First Person: I Have a Plan for My Financial Windfalls

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Everyone receives expected and unexpected windfalls at one time or another. Whether it's a tax refund or a work bonus, I usually have no trouble spending windfalls.

It dawned on me this past year that I spend money that I earned completely differently than windfall money. I guess one could argue that I did work for the tax refund money, but in my mind I think of it as lottery winnings. I am often tempted to do something frivolous with windfall money. This year I made a commitment to treat my windfall money the same as I treat my hard-earned money. I am trying to make the most out of extra money we receive.

Putting 10 percent aside for retirement

I put 10 percent of all the money I earn aside for retirement. The reason it's easier to save my earned income is because my company automatically deducts the 10 percent out of my paycheck and invests it in my 401(k). I have to be disciplined enough to do the math and put aside 10 percent of all financial windfalls into my Roth IRA or regular IRA account.

Investing another 20 percent for the future

In addition to the 10 percent for retirement, I invest 20 percent of all unexpected money we receive into a regular brokerage account. Someone once told me the difference between the classes is the poor spend all they have. The middle class spend only their dividends but never touch the principal, while the rich reinvest even the dividends.

Stockpiling food for hurricane season

Since we live in Florida, it's important that we have a stockpile of food and water and other necessities in case our home is struck by a hurricane. I know some friends who live in areas of the country that are being hit by tornadoes. I take some of the money that I receive from work bonuses to purchase the emergency supplies we may need.

Increasing cash flow by pre-paying bills

Another way I am using unexpected funds I receive is to pre-pay our car insurance. By making one payment at the beginning of the year, I free up about $300 so we have better cash flow through the year. It just makes it easier to pay the bills.

Adding to the vacation and entertainment funds

We put aside 3 percent of our income for vacations and entertainment. I make sure to take the same percentage out of unexpected windfalls. I think we should be able to enjoy a portion of our tax return check, for example, even if we don't blow it all. Just 3 percent is enough to scratch the itch to spend.

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