Unexpected money is fun and exciting – a bonus at work, more taxes back then you thought, even a surprise $50 in a birthday card. However, most of us don’t plan for surprise income which is a problem. No matter how you look at it, incoming cash is income. You can use it to live on or blow it. Obviously it’s better to have a solid surprise income plan in place because blowing money rarely feels good for the long term, but knowing you have back-up funds and a savings plan does feel excellent.
Get Rich Slowly has two suggestions that should work for everyone…
“Choose one specific, tangible goal to “catch” all extra income.” If you choose goals ahead of time you’ll be less liekly to waste the surprise money you get. This obviously works better if you choose a goal you’re invested in such as paying off your home or building a family vacation fund. Don’t be vague such as, “Extra money will go to bills” which yeah it might, but normal money goes there too. Make a plan so that if your bills are paid when surprise cash flows in you still save most of it.
“Allocate a pre-determined percentage to “blow” money.” This helps you feel more satisfied without blowing a lot of cash. If you get a large bonus you may want to allocate about 30% to blow and the rest to save. For a smaller windfall, you might want to break it up more evenly – say 50/50. Everyone, even thrifty people need to blow some cash once in a while and this is a smarter way to do so.
What do you do with unexpected money?
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