This article is presented by Kelly Whalen, Consumerism Commentary staff writer, who hosts a weekly internet show called the ¢entsible show.
Unexpected income is a problem many people would love to have, but it happens more frequently than people realize. Whether it’s a $20 birthday check from your eighty-something grandmother or a raise, there are few months we don’t have something unexpected.
When you get a windfall you could dream up many ways to spend or save it, so it is important to have a plan.
One-time income
You may find yourself with one-time income when your receive rebate checks, tax refunds, or birthday money, or if you sell something you own. Unless you are like Ebenezer Scrooge you’ll probably have the urge to spend some of this extra cash. The best way to deal with extra cash is to prioritize.
If your windfall is under $50, it’s a good idea to use this as fun money. $50 doesn’t go very far when you try to split it up, and unless you are $50 away from a savings goal or debt repayment, it will be pretty painful to put it away.
If your windfall is over $50 but under $100, put it towards debt. If you don’t have any debt use this as a little boost to your savings goals. If you have a favorite indulgence under $5, perhaps a hazelnut latte or a particular gum, spend a little on that so you don’t feel completely deprived.
If your windfall is over $100, plan to split it between spending and savings (or paying off debt). A good rule of thumb is to use a 50/50 split, though in some houses, like mine, that may be a 50/25/25 split.
If your windfall is over $1,000, I would highly recommend using it to (in this order):
Whether your side business suddenly takes off or you get a raise from your job, careful planning will keep you from lifestyle inflation. Lifestyle inflation is an increase in cost of living corresponding to an increase in salary. No matter how much extra income you earn, you need to have priorities.
If you are in debt, paying off your debt should be your first goal. Do whatever you can to make that happen as quickly as possible. The easiest way to pay off debt is to have your money automatically deducted from your checking account the day after your paycheck arrives.
If you are out of debt, or have a comfortable amount of debt (many people consider a mortgage comfortable debt), you should consider saving all of your dough. It’s unlikely you will miss your hard-earned cash, because you are already accustomed to living within your means. Choose your own order of savings, but I highly recommend using the following order:
If you are already doing all of the above, you should consider using your leftover money to fund other investments.
If you are out of debt, maxing out all your retirement options, funding your children (or future children’s) college investments, and have a healthy savings account, you should consider any other income that isn’t accounted for your do-as-you-wish money.
How do you deal with unexpected raises or revenue? What do you do when you get an extra $100?
Don’t forget! Consumerism Commentary is in the running to win a few Plutus Awards. The Plutus Awards are designed to celebrate the best personal finance resources such as books, savings accounts, and blogs. Vote here now before the deadline on March 16. The finalists were selected from among those that received the highest number of nominations in each category.
To be honest, since I created the awards, I am not completely comfortable being in the final running. If I do happen to win a Plutie — and given the number of fans some of the larger blogs have, it’s unlikely — I will pass the prize along to the next highest in the category.
In a few hours, Tom Dziubek and I will be recording a podcast with J.D. Roth from Get Rich Slowly about his new book, Your Money: The Missing Manual. Stay tuned; it will be an exciting show and you will hear it first here on an upcoming Sunday.
I’ve been closely tracking changes in high-yield savings account interest rates for a few years. Having a high-yield savings account is an essential part of being in control of your finances, and it’s the perfect vehicle for the bulk of your emergency fund. There is a possibility of having too much of a good thing.
Traditional banks have caught on to the popularity of internet-based savings accounts and over the past few years have launched their own online savings accounts to increase competition. For a while this resulted in significant benefits for savers through higher interest rates. Unfortunately, the economic downturn encouraged banks to lower the interest rates offered to savers. The concept of “high-yield savings” is currently a joke.
Customers are desperate for higher interest rates, and it’s now popular for some customers to keep moving their cash to the latest savings account to post the highest interest rate on the list. There is nothing wrong with ensuring your money is always taking advantage of the best opportunity.
