So I've got some extra money...now what?

My friends and colleagues have been a huge inspiration and have been tremendously supportive as I look to help myself and those around me manage their money better. I'm always looking for ideas on what to explore next...

Erica, a close friend of mine wanted to get my thoughts on the following. You have an extra $3,000, what should you do?

1. Pay off your car loan

2. Pay off your credit card bills

3. Save it (in case you lose your job or for a rainy day)

4. Invest it

Great question and a lot of us face this when we get some extra cash, maybe a bonus or a raise that gives us some additional unexpected cash.

First off, following the advice of Charles Schwab himself DON'T invest unless you:

- Already have an emergency fund (6 months of living expenses)

- Are contributing the maximum amount to your IRA and 401(k)

- Are fully insured, ex. health, dental and vision or life insurance if have a spouse and children

(For more information read Charles Schwab's Guide to Financial Independence)

So on that note, I was looking into investing a few years when I started working full time and I'm STILL trying to meet the above three requirements. Plus, especially with this economy I wouldn't recommend investing unless you REALLY know what you're doing. You can lose a lot of money very quickly...

Eliminating investing for now, that leaves you with three options. Who says you can't do all of them! When I got my bonus last year, that's exactly what I did except that I added one more category. Here was what I did...

Keep 10% for yourself! ($300 in this example)

Unless you're in serious debt, treat yourself! I've found that if I am saving or putting EVERYTHING towards paying off bills I start becoming bitter. This way, I can enjoy a portion of the money and do something fun. Don't spend more than that but it's always good to reward yourself for the hard work.

Put 10% in your savings account ($300 in this example)

The only way to accumulate the amount in your savings account is to add money whenever you can. This is another way of "paying yourself" as this is your emergency fund for when those surprise expenses come your way.

Split the rest between your bills ($2,400 in this example)

Figure out which bill has the higher interest rate in paying back what you owe. For example, if your car loan has a 7% interest rate versus your credit card with a 12% interest rate, you should put more money towards your credit card bill. There's no exact formula with how much to pay off, but I like split it so I feel like I'm accomplishing something in paying down both debts. I'd put about 80% or so towards paying down the account with the highest interest ($1,680) and put the rest towards your other bill ($720) Remember to split up paying off your bills based on how you see fit taking into consideration the amount of debt you have and corresponding interest rates.

Balance is good, especially when it comes to your finances. Although getting an unexpected large sum of cash isn't always in the cards, it's always great to have a plan so that you know what you're doing to do when it comes your way.