If you have just come into money, and by money, I mean that you got an unexpected lump sum. It might be $100 or $1,000, or more. What is the first thing you plan to do with it?
If you’ve been depriving yourself, that is, you have not been using a balanced Spending Plan to meet your real needs, you may have an uncontrollable urge to ‘treat’ yourself. After all, haven’t you suffered in the past few months, or years? Don’t you deserve to do something good for yourself now that you have some money? Why would you want to think of boring savings when you could have some fun?
Frankly, I’m with you on all of those desires. And there is a way to handle the money in an adult fashion so that you will enjoy it, and still have some leftover.
The solution is simple: divide it up into three piles. You are going to fund the Past, the Present and the Future all at once. For the Past, think about any debts you have. Use one third of the money to pay those down. If you have no debt, and aren’t you the lucky one, put two-thirds into the Future.
As for the Present, look at your Spending categories, especially the ones that are short chronically. Do you need clothes, I mean, really need them? Do you need your hair done, a new cell phone even a new TV if yours is a wreck? Divide one third of the money into those categories. Get a new outfit for the coming season, a hairdo by Fifi, and a cell phone that rings when it’s supposed to, as long as you can do so with one third of the windfall money.
As for the Future: how much is in your Vacation category? What do you have saved in RRSPs? Is one of the kids going to need big bucks for school in the near future, or even the distant future? Any wedding plans coming along? Divide one-third of the windfall into two or three of these future plans.
Now it’s one year later, and where is that windfall? Well, it’s on your back in a new outfit. It’s reduced your debts, it’s funding your kids’ big future plans, and your retirement. One year after the money is allocated, you will still have some of it in the bank. You are closer to being debt-free. And you look terrific.
This works for small and large sums. Slowly, you add to your Savings categories for big plans in the future. Slowly you pay off your debts. And slowly, you enjoy your money, too. You no longer have to deprive yourself when you are in debt. So, when you get a windfall, divide it up, and get to enjoy it a lot longer!