Here’s What To Do With Unexpected Extra Money

what to do with extra moneyComing across some unexpected money is a great problem to have.

I always get excited when I find out that I’ll have some extra income headed my way and immediately think of what I should do with the money.

However, I think that many people don’t treat their additional income the same way that I treat mine.

So, here’s what to do with extra money.

You Easily Can Lose Track of Unexpected Money

Chances are you don’t have a line item in your budget for unexpected income because, after all, it wasn’t expected.

If you don’t add the extra income into your budget when you find out about it, you probably won’t track where you spend your extra money either.

Not tracking your extra income and what you spend it on will normally lead to the following sad result.

You Can Blow The Extra Income

The first, and most common treatment of extra income, is that you blow it before you even know what you did with it. Whether you just got a bonus, sold an extra household item, received an escrow refund or got a credit card sign up bonus reward check, your first reaction is probably that it is time to celebrate.

How do you celebrate? Do you just do a happy dance in your living room? Probably, but unfortunately many will decide it is time to go out to that fancy restaurant that just opened up in town, too.

Another common celebration is to go buy that new car that you’ve been eyeing, or maybe something cheaper like a faster laptop. If celebrating involves spending money, especially large amounts, you might actually end up spending more than the extra income you weren’t expecting.

Instead of spending the money immediately or overspend and getting yourself further into debt, you have other options on what to do with your extra money.

You Can Save The Unexpected Income

If you’re a compulsive saver, your first instinct might be to immediately throw the money into your saving, investment or retirement account because it makes you feel better about your financial efforts.

I’d definitely say automatically saving or investing the money is probably a better way to deal with unexpected income than just spending it straight away, but it still might not be the optimal thing to do.

How I Treat My Unexpected Income (The Best Way)

The best way to treat your unexpected income shouldn’t be a shock to anyone. You should treat your unexpected income just like you treat your expected and regular income.

No, it isn’t nearly as fun as blowing the money or as comforting as instantly saving or investing the money, but it is the right thing to do.

First, add the income into your income budget for the month. After that you need to decide what to do with the money. I always take a look at my current financial goals and decide how the money will be most effective.

If I was deep in credit card debt, the extra money would go straight toward paying down my highest interest rate card. However, if I was unemployed and didn’t have a fully stocked emergency fund, my money would go straight into my savings account.

Keep in mind, you don’t have to use the money right away. If you are in the process of saving up for a new car, simply put the money aside in your car fund. If you are trying to save up for a new cell phone, simply put the money aside so you don’t get tempted to spend it.

Tricks To Make Sure You Don’t Spend The Money

If you want to make sure you don’t spend your newly found extra money, there are a few things you can try. One of the best ways to not spend the extra money is to put it straight in a bank account. If you don’t have your hands on the cash, it will be easier to avoid spending it.

Of course, not all extra money is cash. If you get a check or a direct deposit to your bank account, you can avoid spending it by moving it to a targeted savings account at a bank like Capital One 360.

If you don’t want to put the money in a bank account, you could put the money in a safe deposit box or a safe in your home. If you know you’ll be tempted to spend the money, keep it in cash and freeze it in a block of ice so you physically cannot spend it.

The key is finding a method that works for you to make sure you don’t spend the money immediately. If you can do that, chances are the money will end up going toward one of your goals.

Large Windfalls

My one exception to my favorite way that I treat my surprise extra income is if I end up getting a large windfall. In that case, I’ll take a small portion to celebrate and then treat the rest of it like I noted above, just like any other income.

The portion of money you set aside to celebrate will depend on how big the windfall ends up being. If I receive a $1,000 windfall, I may only take $10 and head to the dollar theater for a fun and cheap weekend movie. However, if I received a $1,000,000 windfall, I might take $5,000 and take a quick vacation on a cruise ship.

In general, I wouldn’t spend more than 10% of your windfall quickly or you may regret the decision. Also, if you have any high interest rate debt, you may want to just put all of the windfall toward paying off the debt to get you closer to your goal of escaping the prison debt imposes on you.

