What To Do With a Raise
But what do you do with the extra money coming in? You could take all of it and add it back to your cash flow. I would recommend that if you have been living a little on lean side paying off debt and stuff. Living bare bones is not always fun so I get adding a raise back into your cash flow to give yourself some breathing room makes sense.
But what if you wanted to make it work really hard for you? What can you do then? We practice zero dollar budgeting or giving every dollar a job. I find that when there is any type of substantial left over money it just drips out – spent on other things that aren’t really important. For me it’s important to make sure any extra money coming in has a purpose. If you are like me there are 5 ways you can use extra money to make a big impact.
Pay Off Debt
I think this almost goes without saying but you should definitely boost your debt repayment. Let’s say you have a $10,000 loan at 6% interest and paying the loan back in 36 months. You could pay it off with the regular schedule OR throw down some extra money onto that sucker to pay it back. Even an extra $50/month makes a different and gets you debt free 5 months sooner! I break down some of the numbers below.
|Repayment||Normal||Extra $50||Extra $100|
|Term||37 months||32 months||27 months|
I used this calculator to figure out the math above.
Another option is to boost your savings. And I don’t mean to a tropical paradise – I’ll get into that a little later. I mean your retirement savings in whatever plan you are able that you country/state/province provides. In Canada both the RRSP and TFSA accounts allow you to catch up on room you haven’t used yet so even if you are maxing out your yearly payments now you might be able to catch up on years when you didn’t contribute. If you haven’t started contributing to retirement future you should do that. Set up the payment so it comes out right after you pay and make it automatic so there is less to think about.
Pay Down Your Mortgage
I talked about this a while back but one of the things we did with any extra money we got was to add the extra payments onto our mortgage. All of this money when onto the principal and really helped to speed up how many years we have left on the mortgage.
There are so many people who are less fortunate than us. You are reading this now and that means you have access to internet. There are many of us that take simple things we have for granted while other people are struggling. I encourage you to look around and see where your extra money can help others in need. If it’s a local shelter, food bank or children’s hospital there are so many places that are need your support. Giving back will give you more in return.
If you are “saving up” for something that is called planned spending. Saving is for the long term, things like school, retirement or emergency fund. If you are saving for a car, trip or home reno that should not be considered saving. Try to look out into the future from time to time to see where you could anticipate needing to replace something. Maybe since you got this extra money your car has been acting up and it’s time to really start putting money aside for another car. Or maybe it’s your appliances or your computer that you might need to replace. Or that basement reno you might want to address. There are a lot of options here but make sure the rest of your financial picture is on track first (savings, debt repayment, emergency) before you add to things like this.
Maxing Out Tax Deductions
The same tips can be applied to when you have maxed out any type of government deduction off your pay cheque. In Ontario every pay cheque has EI (employment insurance) and CPP (Canadian Pension Plan) deducted in a set amount. There is a max that any one person has to pay so for some people their pay cheques can increase slightly towards the end of the year. This varies depending on how much you make and how much is deducted each month.
We generally use it to boost retirement spending or pay down our mortgage. Some people use this as their holiday money for gifts and parties if they have a lot of obligations.
What are some ways you have used extra money? Does it just go into your cash flow or do you make it work for you?
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