Coming across some unexpected income is a great problem to have. I always get excited when I find out that I’ll have some extra income headed my way and immediately think of what I should do with the money. However, I think that many people don’t treat their additional income the same way that I treat mine.
You Easily Can Lose Track of Unexpected Income
Chances are you don’t have a line item in your budget for unexpected income because, after all, it wasn’t expected. If you don’t add the extra income into your budget, you probably won’t track where you spend your extra money either. Not tracking your extra income and what you spend it on can lead to a couple of different outcomes depending on how you generally treat your money.
You Can Blow The Extra Income
The first, and most common treatment of extra income, is that you blow it before you even know what you did with it. Whether you just got a bonus, sold an extra household item, received an escrow refund or credit card bonus check, your first reaction is probably that it is time to celebrate!
How do you celebrate? Do you just do a happy dance in your living room or do you decide it is time to go out to that fancy restaurant that just opened up in town? Another common celebration is to go buy that new car that you’ve been eyeing, or maybe something cheaper like a faster laptop. If celebrating involves spending money, especially large amounts, you might actually end up spending more than the extra income you weren’t expecting!
You Can Save The Unexpected Income
If you’re a compulsive saver, however, your first instinct might be to immediately throw the money into your saving, investment or retirement account because it makes you feel better about your financial efforts. I’d definitely say automatically saving or investing the money is probably a better way to deal with unexpected income, but it still might not be the optimal thing to do with your unexpected income.
How I Treat My Unexpected Income (The Best Way)
The best way to treat your unexpected income shouldn’t be a shock to anyone. You should treat your unexpected income just like you treat your expected and regular income. No, it isn’t nearly as fun as blowing the money or as comforting as instantly saving or investing the money, but it is the right thing to do.
First, add the income into your income budget for the month. After that you need to decide what to do with the money. I always take a look at my current financial goals and decide how the money will be most effective.
At this particular time in my life, almost all extra unexpected income goes toward paying off Tori’s student loan debt. However, just a couple months ago it would have gone into short term savings in case Tori’s foot surgery resulted in a longer than expected recovery time.
My one exception to how I treat my surprise extra income is if it is a large windfall. In that case, I’ll take a small portion to celebrate and then treat the rest of it like I noted above, just like any other income.
Now it’s your turn. What do you do with your unexpected income? Does it matter if it is a small amount of money or a large amount of money? Why or why not?