This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.

Friday, October 26, 2007

What to do with $500

Posted By Paul

One question I've been asked before is: "What should I do with my windfall?"

I thought I would answer that question for a windfall of say $500 (which seems to be a common amount).

Here is some ideas that I suggest to people (in approximate order of priority):

1) Do you have a decent sized emergency fund (3-6 months worth of living expenses, though more is always good)? If not then consider putting the $500 towards that.

2) Do you have credit card debt? If so then consider putting the money towards that.

3) Have you put all you can towards a Roth IRA for the year? If not, then consider putting the money towards that.

4) Do you have kids? Then consider saving for their education. See: 529 Savings Part 1 and Part 2.

5) Do you have any non-mortgage type of debt, like a car loan or student loans? You may want to put the money towards that and get your loan paid off that much earlier.

6) Do you have mortgage debt? Paying off your mortgage early isn't a huge priority, but if it's something you'd like to do, then go for it! If you don't have any mortgage debt then you either rent (consider saving the money in anticipation of someday buying a home), or you've already paid off your mortgage entirely (in which case I envy you).

If you already have an emergency fund, have no credit card debt, fully fund your Roth, are on top of college savings for your kids, have no car or student loans, and no mortgage debt, then I would say it's likely that you're pretty on top of your finances. At this point perhaps you should put it towards a cool vacation or something fun, as it sounds to me like you deserve it.

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