4 Ways to Maximize Your Stop Loss Pay

by Kevin on August 19, 2010

What would you do if someone walked up to you on the street and handed you a briefcase with $3,000 cash in it? And it wasn’t a trick. It was your cash to keep.

Would you…

  • walk to the nearest electronic store and walk out with a cart full of expensive equipment
  • blow it on a sports bet (or worse yet, plan a trip to Vegas to do it “in style”!)
  • give it to charity
  • integrate it into your financial plan just like you would any other windfall (because you do plan for that, right?)

Why come up with this theoretical scenario and post about it?

Because it isn’t theoretical.

The government is giving a specific set of soldiers, on average, $3,000 in stop loss pay.

Hopefully these men and women of our armed forces have a plan for a couple thousand dollars falling in their laps.

But if they don’t, I’m here to help. Here’s four ways to maximize your stop loss pay.

Let Your Budget Catch Your Windfall

I’m a big, big believer in having a financial plan. In my opinion you’ll never really get anywhere without a goal that you track diligently.

If $3,000 landed in my lap whether through stop loss pay or a bonus at work it would end up going directly into our budget.

Our budget is our master plan. We’ve put a lot of thought into. So why not let it tell us where the money goes next?

In our situation the extra cash would slide right through the budget, past our expenses (because our expenses wouldn’t go up for having this extra money), and straight to our saving goals. It would go towards things like purchasing newer cars eventually, our future kids education, and retirement.

No thoughts.

No “Hmmm, that television at Best Buy looks nice…”.

No “Honey I bought season tickets!”

None of that. Look at the budget. It will tell you what to do.

Pay Down Debt

If your monthly budget has no immediate needs (and I would hope it wouldn’t have $3,000 worth of needs or you must be in a difficult financial spot!) then you turn to your extra options.

If you are carrying non-mortgage debt one of the easiest ways to alleviate the strain on your monthly budget would be to pay off a large chunk of debt with the stop loss pay.

Hopefully $3,000 would completely knock out a car loan or credit card for you. But even if it doesn’t completely wipe it out you’ll still be putting yourself months ahead in paying it off.

Paying down your credit card is especially attractive. First, your minimum payment would go down which pulls some pressure off your monthly income. Then if you are able to maintain your previous minimum payment you’ll pay off the card even faster!

Save It for a Rainy Day

Let’s say you’re doing really well with your financial plan and you don’t have any non-mortgage debt to pay off.

That’s great, but what do you do with this extra money? Time to throw it into savings.

A few ideas:

I Can’t Decide What to do with My Stop Loss Pay

If you simply don’t know what to do with an extra $3,000 then it never hurts to simply not touch it for a while. This is common advice for people that inherit a large sum of money or win a settlement from insurance.

When someone hands you a check with a lot of zeros in it you can get emotional and do something pretty dumb and rash. A great option is to find a reputable bank and open a 6 or 12 month CD. The money will get a locked in return for the time period, you are guaranteed not to lose the principle thanks to the FDIC, and you’ll be penalized if you touch it.

It’s a great way to give yourself some time to sit down and think what to do with the extra money. And that’s a lot better than blowing it on something you will regret later.


Budgeting in the Fun Stuff August 19, 2010 at 2:12 pm

I am planning a post on what we do with any “extra” at the end of the month and this will be a perfect to hit off of!

Mr. BFS and I usually have a few hundred left at the end of the month from my blog and his sports officiating (okay, so it’s mainly the officiating…), so we came up with a solid idea of what to do with it – 50% to Savings and/or the mortgage, 25% to our Vacation Account (our trip fund), and 12.5% to each of our fun money accounts. Our extra 4 paychecks a year (he just started getting paid biweekly as well) will be going into a second Roth IRA.

Debt Relief Options September 3, 2010 at 4:41 am

This is a quite interesting post and I read it with great enthusiasm. The ideas for delivering the best outputs from the $3,000 cash are worth reading.

Linda September 3, 2010 at 4:47 am

I agree with you folks

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