Big money, and What to Do With It

It happens every now and then that we get a lump of money that isn't part of our normal income.  Think tax return, gift, insurance settlement, work bonus, etc.  There are just times when money comes in various amounts from a variety of places.  We all love these moments.  It can be very exciting (and sometimes downright miraculous) to get an unexpected influx of cash.  But if you aren't careful, that money (and more!) can be gone before you've even had a chance to enjoy it, and you are left wondering where did it all go?

Typically one of two things has happened.  Either you failed to plan, or you over planned.  If you don't have a plan for your money, it will quickly spend itself a few dollars at a time, disappearing in places like McDonald's and Walmart.  Or you may over plan, telling yourself all the things you can use the money for, without realizing that this limited supply of cash can't fulfill all of your expectations.  In the end, your extra money is gone, and you've racked up extra dept on your credit card because you thought you had enough extra money to cover your extra purchases.

The cure for both of these problems it to have a plan ON PAPER.  Always spend your money on paper before you spend it in real life.  This helps you to realize just how far your money can and can't stretch.  It gives you direction when making spending choices.  And it provides a record to help you remember where your money went when it's all gone.

BORING!

I know.  But it's a necessary evil that allows us to get what we want.  So let's talk about the fun stuff: SPENDING!

My husband and I have a policy of never spending "extra" money on "regular" bills.  We don't want it to just disappear into the bleak abyss of our everyday budget.  If money comes from an unexpected source, then we spend it in an unexpected place. 

So how can you put that money to the best possible use before it slips though your fingers?
That will depend a lot on how much money you receive, and what your personal circumstances are, but here are some suggestions:

Pay Off Debt
If you have debt, paying it off is always a great idea.   If extra money comes in and it's enough to completely (or almost super close to completely) pay off a debt, we do it.  It's like a gift to ourselves. Paying off a debt is not only good financial sense, but it's a gift you can relive every month when you don't have to make that dreaded payment!  We have paid off two cars with tax returns, and in my opinion living without a car payment is the only way to live!  My sister is more ambitious than me. She uses every extra bit of cash that flows through her fingers to pay off her mortgage.  No mortgage, can you even imagine?  How awesome is that!


Build Up Your Savings
If you don't already have a solid savings account, use the extra money to start one.   Just be sure to put it out of sight, so you don't dip into it on accident.   That end of the year bonus, could be the emergency money you need next summer when your car gives up the ghost.  You could build your savings in general, or start a savings account for a specific purpose.  A newer car, vacation, repairs, school, tires, etc.  I once put away $500 for possible car repairs, and when my car broke down six months later, I was almost happy about it.  As I spent my "Car Repair Fund" on actual car repairs, I felt really confident, like I was in control.  I know it's a little crazy, but it's still true.

Stock Up On Things You Need
I worry about the value of the dollar (I know I'm a total, nerd), so I'd rather keep my savings in supplies instead of cash.  My husband used to sell cars for  a living, so our income fluctuated a lot. Whenever he had a paycheck that was more than the usual amount, I would take the extra money and buy laundry soap and toilet paper in bulk.  There are some things that never go bad, and you know you'll always need them.  So why not buy them now while you can afford them?

My monthly stash of fun and practical.

Budget with Gift Cards
Not everything can be bought and stored.  But gift cards can.  My husband is in school right now and our income is pathetic.  It doesn't even begin to cover our monthly expenses.  When you can't pay your bills, things like gas money can be impossible to come by.  Last year when we received our tax return, I took $1200 down to the gas station and bought twelve $100 gift cards.  I wrote a different month on each of them.  Now on the first of every month, my husband takes out the card for that month, and he is guaranteed to have gas money without having to scrounge through the house for spare change.

We bought several other gift cards for things we were going to need in the next few months that we knew we were unlikely to be able to afford with our current monthly income. We bought five gift cards to each of our five children's favorite restaurants.  That way when their birthday rolled around, we didn't need to worry about whether we had the money to take them out for a treat.  We also knew we were going to need to redo our bathroom soon.  We put $1000 on a Lowe's gift card so that we would have the money in the right place when we needed it.

Lessons
Perhaps that extra money could be put aside to pay for lessons that you wouldn't be able to afford out of your regular monthly budget.  An $800 work bonus could be ballet lessons for a year!

FUN
It is good to have fun.  If you have extra money that isn't part of your normal budget, there is nothing wrong with having a little fun.  A little extra cash can be the perfect excuse for taking a vacation that you've been putting off for years.  Just remember to only use your extra money for the trip, and don't over-plan and end up going into debt to pay for the little extras that pop up during your vacation.

Intent
Another important question to ask yourself is Where did this money come from? and What was the intent?  A few years ago my grandmother died and left each of her grandchildren $1000.  I did not have a good relationship with my grandmother while she was alive, and the money she left me was not only a surprise, but was the only nice thing I could ever remember her doing for me.  As we considered what to do with the money, we decided that whatever we spent it on, it should be something lasting.  We decided to spend the money on a piano.  We had been planning to buy a piano for years, and this seemed like the perfect opportunity to not only buy what we wanted, but create a lasting memory of my grandmother that was positive.  My kids are all beautiful pianists now, and I have my grandmother to thank for it.

Letting Off Steam
If you are living on a super tight budget, and some extra money comes into your hands, your first impulse may be to blow a quick $40 on a long-denied dinner of fast food (or whatever it is that you always want but never get).  THAT'S OKAY.  You don't always have to be super stingy and frugal. Sometimes you need to let off a little pressure and indulge.  Just make sure your splurge has boundaries.  Perhaps you got an unexpected $500 work bonus.  You and your husband both agree that building your emergency fund is the responsible thing to do.  But it's not fun!  So lighten up a little.  There is nothing wrong with allowing each of you to spend $50 on whatever it is you want, and putting the other $400 into the bank.  Remember, it's only money.

Now go have some fun!


Marcia