As you can see in my sidebar, our 6-7ish month emergency fund is now complete. The proceeds we used from cashing out our whole life insurance policies finished it off. For the past several months, we had been working on filling up the e-fund as well as using some of our surplus money to buy things for our house.
Now, we’re going to redo our budget and get back to saving 15% for retirement. Much of 2011, we had only put aside 6% (to get the full company match) but nothing more. We wanted to put that remaining 9% that would have gone toward retirement, toward our house down payment. I think it was worth doing that, since we were able to avoid PMI.
Even so, we need to get back on the retirement savings in a big way.
We are anticipating a few small windfalls in the coming year. For one thing, since Shane is now paid bi-weekly, we have two months out of the year where he gets 3 paychecks instead of the normal 2. We need to plan ahead on what we’ll do with the surplus money. Perhaps this December we’ll use part of it to put in our “sinking insurance fund” (where we save up for our insurance premiums and pay the policy in full when it is due). Maybe we’ll want to put a little in our IRA. Maybe some in the 529 plans to get some last-minute state tax benefits.
I think we’ll also want to use some of it for Christmas and birthday presents.
The point is — we need to come at it with some sort of plan so that the money is put to use how we’d like it, rather than just being spent without a purpose.
Shane is also anticipating a semi-annual bonus, so we’ll want to figure out ahead of time what we’d like to do with the money.
Our tax refunds have potential of being a small windfall as well, if we ended up overpaying through our withholdings or through extra tax deductions.
Anyway, soon Shane and I will sit down and sort through our anticipated windfalls and also figure out how to use my income toward our goals. We can always change our minds later if we want, but I think having a plan going into it will be beneficial to us. If the windfall doesn’t happen for some reason or other, that’s ok. We won’t spend our windfall ahead of time — no spending our tax refund before we get it, for example!
If you have any windfalls during the year (and really, most of us do in the form of rebates, credit card cash back incentives, tax refunds, bonuses, selling items online or in a yardsale, and other found money) think about what you’ll do with it to improve your financial situation. Maybe you can use it as a lump contribution to your emergency savings. Or maybe you’ll want to use a big chunk to pay down debt. Maybe you’ll earmark it for a well-deserved family vacation, or make some home improvements. Do with it whatever you like — it’s your money! Just plan ahead so it is working to your advantage.
[Unrelated but I wanted to mention it before I forgot — my life insurance post was featured on a recent Carnival of Personal Finance!]