What are you doing with your extra cash this Christmas?

Posted by FrugalPinoy on Dec 9, 2008 in Budgeting, Earning and Income, Saving | 3 comments

I’m receiving a sizable amount of unexpected income this month. Almost like a freelancer’s 13th month pay.  This isn’t unusual during Christmas, where people get paid more, businesses generally have more income, and students receive money as gifts from their ninongs and ninangs.  This extra money you receive is called “a windfall”.

What exactly is a windfall?  A windfall is an unexpected extra amount of income or business revenue.  Some examples include: inheritance payouts, Christmas bonuses, extra revenue, cash winnings, and cash gifts (the ones from relatives, not illegal ones form Malacanang hehe).

Although windfalls are common during the Christmas season, they also happen in other months during the year.  Anything you receive above your average income may be considered a windfall, if the money has not been budgeted yet.

What to do with a windfall

Most people spend windfalls by buying treating themselves or taking out their friends and family to lunch.  While nothing is wrong with rewarding yourself, leaving the rewards unchecked or unmonitored often means the money will disappear sooner than you think.  This is why I always have a plan for windfalls.

In case of unexpected extra income (which I usually have each month, since my income is not set in stone), I always have a hierarchical game plan on what to do with my extra money. Here’s where I stash them (in order):

1. Fund for house in the farm.
2. Fund for repairing my mother’s house.
3. Retirement fund.
4. Emergency fund.
5. Travel fund.

How I divide the money into those 5 funds depends on how much my windfall is.  If it’s only P5,000 or below, I usually put all of it in Fund #1, or I divide it between Fund #1 and Fund #2.

You can also do the same thing, set up a list of 3 to 5 things where you can put the windfall.  Make sure your list is in order so you would know what to prioritize. Keep this list handy – whether in your budget notebook or as a file in your computer – so that you can easily refer to it before the temptation to splurge sets in.  Don’t worry, you can always include “Personal Reward” in your list of windfall funds so you can enjoy that extra money a bit.  Just make sure that your entire windfall doesn’t go there.

It may seem like I’m too disciplined or I’m not rewarding myself enough, but that’s not the case.  Having the farm house built as early as possible will be a great reward for me.  I prefer to live in the farm and have some place to retreat to when things are going too crazy in the city.  It’s really all about setting your priorities based on the things you want to do and the dreams you want to fulfill.

Will you be receiving extra money this Christmas?  What will you do with it?