What happens when you get an influx of cash?
Like a bonus from work, Christmas or birthday money, a tax refund or a win on the lotto?
For most people, the main response is “what can I buy” closely followed by “ugh I have to pay my credit card with this”.
Any excess funds could go towards your goals, in the same ratio as what you’re setting aside now.
Any excess funds can be invested to make your future better. Or you can spend it on something short term and fun and then it’s gone (that’s absolutely OK by the way! If that’s important to you).
Pay Down the Credit Cards
Why do you have to wait until you get a tax refund to pay down your credit card? A credit card (or store credit or Afterpay) are all you spending your money before you have it.
Make a plan today to pay down your credit card debts and stop using them. Use your own money to buy your things.
Note – some people get rewards for having a credit card and this is very smart by the bank. Because you have a credit limit, you generally use that limit often, which means you could be buying more that you need, or can afford, just because you have a credit card (it’s a mindset thing!).
They will then reward you with something that’s not worth the extra hassle of overspending – such as a voucher, flights or appliances. At 1% of the value of the “stuff” that you bought.
What Can I Buy?
Most of the items people buy when they receive unexpected income is short lived.
Sometimes it’s a new couch when the old one is falling to bits (more of a need than a want), but mostly I see lifestyle assets. I don’t do a lot of jargon, so I will explain here: a lifestyle asset is one that makes you feel good in the moment, you will enjoy it for years (hopefully) but it will never make you money. Its value goes down the older it gets, or it costs you money to run and upkeep.
Over my desk throughout the years it’s been motorbikes and boats and boat motors and Thermomixes and holidays.
Instead of building a routine of saving for these items throughout the year, we wait, then pounce, sometimes without even adding it up and then end up overspending.
Instead – make a plan. Stick to your budget, and make sure what you’re doing with your money is fun for you.
Pay Yourself First
The concept of Paying Yourself First is similar to that of travelling on an aeroplane, and when the oxygen falls, put your own mask on first. With your finances, set up your priorities, so that you can put any additional funds there, so that you’re prioritising what’s important to you.
Maybe it’s important to you to retire in 15 years on a block of land with trees and a river flowing through it. Maybe it’s important to you to have the school fees all paid without borrowing money. Maybe it’s important to own a particular type of car.
Have the plans set up, so that you know exactly where any windfall will be directed to – long before the cash hits the bank account.
Disclaimer: This information is general in nature and doesn’t take your personal circumstances into account. Always seek professional advice for your specific situation.
