No matter the source, you need to have a priority established for all money. Otherwise you’ll probably squander it. It’s human nature, like buying a TV with your tax refund…it’s found money right!
It’s bound to happen that you receive an extra dollar some day. Ideally today! It could be a bonus, inheritance, gift, commission, etc. It is also all the money you receive in a month that exceeds the total on your monthly budget. So, if your monthly budget totals up to $4,150 and your take home income that month was actually $6,150 then that “extra income” is going towards the items you have on your list of Priorities for Extra Income.
I believe any good plan is going to have a priority for each dollar you would ever receive. So today I want you to list out what you would do if you did get another dollar tomorrow. This could mean paying extra toward debt, saving for your Financial Independence Fund, investing, saving for a big expense, going on vacation, buying a car, or whatever makes sense given your situation. The point is having a placeholder for each incremental dollar before you even get it. See below example list.
Priorities for extra income – Example::
|$1,250||Pay off credit card|
|$5,000||Financial Independence Fund Savings|
|$2,000||New car fund|
|All extra||Pay extra on mortgage|
So if this was your plan and you received $400 you would put that all toward paying off your credit card. If you got $3,000 you would pay off the credit card with $1,250 of it and then put the remaining $1,750 into your Financial Independence Fund. If you received $10,000 you would pay off the $1,250 credit card, put $5,000 into your Financial Independence Fund, allocate $3,000 for your vacation savings, and put $750 in your new car fund.
I encourage you to make your plan today for priorities for extra income. It really does help you set priorities for money and therefore brings calmness and preparedness to your budget.