I mentioned previously that I just changed my withholdings so that we won't get the big tax return every year. Now I have to decide how to allocate this $400 every month.
Initially, of course, the idea was to use all of it to pay down debt.
BUT, part of me feels like maybe we should start saving for a vehicle, as one of our cars seems to be on it's last legs.
BUT, we could really use some more money allocated into the food, gas, and clothing budgets, just for a better comfort level there.
BUT, I really want to start redecorating the house, because I'm really sick of looking at the wallpaper the last owners picked out.
BUT, I feel like maybe we should continue to save for our taxes anyway, just in case my tax estimation skills aren't up to par.
BUT, of course, debt is supposed to be our #1 priority right now.
Scenario 1:
Entire $400 goes towards debt = Debt-free (other than house) in 22 months.
Scenario 2:
$300 toward debt, $100 to make budget more comfortable = Debt-free in 25 months.
Scenario 3:
$120 toward debt, save for car, budget increase, home improvements, and taxes = Debt-free in 33 months.
I'd really love some input on this. How would you allocate the $400? What would your priorities be?
Thursday, December 6, 2007
How to Allocate Extra Money
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9 comments:
In our house, we have a "household" budget that INCLUDES decorating. So if I want new Christmas themed towels, I better buy oatmeal for breakfast. I would allocate a little for a more comfortable household budget - but include the wallpaper/redecorating there. Save for a new car, if buying a new car without the savings would result in more debt and thus a longer debt payoff. Also, those car savings could be kept until after tax filing in case you need to hedge your bets (hopefully, you won't need to buy a car before then).
I'd go either halfsies ($200 to debt, $200 to better/more comfortable living now) or do a $300/$100 split. Cutting debt is so hugely important, but you're doing it, either way. Living more comfortably is important, too, imo, and that includes things like taking down wallpaper you hate. The reach that type of pick-me-up can have is amazing. (Meaning, liking your home more = not wanting to go out as much, etc.)
I guess, then, "balance" is my priority? Hmm.
I'm self employed, and several times have misjudged taxes and completely ruined the progress we'd made on paying down debt by having to put a big chunk on the credit card to the IRS. So I'd make sure to save some for taxes if you're not positive.
Then I'd put at least half toward debt, and also lighten up the budget just a bit. :)
I like how scenerio #2 looks on paper. You're still putting a lot toward your debt, but that extra $100 can go to gradually making home improvements and saving for a new car. Maybe $50/month for car savings and $50 for making your budget more relaxed/home improvements, for example.
Ultimately, though, you're the one living the budget, so do what feels right and works best for you.
I would definitely split it but it's a matter of how. I would say the car savings really needs to be a pretty high priority. I would also say that loosening up your budget a bit is probably a good thing to consider for the sheer fact that being ratcheted down too far is an invitation for rebellion for a lot of people. If you think at some point living so tight is going to cause you or DH to go on a splurge, loosening the budget would be helpful. What happens if you do 1/2 and 1/2? Have you calculated the $ cost difference of all of these? If you are paying lots of interest, that would influence my decision too.
Good luck! You're doing great!
Peg
We actually just changed our withholdings too. I would go with #3. Ultimately, by saving money for a new car you are eliminating the need for a new loan- yuck. I would save for the car and add to the food budget. I am always happier when the food budget is fatter, but maybe that is just me!
Well, the choice has to be yours but I think I would do the split of $100 to everyday living and $300 to the paydown. I think the $200/$200 split would be the next best. Putting all $400 into paying down the debt would be great but not very realistic. You need to enjoy life a little so that all the hard work seems worth it. You are getting there!!! Keep up the good work!!
Car: $200
Debt: $120
Budgets: $80
You'd be happier driving your shiny new mini-van up to your newly decorated house. It also makes paying a mortgage much nicer when you like your house more.
Just a suggestion - personally I'd blow it all on shoes and vodka (in my dreams).
Since you gave 5 "buts" I'd suggest covering them all:
$80 - Debt
$80 - Car
$80 - Savings (taxes)
$80 - Decorating
$80 - Budget Increases (extra food & such)
You seem to be quite disciplined so whatever you decide it should be no problem for you. Keep up the good work!
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