Catch me tomorrow morning on WTHR Weekend Sunrise at 7:45 AM! Here’s a sneak peek of some of the money saving tips I’ll share.
So 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.
1) 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!
2) 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.
3) START AN EMERGENCY FUND. Finance experts like Dave Ramsey suggest that you have an emergency fund of at least $1000 {more if you’re debt free}. So one of the best things you can do with extra cash is to begin this fund. It’s not a question of “if” an emergency will arise but “when.” So if you have at least a small amount socked aside, you will be able to handle that without using plastic to solve your problems. Recently we had to replace a dryer, fix a flat, and replace a windshield wiper all in the same week. If we didn’t have the emergency fund I would have panicked, cried, and maybe sold some stuff to pay for it all. But since we did it was more of a hiccup than a throw up moment.
4) 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.
5) 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.
6) SPLURGE OR SAVE. Every once and awhile it really is ok to have a nice dinner out or buy a new pair of cute shoes. Just be sure that you’ve checked off all of the above categories before you go there. 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!
What do you do when unexpected funds find their way to your pockets?
