Kind of a weird post title huh? Most of the time, us personal finance people are telling you to save up for those unplanned expenses, but now I’m telling you to plan for unexpected income? I sure am. Let me explain. Every year, individuals and couples around the world receive money that they never expected to have. Since they weren’t expecting it, they really had no plans of what they should do with it, which typically means that they blow it on something that’s totally irresponsible and will never see that money again.
Types of Unexpected Incomes
I bet you might think that you’ll never receive unexpected cash in your life, but it is actually pretty common. Here are a few examples of ways that you’ll see a windfall of money:
- Income Tax – Sure, you might be expecting some money back, but what if you think you’ll only receive a check for $500 and it turns into $2,000? Chances are that you’ll blow it all, just like you would have with the $500.
- Inheritance – Unexpected deaths in the family are tragic, but they often come with some extra money for you and your siblings. After the split, you might be left with $5,000, $20,000, or maybe even $100,000. No matter what the amount is, you should have a plan of what to do with the money.
- Bonus – With the economy bouncing back, bonuses may be in your future again. Since you most likely haven’t received a bonus these past few years, this year might produce that unexpected income.
- New Job Signing – New jobs are available once again and they can offer some signing bonuses as well. This might be an unexpected offer from your new job, so you want to make sure you have a plan in case it is.
How to Write Up Your Plan
Just like you have a budget for your regular income, you should have a written plan for your unexpected income as well. So how should you do this? It’s pretty simple really. If you have a significant other, sit down with them and discuss what you might like to do with your extra money should you experience a windfall. Together, you just need to come up with a list and write down the amount for each item. Here’s an example of what I might put on my list:
- Furniture for the porch – $400
- Bedroom dresser – $300
- Painting the house – $2,300
- Landscaping – $1,000
- New windows – $2,000
- Paying off the mortgage – $54,300
- Nicer car – $8,000
- Down-payment for investment property – $30,000
Ok, so that’s my list. Let’s say I receive $3,000 in tax returns (and I plan on receiving zero). The natural reaction for me would be to head out to the country club and buy a year-long membership. Whew, that would be sweet. But, that would be an emotional decision. Since I have already made my list, I can calmly consult it and find out where the “level-headed me” would put the money. With $3,000, it looks like I can buy that porch furniture that I’ve been wanting, the bedroom dresser, and I can paint the house! If I would have received $4,000, then I would have moved down the list to #4 and would also pay for some landscaping. This is a great way to make good use of the money that you never thought you would have.
I showed you my list, how about you show me yours! I’d love to see your lists in the comments below.
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