Nov 16 2011

Planning our new budget: Considering windfalls

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!]

4 Responses to “Planning our new budget: Considering windfalls”

  1. I’m wondering why you treat the “extra” paychecks as real extra money. Because isn’t it that the salary is the same, but each paycheck is just small than it would have been if it was semi-monthly? We’re going from biweekly to semi-monthly at my work, so we’ll be getting larger paychecks, but that doesn’t mean a raise. So technically, it’s not extra money — just an extra piece of paper.

    I do agree, though, that coming at any extras with a plan is much better. We usually use the credit card rebate checks, etc. to set aside for our travel fund.

  2. Jane — yep the salary is the same, but for 10 months out of the year we have to pay our bills as if we only get 2 paychecks per month. Two months out of the year, we get a 3rd check, so that money isn’t normally needed for bills. It’s extra that we don’t need for our mortgage or utilities. We’ll use the same percentage for our retirement and charitable giving just like any other paycheck, and food too, since we do our grocery budget based on a biweekly pay cycle. But the rest of the money will be surplus instead of earmarked for bills.

    I would prefer a bi-monthly or monthly paycheck system, I think. A slightly larger paycheck and just a little easier for my brain to work with!

  3. Oh, I see. When you think about it that way, it totally makes sense to use it as “windfall money.”

  4. We were in the same situation up until recently. Hubby and I got paid on the same day, biweekly. So we’d both get an extra paycheck some months. Now that I just started a new job, we get paid opposite weeks, so one of us gets paid every week! I’m finding it easier to budget by week and not by month now. I think it’s actually making our money go further too.

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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