Tuesday, December 11, 2007
Today's Tip: Identify Which Months You Will Receive
Three Paychecks
I heard a Christmas song on the radio yesterday which always makes me smile: “It’s the
Most Wonderful Time of the Year.” While many people think of the reason behind
Christmas, I would argue that when Andy Williams wrote the lyrics to this song back in
1963, it was probably after he received his third paycheck of the month. As more than half
of Americans do not keep an active budget, these are the two times each year that we find
ourselves with some “extra spending cash.” There are a number of things you can do with
your excess cash.
Option One: Get that money back into our economy! If you are like most Americans,
your first thought is to spend it. If this option is inevitable, then I would encourage you to
plan your big purchase in the month in which you receive three paychecks. If the big
purchase is a television or other appliance, your third check might be sufficient to cover the
entire expense. If your purchase is a new car, this could be the down payment. Either
way, using the three paycheck month to make the purchase both gives you something to
look for (and encouragement when budgeting is always good) and minimizes amount that
you would have to finance.
Option Two: If you have the means, now is the perfect time to contribute to your Roth
IRA or mutual fund. Less aggressive investor? Opening a Certificate of Deposit will get
the money earning some interest. Most banks have a Liquid CD in which you can
periodically make withdrawals while receiving interest on the account. In fact, many
brokerage houses offer savings accounts in rates above 5%!
Option Three: Use the funds to make a one time principal reduction payment on your
mortgage. Naturally, you would want to consult your tax advisor prior to doing this, but
studies show that if people make thirteen regular monthly payments per year on their
mortgage, they reduce their home loan by an average of six years!
Whichever option best suits your needs, the three paycheck month is something that must
be accounted for in your budget. The "event" happens twice per year, every year, and if
left unaccounted, you may be losing a golden opportunity to contribute to your retirement
or savings needs. That which you do not track, you quickly forget!
Have you downloaded the free budget yet? Our free budget spreadsheet is updated for
2008 and features a monthly account tracker and budget form!
Three Paychecks
I heard a Christmas song on the radio yesterday which always makes me smile: “It’s the
Most Wonderful Time of the Year.” While many people think of the reason behind
Christmas, I would argue that when Andy Williams wrote the lyrics to this song back in
1963, it was probably after he received his third paycheck of the month. As more than half
of Americans do not keep an active budget, these are the two times each year that we find
ourselves with some “extra spending cash.” There are a number of things you can do with
your excess cash.
Option One: Get that money back into our economy! If you are like most Americans,
your first thought is to spend it. If this option is inevitable, then I would encourage you to
plan your big purchase in the month in which you receive three paychecks. If the big
purchase is a television or other appliance, your third check might be sufficient to cover the
entire expense. If your purchase is a new car, this could be the down payment. Either
way, using the three paycheck month to make the purchase both gives you something to
look for (and encouragement when budgeting is always good) and minimizes amount that
you would have to finance.
Option Two: If you have the means, now is the perfect time to contribute to your Roth
IRA or mutual fund. Less aggressive investor? Opening a Certificate of Deposit will get
the money earning some interest. Most banks have a Liquid CD in which you can
periodically make withdrawals while receiving interest on the account. In fact, many
brokerage houses offer savings accounts in rates above 5%!
Option Three: Use the funds to make a one time principal reduction payment on your
mortgage. Naturally, you would want to consult your tax advisor prior to doing this, but
studies show that if people make thirteen regular monthly payments per year on their
mortgage, they reduce their home loan by an average of six years!
Whichever option best suits your needs, the three paycheck month is something that must
be accounted for in your budget. The "event" happens twice per year, every year, and if
left unaccounted, you may be losing a golden opportunity to contribute to your retirement
or savings needs. That which you do not track, you quickly forget!
Have you downloaded the free budget yet? Our free budget spreadsheet is updated for
2008 and features a monthly account tracker and budget form!
My Financial Profile - MyFinPro.com
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