Well, we didn’t win the lottery, but most of us will soon have a few extra dollars in our bank accounts.
The Permanent Fund Dividend will be distributed on Oct. 5. It adds a welcome boost to our fall budgets. However, instead of rushing out to the store to pick up your latest whim, resolve this year to use the PFD to improve your financial situation.
First, take a deep breath. Take a few minutes to take stock and think about what would benefit you most. Does debt worry you? How about retirement? Planning is the best way to make smart decisions and get your financial house in order.
For most of us, the best first step is to get rid of debt. Paying off debts will give you an immediate return because you won’t have that interest payment adding to the overall debt. Debt can keep you from realizing your financial dreams. But make sure you are paying the debt that will give you the most financial relief.
Pay down high-interest debt such as credit cards and personal loans. If you have more than one credit card, pay the one with the highest interest rate. At the current average interest rate, paying the $1,100 you receive from the PFD against your debt will save you about $192 during the next year. If you owe more than $1,100, put your PFD on the balance and redouble your efforts to wipe this debt out during the upcoming year for a greater impact on your financial health.
If you have wiped out that consumer debt, it is time to look around for the next most important way to use your PFD. Build up your reserves. If you have a healthy emergency fund, you are less likely to have to resort to your credit cards in case of financial difficulties. Experts recommend that we have three to six months of expenses in an account that is readily available. Even if you can’t come anywhere near this amount, a few thousand dollars will help your fiscal fitness.
We don’t do well in this department. A 2014 survey by the Federal Reserve found that 63 percent of those surveyed would have a difficult time coming up with $400 for an emergency. The reality is that unexpected expenses usually cost a lot more. The average actual cost of a financial emergency reported in the Federal Reserve survey was $2,782. That’s why it is important to have a healthy emergency fund. Your permanent fund dividend can get you a head start on that emergency fund.
Once your emergency fund is well-funded, it is time to turn your sights to other types of savings. Make sure your retirement savings are on track. Most of us are woefully short of retirement savings.
Remember that money you invest now will provide increased security as you enter your golden years.
How about investing in yourself? Would paying for additional training equip you for a better job or a promotion in your current position? Invest some money in your education or that of your family. Education is the major place that my family’s PFDs have always gone.
Prepay a major expense. Pay your property taxes, your fuel bill for the winter or your utilities. Freeing up the money from that monthly payment will give you some room in your budget and some flexibility in your spending.
Finally, devote some money to a splurge. A small percentage devoted to indulgences will keep you on track and will keep you from blowing your budget. Everyone needs a treat occasionally. But as with all financial matters, have a plan. Set a limit on how much you are going to spend, perhaps 10 percent could be devoted to fun.
PFDs will soon hit the bank accounts. Use yours to improve your financial security.
Roxie Rodgers Dinstel is associate director of the Cooperative Extension Service, a part of the University of Alaska Fairbanks, working in cooperation with the U.S. Department of Agriculture. Questions or column requests can be e-mailed to her at email@example.com or by calling (907)474-7201