March 2018 is a 3 paycheck month for those of us on a bi-weekly pay schedule. This is a great opportunity to jump start your financial goals, or even take advantage in a way you’d never thought of! I’ll show you 7 great ideas to make sure that 3rd paycheck isn’t wasted. These are in no particular order… aside from #7.
1. Save It!
The simplest method for making sure you don’t waste that 3rd paycheck is to not give yourself the chance! You know how they always say you shouldn’t go grocery shopping hungry? Apply that same wisdom to your finances! Don’t have that extra money sitting in your checking account, with no assignment, when your metaphorical Amazon belly starts rumbling. To do this simply take one of those 3 checks and deposit it straight into a savings account. Don’t have a savings account? You can set one up online in less time than it will take to read this article at any number of great banks. Ally and Synchrony are 2 that I personally use for online savings.
2. Make a Home Improvement With R.O.I.!
R.O.I. stands for return on investment. And no, I don’t mean get a shiny new front door or buy new hardware for your kitchen cabinets that theoretically “adds to the value”.. but only if you plan on selling your home. Invest in something with REAL R.O.I. right now in your every day life. Try a smart home thermostat that will save on your energy bills. Consider looking into windows that can also save big on energy bills. Think about replacing that old inefficient air conditioner or furnace!
3. Start a 529 Plan!
For those unfamiliar, a 529 plan is a tax-advantaged college savings plan. I know, I know… not the most exciting option for a windfall, but hear me out! The 529 is a great option for parents saving for school. Maybe you haven’t had the chance to start one, and you’re thinking well one paycheck isn’t going to pay for school. And you’re right! But think, once you have it started instead of worrying about opening 4 of the same toy next time you have a birthday party, maybe go to Grandma and Grandpa and tell them what you’d really like is an investment in their future!
4. Pay Off High Interest Debt!
Take advantage of your mini windfall and cut the head off of a high interest snake! This is a one-time investment with real long terms savings. Have a car loan with bad credit and could really do with taking a bite out of the principal? Have any nagging credit card debt still left over from the holidays? It happens to the best of us but don’t miss an opportunity to save yourself some serious cash over time by eliminating all of those interest payments!
5. Start a Roth IRA!
The Roth IRA is the single greatest tool for most individual investors to build wealth for the long term. Haven’t started one yet? Take this opportunity to strike! This will set you up for long-term wealth building by giving you tax-free growth. They couldn’t be easier to open. A simple google search will show you a bevy of quick online options. Don’t feel like picking your own investments? There are robo-advisors like Betterment and Wealthfront that will handle that for you! After you have the account open you’ll have a permanent landing place for excess cash that you don’t need in the short term that you can sit back and watch grow for retirement!
6. Start Your Emergency Fund!
You won’t necessarily build yourself all the cushion you’ll need to cover a real “emergency” should one emerge but why not permanently capture this windfall and turn it into a little security blanket? My preferred method for this would be to go into your local bank, or online to whatever bank you happen to use, and open another account where your primary checking account is to have as a simple cushion. If you feel you have the self-control to handle keeping that cushion as a base balance in your primary checking account, your local bank may actually offer you a small interest rate for keeping a balance of over $5,000 at all times as an example.
7. Start Your Baby Steps!
For those unfamiliar with Dave Ramsey’s teachings the Baby Steps are as follows…
Baby Step 1. Save a “starter emergency fund” of $1,000
Baby Step 2. List all of your non-mortgage debts in order from smallest balance to largest, regardless of interest rate. Pay minimums on all but the little one and throw everything you have at that one. The legendary “Debt Snowball”
Baby Step 3. Save a full emergency fund of 3-6 months of expenses
(Baby steps 4-6 run simultaneously)
Baby Step 4. Save 15% of your income toward retirement
Baby Step 5. Save for kids’ college
Baby Step 6. Throw all your extra cashflow at your mortgage
Baby Step 7. Throw all your extra cashflow at maxing out all retirement vehicles
Find the Baby Step that applies to your situation and apply your mini windfall accordingly! There’s no single system that has helped more people get their financial house in order than Dave Ramsey’s Baby Steps and you can’t go wrong applying your cash accordingly.