What You SHOULD Do With an Extra Paycheck

Jeanne Sager

moneyMy favorite dream involves the rich uncle who dies and leaves me money. Of course, I've never met said uncle, and he was kind of a creep, so I'm not upset when he dies. Just throwing giant fistfuls of cash up in the air.

Had that dream?

You love it too, don't you?

However unlikely it sounds, the company giving away year's worth of mortgage payments brought it rushing back. And made us think seriously about how we're spending the other windfalls in life.

You know what I'm talking about. Your tax rebate check. The Christmas bonus. The check for your birthday from your grandmother.

So how do you make them count?

1. Don't Use Them on the Mortgage: Paying down the biggest debt in your portfolio would seem to make sense, but if you have a lot of credit card bills or a car loan, put the money toward them instead. Mortgage interest has advantages at income tax time, while the others don't. And with credit cards, in particular, interest is compounding month after month while a mortgage remains steady.

2. Pay Down Principle: It's tempting to just pay a few months of your mortgage to get the payment off your back so you can focus on something else. But putting the money toward the principle will save you interest down the road -- it's the best bang for the buck.

3. Spend to Save: From energy-efficient appliances to getting out from under that car lease, use your money to save you down the road with a host of spend to save options.

4. Pretend It Doesn't Exist: Higher yield savings accounts are usually locked up and harder to touch. Considering this was an unexpected windfall, you weren't counting on it anyway. So put it in there and stop fretting -- just let it grow.

Do you spend the check from Granny wisely?


Image via kevindooley/Flickr

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