What to do with extra funds in your budget.
ny time you have extra money, look at your budget first. Doing this will help you plan where it would be best to use the unplanned income. What bills do you need to catch up on? Have you added anything to your savings lately? If you haven’t created a budget yet, log in to Online Banking and get started by using the free budgeting tool.
Check out our tips to make these extra funds in your budget work in your favor.
Take care of basic needs.
Before you worry about your bills, take care of any basic needs for you and your family first. Stock up and make sure the family meals are taken care of first. Then focus on the roof over your head. Catch up on utility bills and make sure your mortgage or rent payments are current. If there are any necessities that aren’t being met, take care of those needs now.
Catch up on bills.
Review any past due bills and prioritize them by importance or balance due date. If you don’t think that you’ll be able to catch up on every bill, contact your debt providers. Even if you can only make a partial payment on a bill, your providers will often work with you on a payment plan.
If all of your bills are current, consider catching up on credit card payments or paying down the balance on high-interest loans. And look ahead to any bills coming up soon that you might need extra funds for, like property taxes or insurance payments. Tucking away your additional funds now for an upcoming payment could free up some room in your budget next month.
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Start or add to your emergency fund.
If you’re in a good place right now with a budget in place, your basic needs covered, and your bills completely current, it’s time to start thinking about the future. The last Federal Reserve report on the economic well-being of US households found that 37 percent of adults would not be able to cover a $400 emergency with cash and would need to find another way to pay for the expense.3 Now would be a great time to start an emergency fund or add to an established fund.
Most experts agree that you should have enough saved to cover three to six months of expenses. Use your budget to figure out how much you spend each month. Multiply your total expenses by three to get an idea of how much you should have saved. Make sure your emergency fund is saved in an account that’s easily accessible (like a Special Savings Account) so you can get to it if you need it.
Start a sinking fund.
If you have a variable income, it might be helpful to use the extra funds in your budget this month to start a sinking fund. This is a separate savings account that you can pull funds from if you have a month where your income is less than you planned in your budget. A sinking fund eliminates the need to rely on credit cards or funds from your regular savings account if your income changes.
Here to help.
When you have extra funds in your budget, you might be a little confused about how to plan for what’s next. Just remember that we’re here to help. The Lake Trust Financial Life Planning team can help you create a budget or figure out a plan for the future. Our partners at GreenPath™ Financial Wellness1 can also help assess your financial situation.
1Federal Reserve. (2023, June 30). Report On The Economic Well-Being Of U.S. Households In 2022-May 2023. Retrieved from https://www.federalreserve.gov/publications/2023-economic-well-being-of-us-households-in-2022-expenses.htm
2Third-party website. Lake Trust Credit Union is not responsible for the content, availability, security, or compliance of any linked third-party websites. In addition, the site’s privacy policies may differ from those of Lake Trust.