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Queen of free: Don’t let extra money cost you

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It’s a blessing indeed to have cash that you didn’t anticipate find its way to you.

Whether it’s a bonus, a tax refund, a gift or inheritance, you feel giddy at the mere mention of dollars and cents you didn’t expect to have in your pocket. And it might even begin to burn a hole in your pocket before you get your paws on it.

Hold up! Wait!

You’ve got to do some thinking before that extra dough-re-mi actually ends up costing you in the long run.


Uncle Sam wants his cut of everything. So be sure you have your facts straight when it comes to taxable income. Up front and loudly, I am not an accountant or tax professional so check with one of them. But from student loan forgiveness programs to bonuses, many people don’t realize that those extra funds might have a tax price tag.

So first of all, check if you’ll need to immediately sock some of the funds back to pay taxes next year.

Put it in an account you won’t be tempted to withdraw it from and leave it alone!

Checking accounts

Don’t make a checking account deposit. The absolute worst thing you could do is to put that lump sum into your checking account. I often joke that if you leave extra money in a checking account, it will grow legs and walk to Target.

Instead, after you’ve accounted for taxes, place it in a savings account, piggy bank, under a mattress or wherever you’ll be less likely to spend it accidentally.

emergency fund

Finance experts such as Dave Ramsey suggest that you have an emergency fund of at least $1,000 (more if you’re debt free). So one of the best things you can do with extra cash is to begin this fund. It’s not a question of “if” an emergency will arise but “when.”

If you have at least a small amount socked aside, you will be able to handle that without using plastic to solve your problems.

Recently we had to replace a dryer, fix a flat and replace a windshield wiper all in the same week. If we didn’t have the emergency fund I would have panicked, cried and maybe sold some stuff to pay for it all. But since we did it was more of a hiccup than a throw-up moment.

Pay off debt

I’m guessing this is no big surprise coming from me, but I highly recommend you choose to pay off debt with any additional funds you receive. I can attest that it’s absolutely no fun to spend your birthday money paying down debt. But we did it several times, and it was one of the keys to our success of paying off over $127,000.

What worked for us was lining up our debts from smallest to largest, regardless of interest rate, and paying off the smallest one first.

This gave us the momentum of success and also delivered “built-in” funds when a debt was paid off to roll into the next larger debt.

Buy needs

Towels have holes? Need a new pair of running shoes? Kids haven’t had a haircut in six months? It’s OK to spend on things you actually do need.

If you use unexpected funds to cover those expenses (especially while you’re getting out of debt and channeling all of your energy toward that goal), this might be a great fit.

Shop around, make sure you get the best deal, and above all talk to your spouse about what purchases really are things you need. I think it’s a great idea to have a “hit list” of what to replace or spend money on if you find yourself with a few extra dollars.

Splurge or save

Every once in a while it really is OK to have a nice dinner out or buy a new pair of shoes. Just be sure that you’ve checked off all of the above categories before you go there. Or better yet, devote a percentage or all of the cash toward a long-term savings goal like a great vacation or a new car.

You won’t have the instant rush of purchase, but I’m betting a dollar to a hole in a doughnut that you’ll enjoy delayed gratification even more.

We have a percentage based system that filters any extra funds into several different funds — taxes, retirement, generosity, car maintenance and savings, college funds, our health savings account, vacation, Christmas, clothing, family gifts and dining out categories all get a slice of the pie.

I quickly divide any additional income into these funds.

Having a simple filter to send extra money through divides it up so that we can meet both long-term and short-term goals.

Be wise with your resources. Don’t let those extra dollars slip through your fingers without realizing where you even spent them.

Being intentional about your plan for unexpected funds will help you win the battle of your finances.

Greenwood resident Cherie Lowe and her husband paid off $127,000 in debt in four years and now live debt-free every day with their two kids. Send questions, column ideas and comments to newstips@dailyjournal.net.

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