Sometimes you should spend money before you earn it. The only good way to spend money before you earn it is to spend it on PAPER. Spending it on paper first is especially important for UNRI (Unexpected Non-Reoccurring Income)
Sources of Unexpected Income
- Gifts – Christmas, birthday, or any other occasions where someone gives you money
- One time earning opportunities – this might include an honorarium for a speaking engagement, a thank you gift for a service you offered someone, or getting paid to participate in some type of survey.
- Side Job – Perhaps you’ve been working towards turning a hobby into a source of income. Sometimes you make money, sometimes you don’t. It certainly isn’t consistent enough income that you can depend on it or predict the amount of money it will provide.
- Inheritance
- Prize/bonus money – while I personally don’t gamble and rarely even participate in raffles, some people will get money this way. You might even have signed up for something that rewards you with a cash bonus.
- Any other source that currently you do not know the amount, frequency, or likelihood of getting money.
My theory is if you don’t pre-spend unexpected non-reoccurring income on paper you will waste it when it comes!
If you don’t make a plan you’ll probably make a bad money choice.
Our spending can be categorized in one of two ways: Reactionary or Proactively.
Reactionary Spending:
We get a check for helping someone and we say to ourselves, “Hmm. I wonder what I should buy?”
On other occasions we might get a cash gift and we immediately start to wonder how we should spend the money. People love to ask the question “What would you do if you won a million dollars?” Most of us won’t really need to answer that question, but many of us will need to know what we would do if we got $100.
The problem with reactionary spending is that it tends to be spent on short-sighted, temporary desires.
Proactive Spending:
A better way to spend is proactively according to a predetermined game plan. In other words, spend it on paper before you make it.
Allocate Unexpected Income to One of the Following Categories
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Giving
If you decide that you will give only when you have extra money, you will probably never have extra money. Decide today to give a certain percentage of your next UNRI dollar. Once you receive that dollar you don’t need to decide if you are going to give some or not. That decision has already been made before your greed can emotionally influence you to keep more of the money.
- Debt Reduction A common complaint when it comes to paying off debt is that people feel as if they are not getting any traction. They feel as though they are simply treading water without making any progress. Putting your UNRI towards debt payment will both reduce your debt load and motivate you to become debt-free.
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A Long Term Saving Goal
This might be saving for retirement, saving up for a new car purchase, or saving for a home down payment. Because the money is UNRI it shouldn’t impact your normal budget so this gives you a great opportunity to contribute to some of your long term goals.
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Short Term Purchasing goal:
Perhaps you have been wanting to do an upgrade on your house. Maybe the car needs a new air conditioner. Perhaps you have been wanting to take a vacation for some time. This unexpected income can help you purchase some of those items.
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Fun:
Some of this extra money can be used just for fun. It’s not bad to blow some of your UNRI, but make sure you decide how much you want to blow. Since the money is unexpected it is alright to enjoy it, but keep your passions in check by predetermining how much you are willing to use for fun.
Go ahead and decide today, how are you going to plan to spend your UNRI?
You don’t need any number, just percentages. Grab a paper or open a Word document and write the words give, debt, long term savings goals, short term spending goal, and fun. Now beside each word put a % amount. The only rule is the numbers need to add up to 100%. Below is an example (but not a suggestion). You will need to customize these numbers according to your situation. If you have consumer debt that should get your largest percentage by far).
Give: 15%
Debt: 20%
Long term savings goal: 25%
Short term purchasing goal: 25%
Fun: 15%
Now you have officially decided to be proactive with your spending. Next time you get an unexpected check you know exactly where to put that money.
This post has been edited and revised from a previously published as a guest post at Frugal Dad.
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{ 2 comments… read them below or add one }
If you’re not a natural saver, the best course of action might be to put the money in the bank and forget you have it. Somehow the longer it stays there, the more natural it’s being there will become. It could be the “seed money” that gets you to add to it on a regular basis, proving to y0urself that you can become a regular saver. Heck, sometimes all we need is a push, and a windfall can be just that.
We can ALWAYS think of “needs” for found money, but it seems that since unexpected expenses are so common, it might be best to find a way to match them against unexpected windfalls. They’d cancel one another out, but that would be just fine in my book!
.-= Kevin@OutOfYourRut´s last blog ..Making Work-At-Home Work For You =-.
Kevin,
I like the idea of just putting it in the bank and forgetting it. It is amazing how quickly you can forget you even have the money.