Hi Lovelies! I’m back with another blog post. This one is all about how to spend your “extra” money. It’s still early in the year and you may be benefiting from a work bonus, getting your tax returns back or seeing more cash in your paycheck due to the recent tax overhaul. If you find yourself in the position where you’ve received money outside of your budgeted salary and want to do something worth while with it, this post is for you.
At the end of January I received a profit sharing check from my company, then I just filed my Federal and State taxes a couple weeks ago. The IRS has been really fast at paying those out this year! So now I have a little sum of money that I wasn’t expecting (or relying on). As I think through how I’m going to spend this money, I thought it would make for good content to blog about. You can save this and use it as a resource. In past years I’ve saved my tax returns because I was saving up for a house. I’ve always been pretty responsible when it comes to money, but this year I want to spent it.
My Top Ways To Reinvest “Bonus” Money
I’ll start off by walking you through the typical points that every financial adviser would give you. And they are good points. If you don’t already have a savings account or emergency fun, please set one up! I can’t stress that enough. Then I want to get into more creative ways to spend your money, like go on a vacation or further your education.
Start an Emergency Fund
The future is unexpected and we have to prepare for it the best way possible. Your car could break down, your furnace could go out (and mine did), your dog gets sick, you break your foot in a freak sand volley ball accident… you get the point! Stuff happens. Weather it’s a good surprise or an unfortunate one, we need to be ready.
The amount of money to have stored away is going to very based on your individual living expenses and life circumstances. Only you can know that number, but here are a couple rules to guide you. Start by saving up $1,000.00 dollars. That amount could cover an insurance deductible or small repairs. Keep this money in a FDIC-insured bank savings account which is very liquid. Liquidity is the term used to describe how easy it is to convert assets to cash. I keep mine in my primary bank that’s connected to my checking account. You wont earn much interest on it, but that’s not the point here. The benefit it that you can access it at any given moment.
Next, I would suggest saving up at least 6 months worth of living expenses. God forbid you lose your job and need to float yourself until you can find a new one. Think about your rent or mortgage, loan payments, groceries, etc. Whatever that number is, strive to save for it. This particular pot could be held in a different account. I still wouldn’t put it in stocks or bonds because of the volatility. My savings are in an online bank that yields a higher interest rate of 1.5% APY. I can still make withdrawals at anytime.
Invest in You’re Retirement Fund
If you’re employer offers a retirement plan, make sure you’re taking advantage of it. Some job offers a company match, meaning they will match the dollar amount you put aside for retirement up to a certain percentage of your salary. This is FREE money. It would be wise to take full advantage and max out your company match. I want to mention that at most companies your match has to be vested before you can take it with you. At my job the vested period is three years. So if I leave the company before my money is vested, I can’t take it with me. Check your own policy for those details.
If you don’t have an employer sponsored retirement program or you are self-employed, you can contribute to a solo 401(k), IRA, Roth IRA or even a HSA (Health Savings Account). Whichever plan you pick, do some research on how much you can contribute based on your current income and tax filing status. Some restrictions and caps may apply. In my situation – I’m single, have an adjusted gross income of less than $120,000 and under 50 years-old, so I can contribute up to $5,500 annually to my traditional AND Roth IRA combined. (based on 2018 regulations).
Contribute to an Investment Portfolio
Now that we have immediate emergency’s and planning for retirement covered, we can focus on building wealth. Some people like to pick individual stocks, but I would suggest going mutual funds or ETFs. Those allow you to have a more diverse portfolio and your not as reliant on the success or failure of one company. Mutual funds are investments that pool your money together with other investors to purchase shares of a collection of stocks, bonds, or other securities. An ETF, or exchange-traded fund, is a marketable security that tracks an index, a commodity, or bonds. Unlike mutual funds, and ETF trades like a stock on the stock exchange.
You’ll want to make sure your portfolio is diverse with a good mix or stocks and bonds. The ratio of stocks to bonds should be difference based on your age and risk tolerance. Stocks are simply shares of individual companies. When a company issues stock, it is selling a piece of itself in exchange for cash. A bond is when a company or government sells it’s debt. It’s like giving Apple a loan that they will most likely pay back over time.
