Happy day to you. This is Ken Kaufman, and I am thrilled you’re here for episode number 49, “One-Time Unplanned Income.”
Now, this is a time of year when I see come up the question, over and over again, of people who are getting one-time lump sums of money, for usually one of two common reasons this time of year. And then there’s always the ongoing reasons of inheritance or some other things that happen. But, at this time of year, we usually start to see where people are getting tax refunds, and also bonuses, or some things from their employers, or from their work situation, where they’re getting an extra amount of money, more than what they had planned on, or, you know, more than at least what was expected in their, you know, paycheck to paycheck cycle. So, I wanted to just go ahead and hit this right on.
Generally, I’ll hear people asking, “I’m getting this tax refund of x amount of money.” Or, “I’m getting this bonus at work of x amount of money. What do you guys think I should do with it?” And then sometimes they’ll even put in some personal information like, “I have just gotten myself out of debt, and I’m starting to save an emergency fund. Should I put it to my emergency fund or should I save it for vacation?” Or another person will say, “I have one last credit card to pay off and then one student loan, and then I’ll finally be out of debt. Should I put it toward my credit card or should I put it toward my car loan? Or toward my student loan? Or should I save it for Christmas? Or should I buy the new car that I’ve always wanted?”
We can go on and on down the list. In fact, you can kinda just insert whatever fits in your life and whatever feels like the highest priorities in your life. When this one time lump sum comes in, this is the advice I generally try to give in this scenario. There is power in just having some extra cash come in and hang out for awhile, before you necessarily send it off to go pay off debt, or to go buy something, or to pay for vacation, or whatever it is that’s on your list. And, by the way, I’m not the judge of what you should or shouldn’t do your money with, and nobody else on the internet should be. You should be the judge of what is the most important to you, what your financial plan tells you, and what your income waterfall is telling you. Remember, you fill up one bucket, you fill up the next, you fill up the next. It should all just flow through there.
But this is the one thing I really like to advise people to do. Let that money just come into your bank account, and then just let it sit there for a little bit. Let it “season” is what we call it, where it just hangs out. And every day that it’s still sitting in your bank account, it’s just becoming more and more yours and it’s “seasoning.” In the “You Need a Budget,” or “YNAB” terminology, this is increasing your age of money. Meaning the longer that you hold onto that dollar, the higher your age of money is. And that’s a sign of you’ve got plenty of cash in your bank account and those sorts of things.
The reason to do this is, rather than need to make a rash decision and know exactly what you have to do with the money right when it comes in, there’s some wisdom in just letting it come, letting it land in your account, and don’t be in a hurry to do anything with it. Let it just sit there. Let that just kinda soak in, and get used to what that feels like. And see what that feels like. And then, some people will get so comfortable and say, “Yeah, I’m not really anxious to get rid of this money anytime soon or spend it on anything. It’s kinda makes me feel comfortable to just let this money sit here, put it in a savings account or whatever makes sense, and just not do anything with it for awhile.” Even if you’re anxious and you say, “Well, I’ve got all this debt, and I need to put it toward the debt.” Well, most likely, however much it is and whatever your interest rate on your debt is, having that money sit in your account for 10, 20, 30 days, probably isn’t going to cost you very much. And it gives you just a little bit of time to stop and really think about your decision, and feel the weight of it, as you see that balance in your bank account go up. And not just spend it or push it out toward wherever you think the next job is that it needs to go.
And there are some things that happen here. Your mind can start to open up and you can start to see and understand the value of what you have. Hopefully, your gratitude will increase, and you’ll be thankful for where it came from and why it’s now in your possession. And, your ability to be wise with those dollars, in my opinion, goes up every day you keep them in your bank account. Now, I’m not necessarily saying, you know, keep it in a bank account that pays 1% interest, or savings account that pays 1% or 1.5% or 2% interest, if you have a credit card that you’re paying 17% interest on. But to let it just sit there and season for a little bit until you make that final decision can be very empowering. And it can broaden your money perspective. I know that it sounds silly and you think, “Why would I have to do that?” Just do it. Give it a try. It’s not gonna cost you much, if anything, and I think the benefit is gonna be very, very valuable to you.
So the next time that you’re even out there on the internet and on Facebook or other places and people say, “Hey, I got my tax refund. What do you think I should do? And what do you think about this? What do you think about this?” Be like me, and be the one who always says, “Just hold onto it for a little while. Don’t do anything. Let it sit there. Let it season, and then you can make your decision once you give it a little bit of time and you feel what it’s like just to have that money there in your bank account, to have that security sitting there in your bank account. So, and again, once you get through that process and you appreciate it, now, you have the ability to look at your financial plan, what your income waterfall tells you. What is that next pool or that next bucket that’s the most important for you to fill up, and then you can start to go forward and either, ya know, execute on the plan as it is or maybe you’ll get some insights in this seasoning period and you might even be able to update your plan, and have this money work even more more effectively toward helping you accomplish your goals and your objectives.
Well, there it is. One-time unplanned income. If it’s unplanned, go ahead and let it unplanned sit in your account for a little while and then make your decision, execute, continue to move forward on your plan. Many, many thanks to you for joining today. This is a wrap for Episode 49. Happy day.