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Saturday, February 9, 2013

Extra Money??


Extra money is not something that a lot of people have.  But, it is tax refund time so some extra cash may be coming your way.

The question then is, what to do with that money?  Should it go into savings, pay of debt, make a big purchase?  Consider these questions when it is decision time.

Do I have an emergency fund?  Financial experts strongly recommend that everyone should have at least three months of expenses saved in case of job loss, sickness or whatever.
Saving for a rainy day should be a top priority.

How much is my debt costing?  Now is the time to sit down and calculate how much annual interest is being paid on loans and credit cards.  Multiply the amount of debt by the interest rate to determine how much interest is being paid annually.  This may come as a shock to see it from that perspective.  Keep this amount in mind, then ask yourself the next question.

How much will my money earn in a savings account?  Most savings accounts earn only 1-2%.  Do the calculations on the interest earned.  Is this amount more or less that what your debt is costing you?  Is your debt costing you $1,000 per year and your savings earning you $300 per year?

With this answer in mind ask yourself,  "Is it more cost effective to pay down the debt?  How much will I be saving myself if I do?"  It is probably a clear answer.  Make the choice.

Do I really need to make a big ticket purchase?  Distinguish between need and want.  How important to your way of living is this purchase?  If your fridge is on its last legs, the purchase is warranted.  If your furnace needs repair, the purchase is warranted.  If the purchase is a 50" flat screen t.v. and you have a t.v. that works just fine, reconsider the purchase.  It is all about priorities.  Need vs. want.  Think about it.

If you have all the details at hand, the use of extra money will be obvious.  An influx of cash is not a windfall to be blown away frivolously.  It is an important tool in living with fiscal responsibility.

Hopefully, those in the Northeast have hunkered down and making the best of a the lousy conditions.  I vividly remember living through the blizzard of '78 and appreciate what you are dealing with. 

Meanwhile .... keep it simple and make it real.


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