Want to make money in real-estate? Then you need to know where the ‘hot’ cities to buy in are … this US News article from Luke Mullins should tell you just that!
I classify ‘windfalls’ with all other Found Money: save 50%+ and spend up to 50%
I’m not going to tell you to spend half, but you can and should – at least – spend a significant portion: at least enough to fully celebrate your good fortune (even more so if it was a result of hard work rather than luck).
Interestingly enough, by chance, I came across this quote from Ramit Sethi (I Will Teach You To Be Rich):
I don’t recommend you sock away 100% of unexpected earnings. In fact, I force myself to spend 25%-50% of any unexpected money within a month, a technique I developed to keep motivating myself to earn unexpected income.
Of course, blindly following blanket rules won’t make you rich … you have to qualify them and assess against your own situation, which is why this blog (or others) cannot be misconstrued as personal financial advice … for example:
– If you find $20 on the street, buy yourself a latte and a magazine and then put the other $10 in your end-of-month savings ‘cookie jar’
– If you sell your business for $2 Million don’t spend $1 million
– If you get a $200 a week pay increase:
… do spend $100 immediately (enjoy!)
… don’t spend $100 extra a week (unless you HAVE to)
No rules, but some guidelines:
– If the ‘found money’ is life-changing (for me, that means getting you to your Number, or a Big Step closer) then spend a chunk … perhaps as much as the top tier on your version of the 10-1-1-1-1 chart (provided it isn’t more than 5% – 10% of the total ‘found money’). Do me a favor: spend it on something you’ll remember (for me, it was the Maserati and the Villa-in-Tuscany vacation) 🙂
– For the money that you do want to spend – one-off, but not life-changing – still apply 10-1-1-1-1, but kick it all up a notch (e.g. you only need to think about spending $100 for 10 minutes) … but, ONLY until that allocated money is spent
– If it is an ongoing – and fairly reliable – stream of ‘found money’ (e.g. a pay increase), calculate how much of the increase you NEED to spend (i.e. add to your budget because you have been going without, or are behind, or have critical debt repayment, etc., etc.) then gradually wind your spending back to that number and save the rest.
An example may help to illustrate the last point:
You currently earn $500 a week, and are behind a little. You calculate that another $40 a week will be enough to ‘break even’ on your spending (you know: put food on the table; clothe the kids; pay down the remaining balance on the credit cards that you tore up, etc. etc.).
Now, you receive a pay-rise (I guess you got lucky and switched jobs, or decided to take on a second job) of $200 a week (after tax, of course):
1. You are committed to saving at least $100 of that, so $100 a week additional goes straight into the investment account
2. You are committed to spending $40 a week (see above)
3. So that leaves $60 a week undecided:
Week 1: spend $60 … enjoy!
Week 2: spend $40 …. enjoy!
Week 3: Spend $20 … enjoy!
Week 4: By now, you’re actually saving $160 a week extra … what do you expect? Every week to be Christmas?!