What to do with extra $500 per month (financially) in today's U.S. economy?

I assume someone’s already asked this question already here but wasn’t sure what search terms to use.

I live in the U.S., California, but maybe question’s relevant to where you live.

I’ve gotten to a point where I’ve got at least $500 extra every month after monthly expenses for the next 6 months (including entertainment). I want to spend it responsibily.

Should I pour it into:

** credit card debt? - only have one card with a few thousand

** emergency fund - may need it by mid-next year due to scheduled layoffs at my company

** mortgage? - I don’t have one, but should I save for down payment? But maybe one could get by without down payment in the current environment? I’d like to buy a house after I’m stable with another job in 2010.

** savings account? - of some sort…but seems pointless since credit card rate would be higher than any savings vehicle (I presume) out there

** stock market? - seems foolish to re-invest in stocks right now, but maybe in 2009? I do need to plan for retirement, but may need funds in year or so. Or maybe I’m wrong about stocks, maybe there are opportunities…

** some other type of investment? - bonds, gold, silver, something more exotic?

I’m leery of investing of anything that involves education and training on my part. Presumably, there is probability of making mistakes, resulting in losses. Not sure I want that kind of risk.

What would you do financially with extra cash like that every month?

This gets my vote, unless you already having several thousand in savings, in which case I’d pay down the credit card.

I vote pay off that credit card first. Even if you have a good rate for a credit card, you’re still paying more interest than you’d earn in a savings account or CD.

Save your money.

If you even have a hint that there might be layoffs coming you need to have a cushion.

The interest on the credit cards reflects the fact that they are exposed to risk and that’s just fine right now. In fact I’d get another one and leave it empty just in case.

Forget stocks.

I’d pay off your credit card and whatever other debt you have, then start saving. Maybe spend an extra $50 or so on fun stuff a month, but it’s very reassuring to have a cushion to fall back on.

I’d establish a 3 month cushion, then pay off all credit cards, run the cushion up to 6 months, pay off any other non-mortgage debts, then start splitting my surplus evenly between mortgage and 401k or similiar investment.

You need the cushion in case of catastrophe, and you need to get rid of your debt so that your surplus can grow.

  1. You can’t earn the rate of interest you’re paying on a credit card (and it’s a bad habit) so pay that off.

  2. You’ll want to live somewhere. Start saving for the deposit.
    (When the time comes to buy, you are far more likely to get the mortgage and also impress the seller.)

  3. Emergency funds are very useful.
    Here in the UK, I’ve invested in Premium Bonds, which earn money, but can be accessed immediately.

Stocks may be the best investment right now, but they are a long-term investment. Paying off your credit card is probably the best idea, since you can always use the credit in the future if you have an emergency.

  1. Get an emergency fund of $1000.

  2. Pay off that credit card.

  3. Keep saving the rest. If you know there may be lay-offs coming, dust off your resume and start looking.

You didn’t mention “retirement fund” in your list of things you could do with the money. If you don’t have one, figure out a set amount, and start counting that as one of your regular expenses right now. Priority-wise, it should be right up there with “rent” (or mortgage) and “food.”

Then, take some of what’s left, and pay off that credit card.

Thirdly, establish an emergency fund. Should be about enough to live on for six months, should you lose your job or have a debilitating illness.

Every single personal finance article/book I have read says that in this situation, you should pay off all your debts first. After, establish a savings cushion of at least 6 months of living expenses. Suze Orman says that for her, stocks are a long term investment, and you shouldn’t invest in them if you need that money in a year.

Edit: The ordering of paying off the debt and establishing a savings cushing is not set in stone.

  • 401k equal to any employer matching (for example, if your employer matches up to 6%, you invest 6%. Failing to do so is throwing money away)
  • Credit card debt
  • Cushion of 6 months expenses worth (put it into a money market or no risk CD where you can get at it if you need it)
  • Near-term big purchase (6 mo+) - put it into a CD or something
    My stance on investments is that anything other than your 401k, ESPP or other employeer matched fund is gambling. You should only invest money you would have otherwised used for drinking with your boys, trips to Vegas or other disposable income. That said, NOW is probably the best time to invest in the stock market. It’s very difficult to market time, even if you know what you are doing and if you wait another year, chances are you will miss most of the upward gains.

Right, 401K up to matching, rest to CC debt.

Step 1: Don’t read any other reply in this thread except for this one.

Step 2: Educate yourself about personal finance and investing issues. A good place to start is www.motleyfool.com.

Step 3: Execute the plan that you determine is best for you based on what you learned in step 2.

No one here has enough facts about your situation to give you reliable advice about what to do. Even if we did, you shouldn’t take our advice anyway. This is one of those issues where you need to do your homework and make the best decision for you.

Because the first thing I do when reading a thread is immediately skip down to post #14.