Tonight, I’ll go to bed as I usually do, and when I wake up, I will be $10,000 richer. The secret? Live in Alaska. Okay, so the title was clickbait. But it’s true. Tomorrow every eligible Alaskan will be $2,072 richer than they are today because the Permanent Fund Dividend will land in bank accounts and be mailed out to others. (To celebrate, it decided to snow last night!) With five of us, that makes us $10,360 richer tomorrow.
It’s the one public conversation about money Alaskans have. “What are you doing with your PFD?” is a very common question in September. A friend of mine worked at Target last year and she said the day the official announcement is made of the exact PFD amount to about a week after the checks arrive, it’s like Christmas at Target. Her exact words: “Everyone spends like it’s going out of style. Even weeks before the money actually arrives.” My friends are all using theirs on savings, retirement funds, mortgage payments, one cruise, and one of my friends is using the PFD to take all five of her children to France to visit her sister living there. Luckily, my friends aren’t in the “spend it at Target” cohort.
I’ve told you that I’m a a lot at one time rather than a consistent, little bit at a time kind of person. Because of that, I love the PFD. What am I doing with mine? Technically, 3/5ths of that money is owned by my kiddos, but I plan to give that to them as a Roth IRA when they start working (I’ll steal the interest until then). A tenth of our $10,360 will be a tithe we choose to pay on our increase. That leaves $9,324. $2,000 will go to the mortgage as an extra payment (because of our financial Quality-Adjusted Life Year calculations). And the remaining $7,324 will go to funding our Roth IRAs for 2015. (We hope to use the Alaska Energy Rebate Program refund to fund the rest of the two 2015 IRAs and start the 2016 ones.) I love making big payments. It feels dramatic. It feels like a pat on the back. My sister-in-law just finished paying off her mortgage by consistently throwing all of her tax refunds toward it.
So, you don’t get a big windfall? Create your own windfall! One way to do this is to raise the amount of taxes withheld from your paycheck so you’ll get a bigger refund. I don’t recommend doing this. Yes, there’s the usual argument that you’re giving the government an interest-free loan. But also, there is a real risk someone else might claim your refund before you do. Yikes!
If making slow, steady payments excites you, you’re probably better off (both personality-wise and financially). But for the rest of us, calculate what size of windfall would get you motivated. What amount would help you feel the VICTORY of saving? Maybe it’s maxing out your Roth IRA. Set up an automatic savings transfer of $500 a month. After 11 months… check it out… you just got a $5500 windfall! Congrats. Make a big, dramatic payment and max out the Roth IRA in one big move.
Saving is always better than not saving. And paying off debt is better than not doing so. Be honest with yourself. Would you save more or pay down your debt faster if you were able to throw big chunks of money toward those things at one time? If so, make it happen. As someone who works this way, I can tell you it’s worth it to plan it out. We also automate other savings, but those monthly behind-the-scenes savings don’t motivate me quite like the once-a-year windfall payments.
What would you do if $10,360 dropped in your bank account overnight?