We are smack dab in the middle of the Financial Literacy Month Series. I’ve previously talked about budgeting, smart money strategies, reining in poor money management, and today the conversation continues.
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So this topic is low key a deviation from the Financial Literacy Month series, but boy oh boy, does it fit! I know it may be too late for some of you, but the lesson still remains. Here’s tips on how to responsibly manage a windfall aka what to do when you receive a lump sum of cash. And before you click away, I’ll admit that spending that money is an option!
Right now, a lot of people are receiving (or have received) their third stimulus payment AND tax refunds. This is more money than we typically see all at once. With a sum that may very well exceed a full paycheck and even a month of income, it is tempting to spend it all on everything you never had the opportunity for in the past.
So how does this affect our mindset? Coveting lump sums or windfalls for the ability to do something you otherwise would not have, teaches you a few negative things about your relationship with your money:
- You are only deserving of high ticket items when you receive a windfall
- Without receiving money you virtually did little work to earn, you wouldn’t be able to afford things that excite you and make you happy
- It undermines your ability to exercise discipline in saving for what you want
- Having fun (enjoying) your money only happens when there is a surplus of income rather than a surplus created through budgeting strategy
With these things in mind, let’s reshape how we see these funds that fall into our lap as a means to get closer to our goals, secure our financial stability, and make investments in ourselves.
Using Big Money Decisions to Get Closer to Your Goals
I fully understand that saving your money may seem like a chore more than an exciting preparation. However, when we intentionally put our mind towards positivity with saving, we are also telling ourselves that it is possible to reach our goal and there is satisfaction in the discipline and delayed gratification. So, when it comes to earning extra money that you weren’t expecting, you can find a sense of fulfillment in saving that money instead of finding ways to spend it on impulse.
If you feel deprived in this scenario, your discipline is probably low or you are in fact depriving yourself. This is an indication that you must review your money goals and current strategies. I’m always fascinated by the stories I hear about those who live on extremely limited budgets in order to pay off debt or some other huge financial obligation in a short period of time. I briefly consider if I must adopt these habits too and then I remember that slow and steady wins the race as well.
Likewise, you can look at your spending and large financial goals in the same way. Having the restraint to save and spend is one of my mottos. If you have a strategy for your money that accommodates your long term goals while allowing for present time indulgences, I think you’re making a perfectly fine decision. Once you lose a healthy balance between the two, your money priorities begin to slip. But the best way to manage this delicate balance is to create a…you guessed it…budget that is all encompassing of your short term spending needs, long term savings goals, and your current income.
Another way to positively view savings and windfalls, is the accelerated timeline. Especially if you resigned yourself to a much later completion date, receiving a surplus of money rewards your dedication to the goal. Not only do you get to reach your goal quicker but other opportunities open up for the future money you already planned to save. That comes in handy when juggling multiple priorities. For example, right now, your goal may be to pay off a credit card. But what happens when you finally do that? I’m sure there are other goals down the line such as student loans, a car note, mortgage, and increased 401k contributions to name a few.
Secure Financial Stability with Big Money
A financial windfall can also help you address financial stability. Stability is not having to live paycheck to paycheck, it’s having more money in the bank than what you even need to budget for. It’s possible to get one step closer to this stability with a windfall, and this is achievable by padding your emergency fund.
An emergency fund is a different type of savings from all others because it is not goal based in terms of a specific item, and the goal is renewable once you spend the money. It is a safety net for things you didn’t plan for. This savings must be addressed with a different strategy from your monthly spending and other savings categories. Financial stability can single-handedly be determined by the health of your emergency fund. I’ll also add the balance of your retirement investments compared to your age as well.
Now I won’t go into too much detail on this topic because I have a whole podcast episode dedicated to it. You can go back and listen to “Making the Emergency Fund Easy to Tackle” for more on this topic. But when you think of the emotional and mindset side of the emergency fund, you will start to notice how a windfall can play a positive role.
If you’re listening to most financial experts, they’re telling you to put 3-6 months of your necessary expenses into savings. Factoring this in with current bills, you may not even reach this goal before a few years pass. Toss in a few emergencies too, and there’s a constant struggle to rebuild to the perfect emergency fund balance. Sounds like mission impossible, right? Having an impossible goal that seems like it’ll never be reached can be demoralizing. It’ll have you thinking that you’ll never meet your goal or even start to doubt the goal itself. But the windfall can be that quick injection into your savings that re-motivates you, reminds you that your safety net has purpose, and gives you peace of mind with your money.
The pandemic, which is affording us an additional $1,200 or more, is a lesson in the importance of having a safety net. On top of the anxiety we all had for our health, it was doubly stressful if you did not have any emergency savings or any type of cash reserve for last minute home stockpiles, medical visits, non-work time, and other things. Building a nest egg for yourself improves your relationship with money because it eliminates all feelings of desperation and poor judgement when you do receive a windfall. Conversely, it gives you more options when you’re in a position to make a big financial decision.
