What should you do with unexpected money?

Understand why we spend money differently, depending on where it comes from and how to spend wisely.

Here's what you'll find out:

➜ Why we may spend unexpected money differently

➜ Steps to make sure you spend unexpected money wisely

Sometimes – it might not be that often, but sometimes – you may receive money that you didn’t expect. It could be a birthday present, a tax refund or perhaps you sell an item that’s worth a bit of money.

Research shows that when it comes to unexpected money, we tend to spend it more freely because we haven't already accounted for it. This isn't an issue if you can afford to spend the money but if you’re trying to achieve financial goals it may not be the best plan.

Decide what you want to use the money for

Go back to your budget with your unexpected money - if you add this money to your budget is it going to help you get ahead? It doesn’t all have to go towards one area, you might want to dedicate a portion of that money to different items.

For example:

  • Put into savings
  • Pay off credit card debt
  • Pay off your bills

Work out how much will go where

If you know the amount of money you’ll be receiving, this may be a bit more straightforward. But if you don’t, you can use percentages to map this out ahead of time.

As an example, let’s say you receive some money and you want to pay off some credit card debt, save and also get a new laptop. You could break it down like this:

  • 50% to pay off your credit card debt
  • 35% into savings
  • 15% towards a laptop

The amount you want to put towards each item will depend on what’s important to you. For example, if you’re being charged interest on your credit card then the rate is likely to be greater than the interest you’re earning on your savings. So prioritising paying that debt may leave you better off in the long run. And if you really want to clear that credit card debt, you could put 100% of what you receive towards it.

Stick to the plan

One of the benefits of planning how you’ll use the money is it reduces the likelihood that you’ll put the money towards something you’ll regret later or worse, spend it on lots of small purchases that you neither noticed nor cared about.

It sounds obvious, but make sure you stick to the plan. There are a couple of ways to make yourself accountable:

  • Tell someone you trust about your plan
  • Write your plan down, including what you’ll do step-by-step
  • Put money into your savings and/or pay off any debt as soon as you receive the money

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