Originally posted at http://www.caviartastebolognabudget.com (my personal blog)
Imagine you were just handed a cheque for $3500.
What do you do?
This happened to me on Friday. The government made an error on my tax return and refunded me a surprising amount of money. After I had read the letter for the tenth time to make sure I wasn’t seeing things (I wasn’t) then checking to make sure the cheque was real (it was), I immediately started thinking about what should be done with the surprise cash that was soon to appear in our bank account. Automatically, my mind went to tropical breezes and sitting with a drink in my hand, but reality does catch up and I decided (with husband) how to best approach this surprise surplus. This money can do us a lot more good if we invest it in ourselves rather than putting it toward something more frivolous (and probably more fun).
Half of the money went to pay down the Fiat (always pay down the debt with the highest interest rate first) and the other half went into the savings/emergency fund. It was almost painful moving the cash, knowing what fun we could have with the money, but I also know how much good it can do when it comes to our bottom line. Other than our house and our car, Husband and I are lucky enough to be essentially debt free. It’s taking those extra few pennies and putting them toward what debt we do have that keeps us out of trouble.
While we may not get to play with this cash, it will pay off in dividends later. With debt, every cent you pay off ahead of schedule is less overall interest. With savings, every penny equals an investment in your future. As jobs security and pensions start slipping away, that little bit extra in the bank will be appreciated later.
I know it’s tempting to go wild when you get a chunk of money handed to you free and clear, but paying off those debts is going to do so much more for you in the long run. Save yourself from temptation and get that cash out of your account as soon as possible.
