Thursday, February 12, 2009

Planning for Unexpected Money

Everyone comes into some unexpected money from time to time.  Think about the times when you've received a birthday card in the mail with money; when you've receive a tax refund or rebate; or an unexpected inheritance.  Maybe you purchased something with a rebate offer, and the check finally arrives in the mail (long after you forgot you even had a rebate coming!)  Any money you receive that is outside your regular income is considered “unexpected”.  What do you usually do with unexpected money?  Deposit it into your every day bank account?  Buy yourself something? 

If unplanned, the majority of unexpected income simply gets absorbed into everyday spending.  If it's deposited into the account you use to pay your bills and withdraw money for entertainment purposes, chances are you use a little here and there and couldn't even say within a week's time where the money was spent!

Instead of letting unexpected income trickle through your budget almost unnoticed, you could create a plan to help you deal with unexpected money.  I know, you're probably thinking if it's “unexpected” how can you plan for it, but the answer is actually pretty simple:

Decide how you will use all unexpected income before you receive it.   You don't have to know when the income will come in or how much it will be if you set up a plan using percentages.  For example:

  • 10% in your pocket for extra spending money
  • 50% in long term savings
  • 35% toward your highest interest debt

With categories and percentages decided upon before the money arrives, you'll know exactly how much of all unexpected income will go to savings, debt repayments, and spending money.  Your only other decision is to determine how much you have to receive before you follow these rules – some people will do the same with all unexpected income whether it's $5 or $500; while others choose to follow their plan only if the unexpected income is of a specified minimum amount.

The trick to making a “plan for unexpected income” work to your benefit is to create it – and then stick with it!  Consider it an extension of your budgeting (if you have a budget you’re committed to) and don't let the temptation of extra money lead you to an extra purchase or to a night on the town that you haven't financially planned for.

Trisha Wagner is a freelance writer for, where you can compare rates from dozens of banks in one place. Trisha writes regularly on the topics of personal finance and saving money.

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1 comment:

Kevin said...

Excellent post and great site!