Earlier this week, I tossed out an interesting question to the people following me on Twitter:
What would you do if someone gave you an unexpected $10,000 gift (meaning it’s tax free)?
I was utterly flooded with responses to this question, far more than I anticipated. I took the first 250 responses and did a bit of evaluation on them and here’s what I discovered.
89% of all respondents would use most or all of the money to repay debt. That, of course, means that 89% of the people who responded to the question have at least $5,000 in debt.
15% mentioned some sort of investment with the money. Yes, only 15% of the people who wrote to me mentioned investing the money (in something besides debt reduction). About half of these people were people who were splitting money between debt repayment and investment.
Of those mentioning investing, 60% were going to invest in cash. Cash? People often mentioned putting money into a savings account for the purposes of starting or expanding on an emergency fund (7% of all respondents talked about their e-fund).
Only 8% mentioned spending more than 10% of the money on something largely fun. There were quite a few people who talked about spending $100 to $500 on something frivolous, but it was very rare that people mentioned spending $1,000 or more on something purely fun.
This reveals a few things.
First, most of the people following me on Twitter have their heads on straight when it comes to personal finance. A windfall wouldn’t be spent on frivolous things – it would be spent on getting themselves into a better financial place.
However, most of that group have incurred pretty serious debts in their past. Debt repayment is a major part of all of their lives. If $10,000 won’t knock off the debt, then it’s likely that a significant portion of their monthly income is going to debt repayment. That’s a life-altering situation – it locks you into specific jobs and makes you very worried about keeping it.
Another interesting point: a lot of people out there also intuitively see the value of an emergency fund. People who aren’t aiming for debt repayment aren’t simply looking to throw money into traditional investing. Instead, they’re playing it safe – putting the money away into an emergency fund so that if something happens in their life, things are fine. Of course, this might be influenced by a down economy, but it still indicates a real-world focus on personal stability.
What would I do if I suddenly had $10,000 in tax free dollars drop on my lap? I’d use much of it to buy a new car for my wife’s commute to work. Without that money, we’d likely be taking out at least a small loan for the vehicle, so in many ways, this money is effectively debt avoidance.
What’s the real take-home message here? The real message is that you’re not alone in your struggles with debt. A large proportion of the people reading and commenting on The Simple Dollar are going through many of the same experiences that you are. This is not a struggle you’re dealing with alone.
Similarly, many people are on the path to overcoming such a debt load. People are out there trying different things – frugality, better money management, and so on.
These things are struggles that most of us share. When I talk about my own experiences on The Simple Dollar, I might be talking about my own specifics, but that core experience of fighting and trying to overcome debt is one that a lot of people are digging through right now.
Don’t feel alone, because you’re not.