Do one thing with that extra money that will save you money in the long run
One of the first installments when my weekly newspaper column started about year ago was a theme I have discussed repeatedly on the blog. It’s the “Do One Thing” concept.
It’s time for that topic again, given the news that Ford and Chrysler have announced their profit sharing bonuses for the year and General Motors is expected to announce its bonus check amounts soon.
The bonus checks involve a LOT of money this year. The Detroit Free Press is reporting $8,300 in bonus checks are going to Ford’s United Auto Workers staff about March 14; and $2,250 in bonus checks will go to Chrysler’s UAW staff on Feb. 8. Much of that money goes to Michigan families, given where the workforce is.
While profit-sharing checks have been a part of the contract for some time, there is no guarantee that workers will get one in any given year. According to Freep’s chart, none of the Detroit 3 issued such bonuses in 2006, 2007 or 2008.
It’s also fair to say that not all Michigan autoworkers get these bonuses. Many of them are staffing agency workers or work for automotive suppliers, and therefore have different contracts.
But this year’s money will be certainly noticed in the regional economy as those receiving the cash make decisions as to what to do with the funds.
On a related topic, tax filing season is now in full swing as the Internal Revenue Service was able to accept many of the forms needed for tax returns starting Jan. 30. While it’s too early to tell how many people will receive refunds rather than pay taxes this year, the refund percentage has been pretty high in recent years.
What should you do with that money?
The discussion points are the same whether it is tax money, employee bonus, an inheritance, Christmas money, or a random gift.
I certainly understand the desire to spend extra money on something one otherwise could not afford. Those who live on tight budgets are tired of saying “no” to things that they would really like to do, if they only had the cash. It’s fair to say that it can be grounds for resentment when extra money must be spent fast just to catch up on living expenses.
I also know the most common advice from personal finance columnists and bloggers is to pay off debt and / or build an emergency fund with those checks. While this doesn’t sound like much fun, the intent is to help you out in the future.
I teach what I think is a realistic approach. Over the years, it’s pretty much what my family has done.
The “rule” is this:
Do one thing with that money that saves you money in the long run.
Then do what you like with the rest.
Here are some ideas for “Do one thing.” Most of them are ideas I’ve compiled and posted over the years, but fresh ones pop up every time I take on this topic:
- Pay a bill in advance, especially if you can get a discount for doing that. Car insurance and dry cleaners are two examples where my husband and I have found “pay in advance” discounts. For those who have been pushing paychecks beyond the limits, keep in mind that any bonus cash can allow you to pay current bills without getting hit with late fees. That saves money, too.
- Use some funds to open a bank or credit union account. I was amazed to hear a story a few years ago about how many taxpayers ask a refund be placed on a commercial debit card with this excuse “I don’t have a bank account.” I think you are better off in the long run looking for a credit union or bank account that serves your needs. Tax season is not the only occasion in which one would save money and time using direct deposit rather than trying to handle financial matters “bankless.”
- Build or start an emergency fund. I know the emergency fund ranges other personal finance experts teach are ranging from $1,000 to several months’ worth of expenses. Here’s what I teach: keep at least one week’s paycheck in reserve. That amount can take care of many routine emergencies that might snowball into bigger financial problems. Think about what your last car repair cost, or the out-of-pocket expenses when someone in the family was sick with the flu. My advice to my daughter, who lives out of state, was to keep enough in an emergency fund that she can get a plane ticket on short notice.
- Pay off or pay down a credit card or a debt. We paid off my car early one year by combining one year’s tax refund with a mortgage escrow refund. This left no money for “fun,” but certainly improved our cash flow during the following months. If getting out of debt requires a long-term effort beyond the available extra funds, read about the concept of debt snowballs.
- Take care of personal legal matters such as updating a will. My husband and I considered using some of our Christmas money on a new tech toy, but then I remembered we were overdue for updating our wills. We needed new documents to reflect the fact my daughter is no longer a minor; and she should be the executor and receive whatever remains in the estate after both my husband and I die. We want the process to be as easy as possible on her when the time comes; and so we have to spend the money on legal fees now.
- Take a class that improves your job marketability. This doesn’t have to be a university or community college class, although that may be worth considering. It’s also possible to find job skill seminars and resume building workshops through the community education programs.
- Purchase the supplies that you need to organize grocery coupons, whether it be a binder, an index card box or an accordion file. This could cost anywhere from $1 to $30, depending on which method you use. The important detail is in how you will carry those coupons to the store.
- Buy the spray bottles, cleaning rags, dusting rags and other supplies you need to incorporate less expensive cleaning techniques into your home. You can finish up the chemicals you have on hand while you try out alternative methods and see which ones work for you. I admit: I am using more commercial products now as compared to a few years ago when I DIY’d as much as possible. But we still spend less on cleaning supplies than some families because the paper towels, for example, are rarely used in lieu of cloth towels.
- Buy whatever you need in the kitchen so that you will cook at home. This could include a slow-cooker, electric griddle, beginner’s cookbook, coffee pot, a new set of pots and pans. Ditto on the coffee making supplies.
- Buy some edible plants for your garden or landscape. One of the best articles I read about useful purposes for the $600 economic stimulus checks from a few years ago was by someone who said she would use the money to buy fruit trees for her property. Awesome idea.
- Buy a financial software package for your computer or a personal finance app for your mobile phone. You’ll make better plans for your money when you can track on a daily basis what you are spending and / or when bills are due.
- Buy a sewing machine, and stock or resupply your sewing kit. I admit that the cost of fabric is such that it is cheaper to just go buy a shirt or an outfit rather than make it. A sewing machine, however, is a useful tool for repairs, making household items such as curtains, and creating Halloween costumes.
- Buy a tool kit or tool box for the house, and stock it or resupply it. You’ll find it easier to DIY minor home repairs when you have the proper equipment. Even a renter might want a hammer and screwdriver to fix minor damage to his own furniture and therefore get another year or two use out of it.
- Inventory your disaster plans and supplies. If you live in Michigan or Ohio, you know the chances are good each year for at least one extended power outage because of bad weather. Do you need to buy hand-crank radio, a bigger ice chest or a generator to make sure you can get through such a situation with your wallet intact?