This happens to be the magical week of the year where performance bonus checks are paid at my company and tax refunds hit the account. I usually would celebrate all of my hard work paying off with a trip to one of my favorite places – the Wrentham Village Premium Outlets in Wrentham, MA. I mean if you are looking to go on a shopping spree there is seriously no better place to go – lots of different stores for shoes, bags you name it and it is an “outlet” so that means deals, right?
The thing is, any time you can get your hands on a decent amount of cash in a lump sum you have an opportunity improve your financial health FAST. Since I’m not shopping this year I’ve decided to explore some different options for this money…even if they won’t provide the same endorphin rush as getting a deal on a Tory Burch Robinson Leather Tote.
Paying off credit card debt with a bonus
I hate debt. It bothers me to carry a credit card balance now but for years I had 3 credit cards and was slowly paying off a few thousand dollars’ worth of ridiculous spending in college. We didn’t use credit cards when I was growing up so when I got my first card I didn’t understand how to use it properly or what a FICO score even was. Naturally, I signed up for a few store cards (for the discounts, of course) and one from American Express. Paying for late night delivery from Ted’s should be done in cash because forking over minimum payments while paying off student loans makes for some very expensive grinders (delicious, but expensive right UConn grads?). Also, the “discount” you get on store credit cards only works for people who NEVER carry a balance and pay in full (i.e. not me in college) otherwise the Annual Percentage Rates are typically north of 20%. Luckily, my limits weren’t very high back in those days so I maxed them out quickly and started to reconsider how much debt I really wanted to take on.
I’ve learned my lessons over the years and now have an excellent credit rating however we did renovate our kitchen and I took on a little more debt in the process when we went over our initial budget. I plan to take some of the money that I get and pay that off. There isn’t anything wrong with using credit cards but it’s important to keep an eye on your credit score and keep your usage under 30% of what’s available to you to make you a real catch for lenders when you want to buy something big like a home or a car.
Build your emergency fund with a refund
Last year was brutal for a lot of people who lived in storm ravaged areas of the country. I’ve talked to people who were living in FEMA trailers and that lost everything in a matter of hours. A general rule for an emergency fund would be to have at least three to six months’ worth of expenses in savings – preferably earning a little interest and not under the mattress. Most Americans have less than $1,000 in their savings account or none at all and I absolutely understand how this happens. It is very tough to get a head if you are in a lot of student loan debt or if you are living paycheck to paycheck. If you get any sort of refund or bonus and are in this group – SAVE IT! I can’t think of any part of the country that might not face some sort of “emergency fund” level storm and having a little money aside makes a big difference.
I’ll be honest, having two toddlers and child care costs can really increase your living expenses to mind numbing proportions. Knowing that, I realize building up my emergency fund makes a lot of sense right now because I have a lot of things I wouldn’t want to have to change if something were to happen to my home or job. It is almost the least “fun” thing I have planned for my money. That title goes to ((drumroll))
Estate Planning and Life Insurance
God, I feel so old and boring I can’t take it. I did a basic estate plan online when I had my children because I wanted something in writing if anything were to happen to us. I realize now the value of having an attorney help fill in any of the gaps I might have missed and ensure everything is filed properly. This isn’t nearly as expensive as I initially thought it would be but it is absolutely zero fun. I also bought a term life policy to cover this incredibly expensive time in my life where I have a family to support and a mortgage. I have insurance through work but wanted something that was independent of that. It was also cheaper than I thought and while it is no fun at all to think about it I’m happy to know it exists.
I am allowing myself one treat…
I’m getting a manicure and pedicure because Spring is almost here and I must have a little tiny bit of fun still, right? What do you plan to do with yours this year?