I do a little random work on the side in order to bring in a few extra dollars in addition to my day job. Luckily, most of this “extra” income is over and above my expenses for the month. I generally use the income to pay for business-related expenses, but even afterwards I have some left over. The money sits in an ING Direct account, which is less of a hassle to deal with than other, higher-interest savings accounts.
So what should I do with the money?
- Pay off my student loans faster. This is the most likely candidate. Some of these funds are being paid back at very low rates of interest, but not all of it.
- Pay off my car loan faster. I am paying 2% APR on my loan, so this is not the best choice. However, the money was borrowed from a family member (who insisted I borrow). He also insists there’s no need to pay back any faster than our agreement stipulates.
- Save up for a down payment on a house. I don’t know where I want to live yet, or many of the other details that should be necessary to know before making this commitment. I do know that I’ll need money–much more money than I have. I already have a savings account earmarked for “Relocation,” to which I add $55 from every paycheck.
No matter what I do, a good portion of the side business income should be saved for taxes, just in case I find myself with a large bill in April. I should also set aside a portion to invest in my SEP IRA.
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My suggestion – Save 15.3% of your gross revenues in another seperate ING account until after tax day. Gross not NET, this will provide a tiny little extra security for you. After tax day, whatever is left unused – pay to the relative for your car.
Take all money that is not for expenses or taxes and pay off your car loan to a relative. I know this goes against the grain for paying off the high interest loans first, but here are my thoughts.
1. Just maybe they may have an emergency in the future and you do not want to be the one holding them back.
2. With a great and early pay back to this person you may be able to access another loan when you look to acquire your first home.
3. Money and family just don’t mix. Don’t leave a potential problem on the table. Should you go to plan a wedding – they may be tempted to feel “bad” about your decisions if you still owe them. Why make them feel that way? Not that it is a definite but, it could happen.
4. Interest on this loan is not tax deductible.
Whatever you decide good luck to you!
If it were me, I’d pay back the family member first, just because I don’t like oweing family. After that, I’d save it for the eventual home downpayment.
Depending on how much you make on your side business, you may actually want to set aside as much as 30% for taxes. If you’re putting that in an ING account you’ll have more than enough with some left over. I would rather have too much set aside than not enough and that leaves you with 70% of the income to pay down the other debt.
Oh, and yeah definitely go with paying down the family member first.
I don’t like owing money to a family member. In the past, I’ve said I’d like to make that my priority. I did pay significantly more than expected at one point last year, but I was told it was unnecessary.
I agree that money and family don’t mix. According to last month’s balance statement I can pay off the car loan easily with accumulated business income, but I want to make sure I have enough left over for tax.
I may be over estimating my tax bill. I’ll take a look at that in another post.
Feel free to add to the discussion here about what I should do with business income…
I’d pay back the family member, only becuase it’s family, and then save the rest for a downpayment on a house.
i agree with paying relative, house fund, etc. but since it’s business income, what makes sense to me would be to have separate account (i think you already do) and just shuffle as much of it as possible into it and don’t decided now — wait until later. you may be hit with a great idea or opportunity to seize business-wise and this should help you with starting/funding that. like a gift of funding to your future self (for business or other).
Savings account for down payment towards a house: I am wondering how this money is going to grow faster? should you invest in value added stocks or mutual funds?