Another theory is to take advantage of a better financial situation by getting ahead on bills. Freeing up future funds that were already spoken for buys you time to make more money with less urgency and dependence on that income. Giving yourself this buffer gives you more time to make decisions too, or even change up the way you budget without putting yourself in a tight situation.
One of my basic budgeting strategies is to pay all the bills I have in a given pay period based on due date. If its due the day before my next paycheck, it still goes to the previous budget. A while back, I used to evenly split all my monthly bills per paycheck as a part of my budgeting strategy. So literally half of my bills would lay dormant for a full pay period before I paid it off. I abandoned this strategy for my current one but the switch actually put a strain on my available funds. Transitioning your funds, in any situation, can create a problem like this and having extra cash to tide you over will make a difference.
Think of it this way, your finances can go through seasons, just like relationships, your career, your health. Having a buffer will make the transition smoother and put less strain on your positive money mindset that you’ve been working so hard to build up and maintain.
Invest in Yourself with the Windfall
The last area to discuss is the decision to make an investment in yourself. I think there’s this misconception that all spending is bad, especially when it comes from an influx of cash. The “more responsible” thing to do is save the money, right? While I agree with this most of the time, there are many reasons why spending the money OVER saving it can be very wise. It’s important for us to invest in ourselves and seek opportunities to spend money that can develop us as a person or make us more money.
One of my 2020 goals that I’ve still left on the backburner was to start a vending machine business. This is definitely not new but I’ve seen it blow up in the black entrepreneurial space online. With not a lot of cash investment, you can form a pretty decent vending machine business for extra income. Although this would require me to make an upfront investment, with commitment to seeing the plan through, I can more than 10x my investment from the revenue I make. If you have an idea like the vending machine business, do not hesitate to go after it if the time and money is right, right now!
Especially if this is something you’ve been planning on for the longest, but just hadn’t made the move, or didn’t have the full funding yet; this is a great time to take advantage of windfalls such as the stimulus payments and tax refunds.
Other things that fall in this category include education and not just enrolling into a university, but even an online course or coaching program on a specific subject. There’s also products and services that can make your life easier and free up precious time like home cleaning services or even personal care like finally going to the nail shop for a manicure or pedicure.
There is nothing wrong with investing in yourself to expand your growth as an intellectual, entrepreneur, wife/mother/friend, or whatever title you claim. Intentional spending will always rule out over frivolous spending. And personal investments will ALWAYS rule out over aimless savings as well. I’ve used this strategy in my own life and have seen how it has pushed me to be more productive, committed to my ideas, and taken me to the next level of entrepreneurship.
For the longest I’ve been toying with the idea of purchasing an iPad Pro. On the surface it may seem like a silly yet expensive purchase, but I have plans to use it as an investment. Since selling my 2015 iPad Air I discovered different ways to use an iPad for personal planning, Etsy product creation, and video creation for my YouTube channel. With the right dedication this purchase will not only help me develop my creative design skills (that I also use at my job) but it will also potentially increase my Etsy income, YouTube viewership that can eventually lead to advertising income, and more. So I decided to use the time I had been saving to build a consistent habit of creating content without it. As I was saving, I was also building my skills and testing my commitment to the goals I wanted to achieve with the iPad Pro just to make sure I was making the right decision. Now that the 2021 iPads will hopefully be released in the next few days, I’ll be poised to make my purchase with the confidence that the investment will help me grow in many ways.
Speaking of investments, I can’t end this blog without reminding you of my new money mindset coaching program. You need to join this program if you’re discovering that your money mindset and budgeting strategies are not aligned with your goals. I walk you through intentional money mapping, creating positive mindset building blocks, and provide effective budgeting strategies. Let’s jumpstart your money transformation with a free 1:1 coaching call. Just visit this link to schedule your call.
The name of the game is intentional decision-making with your extra funds. This reminds me of times when I make a random fast food stop simply because something sparked my interest. The logo sign, an ad, a billboard. It was never my intention but the attention grabber pulled me in. After finishing the food I compulsively acted on, I’m left unfulfilled, still hungry, and a little more out of shape. The same happens with your finances when you act impulsively. You’re left with nothing to show for it or materialistic things that lose their appeal quickly. Make a decision that your future self will be thanking you for.
And hey, it may very well turn out that you don’t make the best decision even if it was intentional. Only hindsight is the one with perfect vision, but putting forth the effort will have a 100x positive difference. And it’s not all lost because you will be able to course correct and learn from that experience. The lesson will be a lot more valuable because you would’ve exercised committing to a decision meant to better your life. That’s hard to do naturally in a world full of impulse shopping influences, peer pressure, making comparisons, and more.