NDSU Extension Service - Ramsey County


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Unexpected Dollars

Unexpected Dollars


                It never happens as often as we would like, but we have all experienced receiving unexpected income.  It might be a larger tax refund than we thought was due, a bonus, an inheritance, a rebate, a rewards card refund, a prize, etc. 
                “How to spend it” is generally the first thought when we have unexpected cash but this surprise money can be a wonderful way to jumpstart your future financial security. Below are some ways, “Small Steps for Financial Success” recommends using those dollars.

                First, pay off high interest credit cards. These are the greatest threat to your financial well-being. If you are like the average consumer, you probably have a number of creditors. Pick the debt with the highest interest rate, or choose any credit card that charges interest based on a two-cycle average daily balance, and use your windfall to pay it off or at least make a big dent in what you owe.
                Second, create an emergency fund. Many households don't have one. Having from 3 to 6 months' living expenses in savings is a good idea and your windfall will get you there faster.
                Third, save for retirement. Place your windfall in a tax-deferred Roth or traditional IRA to maximize its growth.

                Fourth, invest your windfall in yourself. Taking a college course or other skill-enhancing program (e.g., computer training) could increase your earning capacity for years to come. Economists call this your "human capital." Think of this use of your windfall as "the gift that keeps on giving" because education is something that is always a part of you. The more education and training you have, the more attractive you are as an employee in your current job or a new one.

                If spending the new dollars is your priority, consider a 50/50 split, use 50% to spurge on yourself, your family, etc. and use the other 50% for debt repayment or savings.

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