What is the first thing you do with “found” money?
First, what exactly constitutes “found” money? That would be money that is considered a windfall, either a one time thing or a consistent amount of money that is now available to you (think a raise at work, for example).
If you’ve suddenly increased your income, either short term or long term, think about exactly what you would be inclined to do with it.
For some, money that has found its way into their hands often doesn’t last very long. That money is spent quickly, on a whim, for something such as a vacation or a shopping spree (new clothes, anyone?).
A small contingency of people might be thinking, however, why not use that money to help your financial situation? Think about credit card debt you have, a lingering school loan that could be paid off or something else you’ve been putting off due to not having the money, such as repairs around the house or dental work, anything that is a necessity in the face of having extra money at your fingertips.
Let’s talk for a second about extra money in the form of a raise, perhaps something you get once and a while at work depending on how the company is doing or it might be a yearly thing based on cost of living or something of that ilk.
A raise at work isn’t a reason to increase your expenses, such as subscribing to another monthly service or even justification for a new car, better house or anything else that would require you to add more debt or spend more money on a monthly basis.
Instead, a raise should be seen as extra income for paying down the aforementioned debt or extra money that can be put aside in a savings account or emergency fund. Furthermore, have you given any thought to your retirement plans?
A raise is a perfect time to add to your 401K, increasing the percentage that you are contributing on a yearly basis until you completely max out that amount.
Now, this isn’t to suggest that you can’t spoil yourself a tad with a raise or money that you’ve come into at the moment. If you’re wearing clothes from 20 years ago or have shoes with holes in it, buy yourself something. That constitutes a necessity, but a shopping spree with clothes already overflowing your closet or taking a trip when you just got back from one doesn’t make a lot of financial sense (unless you haven’t had a vacation literally in years).
Found money is a nice bonus, but make that money work for you beyond a few ill advised, short term spends that mean little in the long run.