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A reader sent in this interesting question and I thought I would share a tip that will not only help them save their money but help to improve their credit at the same time.
“Madam Money, I work in sales and I just found out that I will be getting a $19,000 bonus for the last sales quarter! I feel so blessed! I don’t really have that much debt to pay off BUT I have wanted to build a backyard deck. About a year ago I got estimates for when I was ready and able to have it built. The lowest bid was around $10,000. I also wanted a surround sound system since I do a great deal of entertaining at my home. I know during this economy I should save my money but I feel that I deserve to do something special for myself since I busted my butt last quarter. What do you suggest? Should I use my bonus to get what I want or should I bite the bullet and save it?” – Ready to Spend, Union City, GA
Dear “Ready to Spend,”
Congratulations on your healthy bonus! You are truly blessed and are obviously great at what you do. It is also great that your debt is not so overwhelming to have to use your bonus to pay it down or in full.
I will NOT tell you NOT to spend you money! If you are a Spender and I tell you not to spend, you will more than likely feel deprived, rebel and possibly spend more than you want or spend it all.
For example, I don’t do Diets. When I hear DIET, I hear “DIE” … deprivation. And, when I feel deprived (and can’t have a Big Mac), I rebel. So instead of having a Big Mac once a month, I may have one once a week just to not feel deprived. Same thing happens psychologically with Spenders regarding money!
I WILL tell you to apply your Spending Plan allocations to your bonus. At the very least, take 5% of the bonus for your play money and get what you want and put the 95% of the bonus in a high yielding interest bearing savings account or CD (certificate of deposit).
OR, if you are really inclined to build that desired backyard deck, put the bonus in a high yielding interest bearing savings account and use the money as collateral for a Secured Loan.
A Secured Loan will provide you the following benefits:
No or Low Risk Loan
A Savings (or “Share” if it is a credit union) or CD Secured Loan from a financial institution usually has an easy or guaranteed approval process. A Secured Loan is little to no risk to the financial institution because if you should default (not pay) on the loan, they can take the money in the savings to pay it off. Do don’t default if you want to keep your hefty nest egg.
Below Market Interest Rate
Some financial institutions may offer below market interest rates for secured loans. For example, 3.00% above the savings/cd rate would be 3.00% + 0.50% = 3.50% interest rate. Make sure you shop around. Credit Unions may have competitive Share/Savings Secured Loan Rates.
Helps Improve Credit Rating
If you have “colorful” or no credit, a secured loan is a great way to add a positive credit account on your credit report to assist in improving your credit score.
Savings Fund in Tact
Although your funds may be on hold (unavailable to withdrawal), when the secured loan is paid in full, you still have YOUR MONEY in your savings account or CD. And an added bonus is that it will have earned interest.
Which ever option you choose, be wise about your decision and DO NOT spend all of your cash! Cash is leverage, especially when your credit may be “colorful” and your “credit score” may not be as SEXY as you would like it to be.
My book, Financial Fornication, discusses “Spending Plan Allocation” to help ensure all areas of your expenses have the appropriate allocation of your net income.
Again, congratulations and enjoy your new deck or new sound system and growing savings account!!!
– Tarra Jackson, Madam Money
Do you have a financial question you need real, practical answers to? Ask Madam Money by emailing your questions to info@MadamMoney.com.
