The point of this post is to get you to reflect and consider the way you approach your finances. There have been talks in politics about a universal basic income (this post is neither for nor against), but there has always been the question of what should I do with my bonus or tax refund check, or how do I change my spending after raise time? These are forms we can consider as extra, or “free”, money. The question for yourself then is, what would you do with the extra money?
Side Note: Everyone’s situation is different. If you’re already living as a debt-free millionaire, then great job and read on! If you’re not, then you’re with many others and this is a great time to ponder how to spend that extra money wisely.
The 90/10 Approach
My approach to refund checks was always to use it towards my student loans. My parents raised me with the 50/50 lesson of saving at least half of what you make. I typically tackled my extra money with the 90/10 rule of saving/paying debt with 90% of the income while allocating 10% to buffer different budget categories; we all need to reward ourselves for our effort and work. This has allowed me to quickly tackle my debt load and is great for one-time payouts such as bonuses and refunds.
Going back to everyone’s situation is different, there’s nothing wrong with taking some of those payouts and splurging a little. However, you should really ask yourself if you need to and how much further in your finances could you be if you focused on the debt or saving towards a goal. Was the Xbox worth it when you have $500 in credit card debt at 20% interest or $30,000 in student loan debt? It’s hard changing the mindset of consuming to one of being frugal but sometimes it’s necessary for the long term. As Dave Ramsey will always say, “Rice and Beans, Beans and Rice and you get yourself out of debt”.
Getting a Raise
Everyone looks forward to the time of the year when performance reviews come and the thought of making more money, but how will this really make a difference for you? Money may solve soo many problems in a lot of our lives, but it can also cause many more. There’s plenty of stories of how millionaires who got rich quick are suddenly broke. Big sports players, celebrities, and even lottery winners. Money doesn’t suddenly solve problems, you have to manage it properly to solve them. If you’re already living above your means, will a raise help you maintain your living, or are you going to spend more? The best thing to do with a raise is to take all the new money earned and put it towards the savings/debt category. Maintain your living standard until you can raise it without issues, or if you’re at a long term comfortable level then keep it there. Getting a raise should be your ticket to increasing the snowball you have to work with, in your debt snowball approach to paying off debt.
Universal Basic Income
The idea behind Universal Basic Income (UBI) is that everyone should get some level of income, paid out by the government. Without getting into politics, one suggestion out there was to provide everyone with $1,000 a month. Now let’s consider how this can change your life. I have no doubt another $12,000 a year can make a difference, assuming the government doesn’t take 10-20% of it; but how will it change your life? Will you go and buy a new phone? upgrade your data plan? purchase Netflix for yourself? Buy that new car you want but don’t actually need it? Or will you pay down your debt you’ve accumulated instead of taking out more?
Stimulus Cash
We’ve seen the government payout cash directly to its citizens in the wake of disasters, most recent being the COVID-19 Corona Virus. This stimulus was $1,200 to each adult plus $500 per child (up to $6,000). This could be looked at like winning the lottery for some (less so those financially affected such as losing their jobs) and coming into receiving a quick grand. The idea behind it was to support us in buying the essentials, but what did you use it for? Did you buy food, pay off a credit card, or build that emergency fund? Are you better off receiving it than you were before?
Corporations are always marketing for us to spend our money. This is how the economy works, it’s the flow of money. They’re always eager to tell us how we should spend our money but we need to be the real managers. The way to become a millionaire is to have money, not always giving it away to someone else. How different would your life be if your debt was gone? Is it worth living frugally now such that you can live free later?
Money is both to be enjoyed (buy that TV, magazine, or whatever) and managed well. Without effective management, debt may begin to grow and become a burden. I hope this at least got you thinking of how you manage your money.
Thanks for reading!
