It’s a blessing indeed to have cash that you didn’t anticipate find its way to you. Whether it’s a bonus, a tax refund, a gift or inheritance, you feel sheer giddy at the mere mention of dollars and cents you didn’t expect to have in your pocket. And it might even begin to burn a hole in your pocket before you get your paws on it. HOLD UP . . . WAIT. You’ve got to do some thinking before that extra do-re-mi actually ends up costing you in the long run. Check out the top 5 Things You Should Do With Unexpected Money.
TAXES
Uncle Sam wants his cut of everything. So be sure you have your facts straight when it comes to taxable income. Up front and loudly, I am not an accountant or tax professional so check with one of them (and not me), but from student loan forgiveness programs to bonuses, many people don’t realize that those extra funds might have a tax price tag. So first of all, check and see if you’ll need to immediately sock some of the funds back to pay taxes NEXT year. Put it in an account you won’t be tempted to withdraw it from and leave it alone!
DON’T MAKE A CHECKING DEPOSIT
The absolute worst thing you could do is to put that lump sum into your checking account. I often joke that if you leave extra money in a checking account, it WILL grow legs and walk to Target. Instead, after you’ve accounted for taxes, place it in a savings account, piggy bank, under a mattress, or wherever you’ll be less likely to spend it accidentally.
START AN EMERGENCY FUND
I’m a big fan of having at least $1000 tucked away in an emergency fund and up to $2000 if you can. Especially if you’re paying off debt, you need this little safety net to keep your efforts from getting off track. You’ll want even more socked back after you’re debt free. It’s not a question of “if” an emergency will arise but “when.” So if you have at least a small amount set aside, you will be able to handle that crisis without using plastic to solve your problems.
PAY OFF DEBT
I’m guessing this is no big surprise coming from me, but I highly recommend you choose to pay off debt with any additional funds you receive. I can attest that it’s absolutely NO fun to spend your birthday money paying down debt, but we did it several times and it was one of the keys to our success of paying off over $127K. What worked for us was lining up our debts from smallest to largest, regardless of interest rate, and paying off the smallest one first. This gave us the momentum of success and also delivered “built in” funds when a debt was paid off to roll into the next larger debt.
BUY STUFF YOU NEED
Towels have holes? Need a new pair of running shoes? Kids haven’t had a hair cut in 6 months? It’s OK to spend on things you actually do need. And if you use unexpected funds to cover those expenses (especially while you’re getting out of debt and channeling all of your energy toward that goal), this might be a great fit. Shop around, make sure you get the best deal, and above all TALK to your spouse about what purchases really are things you need.
If you’ve done a bit of all of the above, then it is really ok to splurge or even save, too. Go have a nice dinner out or buy a new pair of cute shoes. Or better yet, devote a portion or all of the cash toward a long term savings goal like a great vacation or a new car. You won’t have the instant rush of purchase but I’m betting a dollar to a hole in a donut that you’ll enjoy the delayed gratification even more. It’s also important to consider giving a portion of the money away. Any time we’re generous with what’s been given to us, money loses its power over us and it makes the world a better place.
My book is now available: Slaying the Debt Dragon: How One Family Conquered Their Money Monster and Found an Inspired Happily Ever After. You can also check out The Debt Free Devotional
This post contains an affiliate link. That means when you get a great deal or maybe even something for free, you also help our family pay off our mortgage early. And for that, we royally thank you!
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