What Would You Do with Extra Income?

It was just recently that my wife and I heard that in the next couple of months, she will be getting a staff position at her employer. This means a slightly higher salary than what she has been making. As we currently stand right now, we are making a little bit more than our monthly expenses. This means that we will have more spending money to go towards anything we want. This will be quite a joyous moment. To say that we are excited about her new job, would be an understatement. I was telling a close friend this a few days ago and he immediately asked me “What would you buy?” It was such a good question, that I thought I would ask you all.

what to do with extra money

What Do you Spend Your Extra Money On?

What Would You Buy With a Positive Cash Flow?

Now, I know many of my readers are financially responsible, but let’s imagine that you wanted to splurge. What would be some items that you buy when you get a little extra income or maybe even a bonus from work? Here are some options that pop into my mind:

  • New TV: This seems to be quite the popular answer. I don’t think we will buy a TV because we don’t have cable (and don’t ever plan on it). In fact, we only have the 20 inch TV because my wife’s parents won it as a door prize and it was too small for them. We do watch an occasional movie on it, so it comes in handy.
  • 2nd Car: Right now my wife and I only have one car because we live close enough to the train. While this is tempting for the winter, the cost of buying, maintaining, and insurance are way too expensive to justify a second car at this point.
  • 2nd Computer/I-PAD2: While this may be one of the purchases we decide to go with later (because my wife will most likely start grad school soon), I don’t think this is a necessary item to buy or splurge on.
  • Vacation: This may be the winner for us. My wife and I love to travel. It is usually our one splurge during the year in exchange for living frugally. We love learning about new cultures and people and this is a great way to accomplish both of these.

What’s the Responsible Thing to Do With Extra Money?

Okay, enough dreaming. I probably won’t buy any of those items right when she gets her promotion. I think that is a huge mistake and that you should try to save money before making any major purchases. I also don’t like to see money being wasted. Besides, once you start spending money on one thing, it is easier to make it a habit and develop a shopping addiction. So, what would be a more responsible use of extra money? Here are some ideas that I have in my head:

  • Open a 2nd Roth IRA: I think that the best thing for us to do would be to open up a 2nd Roth IRA. While some people wonder whether it is better to contribute to a 401k or Roth IRA, I am going to do both. We currently have a Roth IRA for my wife, but have yet to have been able to afford one for me. I think this would be a great thing to do in planning for our future. It is also a great time to buy.
  • Buy Life Insurance: One of the things I have been trying to put together over the last few weeks is a whole life insurance plan. I think this can serve as a secure investment as well as a way to provide a little extra income for my wife if something were to happen to me. You can expect a detailed post about this one in the coming months.

What would you do with extra income? What would you splurge on and how would you be responsible with the extra money?

*featured photo provided by Images_of_money

48 Responses to What Would You Do with Extra Income?

  1. I would go for Life insurance. But look into Term Life Insurance. Any insurance that involves the stock market, I would stay away from.
    I strongly believe that investing and insurance should be kept separate.

    • Corey says:

      Thanks Tushar. There are other forms of life insurance that have quite a few benefits, though. I will keep you updated.

  2. Great question Corey. Since you two are young, I would take at least 50% of your “windfall” and open the Roth. Take the other half and use it to generate income, another blog maybe. :) I always tell my daughter and son to take half of any money received as gifts and save it.

  3. PKamp3 says:

    Psychologically, you would be pretty well off diverting 100% of the extra income (since you’ve already adapted to your current finances). What about this:

    1/2 into a new savings account (Vacation)
    1/2 into your Roth

    I think you should start the Roth – you don’t get a chance to go back in time to contribute, so if you don’t take advantage of the $5K per year you lose out. I also think all work and no play makes for a dull time, so I’d put half (or some proportion) into another account. YMMV, of course!

  4. Aloysa says:

    Any extra income would help me to pay off my debt! Then downpayment on a house. Maybe a small vacation. Well, and don’t forget all that shopping in-between. LOL But assuming all of that is done, I’d put most of it in retirement and emergency fund.

  5. I am also looking to pay off debt. To me, that is a guaranteed return on my investment that will help my budget for years to come.

  6. I would go for the 2nd Roth IRA. If you’re young, you probably don’t need a lot of life insurance. Your wife can get by without you right?
    If I have extra money, I would buy more dividend stocks. :)

  7. charles says:

    With extra income, I would not buy anything. I would just save up for the future. With just getting married this past year, who knows what will bring us in the near future.

  8. I would go for the 2nd Roth IRA too (like Retireby40 states above).

    As for the insurance, check out the fees associated with them, because they use to be pretty hefty when I was looking (up to 2%).

    While 2% doesn’t sounds like a lot, in a down market those 2% fees just add insult to injury.

    Congratulation on the increase in household income!!!

  9. [...] Corey at 20sFinances presents What Would You do With Extra Income? [...]

  10. Like you I would travel. I love to travel and do a fair bit already but I am the type to never travel enough. I want to see so much of the world around me that I will be busy saving and traveling for many years. This year if we can swing it we are heading to Africa.

  11. Every year I normally get a nice sized Christmas bonus. And every year I’ve asked myself the same question “what will I do with the extra money”.

    Some year’s I’ve spent it on Christmas presents and gifts, and other times I had to use it for emergencies like new tires for my car. But this year, I’ve planned all my expenses out and have my emergencies covered.

