What Debts Should You Pay Off if You Received Cash as Holiday Gifts
It's not uncommon to receive cash as a gift during December, and sometimes January, as we begin the new year. If you are a budget-savvy shopper who has set limits on your spending during the holidays, even if that meant offering your loved ones very affordable gifts, you will likely have a bit of excess cash at this time.
Fortunately, very few people complain about having too much money and, let's face it, if you're in that boat, it's a pretty great "problem" to have.
1. ANY URGENT OVERDUE EXPENSES (IF APPLICABLE)
After you have paid off your credit card debt and student loans—if applicable—you'll want to immediately dedicate the remainder of your funds to urgent expenses such as:
Utility bills—If you happen to be running late on your electric bill, for instance. You might even want to pay extra if that's feasible so you can ease the pressure for next month.
Any and all medical care—If you are suffering from any condition whatsoever, it's important to invest in your health.
Car maintenance—If your car is in disrepair or needs a minor improvement, this is the time to invest money into your vehicle so that it gives you less trouble in the future: Life is difficult enough without an automobile that is constantly breaking down.
2. STUDENT LOANS
If you have graduated with a mountain of student loan debt—as many, many individuals have—you will likely want to start setting aside a monthly amount to dedicate to paying it off.
Ideally, you'd be able to tackle it with an enormous sum, but that is extremely difficult to do, so simply paying off as much as you can every 30 days is more than enough.
3. CREDIT CARD DEBT
When a person gets their first credit card, it's exceedingly tempting to spend excessively on nearly everything in sight, whether that means going on a shopping spree that is a bit out of budget or flying to Europe even though you are living paycheck to paycheck—Even if you are comfortable financially, it can still be all too easy to splurge on items, experiences, and services that are exorbitant and unnecessary, if enjoyable short-term.
At the end of the day, being in mounds of credit card debt is extremely stressful. That, however, doesn't mean you should avoid them like the plague, but it does mean you should only use your line of credit to purchase items you are certain you can pay off within the month—If used mindfully, credit cards can actually be an excellent tool to improve your score, snag airline deals, etcetera.
4. SAVINGS
With the very real possibility of a recession looming, it's likely a good idea to either establish or bulk up your emergency savings fund: Most recommend putting aside three to six months' worth of funds for your rent or mortgage payments and groceries—No one wants to get laid off or fired. Hopefully, this never happens to you, but if it does, at least you will be prepared.
If you are self-employed, there is a possibility that a platform could suspend your account, and you would not have that stream of income anymore as a result. The other scenario is that you could simply hit a dry spell over the holidays.
In either case, it's essential to establish an emergency fund so that you can sustain yourself regardless of external circumstances. While it's tempting to spend extra money on takeout and fancy clothes, it's likely more beneficial long-term to put it directly into your savings account.
If you want to be extra cautious—which you probably should be considering the economic circumstances we are in—it would be best to set aside 12 months' worth of savings. You can simply calculate how much you would need to direct to savings monthly and automate this or plan to save $5+ every 30 days—whatever is budget-friendly and helps you remain consistent.
5. INVESTING
Finally, you can begin investing in retirement before putting some cash into stocks, index funds, bonds, digital and/or physical real estate, and even fine wine—it's important to diversify.
In short, it's a good idea to make your money work for you, especially during these difficult times, so paying off your debts before doing anything else is your best bet—It's likely best to tackle your student loans first so that you can avoid the exceedingly high interest rates before moving onto your credit card debt. Then, if you have anything left over, you can save and invest it.
To learn more, please reach out to https://www.nationalfcg.com/for-better-credit.