Using your extra day of income this leap year

Posted at 1:57 PM, Feb 23, 2016

If you’re an hourly worker, February could potentially give you an extra day of earnings this year, thanks to Leap Year. That means, for example, if you make $12 an hour, you’ll have almost an extra $100 before taxes that you can use to shore up your personal finances. It might not be a huge amount, but it could get you on the road to reaching your financial goals.

Here are five ways you can use that money to help you get there.

1. Create an Emergency Fund

If you don’t already have some money socked away for emergencies, your extra day of income is a great way to start. While you should eventually build an emergency fund that can handle more serious emergencies (economic downturn, loss of job, etc.), you’re going to want to start by putting together a short-term emergency fund. Your short-term fund is meant to take care of unexpected expenses that, while not severe, can still mean trouble if you aren’t prepared.

Things like car repairs, replacing a broken window, or getting a parking ticket could be covered by your short-term fund. Ideally, you’d want this fund to range anywhere from $500 to $1,000, but your Leap Year income is a great way to get started toward that goal.

2. Make an Extra Credit Card Payment

If you carry a balance on your credit card(s), use your Leap Year income to start whittling away at that balance with an extra payment. You can use a credit card payoff calculator to make a plan and start tackling your debt. Paying off credit card debt can be a long process depending on how much debt you have and how much flexibility exists in your current budget. The lower you can get your credit utilization, the better your credit scores will be.

3. Start Saving for Retirement

If you don’t have access to a 401K through your employer, you can still save for retirement. IRAs are a good option to do just that, but keep in mind you’re not going to want to touch this money because there are restrictions on when you can take distributions. Generally, you cannot take distributions from a traditional IRA before age 59½ without a 10% penalty. Roth IRA contributions can be withdrawn any time, tax free.

Earnings on Roth IRAs can be withdrawn tax free after you reach age 59 ½ and the money has been invested for at least five years. There are some exceptions to the rules on early withdrawal penalties. The most commonly used exceptions are to purchase your first home or to pay for qualified education expenses. With a traditional IRA, you must begin taking a required minimum distribution (RMD) at age 70½. There is no RMD for Roth IRAs.

4. Start Saving for a Down Payment on a Home

Do you want to buy a home sometime in the next several years? Saving up to buy a home is no easy feat. You typically need at least a minimum of $20,000 to cover a down payment plus closing costs.

That’s because you’ll need at least a 3.5% down payment to qualify for a mortgage and closing costs can be around $7,000 to $10,000 (about 2% to 3% of the purchase price). This goes without saying, but the higher the home price, the more funds you will need for the down payment.

Keep in mind, you’ll also need agood credit score to qualify for the best mortgage rates. You can get your credit ready to buy a home by checking your free annual credit reports at and looking at your credit scores for free each month on

5. Start Saving for That Fancy Car

Have you always dreamed of buying an expensive car or taking a vacation in an exotic destination? Opening a savings account is the first step towards achieving that dream. But to make your dream come true, it’s important to set aside some money every month. Once you have deposited your Leap Year income into your savings account, it’s best not to touch it until you have saved up enough to meet your goal.

Once you have opened a savings account, one of the best ways to save some money is to automate your savings so you don’t have to remember to set aside money every time you get paid.

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