What to do with Extra Money – Update

As many of my readers know, a few months ago my wife got a raise. She had been working diligently to land the job that she wanted. As a result of which, our family finances saw a drastic increase in income. Before this point, we were scrapping by. We were still saving money and cutting every possible corner, but there wasn’t a lot of cushion. As a result of which, I had asked my readers what they thought the appropriate use of the extra money was. It has been a few months since I posted it, and I thought I would let you know what I did with the extra money.

What I did with the Extra Money

After my wife got a nice raise, we took a few steps that we deemed necessary. First, I opened a Roth IRA for myself¬†(my wife already had one). I felt that this was important to do because we could max it out while the market was still low (and before the end of the year). I also wanted to get in the habit of maxing out two roth IRA’s each year as we start saving for our long-term retirement. If we make the sacrifice now, it will be easier to do it in the future because that will be the habit.

The second thing that we did with the extra income was to get a whole life insurance plan. I wanted to start protecting my wife in case something happened to me. Even though she now has a promising career ahead of her, it doesn’t hurt to be prepared. While I plan on writing up another post on my choice to go with whole life insurance instead of term, suffice it to say that I wanted it to be a long term investment plan as well. It offers me tax free growth with a projected return of over 7% on the cash value. (More to come on that later)

Lastly, we bought an IPAD. Granted, this wasn’t really with her raise, but it was something that I mentioned the that first post. Since I started making money with my blog(s), I have started to think of ways to invest in my future growth. There are quite a few areas that I am developing right now, but one thing that I needed was some hardware. I needed a portable computer device to help keep up with the online world. Because I have wifi at home, work and almost everywhere I go, I figured this was a reasonable choice. Considering that we are already saving a lot of money towards our long term retirement and I was making this money just with this blog, I decided to invest in the IPAD. This means less taxable income and increased productivity.

Having extra income coming in can be a dangerous thing¬†because you are tempted to splurge more and as a result change from your frugal lifestyle. Before you know it, your lifestyle inflation has affected you and you can’t change your ways. Knowing this is the case, I wanted to reward ourselves with something, but instead focused on our savings and retirement goals. I decided to put the money away before I could spend it and get rid of the temptation.

What do you do with extra money?

14 Responses to What to do with Extra Money – Update

  1. Hank says:

    Wow….whole life. I can’t wait to read your next post when you dive into that decision deeper. I got suckered into whole life once right out of college and canceled it a year later. I’ve had term for over 10 years now and couldn’t be happier paying my $20 per month for a half million.

  2. Whole Life Insurance? I have a Term Life Insurance like Hank that I feel is the best way to go. “You have a lot of explaining to do Young Man :)”

  3. With extra money we tend to spend most of it. Whether it’s debt payment or something fun, it gets spent usually.

  4. Also interested to hear the whole life argument. Our extra income generally gets broken up into liquid savings, retirement savings, investing , and also fun money. Generally in that order also.

  5. YFS says:

    With extra money I spend a little, save a little and invest a lot :-). Did you think of starting a self roth 401k in the name of your business? Since, you bring in blog income you can do some pretty slick stuff that would put you way ahead of the game in the terms of retirement.

  6. Sounds like you’re thinking ahead and avoiding lifestyle inflation — good plan!

    My raise last year went toward retirement: I bumped my 401(k) contributions up a percentage point, and put the rest toward my Roth IRA. This month I will have quite a bit of “extra” money: a third paycheck in the calendar month, a 5% bonus, and for once I’m getting a couple hundred bucks back on my tax return (grad school tuition paid off in deductible expenses!). I have a savings plan laid out for the whole year, and have already allotted those anticipated “extra” funds toward grad school, my IRA, and the 6-month emergency fund. I know I’ll feel a lot more secure with that money in savings.

  7. jefferson says:

    Good post.. and some interesting thoughts.

    For myself, any extra income will go to paying off debt.
    Once that is accomplished, vacation fund, IRA, and 529 will be priorities.

    On the life insurance discussion.. we switched from whole to term last year. The layout amount on whole life was just not something my family could live off of for a sustained period of time… which is the whole point of life insurance :)

  8. bax says:

    We really take care of the basics in our regular budget, so extra money is how we travel. we usually follow 50% savings, 50% splurging for our windfalls. :>

  9. [...] financial goals as being getting whole life insurance. About a month ago, I announced that with my extra money, I decided to buy whole life insurance. Many people questioned my decision to get whole life [...]

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