Creating a spending plan

Windfalls: Bonus or Bust

by Annette and Steve Economides

Have you ever dreamed that a rich, distant relative died and left you a fortune? Of course, you know exactly what you would do with all the money. Maybe you'd buy a new house, gifts for the relatives, a major vacation around the world, and maybe you'd even take part in a little charitable giving. Despite the unlikelihood of this type of situation, smaller "fortunes" on which we fail to capitalize, come our way on a regular basis.

Think about tax refunds, cash birthday gifts, overtime pay, bonuses, garage sale proceeds, and overcharges in your impound account. These additional funds aren't dreams, but financial "prizes" that can help you reach goals faster or throw you into depression if they are squandered or have to be used to catch up on bills.

We're talking about windfalls. If you take a walk through last year's checkbook register, you'll find them sitting there, those wonderful little unexpected bonuses. If you're like most of us, they evaporated, absorbed into the abyss of everyday living and bill paying.

Years ago, we decided to stop letting the windfalls evaporate. We designed a plan to deal with any excess, large or small, which came our way. But before we get into the specifics, we've got to define how to tell when you truly have excess.

Planned Spending

We've always had a spending plan. It's similar to a cash envelope system, except that we track our spending plan on paper while all the money actually resides in the bank. We have nineteen different account sheets to cover expenses such as utilities, food, pets and gifts. The balance in all the accounts, added together, equals the total in our checkbook. When we want to make a purchase, instead of consulting the larger balance of our checkbook, we review the smaller balance on the corresponding account sheet. If the money is there, we buy. If not, we wait.

When we were paying off our first house, this was the plan we used. Any excess would be divided into three categories: one-third to an extra house payment; one-third to charitable giving; one-third to special projects like buying stuff we wanted and having fun. Through the application of this percentage plan, we paid our house off in nine years. What a great feeling!

What might your plan look like? It's different for every family. Consider the following if you're liquidating debt:

60% to liquidating your smallest debt
20% to save (emergency funds to keep from using credit)
10% to charitable giving
10% to enjoy

Are you out of debt and paying off your house? Try the following:

30% to additional principal
30% to save (emergency funds or retirement savings)
20% to house projects
10% to charitable giving
10% to enjoy

No matter what the amount, windfalls will come your way. Be prepared by having a spending plan and a windfall plan. Then enjoy the bonus of reaching goals and laughing all the way to the bank.

Steve and Annette Economides are authors of America's Cheapest Family Gets You Right on the Money (A New York Times Best Seller). They also publish the HomeEconomiser newsletter six times each year. For more information and a lot of free money saving ideas, visit

Take the Next Step - Decide now how you'll divide your next windfall

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