    I don’t know what I will do with the bonus (if I get it) but I think it’s nice to be in the position to choose anything. Good luck with your choice too :)

  12. Hank says:

    I’m with Charles. I wouldn’t buy anything. Are all your debts paid off? Why not throw the extra income at them?

  13. I would have put it in to my home buying fund.

  14. 101 Centavos says:

    I recommend simple term life insurance. It seems one of those spousal obligations that need taking care of before anything else.

  15. [...] Finances contemplates Extra Income: What Would You Do With It? If you are my reader, you probably know what I would do with the extra income. Shopping ,of [...]

  16. [...] The 20′s Finances household is going to see a bump in yearly income, so the question is: “What Are You Going To Do With Extra Income?” [...]

  17. I think back to all the years I got money back from income tax refund, GST cheques (a Canadian thing) and raises a work, I so wish that I had saved a percentage of that and put it away for a long (long) term goal such as retirement and swear that I would never touch that money for anything else. Regrettably that I didn’t think that far ahead (come on who did when you are in your late teens or in your twenties, all I wanted to do was to spend my hard earned money). If you don’t have major debt and can live on what you make now, I would recommend you put a large percentage of that money away for long term gain.

  18. [...] from 20′s Finances presents What Would You Do with Extra Income?, and says, “If you got a huge raise like my wife just did and you didn’t need the money [...]

  19. With a little extra income these days I would probably split it into places. First of all I would pay down some of my mortgage (I hope to have it paid off before the next interest rate cycle hits me) and then throw a little into my online business where I’m hoping to see some good niche site growth over the next few months.

  20. YFS says:

    I would bank the money and try to create passive income streams. This happened to my family a few years ago. We literally started purchasing income properties and eliminating our debt.

  21. Evan says:

    Love these types of situations! I run the scenarios in my head like 22 times before I pull the trigger lol.

    For me the greatest pleasure would be splitting it between goals. So for you some roth, some vacation, some income producing assets…

    I wouldn’t go for the Whole Life because unless you are doing a one-pay (which I HIGHLY doubt) you are going to get a bill next year, and may or may not have a way to pay for it lol

    • Corey says:

      True, that is one of the risks for Whole life insurance. However, I took out a very minimal plan so I will be able to pay it no matter what. I am working on writing a post about it. :)

      • Evan says:

        It is not a risk – for most of the policies life you WILL have a bill. This is not a bad thing, I actually own a whole life on me, the wife and the kid…I was just pointing out that you’d still have a bill next year.

  22. My husband got promoted (which came with a raise) earlier this year, instead of buying stuff, we just increased our 401k contributions by an additional 2%. We would have liked to have gone out and bought something, but we didn’t really need anything. In the past, we would have bought electronics. :-)

  23. [...] freeze, I knew it wasn’t going to be good. Just when when my wife and I were starting to have extra income each month, I felt the bad economy closing in on my financial security. I realized how vulnerable [...]

  24. [...] are thinking about starting a side gig, you want to make sure you aren’t falling into this trap. Earning a little extra money hardly sounds like it is a bad thing. Who couldn’t use a little extra money in their pocket? We [...]

  25. [...] become entirely focused on making money (nor is that my focus now), I do realize that with extra income, your opportunities [...]

  26. Saw this on Twitter just now.
    What did you end up doing with the increased income?

    • Corey says:

      I ended up opening up a 2nd roth (maxed it out), got a whole life insurance plan (still need to write a post about it), and then got an I-Pad for my blogging business. :)

      • Smart, Smart I think (I like term insurance) and Smart – a business tool + a guilty pleasure. We gave away an iPad, but don’t own anything that fancy! (laptops, old school phone (like 9 yrs old))

        I like these decisions a lot. I recently won a promotion @ work and can earn up to 18% more than my old salary. We haven’t discussed how to spend the “new” money (not 18% for a number of years!) but we have some projects and experiences we look forward to being able to afford more easily.

  27. Kolton says:

    I believe it would depend on how much extra money we are talking about. Sometimes a new promotion could be a few extra dollars an hour. If that were the case, I think I would just continue saving and living frugally to really get the most out of the raise. If we are talking about a lump sum such as a bonus, i’d definitely use it to buy myself a Ipad 2 or something of the sort because I hear those things are just blogging machines! I think they could definitely be worth the investment. Other than that I would use a bonus to buy stock, mutual funds, and I like your idea for a 2nd IRA and insurances.

  28. How about betting it all on Black in Roulette? Could double your income! Or, bet on the Patriots!

  29. [...] debts, you could focus on cutting back on non-essential spending to free up a little bit of extra money each month. Here are a few tips on how to do this:a. Create a list of everything you spend and [...]

  30. Phillip says:

    Well when i got my raise i started to investing a small portion of R164pm into a product that i need (accidental & natural death cover so my family will get money if anything happens to me) and also because i am a member i earn an additional amount for referring people to get this same benefits as me by becoming a member and get the product, so basically i use my money to create more money for good retirement fund and also to spoil myself and my family more… hope this makes sense… :)

  31. Mark Lewis says:

    That is one of the risks for Whole life insurance. However, I took out a very minimal plan so I will be able to pay it no matter what. I am working on writing a post about it.

  32. HerbCaruso says:

    With extra income, I would not buy anything. I would just save up for the future. With just getting married this past year, who knows what will bring us in the near future.

  33. [...] from 20′s Finances presents What Would You Do with Extra Income?, and says, “If you got a huge raise like my wife just did and you didn’t need the money [...]

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