We received $2400 from the IRS as part of the stimulus payment for Coronavirus relief ($1200 for me and $1200 for Mr. FinanceRox).
I have some controversial opinions on how to spend “extra money” and thought I’d share them along with a breakdown of what we are going to do with the $2400. Mr. FinanceRox and I disagree on this approach so I’m really excited to hear where you fall on the topic.
What do I mean when I say “Extra Money”? I’m referring to any money that we receive that is unexpected.
This includes:
Christmas cash…
Birthday checks…
Work bonus’…
Tax Refunds…
Stimulus payments…
A little background here, I try really hard not to give myself any excuses to spend money. If your brain is like mine, that shiesty brain is always coming up with creative excuses for spending money for short term gratification. It’s a mental battle to try to spend money intentionally instead of just spending money because I happen to have some.
One excuse that I heard a lot growing up that sneaks into my thoughts sometimes is “It’s okay to spend this extra money since I wasn’t expecting that cash anyway”.
So I developed this rule for myself: There’s no such thing as “Extra Money”!
No matter what the source of unexpected money, I believe that all money should be treated like ordinary income. This means that I don’t allow myself to spend it on things I hadn’t planned to buy and I will put the money towards whatever goal I’m currently working towards whether that be an emergency fund, paying off debt, or saving for early retirement.
Having extra money isn’t a good reason to buy things. So what are good reasons to buy things? We should buy things that we want to buy, need to buy or want and need to buy!
Acknowledging that you want something is fine, having a goal to buy something nice and then buying it is fine. I only have a problem if the reason that you are buying it is BECAUSE you have “extra money”. At the end of the day, all we have is money in our account and our goals.
So yes, I have in fact used my $200 Christmas gifts from my grandparents to pay bills, save up an emergency fund, pay off my student loans and invest for retirement.
If you strongly disagree with that approach, I would ask you the following questions:
Are your financial goals not compelling enough?
Why wouldn’t you want to put that money towards your goals?
Do you really even want what you are claiming you want?
I don’t regret using that money for goals since that was honestly what I wanted the most.
Honor the intentions you previously set for your finances
I also think it is important to honor the intentions that we have previously made to ourselves about what we are doing with our money. If you set your focus on paying off a credit card for example, but then spend all “extra money” going out to restaurants, are you really focusing on debt pay off? Why make promises to yourself if you aren’t going to keep them?
Now I’m not perfect. There have been times where I’ve experienced saving fatigue, so I end up spending it at the movie theater with friends or treating family to dinner.
Overwhelmingly though, extra money has been dedicated to the current goal I had. Even now I usually just end up putting gifted money towards investments since our main goal is financial independence. This helps accelerate progress on goals.
Honoring the intention of the giver
This point doesn’t apply to refunds, just to gifted money.
Mr. FinanceRox disagrees with this rule that I created for myself. He argues that the intention of the giver should be honored more than the intentions of previous goals. So if a birthday check from your Aunt says “Buy yourself something nice” or “Treat yourself” that you should buy yourself a treat that you wouldn’t have otherwise purchased since that is what your Aunt intended. Often times our loved ones WANT to sponsor that night at the movies or fancy dinner or fancy outfit.
I appreciate this sentiment. I appreciate how generous people can be and how our loved ones want us to be happy.
However, for me, it just boils down to what I really want and what it will take for me to be happy. And that answer has typically been: paying off debt and saving money. Besides, if what you really want is to be debt free, it is giving yourself “something nice” and it is a way to “treat yourself” to better finances and financial peace of mind. So ethically, I don’t have a problem with using that money to get traction with goals.
Besides, when I give people cash, I give it with the intention that they can do with the money as they please. It’s the gift of flexibility. If I wanted them to have something specific, I would have sent them that something specific.
So what should I do with extra money?
Like I mentioned above, the answer depends on your goals.
Goal: Just to get by
Recommendation: Put it towards bills
Goal: Saving an emergency fund
Recommendation: Direct it to your savings account
Goal: Pay off debt
Recommendation: Send it to creditors to apply towards your principal
Goal: Saving up a down payment for a house
Recommendation: Direct it to your savings account
Goal: Retirement savings
Recommendation: Save and/or invest according to your risk tolerance.
