If this is your first time here, Molly’s Money is a regular series I write on this blog that includes ALL things personal finance – debt management, budgeting, home buying, savings, investment, etc. I am NOT a financial advisor, but I am married to one! These are just things that I have learned over the years as I struggled with my own personal finances and ultimately, became debt free in 2012. Got a question about money that you want answered? Leave it in the comments below or email me!
Before I became debt free, and really before I began the whole “journey” working to become debt free, I was horrible with money. I’ve said it before, I’ll say it again… I was awful with money. I just didn’t know how to manage it. I didn’t know how to take care of it. I didn’t know how to spend it and SAVE it wisely. That’s something I really had to learn and a skill I had to completely figure out… pretty much all on my own.
Since no one knew my financial situation and one I got on my debt management plan, I was working my butt off to try and figure out how I was going to do it all and keep my head above water. It was so unbelievably overwhelming.
However, one of the things that was MOST difficult was learning how to spend the extra income that would sometimes come my way. I was so used to working with such bare bones in my bank account… any little bonus or boost in my income felt like I’d won the lottery.
BUT, the thing is, is that it’s those boosts in your income and those bonuses that can actually make or break your entire financial status. It’s know what to do with those extra chunks of money that can change the course of your financial future. It sounds like I’m overly dramatizing it, but I’m not.
When you’re struggling to figure out how you’re going to make it all work one month, every little bit of income helps.
So, since we’re preparing for tax season (YUCK) and it’s that time of year where you might get a holiday or new year bonus at work, I wanted to share with you guys some ideas of what you can DO with those extra chunks of money to really make them go a longer way and make them work FOR you.
I wouldn’t share these things if I hadn’t already done them myself… and trust me, these are things that can REALLY, really help your situation… and honestly, even if you AREN’T worried about how you’re going to pay for groceries this month, being wise now can make a difference in the long run.
Six Ways to Use Your Bonus or Tax Refund
1. Pay off debt
This seems like a no brainer, sure… but it can’t be stressed enough. If you have ANY debt at all (outside of a home mortgage)… throw that bonus or tax return at it. I’m talking credit card, car payment, etc… pay it off… or pay a big chunk of it down. Getting rid of debt faster is the fastest way to build long-term wealth and financial stability.
2. Put money in savings
Once you’ve paid of some debt, put some money towards that emergency fund. It’s all about building a buffer for the rainy days or the days that, you know, an emergency arises.
3. Invest more in your IRA or other retirement account
Once you’ve got some debt paid off, you’ve got some money in savings, thing about either setting up an IRA (you know, if you don’t already have one), or if you DO already have a retirement account… think about throwing some money at it and maxing it out for the year… get that investment out of the way so you have more to work with later on in the year.
4. Put money towards schooling (children’s college fund, paying off your own student loans, etc.)
Maybe you’ve already got debt paid off or your emergency fund built or your IRA maxed out… think about throwing some money towards schooling. Maybe you wanna put more in your child’s education fund. Maybe you want to tackle some student loans. Maybe you wanna go back to school yourself to further your education… whatever it is… putting money towards education is always good.
5. Give generously
Give. Give. Give. Give. Stretch yourself. Make a big donation towards a cause you care about. Give above and beyond the biblical tithe. Find a way to really bless someone else financially… I promise, it’s going to feel so much better than if you’d spent the money on yourself.
6. Reward yourself (WITH LIMITS)
Yes, reward yourself. But I make the point to say WITH LIMITS because that is important to note… This is one that is hard for some people and this is DEFINITELY one you DO NOT do first. Do not get that bonus or tax return check in the mail and go “WOOHOO!! I’M GOING SHOPPING!!” and then go blow it all at the mall. Not the way to do it. Take care of everything else first and then, if you have some leftover, treat yourself. Reward yourself.
That’s something you HAVE to do to maintain some sense of sanity. When I was getting out of debt I never did anything fun or for myself… so what I’d do is set aside a TINY amount to reward myself when I reached certain “milestones.” So, if I paid off a credit card, I might reward myself with a night out to dinner and a movie. Or maybe a new pair of shoes. Or a bag I’d been wanting for awhile. Nothing crazy. Set a limit and then use it as a reward for your hard work!
Putting rewards in place totally motivates you toward your goals!