I received my economic stimulus check on Friday from the government. I'm married, so it totaled $1,200.00. Although when you just look at it like that and think about holding $1,200.00 it seems like a lot, when you think about what you can buy with it, it really doesn't amount to much.
Since we did get it though, and this is supposed to be a discussion on personal finance, building wealth, and retiring early, I thought I'd discuss how my wife and I planned on spending the stimulus money we received. What better way to talk about personal finance than to discuss what you are doing in a real world situation, right?
For starters, although we knew we were getting the $1,200 from the government, we didn't pre-spend the cash before we got it. This is a major problem for a lot of people. You know you are coming into some money, whether it is a lot or not, and you spend it before you get it, and when you get it you spend part of it on what you'd intended to and the other part on something else, and when you look back you actually have a net loss. So, great thing number one, we waited until we had the money to decide what to do with it.
Once we had it, we had a pretty clear plan for it: (1) save; (2) reduce debt; (3) reward ourselves for reducing debt; (4) let some linger in the bank account.
Actually, we aren't technically saving. We are saving to spend (which I guess what all saving really is technically). As I mentioned before, saving for fun is just as good as saving for a rainy day and is an important part of personal finance: it allows you to spend without worrying; it provides a sense of accomplishment as you see your bank account growing; and it gives you concrete financial goals to work toward. My wife and I recently set up a vacation fund, where we sock away a hundred to a couple hundred bucks a month to use at some point on a destination vacation (our vacation dream list is long and includes places such as Atlantis, Greece, Brazil, and Paris).
To get a great start off on this, we decided to put $500 of this money in our vacation fund (it has actually already been earmarked, as we have planned a trip to London this summer with family). But it technically is saving, and we'll be pulling the interest from it in our ING savings account.
As you have heard, we've put ourselves on a debt snowball, to hopefully erase our debt and feel really great about it at the same time. Like many others, though, the debt is going down, but not nearly as fast as it should, because things come up that get put on the credit card, making the debt reduction more of a trickle than a flow (for example, a plane ticket to Seattle this summer was put on the credit card - it just doesn't hurt as much when your balance is going up - credit card balance - as it does when it's going down - bank account balance).
In an effort to feel better about our actions, we decided to take $300 of the economic stimulus check and put it toward our credit card debt, on top of what we already pay. That will make the Seattle tickets almost non-existent, and make us feel like we aren't completely wasting the money. Remember, the key to the debt snowball is to get it rolling. I know it's easier said than done, but you can't start building wealth if you don't get started.
Because we were so good with so much of the money, we decided that some of it we should just use for whatever guilty pleasure we want. To do that, we decided to divide up $300 between the two of us to spend on whatever we want. $150 went to my wife, in her separate account (marital finances is an interesting topic of discussion that I'll touch on some other time) and $150 went to me. Once again, the point is to use it for something you want that you may not need. Kind of like taking a bite of a cookie when you're on a diet - it's something that gets you through the hard times of personal finance.
If you are wondering what I'm doing with mine, I haven't decided yet. I'm trying to save for a trip to Wales in a couple of years for the Ryder Cup, so most of it will probably go there. A new golf club is also a distinct possibility. I have no idea what my wife will use it for, and would hate to speculate.
A Little Money Left Over
If you are doing the math, we have $100 left of our $1,200 that hasn't been earmarked for anything. We have decided to just keep that in our checking account and build that balance up just a little so the threat of over drafting is even further reduced. Again, probably doesn't sound very fun or very sexy, but building wealth and personal finance only gets sexy at the end. Spending the money you've been saving and ensuring the stability of your family feels great once its accomplished.
Personal Finance - Building Wealth