Goal: Financial Independence
Recommendation: Save and/or invest according to your risk tolerance.
Caveats!
TURBULENCE – When times are turbulent, like they are right now, I think it is smart to hold onto any extra money until life returns to normal. If my goal was paying off debt right now, I do think I would have struggled to decide if I should hold onto it in case circumstances get worse or put it towards our student loans. I would probably hold onto the money now in case I ended up need it and then applying it to debt once we are in the clear. A little bit of interest expense would be worth it to me to know that I had money in the bank.
I CAN’T BE TRUSTED – If you think you are likely to spend the money on non-necessities if it sits in your account; that’s another problem entirely. Building the discipline to have money and not spend it is a whole thing and definitely a topic I’ll discuss more in the future. If I didn’t trust myself to keep it, I’d give it to creditors and force myself to figure out current expenses some other way (work more, different job, side hustle, cutting costs etc…).
More money than goals
I suspect this applies to very few people but if this is you then I’d recommend doing one or both of the following things:
- Spend the money on fun stuff (if you are meeting all the goals you have set, what does it matter what you do with it)
- Add new goals (This might mean you are ready to start investing or can increase charitable giving)
How we plan to spend our $2400 Stimulus Payment
Since I’m married and don’t get to unilaterally decide what we do with our money. We decided to take a blended approach; honoring both the intention of the giver and the intentions we previously set for our money.
Here are our current intentions with our money:
Save and invest for Financial Independence (Our top goal is trying to hit our traditional retirement number by the time I am 39).
Spend money and enjoy spending that money. If you have followed FinanceRox for a while, you probably know that I struggle with feeling guilt over any purchase that is a non-necessity. This isn’t a health money mindset so I am working on managing this guilt.
Invest in education. Even Warren Buffett says that “The best investment you can make is an investment in yourself”. We are doing a lot of this right now since I am taking this hiatus from w-2 employment to learn how to run a business and to learn how to create YouTube content. I am spending very little money but it is costing us in opportunity costs since I quit my full time job to do this.
Be more generous. Another struggle that I’ve had over the years is loosening up the death hold I keep on money. I want to be generous but it just doesn’t come naturally to me. It takes effort. We are working on giving more every year.
Honoring the intentions of the giver
I don’t want to get too much into politics here. As far as I can tell, the money is meant to:
- Help people who are struggling.
- Stimulate the economy.
I am very fortunate to not be living paycheck-to-paycheck anymore. Since we are completely debt free, own our house outright, have a full $23,500 emergency fund and have above average stable income, we really don’t need the money.
We can spend more and give more which should both help with the second part of the assumed intention.
How are we going to allocate our stimulus checks
Save/Invest: $500 towards our early retirement goal (Robinhood taxable brokerage)
Guilt-free spending: $250 (with the restriction that we will spend at local restaurants and local businesses)
Education: $50 (Books and a women in personal finance webinar)
Charitable giving: $1600 (50% local donations, 50% national donations)
Total: $2400
Charitable Giving
If you are also able to donate money, please consider doing some charitable giving since so many people are struggling right now.
Here are the charities we selected:
$600 Montana Food Bank Network https://mfbn.org/
They helped my family so much when I was growing up. I’m so grateful for this charity, it is my favorite charity to support. We regularly donate and have donated the $600 online.
$200 National Alliance on Mental Illness http://www.namimt.org/
I had asked Mr. FinanceRox what charity he wanted to support and he found a new one that we hadn’t ever heard of before. NAMI is a good charity to support right now since many people are struggling with mental illness exacerbated by the pandemic.
$800 All In Challenge! https://www.allinchallenge.com/
I was listening to an episode of “Tea with Gary Vee” and he mentioned this All In Challenge. To help raise money for several food related charities, celebrities are establishing fan experience packages and are selling entries for people to win. 100% of the money raised will go directly to Feeding America, Meals On Wheels, World Central Kitchen and No Kid Hungry.
For Discussion:
Where do you fall on the spectrum of “Honor the Intentions of the Giver” VS “Honor the Intentions that you Previously Set For Your Finances”?