Regardless what you do with your extra money, just do one thing for yourself. Make a plan for the money and make sure it fits in with your money goals. If you do that, there is a very low chance you’ll blow the money or regret what you spend it on.

Now it’s your turn. What do you do with your unexpected income? Does it matter if it is a small amount of money or a large amount of money? Why or why not?

Photo by: The National Roads and Motorists’ Association Text added by: Lance Cothern

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About Lance Cothern

Lance Cothern, a Certified Public Accountant (CPA) licensed in the Commonwealth of Virginia, is the founder of Money Manifesto. You can read more about him here or connect with him on Facebook, Twitter, Google+ or Pinterest.


  1. We’re very similar in how we handle a windfall. We add it to our budget and determine where it would best fit. That normally means it’s going to one of our targeted savings accounts or into a brokerage account. If it’s a larger windfall we’ll take a bit of it to do something fun with and then invest/save the rest.

  2. Kali @CommonSenseMillennial says:

    Generally, we put any extra income toward funding a big goal. Lately, our two biggest goals have been to travel and to make some improvements to our house, so any extra cash we’ve come into has gone straight into saving for those things. I’m really grateful my spouse and I are both more focused on the long-term and aren’t really tempted, as you said, to celebrate unexpected cash! Having the same mindset on this sort of thing definitely makes us both happy and avoids arguments over what to do with extra money.

  3. We do a bit of mental accounting with extra money.

    With money we earned (side income), we divide it up by percentages – 23% to our Taxes savings account nothing was withheld, 10% to our church, 15% to Roth IRAs, and the rest to whatever fun targeted savings account we have in play at the time – currently, our DSLR camera savings account.

    With money we receive as gifts or credit card rewards or similar: If it’s small (~<$30) it just goes into the general budget money for that month and if we don't need it (usually the case) it gets shifted into that fun savings account we're focusing on with all the rest of the money we zero out our checking account at the end of the month. If it's large, we put it to the fun savings account or our general savings.

  4. Lately, any unexpected money that comes out way gets immediately earmarked towards paying down debt. Our month-to-month budget has been tight enough that we’ve rarely been able to make extra payments on our student loan debt, but a healthy windfall — even just a few hundred dollars — takes a big chunk out of our principal, and makes all of our subsequent payments a little more efficient at paying the total down.

  5. I always threw 50% or more into savings! I did that with promotions, raises and any extra income.

  6. I would invest it in the markets or buy another rental property. I want another rental out of state but the wife doesn’t want to be over leveraged.

  7. At the moment I would use extra income to pay down some credit card debt. But after that is gone I would save it to build up my emergency fund.

  8. I unfortunately don’t get a lot of unexpected income, but when I do get it, I try to transfer it to savings right away. That way, I know I won’t blow it. It makes me feel better. I’ll always add it to my budget, but then I’ll just have the extra amount left over for saving anyhow.

  9. I like to add “found money” to our vacation savings account, if possible. But, if we were having a slim month in income, I would consider using it towards regular bills. It depends how much found money we’re talking about! =)

  10. I just save it. We’re all set with the budget and we don’t have too many problems (sure, some months are more difficult with extra-expenses, but overall it’s OK and we don’t need the windfall to solve any issues).

  11. I treat my unexpected income the same way I treat all my other income. It gets divided into percentages and designated to different budgeting categories.

  12. My extra income goes into savings at the moment. We’re just at break even, and I’d like larger buffer before the next step, which is funding my Roth IRA

  13. My additional income is all going towards savings at the moment. However, in the past any time I have made any extra money doing surveys or what have you I have always used a good portion of it to treat myself to something special like a new experience or an outfit that made me feel confident.

  14. I get paid quarterly for an extra job I do at work so when I get that extra money, I try to save it since it’s not paid every two weeks. But sometimes something comes up and I end up needing the savings sadly…

  15. Blowing my extra income right away makes me feel defeated. It’s almost as if all of the hard work isn’t going towards anything of substantial value for me other than a nice new outfit or a fun night out. It’s smart to think twice on where to spend your extra income and how to divide it up before you blow it all in one shot!

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