I asked each blogger who participated in last week's debate over how to spend $1,000 to comment on each other's approaches, which were quite different. J.D. Roth said he would save the money to put toward his larger financial goals, such as a trip to London and new car. Farnoosh Torabi said that if her job didn't prohibit it, she would invest in the stock market, but otherwise she is going to use it on future splurges, such as summer beach weekends. Meanwhile, Boston Gal said she would save almost all of it.
Here is what they had to say about each other's choices:
Boston Gal's approach makes sense. She's setting something aside for Wants, for Needs, and for Savings. This is a great way for many people to handle windfalls. How much is best for each category? I always say "do what works for you." Each of us is different. The key is to make a conscious choice. I'd choose to put it the entire windfall into savings right now, but Boston Gal's response is just as valid.
Farnoosh Torabi on J.D.'s perspective:
I have to say I generally agree with this blogger's financial philosophy. One minor difference: If I were still in debt, I would have used all of the money to pay down my debt. I always got such a kick out of seeing my balance go down. It motivated me to find more ways to pay off debt. That said, I don't disagree with keeping some (like this blogger would have done) to spend on yourself, if that's what makes you happy.
While this blogger is choosing to use that $1,000 on a long-term goal, my decision is to save it for a short-term goal. I save all throughout the year for my long-term goals in a high-yield savings account, a CD, and in a 401(k). So if I get a windfall of money, I like to first consider using it to satisfy some of my more immediate (and fun) financial goals, like paying for tennis lessons, for a vacation, or for the three weddings I'll be going to this year.
Boston Gal on Farnoosh's answer:
Too bad Farnoosh is prohibited from investing in the stock market, since putting a windfall into a long-term investment such as a stock or ETF would have been a great way to make that $1,000 grow. But putting money into a savings account is a great secondary plan—as long as Farnoosh is taking advantage of a high-yield savings account (and I am sure that is the case!).
But if Farnoosh really did want to invest that money in the stock market and had access to an employer-sanctioned 401(k) plan, then a possible way to slip that extra money in would be to ask her human resources department to temporarily increase her paycheck contributions by $1,000 into the company plan—putting the windfall into a checking account and paying bills with it while her paycheck is temporarily reduced due to the higher contributions.
Of course, this would only work if Farnoosh was not already contributing the maximum allowable in the company 401(k) plan. Overall, it looks like Farnoosh's plan of using the windfall for a weekend of summer fun is a good one, and I am sure if any money is leftover, back to savings it will go!