Before you consider chasing the highest interest rate, keep this in mind.
It takes time to open a new account. Some account opening processes are better than others. In my experience, Discover Bank (review here) was by far the quickest and most painless while Everbank (review here) was by far the worst. The time you spend completing applications, talking to customer service, and managing yet another account has a value.
You might be charged inactivity fees. The more you open new accounts and transfer funds out, the more you’re abandoning accounts. You may choose to leave these accounts open in case they once again offer the highest rate. Although most banks offering high-yield accounts don’t currently charge inactivity fees, they might in the future.
You are adding clutter to your finances.Simplicity has a value. Adding more financial accounts into your life invites disorder and stress. While there are great tools to help you organize all your bank accounts, credit cards, and coins in your coin collection, you can create more peace for yourself by reducing to the smallest number of financial accounts possible. This saves time, as well.
Bank-to-bank transfers can take several days. Is it worthwhile to move your money from one bank to another with an interest higher by 10 basis points if you don’t earn any interest during the five days the funds are “in transit?” Some transfers are faster than others, so it will take some time for you to recover the lost income during the transfer.
Although I would love to simplify my accounts, I find myself adding more only for the purpose of researching for Consumerism Commentary. I would prefer to leave all my personal cash in one bank with a history of competitive high-yield rates.
In this simpler world, here is the strategy I would take:
Start with a high-yield savings account that consistently offers interest rates among the highest.
Switch banks only when something frustrates me (customer service, access, or fees) or if I can earn a few hundred dollars a year by switching to a different account.
For me, this beats moving thousands of dollars and possibly wasting time opening new accounts every time one bank leapfrogs another. Have you had any success chasing interest rates?
The market for Hollywood Hills homes of the stars hasn’t been immune to the real estate downturn. Although she purchased the house for $7 million in 2007, the asking price is now $4.59 million. Judging from the photographs on CNN Money, the villa looks like a great place to live.
CNN Money often profiles houses for sale. Occasionally readers see fantastic homes like Scarlett’s, and other times the website features houses on the other end of the spectrum. A few months ago I read a feature about a family that was having a hard time selling their home. It was on the market for six months, but potential buyers would pass it over. From the photographs, it was obvious this family didn’t care for their home. If you want to sell in a tough market, and you want to get a good price, you have to treat the home like a presentation.
Judging from the photographs of Scarlett’s mansion, there is not much she needs to do. The villa sells itself as long as there are enough millionaires ready to buy.
Having your home featured on CNN Money, if it is in good condition rather than a joke, could bring more attention to your sale. Although most of the millions of readers will not be looking for a home in your area, any publicity is good publicity.
It’s time again for my monthly financial reporting. I’ve been posting a balance sheet online almost every month since July 2003 in order to keep myself accountable for my financial decisions. Seven years ago I was not far into my journal to financial solvency, but I was at least spending less than I was earning by then. That was not the case only a few years earlier. So I would say that tracking my progress for the last few years has been fun.
February 2010 was a short month, whether judged by the count of days or by the passage of time. This is a reminder either that I’m getting older or that I’m not leaving enough time for myself. I will be thirty-four years of age this coming month, so many readers will probably see me as young. Yet life is passing me by. At least February was a good month financially.
The stock market was volatile but ended the month on a positive note, boosting my investments. My bottom line passed $300,000 for the second time, moved by investment gains and income. I mentioned last month that income from my “side job,” that is, mostly this blog, would be unsustainable throughout the year because it included long-term deals usually not repeatable. However, I did manage to surpass January’s income without more long-term deals this month.
Continue reading to see my net worth report. Feel free to leave any questions.
I really dig movie soundtracks, by which I mean real albums of music written for the movie, not the fake soundtracks that are just collections of pop songs. Ever since I first heard the music from E.T.: The Extra Terrestrial while not watching the movie, I’ve been fascinated by the effect of feeling the movie’s emotions using just my ears.
