What can you do with $500 extra?

If you’ve been following along with my posts, you’ll know that you should be squeezing extra money out of your budget.  The thing with a budget, though, is that it should be leveraged towards your goals.  So why not start with a simple goal?

Creating a small financial goal will help you apply your finances towards directed outcomes.  When you start to formulate your budget, you’ll realize there are things you’ve thought about that you may never have written down or expressed – silent goals you have, or desires for your life.  A true financial plan, used properly, will snowball and create momentum towards attaining those goals.

A reasonable, simple goal for your budget and life should be $500 a month.  If you can manage to add $500 extra every month to savings or to paying off debt, your financial world will change.

Where does the $500 come from?

$500 may seem like a random number, and for some it may seem really high.  So where did I come up with that particular number?  Teachers, actually.

Teaching is one of those positions that does a lot of work and is paid way too little.  Because of the pay range, I thought they’d provide a great opportunity to explore a budget.  The number has increased slightly in recent years, which is a win for teachers everywhere, but the national average starting salary for teachers in America was roughly $37,500.

That number is significantly less than the median family income in America (around $63,000), so it seems like a good case study to see if someone can make it supporting a household on a starting teacher’s salary – no easy feat.

If you apply the 50/30/20 rule to a teacher’s salary, estimating their take home pay at 80% of their total pay, you get $1250 for necessary items, $750 for wants and other items, and $500 monthly for savings or paying off debts.

According to these numbers, if you can stick to the very strenuous 50/30/20 budget, you should be able to scrape around $500 a month to pay off your debts or to put towards savings.

Budgeting – the diet for your wallet

What can I do to get $500 extra dollars in my budget?

Now, the big question, especially for someone on a teacher’s salary (or a similar one), is how to get that extra $500 in your budget.  Well, when it comes to budgeting and finances, there are really only two options, and these bear remembering:

The only ways to get additional money in your budget are to reduce your spending or increase your earning.

Reducing your spending is a tried and true way to get some extra money back in your budget.  It’s the avenue over which we have the most control, but it is also the most painful and difficult typically.  Giving up some perks (like nights out with your friends or coffee on the way to work) can really wear on you, but taking these steps is vital to improving your budget.

Reducing your budget is more than just spending less on groceries, though.  There are several nontraditional ways to tackle spending issues that may surprise you, and won’t be as painful to manage.  I’ll go into detail with these another time, but a few things to look into are the following:

  • Negotiate lower payments on bills
  • Consider a low interest rate loan to pay off debts for less money
  • Use coupons when shopping
  • Get a more fuel efficient car
  • Use an app or service like Trim to negotiate monthly subscription payments

If you’ve done all these things, or are just looking for an additional boost, there is another option.  Instead of simply reducing your spending, you can increase your earnings.

What are some potential extra sources of income?

It may seem hard to believe, but there are a number of opportunities all around us to make additional money.  The problem is, most Americans are in the dark about the variety of ways they can supplement their earnings.

The easiest way to earn more money is to simply ask for it.  Ask your boss for a raise, or try and work some overtime (if you’re at a job that lets you work overtime).  This leverages the work you’re already doing to make more money for your time.  For someone on a salary of $37,500 a year, a 4% raise means $1500 more a year, or around $100 extra monthly after taxes.

Sometimes, though, that may not work.  There are some other steps you can take.  If you’re not already doing this, you’re about to step into the world of the “side hustle”.  It’s an eye-opening experience when you realize that you have the opportunity to start making more money in your spare time, which can easily contribute to your debt or savings.

Here are a few of the more common side hustles you can start up today to start earning some extra cash:

  • Earn money for taking surveys on a site like Swagbucks or InboxDollars
  • Earn money transcribing videos on a site like Rev.com
  • Start driving for Uber or Lyft
  • Sell your old stuff on Craigslist or another venue
  • Sell used or resold items as a wholesaler or product flipper
  • Start a blog, or find someone who will pay you to write for theirs

These options are just the beginning, as there are thousands of side hustle options waiting to be explored.


What can I do with $500 extra dollars?

There are three options you can do with money at any time.  This is the basics of personal economics – you can choose to spend it, save it, or pay it off.  These options fall into categories associated with return on investment, which helps you understand how worthwhile these choices are.

  • Debt – debt is negative money, it’s when you owe someone and they are charging you additional money until you pay it off.  Because of this, it’s a negative return on investment – you’re losing 3%, 5%, or 20% extra on top of that money, so paying it off stops the bleeding.  Paying off debt is like plugging the holes in a canoe to prevent it from sinking more.
  • Spending – spending money is a mixed bag.  If there are items that you do need, spending additional money can be useful.  However, the products don’t gain additional value typically (some do, but that’s for another blog post).  Often times, though, spending just ends up being a waste of money – especially if it’s above and beyond our original budget.  Because of this, spending evens out to pretty much a neutral return on investment.
  • Saving – I know saving doesn’t seem like the most exciting option, but you probably wouldn’t be reading a personal finance blog if you weren’t interested in it.  Saving sets aside your money for a time when it’s the most valuable, and you can leverage it the best.  For instance, you can prevent debt by having savings in place for emergencies.  Or, you can save money so that, when a stellar investment opportunity comes along, you can capitalize on it and begin getting a great return on investment.  Better yet, you can begin investing your saved money immediately, and starting getting a very positive return on investment today (depending on where you choose to invest, you can earn anywhere from 3% to 13% or more every year).

How does $500 stack up in the long run?

Depending on what you choose to do with that $500 over time, you’ll get some interesting results (no investment pun intended).  Let’s take a look at some various examples.

  • Paying off debt – Let’s say you have $10,000 in credit card debt at a pretty standard interest rate of 18.9% and you’re making a minimum monthly payment of 4% of the balance (all of these are fairly standard values that I took from Bankrate’s Credit Card Payment Calculator), it will take you 165 months to pay off the balance, and cost a total of over $16,000.  That’s nearly 14 years.  If, however, you apply the additional $500, you will pay it off in fewer than 5 years for under $12,000.  That means you’ve saved over $4,000 in that time, and now you have 9 more years over which to save that $500 monthly.
  • Spend it – If you spend the $500 every month, you may end up purchasing things that are useful and important every month, but the value of those items will typically not improve.  A brand new iPhone 11, bought for something like $1200, will only be worth $400 or $500 when you go to trade it in for the next model up, if that.
  • Invest/save it – This is your best opportunity for growing your wealth – but remember, you should first get yourself out of debt so that you aren’t losing money at the same time.  If you save it without investing any of it, it will be worth $30,000 in five years.  If, however, you put it into an account that earns 3% interest, you’ll have $32,810.  If you get 5% interest, you will end up with $38,182.  If you get a good 7% interest, you’ll have $47,486 at the end of five years.  That’s a lot better than not having anything to show for it.
You deserve a treat: After all that savings, take yourself somewhere nice!

Final thoughts on setting up a $500 monthly savings goal

Saving an extra $500 a month in your budget can be really tough.  I won’t pretend like everyone can achieve that goal, even if they’re above that $37,500 salary level, because the 50/30/20 budget plan is difficult.  Remember, it’s a goal to set and try to achieve, not a necessary requirement.

You’ll find that if you apply the principles of the budget and set $500 as a goal, eventually you’ll get to a point where $500 is far lower than you can manage, and your savings will start to grow exponentially.  Take a look at your own budget and try to find a reasonable goal for your savings.  Don’t set it too high, but set it a bit above what you think you can do.  This will encourage you to start finding creative ways to save money or make more money.  When you get started n that train, you’ll start to see your finances improve month after month.

One thought on “What can you do with $500 extra?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s