PUBLISHED: 5:02 PM on Wednesday, October 25, 2006
Put your PFD dollars to work

It's that time of year again. The early bird PFD direct deposits have been made and advertisers are urging consumers to spend this extra income with them.

I have no argument with using fund money to purchase large-ticket items or take much needed vacations to sunny locals. However, as the Cooperative Extension agent whose job it is to provide practical information to individuals and families, I would be remiss if I didn't encourage you to think about putting some of your PFD money to work for you.

A recent article in the AARP Bulletin (July-August 2006) provided results from a nation-wide study that focused on saving for retirement.

The author stated that 31 percent of workers age 40 or older have not yet saved any money for their retirement. The most common reasons were "not enough income" and "high everyday expenses."

Most Alaskans can relate to both of these reasons. However, we are fortunate in that we have the additional income provided to us through the PFD that can be put to good use in improving our present quality of life and helping us to save for the future. After consulting my financial management resources, I came up with four tips that you might consider as ways to putting your PFD money to work for you.

Pay down high-interest credit card debt

Many of us think that the best way to save is to put money into a savings account. However, this is not always the best plan of action. The reason for this is that the current rate of interest earned on a savings account is approximately 1.4 percent.

So, the first thing to do is to look at the interest you are paying on your credit cards. If that interest is higher than the interest you can earn in a savings account (and it probably is), then pay off your credit card debt first. If you find that the interest on your credit card debt is lower or about the same as the interest on a savings account, you can choose whether to pay off the debt or sock your money away.

  Source: Suze Orman (2005), The money book for the young, fabulous & broke
Begin an emergency cash fund

Cash should be your first line of defense when you are hit with unexpected expenses such as car repairs, medical care, or high heating bills for your home. Ultimately, you'll want to build a cash fund that is equal to at least six to eight months of living costs. Using a portion of your PFD will enable you to build up a stash of money over a period of time. Also, if you are able to add some monthly savings to this seed money your account will grow. As an incentive, I have included a table that gives you a sense of how putting away a little money each month can help you reach your goals over a few years.

Buy energy efficient appliances

If you are in the market for household appliances such as ovens, refrigerators, dishwashers, washing machines, clothes dryers or the like, it's better to buy new rather than used. Initially, your money may go farther when you purchase a used appliance at a cost that is lower than that of a new product.

However, new energy efficient appliances will save you money in the long term. The U.S. Department of Energy suggests that when you are shopping for appliances, think of two price tags. The first one covers the purchase price. The second price tag is the cost of operating the appliance during its lifetime. Remember that you'll be paying on that second price tag every month with your utility bill for the next 10 to 20 years, depending on the appliance. To help you figure out whether an appliance is energy efficient, the federal government requires most appliances to display the bright yellow and black EnergyGuide label.

Although these labels will not tell you which appliance is the most efficient, they will tell you the annual energy consumption and operating cost for each appliance so you can compare them yourself. Visit the website at

Invest a portion of your PFD earnings

Savings accounts don't work for everyone because the funds are too easily accessible.

If that's something you struggle with, you might consider putting some of your PFD money into Individual Retirement Accounts or certificates of deposit.

Doing a bit of research, I found banking institutions that will open an IRA with a minimum balance of $50 with an earned interest rate better than that of a savings account (1.5 percent at some institutions).

It's important to note that while the invested money grows tax-deferred, you must pay income tax on your withdrawals. Often times, this penalty is a good incentive to keep the funds untouched.

For CDs, most institutions will open an account with a minimum balance or deposit of $500. With CDs, you are required to leave your money untouched for a predetermined period of time.

The longer the period, the more interest you will earn. For example, opening a CD with $500 for 12-17 months can earn you an annual percentage yield of 5.25%. Interest rates vary, however, so shop around at different banks and credit unions to compare interest rates and get the best bang for your buck.

The 1976 Alaska legislature dedicated a percentage of oil money to establish the Permanent Fund, therein creating a renewable resource (the Permanent Fund) from a non-renewable resource (oil). This is an example of financial discipline that will serve Alaskans for years to come.

Now, it's our turn. Every citizen is responsible for using this money wisely. Enjoy yourself, but use some of your PFD money to help ensure yourself a better today and a brighter tomorrow.

Dr. Koukel is the Juneau District Agent for the Home Economics Programs of the UAF Cooperative Extension Service.