What to Do With an Extra $1,000

February 26, 2015 Permalink 0

Analysis colorful stock chart on monitor. finance concept.Having an extra $1,000 in your bank account can seem like a small windfall that can easily be spent. A quick vacation, expanded wardrobe or a few fancy dinners out can deplete that extra $1,000 in a few months.

But long-term savings can turn that extra $1,000 into thousands more, protecting you in retirement, as an emergency fund or as a down payment on a car or house.

I’m focusing on this extra $1,000 figure because it’s roughly the amount I wrote about recently that could be saved by making coffee at home. The annual savings was $1,077.12, to be exact, for one person, and $2,154.24 per couple.

I asked financial experts, mostly financial planners, for their ideas on what to do with that extra $1,000 to $2,000 other than spend it.

Try automatic transfers

The trick, however, is to put aside that extra $1,000 or so saved each month by making coffee at home. As anyone who has tried to save money probably realizes, any savings from eliminating an expense can easily get lost in your checking account and be spent elsewhere. But automatically transferring $90 a month to a savings account or some other account will easily get you to that extra $1,000 annual total.

And $1,000 can be just the start. For a couple, saving $167 per month will add up to $2,000 in a year.

If you have a federal tax refund coming, you could put it all into savings and start earning money on it immediately. The average tax refund is around $2,500, according to the IRS.

What to do first

Each person’s financial situation differs, but there are some first steps to take with that extra $1,000-$2,000 before saving it, says Kate Holmes, a certified financial planner:

  • Pay off credit card debt first, and put the extra money you’re saving toward the principal.
  • Boost your 401(k) retirement plan savings if you’re not already taking full advantage of your 401(k) match. Then you won’t have that money in your take-home pay to tempt you as you pass coffee shops!
  • If you’re saving for a big trip or fun adventure, set up automatic transfers to savings each month to supercharge that account.
  • Look at each line item in your expenses and ask how much happiness it brings, Holmes says. You may find other areas to easily cut back, freeing up more money for your “maximum happiness” items.

Here are some ways to save that extra $1,000 or more:

Learning Financial Portion Control

February 25, 2015 Permalink 0

4439880034_1cb627b696_zWe have a problem of epic proportion here in the United States. Literally.

Last night I was out having dinner at a diner-style restaurant with my good friend whom I had seen in quite a while, and when the waitress came by to take our orders I asked if I could order off the kid’s menu. The menu clearly states that it’s only for kids age 10 and younger, but I figured it wouldn’t hurt to ask. After all, that kid’s meal had everything I wanted in my breakfast for supper meal anyhow: pancakes, bacon, and eggs.

If I was able to order this off the kid’s menu rather than the “regular” menu, I’d save some money and I wouldn’t be wasting any food. The kid’s meal was only $3.99 vs the $7.50 of the adult version and still had about 80% of the amount of food. The adult version is always too much for me anyway.

To my surprise, the waitress said I could order off the kid’s menu!

What does this have to do with personal finance (besides my $3.50 savings)? Well it got me thinking about the portion control problem we have in the United States.

We have a huge problem with portion control in our country, and I don’t just mean with food portions. Our cars, houses, and need for “stuff” has grown out of control. This constant need to acquire more, bigger, and “better” stuff has led to our other portion control problem: debt.

Don’t believe me? Research shows that the total of U.S credit card debt is around $739.1 billion dollars. No, that’s not a type-o, it’s billion with a B. The average credit card debt per household is $15,799.

So what do we do about it? Here are some ideas I came up with while I was pondering all these facts.

5 Things I’d Use My Emergency Fund On

February 23, 2015 Permalink 0

8893328628_9071eabcfb_zI don’t have a huge emergency fund in place (yet), and I won’t have a fully funded emergency fund with 3-6 months worth of expenses in it until I am free from my consumer debt. In the meantime though, I still want to have at least a “baby sized emergency fund” in place to help me stay afloat and avoid charging anything onto the credit cards I’m working hard to pay off.

What is an Emergency Fund?

According to personal finance guru Dave Ramsey, an emergency fund is “a rainy day fund, an umbrella. It is for those unexpected events in life: a job loss, an unexpected pregnancy, a car transmission going out, and so on. This is not an investment or a Bahamas fund!”

In other words, you should never willingly use your emergency fund. It should only be used in times of a dire crisis when you can’t make ends meet (like from a job loss or layoff), or to cover things like a necessary house or car repair.

However, one area I don’t agree with Dave Ramsey on is that you should only have a $1,000 emergency fund while you are trying to pay off debt. These days $1,000 won’t get you very far if you have a major repair to make or if you have an unexpected job loss (especially if there’s only one income coming in to your monthly budget).