Receiving unexpected income is a great feeling! Whether it’s a bonus at work, tax refund, or birthday or graduation check. Your mind is immediately swept up with all the fabulous ways you could enjoy it. Dinners, shopping, maybe an extra day on vacation. But is that really the best way to use it?
Before you make that reservation or make that online purchase, take a moment to consider that this is unexpected income. Meaning, income that has not been included in your budget and therefore, could make a pretty big difference with very little effort. Put on the brakes and deposit it into your Madison credit union savings account while you think about the following smart moves.
Specifically, those high-interest debts such as credit cards at 10% to 15% to 30%. Each additional payment can make an immediate impact on the balance due while adding up your savings in interest payments. Whether you are paying off the smallest debt first or the highest interest-bearing debt, you will be that much closer towards paying off the next chunk of debt.
Start an Emergency Fund (Seriously!)
For all we hear about emergency funds, very few actually have one started. In a 2016 survey by Bankrate.com, only 37% of Americans can cover an unexpected emergency of $1,000. Unexpected income is a perfect opportunity to add to or start an emergency savings fund that’s ready when the car radiator gives out, or the A/C needs a tune-up, or my favorite, the cat heads to the emergency vet clinic. If nothing else, remember it’s not if you need the emergency but when. Save yourself the stress and just prepare now.
Review the Budget
If both your debt level and emergency fund are in good shape, think about budgeting for upcoming expenses:
- car or health insurance premiums
- an extra installment payment on car or mortgage. (Check with your lender first to make sure this is allowed and will not incur any kind of penalty.)
- a new car
- replacing a major home appliance
- property taxes
- Daycare or summer camps
This is an excellent opportunity to get prepared and lets you leave your emergency credit union savings account intact.
If you do not see any upcoming expenses, next look at your financial goals. Considering both short- and long-term, these might include:
- Down payment on a new house
- College fund
- Traditional or Roth IRA
When all is said and done, the big takeaway is do not simply deposit the funds into your checking account because it will be gone before you know it. And more than likely, without anything to really show for it. Not that you can’t splurge on something fun (hello, purple hair for summer!) but just take a moment to consider all your options.