A surprise gift of money.

Using Found Money

Did you recently come into some money that you were not expecting? Maybe you won the office pool, got a tax refund you were not anticipating or maybe you just found 5 bucks on the street. Whatever the case, you have money that you were not expecting, so let’s look at what you can do with it.

Being financially responsible might not always be the most fun thing, but it will most definitely pay off in the end. Here is how you can responsibly use that found money of yours.

When You Find Big Money

If you suddenly find yourself with thousands of dollars, you have the ability to make a big impact on your finances. The first impulse that most people have will be to but something big that they have been wanting. It is “found money” after all.  Instead of wasting that money on something frivolous, here is what you should do if you want to be financially responsible.

Pay Down Credit Card Debt

If you are carrying any credit card debt, this is the first place that you should look. There is no point in investing or saving to earn a few percentage points when that revolving credit is costing you upwards of 20 percent interest.

When deciding which debt to pay down first, you need to get organized. Organize your credit cards by interest rate and then pay off the highest interest debt first. This will make the best use of your found money.

Build An Emergency Savings

If your credit card debt is under control, your next step should be looking at your emergency savings. Hopefully you have one, but if not, now is the time to start one. Open an account separate from your regular checking. Online savings accounts work well for this. The separation keeps the money accessible but not immediately so. That will help prevent impulse spending.

Already have an emergency savings? Great, but how well is is funded? You should have at least six months of expenses in your emergency savings. So, if you need 4000 dollars a month to pay your bills, you need 24,000 dollars in savings.

Open An Investment Account

So, what if you have no credit card debt and have a well funded savings account? Your next step should obviously be to open an investment account.

The first step in doing so is picking a strategy. Do you intend to retire in a few years or will it be decades? The amount of time that you have left to invest will dictate the risk that you should be willing to accept. In general, the longer you have until retirement, the riskier that you can be. Consult a good financial advisor who can help you make the right decision.

Split The Money

If you absolutely have to treat yourself, split the money.

Take half of the money and pay down credit card debt or add to your savings. Then take the rest of the money and treat yourself.

By splitting the money, you can still do something good financially while giving yourself the reward you crave.

Invest In Yourself

Finally, why not take the money and invest in yourself. Use your funds to pay for continuing education and get the skills that you need to move your career to the next level.

What this means will depend on what field you are in of course. For some, a certification might be in order while others might want to learn a second language. Others might even enroll in an MBA program.

Spending your found money on yourself and your career will pay big dividends and you would likely find that you get the money back ten fold, or more.

Small Money Is Still Valuable

Just because the money is small does not mean that you can not do good with it. A 100 dollars or even just 10 dollars could be put to some real good.

Debt Reduction

One way to put the money to good use is in debt reduction. No, a few bucks is not going to make a huge impact on your debt but, in the aggregate, it can be a big deal.

Imagine if every time you came into a few dollars, you used it to make an extra credit card payment. Just $5 a week over the course of a year would be over $250 which would make a nice dent in a credit card.

Save For A Big Purchase

5 or 10 dollars won’t buy you much, but what if you simply saved it?

Open a savings account devoted to buying yourself something special. Every time you come into a few extra bucks by surprise, add it to the account. Then, every 6 months or so, treat yourself. It is a way to reinforce your savings behavior while giving yourself a reward.