But just like other albums, a movie soundtrack isn’t usually 100% good, and unless you’ve got plenty of money to burn, there’s no excuse to pay $10ish on $3 worth of music. I’ve got a few pieces of advice that have worked well for me in the past.
Trust the wisdom of crowds
If you have iTunes, you can sort tracks by popularity. Just click the word “popularity” in the list and the tracks will sort themselves:
Of course, you can still use this technique even if you don’t want to buy ultimately from iTunes.
Preview the whole song
We’re mostly familiar with the 30-second preview available for years on both Amazon and iTunes, but now you can listen to the entirety of most songs on LaLa.com. They also have a handy, high-quality MP3 download option.
Special terms
A lot of the time, composers will re-visit the best musical themes in the opening or end credits. Look for these terms:
theme
prologue
opening
overture
suite
end titles
credits
prelude
medley
Or, if you were paying better attention than I usually do while at the movies, look for tracks with your favorite character’s name in them. For example, “Valerie” from V for Vendetta, “Jack Sparrow” from Pirates of the Caribbean, or “Martha’s Theme” from Doctor Who Series 3. For what it’s worth, all of those tracks have five stars in my library.
Track length
You may just want to get the most bang for your buck, so look for tracks over five minutes long. Music labels aren’t foolish, of course, so the longer the track, the more likely it is to be marked “Album Only,” which we all know is obnoxious and stupid. All it means is they won’t be getting my money for that track. But what can we do other than complain?
When Consumer Reports tests new cars, their staff shop just like consumers. They stop into dealerships and buy cars without giving any indication they intend to test the cars for a major magazine. Rather than receiving specially tuned or improved vehicles, the magazine takes to its test center the same cars ordinary shoppers would buy.
Testing involves both subjective and objective evaluations. Consumer Reports offers a number of short videos explaining their testing methods. featuring their 327-acre facilities. Here’s their explanation of how they test acceleration:
For the first time in six years, two American brands appear on the list of best cars of 2010. The typical criticism of Consumer Reports is that the subscribers overall tend to be more liberal than the “average American,” and this results in a favoring of cars built by foreign-owned companies. For the reliability portion of the ratings of new cars, Consumer Reports relies on subscriber-submitted reports of problems.
It seems to me that if subscribers are in fact more liberal, and there is some kind of correlation between liberalism and ownership of foreign brand cars, there are more opportunities for subscribers to report problems with the cars they own. This should lead to an overstatement of the occurrence of problems in foreign brands and an understatement of problems in domestic brands.
If there is a flaw in my logic, I’m sure someone will point it out.
Here are Consumer Reports’ picks for the best cars of 2010:
Family Sedan
Nissan Altima
Small Sedan
Hyundai Elantra SE
Sporty Car
Volkswagen GTI
Small SUV
Subaru Forester
Best Car Overall
Lexus LS 460L
Family SUV
Chevrolet Traverse
Sports Sedan
Infiniti G37
Family Hauler
Mazda5
Green Car
Toyota Prius
Pickup Truck
Chevrolet Silverado 1500
Do you own or plan to own any of these 2010 models? Let us know if you’re happy with your purchase.
Interested in opening a savings account at Discover Bank? Read this article first.
A few weeks ago, I noted that E*TRADE Bank will be moving some customers’ accounts to Discover Bank. The only customers affected by this move are those who do not have brokerage accounts. I have a brokerage account through E*TRADE, so my savings account will not be moved.
Nevertheless, I am interested in checking out Discover Bank because they are currently offering a very good interest rate.
Before you consider chasing the highest interest rate, keep this in mind.
It seems to me that if subscribers are in fact more liberal, and there is some kind of correlation between liberalism and ownership of foreign brand cars, there are more opportunities for subscribers to report problems with the cars they own. This should lead to an overstatement of the occurrence of problems in foreign brands and an understatement of problems in domestic brands.
