How to manage unexpected income?Saving | March 8, 2010 at 1:24 am
Income or money that arises out of nowhere, not exactly, is unexpected income. It can be anything like a birthday check of $20 or an income rise or a dividend. However, “anything” can be quite a vague categorization. Hence, let us divide this income into two categories: One time and Regular Income.
One time income can be tax refunds, or rebate check, or birthday money, or something like that. However, it comes quite often then we realize and instead of spending it appropriately, we squander the amount. Let’s have a look at how we can utilize it.
If the amount received is below $50, use it for fun. You cannot do much with $50.
If the amount is between $50 and $100, you can use it pay some of your bills. Or maybe add it to your savings.
If the amount is above $100 and below $1000, divide it into two and use it to repay your debt or bills and add the other half into savings.
And if it exceeds $1000, it is highly recommendable to use it to repay your high interest loans, save for a new home, or pay huge bills.
You would ask how can regular be unexpected? It can. You get few income, you know it’s coming, but you don’t know when, hence it’s comes unexpectedly. This would include unexpected income rise, dividends on stocks, etc.
If you are buried under debt, a very logical step is to put this unexpected regular income to repay your debts. However, if you don’t have much to repay, you should save or invest this amount. You can utilize this amount for your 401(k), Roth IRA, traditional IRA, or other long term savings.
And if you have already invested considerable amount into these funds, you can invest unexpected income in other investment instruments like stocks, bonds, gold, or foreign currencies.
Do you have better ideas to utilize unexpected income?