The younger you are and the more time you have in-between now and retirement, the more risky you should be. As you age, slowly increase the amount of bonds you hold and decrease the amount of stock. I want to recommend a book that I read right after I graduated from college. It’s called, The Money Book for the Young, Fabulous & Broke by Suze Orman. She provides really good advice on dealing with debt, saving up for big purchases and beginner investing.
Pay Down Debt
Paying down debt is crucial to building wealth, however I’m not as radical as your Dave Ramsey’s. In my opinion, some debt is OK. In this section I want to focus on paying down high-interest debt. This usually includes credit cards, personal loans, payday loans, and car loans. Anything with a double-digit interest rate must go!
Like I said before, some debt is OK to have. Student loans, mortgages and home equity lines of credit usually have a lower interest rate and carry some advantages. Now my student loan rates are not that low, about 6.8%, but since they’re federal I have the option to adjust my monthly payment or defer them all together if I fall on hard times. Private student loans are a little different. Both allow you to deduct the interest you’ve paid on them come tax time and a mortgage has similar tax breaks on interest paid.
Gather up all your loans and make a list going from highest interest rate to lowest. Be sure to pay the minimum amount due on each loan as to not become delinquent on any of them. Then pay any extra money you may have on the loan with the highest interest. Once that debt is paid off, take the same monthly payment and apply it to your next bill on the list. Repeat until all your debts are resolved. With each loan that gets checked off, it’s more money you’re able to put towards the next one. This method of paying down debt is known as the debt avalanche.
Plan a Vacation
Part of turning 30, my goals include traveling more. Last year I went on a trip to the Bahamas and realized – I really need to use my passport more often. I think it’s beneficial to get out and see how people in other parts of the world are living. So, I’m putting more effort into traveling whether it be foreign or domestic.
Some side effects of traveling include:
- You’ll realize how little you actually know about the world.
- You will realize there’s more we all have in common than what makes us different.
- You’ll get to experience new cultures, foods and customs.
- You can read about history in a book, or you can actually experience it.
- You’ll appreciate your home more and realize it’s more than just a place you grew up in.
- It will Increase creativity and relieve stress.
This year I already have plans to visit my sister in Virginia Beach. I’d love to go abroad again! The only drawback is finding the time to request off work. (I can’t wait for the day I can be independently wealthy and not have to work.)
Invest in a Side Hustle
Millennials are known for the side hustle. Weather it’s because you need to supplement your income to make those student loan payments or just something you do on the side to satisfy your creativity, the side hustle needs love too.
I explored a few different hustles in 2017. I signed up to be a dog sitter, I because an official Lyft driver (but I never actaully did it), My little sister came to live with me and I stared my blog. The blog is something that’s brought me the most joy and I want to continue to grow it. One way to invest could be creating an advertising budget. Up until now I’ve been relying on organic traffic. I also want to purchase some lighting equipment so I can take better pictures. The lighting in my kitchen is horrible! I also want to buy a desk to complete my home office. Then I’ll have a dedicated space for writing.
Take a Class
Investing in yourself is always a good idea. This could look like going back to college to earn a new degree, taking a professional development course or just personal enrichment. Maybe take your hobby to the next level and learn from professionals in that field. There are several options from accredited universities and community colleges that can fit your lifestyle. Many offer online classes, short condensed training and even one-day workshops. Also, think about alternatives. Check out your local library and community centers for classes to attend. They may even be free to the public.
I have been very interested in podcasting, but don’t know the first thing about recording and editing. I’d love to take a course on that and invest in some microphones and editing software.
If you don’t know what you want to study right now, that’s OK. You could take your extra money and invest it in a 529 college savings plan. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. Savings can be used for tuition, books, and other education-related expenses at most accredited colleges and universities, U.S. vocational-technical schools, and eligible foreign institutions. If you have children, it’s never too early to start investing for their future either. In fact, the earlier you start investing the more time your money has to grow.
Give to Charity
The fact that I have extra cash to begin with is a blessing and I realize that that’s not always the case. I’m very fortunate. Not only are there those who have less, but I was once there myself. That’s part of my drive and why I’m normally very fiscally conservative. It could all go away at any moment.
If you have a cause that’s near to your heart I would suggest giving a portion of your bonus towards that. In the past I’ve given to my church, my old grade school (shout out to Mansfield St. Peter’s) and my Alma mater, The University of Akron. Giving doesn’t have to be monetary either, giving your time is just as important.
Check out these other great resources for more information.