If you received $1,000, what is the first thing that comes to mind to do with it?
- Spend it! You’d been eyeing a [vacation/handbag/coat/dress/pair of shoes] and just couldn’t find the money for it.
- Save it! You were worried about meeting your savings goal or maxing out your 401(k) was cutting into your discretionary savings or you just plain wanted to throw some more money at a particular savings goal.
- Give it! You’d been meaning to up your charitable giving, but just hadn’t found the money to do so or found the right cause.
This type of income could be:
- Large gifts from parents
- Irregular bonuses from work
- A raise on your monthly paycheck
- Regular (or expected) bonuses from work
- Distribution of a certificate of deposit that you had forgotten about
- Income tax refunds
My general inclination is to save the mini-windfall. I net about $4,500 each month after maxing out my 401(k) and I see a significant amount of money each year in scheduled bonuses from work (to the tune of at least 1/3 of my gross base annual pay). I use these bonuses to fulfill a lot of my savings goals, like maxing out my Roth IRA, investing in taxable accounts, saving towards buying my car and my condo and in the future, a house, and pre-paying my mortgage. I rely solely on my monthly paycheck, after 401(k) contributions, to cover my monthly and yearly expenses.
I also save raises and income tax refunds. (Though I also try to minimize my income tax refund by adjusting my W-4 withholding throughout the year and seeing more money to save each month.)
As for large gifts from my parents, I will generally spend these on something specific. For example, my parents gave me some money towards buying a car. I didn’t buy a car any more expensive than I would have bought without their help – it just made it easier. My parents also gave me some money towards a down payment on my condo. There are some other funds still waiting to be disbursed that I am going to use for decorating my condo. I’ve been really bad so far at acquiring paintings and in general, making my apartment feel like a home, and so I’m going to use the remaining funds from my parents to help towards things like blinds, curtains, paintings, and any extra furniture that I might want like a table at the front entrance.
There is one exception to saving bonuses – I spent all $10,000 of my relocation bonus on furnishing my apartment. That was definitely the best plan to do with it. I didn’t want to just go to IKEA and furnish my entire apartment with $2,000 worth of cheap furniture. Instead, I went to grown-up furniture stores and bought bedroom and living room sets that I absolutely love.
I have a really hard time spending money, but that is something that I’ve gotten better at over the last few years. I bring in enough money and save/invest enough money (61% of my net pay in 2011) that I also should spend enough on things that make me happy, like a nicer condo, nicer furniture in my place, and nice vacations.
Readers, what is your financial mindset? Do you default to spending, saving, or giving?