Where Does That Next Dollar Go?

Updated: Dec 19, 2019

How to save money with your extra cash.

It’s payday — cha-ching! You have lots of options of what to do with that fresh wad of cash in your pocket. Pay down debt, add to your savings, pay off your mortgage, invest … the list seems endless.

Where does that next dollar go? You may feel as if a million different voices are telling you a million different things to do with your money. But don’t be frightened, we’re here to help!

Think of it like this: with each dollar you bring in, give it a job. That’s the concept behind our friends at YNAB (You Need a Budget), and we think they’re smart!

At first, thinking about all the places you can put your income might seem super scary. The choice will become much clearer once you find which places will grow your dough once you plant your initial earnings in them.

But take caution! At the same time that the growth can increase your future bottom line with returns like investments (👍), it can also decrease your future bottom line with interest charges like debt (👎). Finding a potential growth rate for each of these will help you compare the rates with ease.

To prevent your future bottom line from decreasing, you should first pay off any debt. Paying off debt with higher interest rates, such as credit card debt, helps you pay less interest in the long run.

But what about aggressively paying down a 4 percent mortgage versus investing in your 401(k)? A bit less straightforward, but still measurable! According to Vanguard, a balanced portfolio generated an average 7-8 percent between 1926 and 2016. These returns are a bit higher than what we expect them to be in the future, but they give you a good measure to think about. You can avoid paying an extra 4 percent per year to your bank from mortgage interest, or you can potentially earn 7 percent per year in the markets. (We say potentially because market returns are not guaranteed and can change at any time. This means that you can be up one year, down the next; over time, you’ll level out.)

Don't forget about your 401(k) and its accompanying employer match, if you have one. The match is FREE money! Your employer puts this money into your 401(k) for your retirement benefit. As long as you invest enough in your 401(k) to receive the match, this additional money is considered part of your overall salary package. 🙌🏼💰

If you are not investing enough in your 401(k), then you're leaving this (free!) money on the table. So take it! And not to mention, a 401(k) grows tax deferred, yet another benefit (yay!).

The bottom line:

  • Look at each place you’re putting your cash based on its current rate and potential growth.

  • Keep in mind any perks, like employer match, tax deductions or an emotional reward like paying off debt.

You can make a plan! This can be the most important step you take, and we’ll be there for you along the way. Next up: put your plan into action.

Great news! The Pocketnest app is now available for iOS! Download Pocketnest and get your finances in order—in just 10 minutes a month! No jargony finance-speak, pricey fees or in-person meetings required. Download now!

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