I have a plan, infact, I have two plans to spend my bonus. I would be getting it at the end of next week along with my increased salary. I have been waiting for it since two months and also been thinking on how to spend it for the past two months. The amount I will receive is somewhere near to Rs.150,000 ($3750).
And I am confused. Here’s why
- I have Rs.110,000 ($2750) debt on a total of three cards.
- I have personal loans amounting to Rs.300,000 ($7500)
- I have a car loan of Rs.600,000 ($15000)
- I have a mortgage of Rs.1,725,000 ($43125)
That’s a lot of debt to clear off. I accumulated it due to lack of financial know-how, bad planning and carelessness. Definitely not due to lack of intelligence.
Now I have the necessary financial knowledge, thanks to the blogs of J.D at Get Rich Slowly, Ramit Sethi at I Will Teach You To Be Rich and Trent at The Simple Dollar. I intend to apply some of the debt elimination principles to the bonus amount.
Here is the Plan 1
- Save Rs.100,000 ($2500) as emergency fund ( as I am currently living paycheck to paycheck).
- Prepare a budget for the month and keep aside the required amount.
- Start debt snowball on the credit card having the least balance.
My wife disagrees with plan 1 and suggested Plan 2
- Save Rs.50000 ($1250) as an emergency fund.
- Prepare a budget for the month and keep aside the required amount.
- Clear off entire amount on 1 credit card.
- Start debt snowball on the credit card having the least balance with the left money.
My concern with Plan 2 is that the emergency fund is 50% of the Plan 1. My wife is of the opinion that we don’t need such a big emergency fund and can fall back to using credit card if and when required. I don’t like that idea, here’s an article from Get Rich Slowly on why a credit card is not a emergency fund.
What do you suggest ? Let me know your view in the comments and help me reach a decision!!
Filed under: personal finance , bonus, debt, personal finance, saving
