by Adam Dawson
The job transition is working out nicely so far. My previous company offered me some severance, and I was also eligible for my unpaid bonus and to cash out my accrued time off. My new employer offered a small signing bonus.
All told, we will pocket about $20,000 through the transition! This is such great news, and so timely. So far, here is our plan.
$5000: emergency fund
$7000-$8000: debt
Obviously this leaves quite a chunk unaccounted for. I was unemployed for two weeks during the transition, so some will go toward living expenses. We also have holiday travel, Christmas gifts, and a friend’s wedding coming up. I had to revamp my work wardrobe ($210 so far for 5 shirts and 3 pants), and I have to move to personal cell phone, which may end up setting us back a little more. So we are trying to balance some of these pressing needs with the desire not to let this money sneak off a little at a time. We may put some more toward debt or boost our emergency fund further. There’s also a lot more we’d like to do on the house and yard, but I’d prefer we keep trying to be resourceful in that regard.
For the curious, I am also fortunate to have received about a 13% raise from my last job. Because I plan to contribute to the 401k, I’m not sure what the net gain will be yet on a monthly basis. We’ll publish more info on the budget changes as it comes in. I also plan to use the direct deposit system to divert the difference due to the semi-monthly pay schedule directly into savings.
Have you ever received a windfall? How did you make sure you didn’t waste it? What did you do with it?
So…$20,000 is a SMALL windfall!? That’s a large amount of money for most. 🙂
well i don’t want to minimize it, but it seems small when i look at how much more debt we have than windfall. 🙂
In the past I’ve thought about what to do with a windfall before spending it on anything. This means it may sit for a while in my savings acount or money market. I do tend to split it up among different goals – paying off the mortgage early, saving towards something special, and immediate gratification. How much gets used in each category depends on what’s going on at the time. For example, last year a big chunk of my bonus went into the vacation fund since my boyfriend were planning a trip to Asia in August (It was great, btw! But very hot and humid). Another year a big chunk went towards a new computer because the previous one was on its last legs. And another time I used a windfall to boost my emergency fund.
Oh, and with our bonuses at work we can set aside some of it go directly into our 401(k)s. So a percentage of my bonus always goes to retirement.
Personally I would only earmark for spending any amounts that are extraordinary / one-time. For example, new clothes required for the new job, maybe the friend’s wedding costs.
Everything else (eg vacation, christmas gifts, cell phone) is a normal expense that you should really factor into your normal budget – especially give you are even getting a raise in the process.
Think about it this way, if you put another $5K to debt (so 17.5K out of 20 instead of 12.5), you could pay off one of your loans, freeing up that entire payment in your monthly cash flow for even more aggressive payoff of other loans — or just free up room for the added regular expenses of cell phone, potentially longer commute, etc.
Congratulations on your windfall! This will definitely ease the anxiety of job transition, i bet!
We’ll get some money from the State (after i give birth).. monthly payments for 2 years (some sort of state child support). It’s not a lot, around 260 bucks/month, but it will all get saved for our daughter. We’re doing OK with our income right now and have some savings too, so we don’t need to use the money.
Why does the state give you money for having a child? And, what state are you in?
I think it would be wise to put the entire windfall into savings for at least a bit of time so you don’t impulsively spend it somewhere you later regret as windfalls like this only occur a few times in ones career.
If it were I, I would also put ‘x’ number months of savings into an emergency fund and then probably put the balance toward the debt. It seems like you can entirely pay off Stafford loan #1 and make a significant dent in Stafford loan #3.
The 13% pay increase should be sufficient to cover wardrobe upgrades and a cell phone plan. If you already have a cell phone, it is wise to look into some low cost providers. We have a plan through Page Plus Cellular that has worked out really well for us and only runs $30/month. Much better than $90/month through one of the major providers. Even if it hadn’t worked out, we weren’t under a contract and wouldn’t have been out much.
Also, you may consider saving the entire amount of the signing bonus as your ’emergency fund’. There’s always the risk that the new position will be a total train wreck and you may have to pay it back if you were to leave the company before a certain time frame passes.
this is sound advice, all of it. thanks.
my first paycheck comes next friday and at that point we can move the extra into savings and live off of the paycheck.
Wow! Congrats! $20K is not a small windfall – that is over 20% of what you owe! I like your allocation for it, and would encourage you to use whatever raise you get and throw I right towards higher debt payments.
$20K would boost our emergency fund to its full amount and pay off our remaining snowball, so yeah, that’s a lot of money!
That is a nice chunk of change! Congrats.
That is so awesome!
I agree with Walnut, I think you should be cautious with this money: do not allocate any of it for a few months. I’ve always heard that coming into a significant amount of money should be greeted with restraint. I also agree that the increase in your pay should cover the costs of new clothes and mobile plan. You have done such an awesome job of cutting down groceries and eating out, use some of that cash. And finally, I definitely don’t think any of this money should be used for trips or gifts as that should come from your normal income. Adequate planning should make paying for those expenses possible.
