At the beginning of this month, I sent in a check to my mortgage company that was going to cover the “outstanding principal amount” for my mortgage. This may not be my last check–the amount listed was not the payoff amount–but the fact remains that I should soon have a lot more money available in my monthly budget.
This is likely the last time I will get such a salary bump, and I want to be smart about how I use it. Though I wrote about this one month ago, I am still turning over in my mind all the possibilities for using this extra money. The amount is not insignificant: the payment towards principal (including an amount to “round it up”) and interest is 22% of my take-home salary each month.
Since I am still thinking about it, I thought it might help me to be very specific about what I could do with it. If there are any recent residency grads about to start their new attending jobs, with their new attending salaries, I am hoping that this may help them think through what they will do with their bigger income.
Save It All
So conservative, but a very responsible option.
If I saved all this extra money in cash, I could have a year’s worth of spending saved in about 5 years. Or two year’s worth of savings in 10 years.
If I invested it and got an average return of 6%, I could have a little more: maybe 2.5 years of living expenses after 10 years.
This is a real opportunity to move my retirement a little closer.
Or I could just have more money to spend on big ticket items in the coming years (a new piano!).
Cut Back Hours
Alternatively, I could make my work life a little easier now; all I have to do is give up the amount of the mortgage to cut my work week. If my mortgage was 22% of my salary, I should be able to cut back by 22%. To be honest, if I were going to do that, I would probably cut back only 15%, to make sure I could afford benefits.
For now, I think I’m fine where I am. But it is nice to have this as an option.
Help Myself and Others
I have a number of niblings (what a word!) who, one hopes, will be attending college in the future. I could work on funding their college tuition.
If I put all the extra money into the eldest’s 529 plan, by the time he leaves for college, he should have 2-3 years of tuition put away. If I then put all the money to the next oldest, he could have 1-2 years of tuition. The younger 2 would get a lot less, maybe 0.5 to 1 year each.
Or, I could split the money evenly, and even increase my donations to charity, and each nibling would still get 3 semesters of tuition.
This all depends on my working and putting this money away for over a decade, while using nothing for myself. We’ll see about that.
Buy a House
I list this because that’s something that people often do with their new income.
I could probably now afford a more expensive home, with an extra garage, or another bathroom; maybe even one of the fancy townhomes nearby that are rumored to have an elevator (of interest as I deal with older parents and in-laws with mobility issues).
However, the thought of selling my current home (including packing it up and fixing all the little things to get it ready to sell) and buying a new one has very little appeal. Nor can I really think of anything that would make a house nice enough to tie me to another 30 year mortgage.
Plus, I love my house. Why would I move?
I could think about a second home, a vacation condo or cabin. I think they are more expensive to finance, and we’d have to commit to using it. Sounds cool, if possibly more work than I’d like (maintenance issues, anyone?).
Lifestyle Improvement vs. Lifestyle Inflation
This is a big category, with some options more tempting than others.
If I think about some of the things my husband and I forgo to afford our lifestyle, it can be tempting to add a few things back. I think it might be worth looking at the different “packages” we could afford if we want to spend our mortgage payment each month:
Package A: The Conventional
We are a one car household, and I bring my lunch to work every day. I gave up a number of luxuries when I got married and we had college tuition to pay. Now we have more money, we can consider being more like the Joneses.
My husband would really like a truck. He used to use them in his work, and sometimes he just wants to haul stuff around. I don’t want a truck, and I like our little car. Voila! We use the extra money to
- buy a truck (our second vehicle).
- insure it.
- gas it up.
- and get a parking pass at work so I can drive myself every day!
In addition:
- We could have a cleaning service come every week.
- I could buy myself lunch every day at work instead of packing it.
- Or, since I barely have time to eat lunch as it is, let alone wait in line for it, I could still pack my lunches and instead treat myself to a mani-pedi every month and getting my hair colored regularly .
That’s a lot of extra spending.
Package B: The Interior Decorator
We could re-do the interior of house. I am totally guessing here on costs, but I suspect that in one year, with the extra money we have every month, we could
- recarpet the house–
- –except for where we pull up carpet and finish the floors.
- recover or replace the sofa and loveseat.
- paint the upstairs.
- replace/install more light-fixtures.
We could stop after one year, but the risk is that fixing one issue would lead to finding more work to do.
Package C: The Stylish Couple
We could go full-on dandy, and overhaul our wardrobes. We could each buy
- a new pair of shoes each month.
- a new outfit each.
- assorted accessories.
- Have our new outfits dry-cleaned.
- and still have money left over for a cleaning person a few times a month (you can tell what I really want).
I suspect we might benefit from doing this for a few months, but I’m not sure we really each need 12 new pairs of shoes every year. Let alone all the clothes. I might have to spend half my time purging the closets.
Package D: The Health Conscious Couple
We could go the fitness/trainer/spa route, and spend all this money on services and staff. This could include
- a trainer for twice a week sessions.
- a private yoga lesson weekly.
- a massage for each of us twice a month vs. a private chef to come and cook (healthy food) for us once a week.
This sounds exhausting. Plus I’m not sure when I would find the time to do all that.
Package E: The Jet Setters
We already travel plenty, but we could do more. The extra money from paying off the mortgage could cover:
- a fancy guided tour to Europe once a year.
- business class tickets for our vacation.
- Or, we could go on a very expensive long weekend every other month (if only I could get the time off).
Personally, this list is pretty tempting. Until I remember all the great trips we have taken in the past 2-3 years, which we could afford even while paying down the mortgage. Maybe in a few years we’ll have enough free time to blow through this budget, but I think we won’t do that now.
Final Thoughts
This has been an interesting exercise for me. If you made it all the way to the end, I hope this was interesting to you too.
Not everything that I listed was actually something I really want, but I enjoyed thinking about the different options that become available with extra money.
Especially with my different spending “packages,” I didn’t think that I was picking crazy options. At least, they seem like things that someone might think rich doctors spend their money on. And yet, I can’t imagine spending a mortgage payment on these things.
That might be something to think about for anyone about to get a huge pay bump.
What would you do if you had an extra 20% of your paycheck free?