What To Do With Extra Money

I’m sure that this has never happened to anyone but me. But sometimes I get extra money from some thing (overtime at work? tax refund? gift from parents?) and I don’t have a good plan for that extra money so it just ends up getting spent just like all my other money and then two weeks later I think “Huh, sure wish I had some extra money.”

Last week I was at Financial Peace University with Mr Woodpecker and Dave was talking about how to budget when you have an irregular income. Essentially you make a list in order of importance of everything in your life with a $ value and then you just pay down the list until the money runs out. (Let me tell you, I’m thrilled I don’t have an irregular income).

As I was watching the video though a lightbulb went off. Why couldn’t I use this plan for extra money?

Make a list of the things I want to put the extra money towards, then I put the money towards those things until I run out of money.

Here is what my list looks like:

 

Amount

Total

Vacation

$50

$50

Christmas and Gifts

$50

$100

Clothes

$20

$120

House Fund

$200

$320

New Car Fund

$100

$420

Debt

$500

$920

House Fund

$300

$1,220

Debt

$500

$1,720

House Fund

$500

$2,220

Debt

$500

$2,720

So here is how this worked for me this month. I got an extra $1,100 this month from teaching summer school in May/June. This was money in addition to my normal monthly salary so I’m considering it to be “extra money”. The first thing I did with it was put money into my Emergency Fund to get me up to $1,000. Because that was more important than anything on this list. (I used up the majority of my Emergency Fund when I bought the house).

After I funded my E-fund to $1,000 I had $350 left. So I went down the list. $50 into Vacation, $50 into Gifts and Christmas, $20 into Clothes, $200 into my house fund, and the remaining $30 went into my new car fund. 

The way I’ve planned for this is that any extra money that I get THIS MONTH gets added on top of the $350. So if I get another $400 somehow then $70 will go into the new car fund (to get that to $100 total), and then the rest will go to debt.

However, if I don’t get any other extra money until NEXT month I’ll start over on the list again.

The reason that I am funding vacations, gifts, clothes, house and new car before debt is that I’ve taken these items either out of my regular budget or significantly reduced my normal contribution to them. By putting them at the top of my “extra money” category I’m funding them still semi-regularly but not having to contribute to them with every paycheck. I can only do this because I regularly get “extra money”.

One way I thought could be good for someone who didn’t regularly get extra money looked like this:

 

Amount

Total

Debt

$200

$200

Blow Money

$50

$250

Savings

$100

$350

Debt

$1000

$1,350

Blow Money

$50

$1,400

Debt

$1000

$2,400

 

I like how this table is set up because the first thing you do is pay on debt. Any extra money below $200 just go to debt. But then, as a small reward you get $50 if you go over $200. It is good to give yourself a little spending money to just have some fun. And if it is planned you don’t have to feel guilty about it! Then throw some money at savings, then hit the debt VERY hard. And if somehow you made over $1,400, go ahead and blow a little more planned money.

By making a table like this and knowing where my extra money is going specifically, it was very empowering. I didn’t have to worry about “should I do this? should I put it here?” because I had already laid out before hand extra what my priorities for my extra money are.

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One Response to What To Do With Extra Money

  1. Leigh says:

    I actually love this method! I used it for all savings for awhile because I found that putting a little money away each month towards a savings goal wasn’t very motivating, so I started putting all of my “savings” money at goal #1 until I reached the target each month, then goal #2, goal #3, etc. It was way better to motivate me, at least until I got to the last really large one…

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