A few years ago, when I was close to paying off my credit card debt, I came into a few thousand dollars (not $20,000 though more like 4,500 😉 ). I ended up saving all of it for my (then) nonexistant savings fund and since I have been able to accumulate up to 8 months living expenses. To be honest, $5,000 doesn’t seem like a reasonable amount for your emergency fund, and I totally understand that this is a new process for you and that you probably plan to put more toward it – why not just park that $20,000 in that account at least for a little while?
That’s a nice chunk of change! Doesn’t it feel great when something horrible works out in your favor?
I’m torn between those comments that advocate for paying off debt, and those that say save it. I am working to get my last bit of credit card debt paid off, and I’m running into the same dilemma. I have enough in savings to pay it off completely, but it would leave me nothing in savings. As someone who has gone through a job situation like the one you just left, I acutely remember the panic and worry about finances, and wishing I had a huge savings account so I didn’t have to worry about anything. But the siren song of debt repayment is still there.
I wonder what others think in the debt payoff versus savings debate. I’m still unsure where I stand.
I would pay off Stafford Loan #1 (the one with the $8,000+ balance) and bank the rest as emergency fund.
I would definitely NOT use any of this for holiday gifts, travel, wedding travel, etc. As others have said, you should have these things in your normal budget.
this is along the lines of what i’m thinking
I agree 100%. I think you need to put travelnn your regular budget.
I’d fund the emergency fund and use 100% of the rest towards the debt. You new cell phone, clothes, gifts, etc should come out of your living expenses. If you got a 13% raise, then you can use that money towards your Christmas gifts, etc. Otherwise, that $7k, which is almost 1/3 of the $20k is really just spending money. Anything you want to do on the house, can really wait. Waiting 2 years before you do anything on the house, will give you time to live in the house to figure out what you want. When you are out of debt, you’ll have the freedom to decide what you want to do. It’s also hard to get an entire financial picture, without some honesty about your total net income/month and all of the expenses including all of the mortgages.
When I have a financial goal, I defer as many expenses as I can. For example, when I was saving for the house I bought in April, I deferred a ton of expenses until I got the home. Unless, something was a necessity, and I mean a real necessity, only then did I spend the money. Shoes come to mind. I really, really needed some everyday shoes last year but I knew I needed to hit my financial goal for the house so I could move out, terminate my rental lease,etc. I ended up purchasing a cheap pair of shoes to get me through the winter. This year, I have my house and now I can make a different decision and purchase better shoes. I find it very empowering to delay decisions. Sometimes, I just defer things for 6 months. I’ll tell myself that I don’t need to do anything for 6 months and then in 6 months, I can re-evaluate and see if I really need it. Also, deferring things in my mind, doesn’t mean I can’t have something, it just means that I get to re-evaluate it in 6 months.
I really like this advice and I think you’re right. A lot of the stuff we’d like to do to he house is cosmetic and really doesn’t need to be done although we agree we’d like to see it happen. Other things are more functional, like replacing our dishwasher and maybe installing a garbage disposal or a water filter to help with the hard water. I know these things would make living in the house daily much easier, but I also know it can wait 🙂 I’m happy to have your encouragement here.
I’m wondering what shoes you ended up with? 🙂 Did you get a good deal?
I haven’t purchased new ones yet:)
we are on a septic, we can’t have a garbage disposal. but we can have pigs!
The goats don’t eat like pigs?
First time commenter and by the way, I’m really enjoying your blog and writing style.
Quick question: Is the $20K pre or post tax? i.e. do you have the full amount to play with?
I once heard a suggestion that 5% of any genuine windfall should be blow money – to buy something you wouldn’t have allowed yourself otherwise. When we came by a windfall, we did just that, which our case was getting a fancier car than we would have. We had no debt, not even mortgage, so I was totally comfortable with that.
I’m sure some people might be shocked at the suggestion of treating yourself, but I think the theory is that it actually stops you blowing the lot (not that I’m saying you would!) and after all it’s a windfall! I’d take off the 2 weeks missing pay out of the total windfall first and then apply the 5%, to make sure the monthly budget balances. I agree with the above commenters who suggest fattening the emergency fund and putting the rest to debt.
Thank you for the kind words. I like your thinking!
This makes the most sense to me.
This figure was after tax.
I’d increase the EF to 8K – 10K, especially because of the rentals. We have rentals too, and while we are glad we bought them, and we consider them a great investment, we know by experience that you need to have money available for the inevitable problems that arise. Same with owning a house.
Then I’d pay off the 8K loan.
And I’d “blow” 2K. I’d probably do some of the improvements you’ve been wanting to do in the house.
And then I’d take every penny of what was going towards the 8K loan, and apply it to the next loan.
For the rest (phone, etc) you should be able to make room for that in your budget, especially given the 13% raise.
With the amount of debt you have, there’s no way in hell you should be shopping retails – did you ever consider thrift stores? You can find amazing things for about 1/4 of retail price! Seriously, you cannot afford to be shopping retail with OVER $100,000 in debt! If you ever want to get rid of that HUGE number, you are going to have to start seriously chomping at the bit!
We do a lot of shopping at thrift stores. Much of our furniture and clothing, home decor, and kitchen stuff is from thrift