years and you finally got your budget plan order, you might see some extra funds in your budget showing up. This can be both a happy and confusing day for your. Happy because now you have extra funds in your budget compared to before when you were running on an empty tank before the next payday. Confusing because you do not know what to do with the extra money.
These funds can come from a lot of sources including proper financial management and being able to lower down your debt payments or increase your source of income. It can also come from unexpected bonus from the office for your performance. It can even be a salary increase from a job review. It can also come from an unexpected payment from that money your friend borrowed years ago.
There are also instances where you might get an inheritance from a relative or even hitting the lottery jackpot. For some, these extra money can come from tax refund checks they seem to get every year. CNN.com shares that the average tax refund is around $2,800 per recipient. Although this is not an ideal financial occurrence and a topic for another day, this is still a source of extra money for a lot of people.
Once you have these funds, your delight can quickly transform into a frown because you are lost at what to do with the money. It might be a simple enough problem and you could be running to the mall to buy that shoes that is on sale or off to the hardware to buy new sets of power tools to be able to make that shed and start with your wood projects.
Using extra money
If you are in this dilemma and you want to make sure that those extra funds will serve you good especially with your money management, here are a few things to consider doing with that money. These smart money spending tips can help you spend those extra money in your budget.
- Pay down credit card debt. Nerdwallet.com shares that the average credit card debt per household is at $15,700. There is no doubt that your credit cards usually pack high interest rates that cripples your budget when you carry over your balance to the next month. This makes paying down your credit card debt a top priority when you encounter extra funds in your budget. This helps you save interest payment in the future and lowering down your debt amount can help your credit score. You should seriously consider paying down or paying off your cards. And the next time you use it, make sure that your budget can pay the full amount when the statement comes to prevent high charges and fees.
- Get your bills current. If you have been falling behind with some of your payments, this is the best time to get your payments current and if possible, make advanced payments on them. If you are delinquent on some payments and even defaulted one some, get them current which could spell the difference between you car or lawn being repossessed and keeping them for a longer period of time. Getting your payments current can improve your credit score and open a lot more financial opportunities for you.
- Make home improvements or fix the house. Another way to get the most out of your money is to be proactive with potential expenses by spending on home repairs. That leak under the sink can potentially damage your carpet and walls and you might end up with a bigger expense compared to fixing that leak now. If your windows have small cracks in them, you can get them replaced asap or get some industrial glue to keep them together and keep rain out of the house.
- Put together a college fund. If you have children at home. you might want to use those extra funds and start a college fund for them. If you have been reading the news, student loan debt is crippling a lot of college graduates as they are tied down to debt even before they get their first paycheck. Set up a college fund for your children to help them go through higher education without the need to take out student loans. That college fund will pay for the cost of attendance and all they have to do is to study well and graduate. If you do not have kids, you can use that fund to go back to school and take up a post-graduate study to improve your skills in the office.
- Put a little fund to rest and recreation. You need to make sure that you also develop yourself and find time to tune into your inner self. In short, invest in some rest and recreation so you can get away from stress and feed your soul as you travel. Just be sure that you do not blow off all those extra funds when you travel and come home with debt because you spent more than what you budgeted for.
- Increase your reserve funds. One way to manage financial stress is building up your reserve funds. This includes your emergency as well as your rainy day fund. These two are your best allies when you hit a financial speed bump like blowing a tire or even losing your job. Your funds will make sure that you are covered and have the needed income to cover your expenses as your income takes a hit.
- Beef up your retirement fund. You can also try to make sure that your future is set by beefing up your retirement fund. Statisticbrain.com shares that the average savings of a 50 year old is only at about $42,000 and they are a few years shy of retirement. Hopefully this is just their reserve funds and that their retirement fund is kept somewhere else because this is a small amount to live off on when they decide to retire from their jobs. That is why when you stumble on to extra funds in your budget, you might want to put some in your retirement fund maybe maxing out your 410(k) contribution for the year. Think of this as investing in yourself so it becomes easier mentally.
- Make charitable contributions. This might be hard to understand for some but there is joy in being able to help other people without expecting anything in return. Well maybe some tax benefits from the amount donated but that should be more of a reward and not the primary objective. And besides, it is better to be on the giving end rather than the receiving end of charitable donations.
Common temptations when you have extra money
As you look at the various ways on how to be smart with extra money in your budget, it might also be a good idea to take a look at some of the potential mistakes you could make with the tempting surplus in your finances.
- Living like a one day millionaire. There are people who have been dreaming of living the good life in terms of material possessions. Be on the lookout for increase in debt because of extra money because it is possible that with the excess, you might feel that it is okay to buy more stuff than what you actually need.
- Trying to impress people you don’t even know. You might be tempted to buy that new phone or that expensive watch but you need to think twice. Buying that expensive watch will not make you more popular at work, it will only break your bank account. There are things that you can buy full price for and there are some that yo shouldn’t buy at all.
- Buying wants than needs. Another thing you need to watch out for is when you start looking at your wants rather than needs. it can be as simple as needing shoes for work but you instead buy the most expensive pair or when you want need a new laptop for your hobby and you go ahead and purchase the newest model that carries a high price tag. You start buying things you did not even think of before because you have the money.
Having extra funds in your budget is a great position to be in but you need to make sure that you are able to use it wisely. It will not help if you increase your lifestyle and debt rather than securing your future finances.