Year-End Bonus

Hi Guys,


Love the new forum and am eager to participate.  I've been a YNAB user for years but used it only as a glorified expense tracker and never really followed the steps.  I have a "small" amount of credit card debt, about $4K, several low interest, two high.  I have paid it off and charged them up (ugh) twice now.  


I am working full time and moved this summer after two years of grad school. I am living paycheck to paycheck with no savings (I do contribute to 401K) and only now just understanding the steps and how I am not really accurately accounting for my expenses (true and variable).  I realized that I'll set a budget, but as the week goes by, if I didn't budget for something important that comes up, or I want something, or hey train tickets to travel for the holiday, I'll just move money around to cover those by end up in the red by end of month or before next paycheck. 


So, this small bonus just came in, $500. It's maybe enough to pay off 1 credit card. But I am also still in paycheck to paycheck cycle, in the red right now, and without savings.  I don't know what to do.  My gut tells me that it would be wonderful breather to have a jump on budgeting for the next month and begin building a buffer if I ad this to my budget for next month with the new found knowledge of getting serious about budgeting accurately. I could put it into savings and be very very tight or short this month.  I could pay off a credit card. Or a combo? Would love your advice.



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  • When you are thinking about your monthly expenses, don't forget that credit card interest is an expense that you are incurring every month and by incurring it and having to pay it, you don't have those funds available to save up for anything else. If you pay off the card, you will eliminate the monthly one of your monthly expenses.

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  • I think it comes down to you, your financial personality (for lack of a better word), and goals. Only you know that. If you allocate it for next month, will it stay there as a buffer and give you peace of mind? If it goes into a savings account, would you only withdraw it for emergencies and have even more peace of mind? If you pay off a credit card, will you cut it up and feel better and motivated about making progress toward your debt goals? Which of the three scenarios seem most like you, and closest to your biggest overall vision?

    Me in this situation, I would put it toward next month for some breathing room and strive toward increasing that buffer even more next month because living paycheck to paycheck makes me very anxious. My husband, though, in the past he would have spent it all in addition to his normal spending this month if he knew it was available, so I believe he would have been better off paying off a credit card and cutting it up, to continue the pressure of scarcity.  My best friend would be best served with the money in a savings account because to her, savings are sacrosanct and only for dire emergencies. Three different personalities, three different answers.

    These are just my thoughts, of course. But I also think that the fact that you're asking this question is great! I think any path you choose with the extra $ is progress. The only question now is which is optimal for you. Way to go :-)

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  • I was just not able to get my financial house cleaned up and pay off credit card debt and get ahead while continuing to use the credit cards. You may be able to get it done, but no matter how much I tried, I just failed and ran the silly things back up again. I finally cut them up. I saw it as trying to fill a bucket with a hole in the bottom. I needed to stop using the bucket.

    That drastic step of living on cash with no access to credit finally made me look at financial planning, budgeting, and my bill/debt payments in a whole new way.  I used to throw big chunks of money at credit cards, whatever I could 'spare' or whatever I got as a gift, windfall, or bonus. This always resulted in having to turn back to the credit cards again for thoroughly predictable expenses.  Without the cards, I became far more thoughtful and deliberate. If I made the mistake of sending too much to the card, I was going to have to wait until my next paycheque.  I'm going to need $X for Christmas, $Y for travel costs, $Z for groceries, so I can only pay the minimum payment + $100 this month.  This ultimately meant that it took longer to pay off the cards than I wanted, but it worked.  I never backslid again.  Today, I can confidently use credit cards, but they are just another method of payment for me because the funds are already sitting in their budget categories.

    If you are living paycheque to paycheque with nothing in your bank account for known upcoming expenses, then throwing the entire bonus at the cc may keep you in the hamster wheel. It feels like you've made headway, but you're just running in place faster, Maybe you could rethink your approach and make headway. Taking a different path is what finally worked for me.

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  • I'm a fan of saving it. Specifically, getting ahead on one (or more) True Expenses that are coming up sooner rather than later. 

    Paying for the past while saving for those less frequent costs is a challenge, especially when you have less-than-ideal timeframes (for instance, your annual insurance may be due in four months instead of twelve).

    Letting money sit takes discipline and is a worthwhile habit to form. 

  • Thank you, everyone for your great responses! I especially resonate with the personality type decision and what will fit in the long term. After reflecting, for me it's getting ahead on true expenses and building my buffer. Thank you!

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  • You could try Dave Ramsey's baby steps.

    First thing is to stop incurring more debt, on the credit card.

    If it is not budgeted then you can't afford it, no matter what account you are using to pay for it. Credit card or cash.

    Create a baby emergency fund of $1000.

    Then pick one debt and attack it, any extra in the budget goes to the credit card payment category and you pay it down each month. Dave would say the smallest one.

    Once it is zero, then take on the next one.

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