Q: Do you have a weighting system for allocating Windfall/Gift/Bonus Money?

[LuxLiving]

Q: Do you have a weighting system for Windfall/Gift/Bonus Money?

Okay - working on the old spending plan this morning looking out towards the end of the year and I got to wondering where would I put any extra money that might come in unexpectedly, like an extra pay period, a windfall, a gift or a bonus? In what order would I apply the money to various categories in my budget.

For us I know I'm going to need new truck tires come April or May, so I am already saving a certain amount back for that - but if extra came in would I apply it towards that or towards gifts, or vacation, or medication copays? So, I got to wondering if any of you Pro-Budgeters out here had a weighted system on where you'd apply these kinds of funds first? Spread it out evenly?

So, do you?????? Am I nuts to be thinking about this? Does anybody else besides me think about this stuff?

[JanH]

That's a good question. Right now, any bonus or windfall at the end of the year would go to paying DD's college tuition bills. But, it is an interesting question to resolve for the future. I suppose we might put it in a home maintenance fund cos so much work needs to be done or for vacation fund to visit family. Any extra right now gets put in the Christmas fund. So I guess we try to finish off a fund already set up for larger expenditures.

[Broken Arrow]

I think that's a good question too.

I have a rough order of things in which I would like to accomplish with my money. In fact, that list of things is spelled out in my signature line.

For the most part, any windfall or bonus money would go into my emergency fund and student loans. The allocation amount depends on where I am at that point in life, and where I think I need more of.

[boefixepa]

I have some shortfall in some of the minimum's I like to keep in evenlopes, like vet bill, auto repair, and such. So if any of those are low that's where the first 'extra' money would go. Then into debt paymen or savings. I don't ever expect to get any really BIG extras. The wind just doesn't blow that way in my life. I estatic if I get a Christams Bonus and there's no one to leave me an inheritance, and I don't play the lottery!

[pearlieq]

Since all of our regular expenses are covered in the general budget, any gift or windfall under $200 is used as free money. We spend it on something fun and frivolous.

Larger windfalls (bonuses, winnings, etc.) are divided into approx 5-10% for fun, and the rest is used toward long term savings goals like the car fund and/or replenishing our emergency fund.

[Ima saver]

I take any unexpected money that I receive and I put it towards my two debts. The land payment is what I am concentrating on now, the car payment will be next. That is what I am doing with my challenge money also.

[Reldon]

Any extra money I received at the end of the year, I normally put 60% towards savings, which now will goto mutual funds. 10% I would spend it on something I wanted to buy. Other 30% I normally put it into my mortgage.

[creditcardfree]

Good question! I tend to look to see if I have upcoming bills to allocate it to...like new tires, or doctor bills. After bills, I consider extra payments on debt or speeding up our roth contibutions for the year. I don't have percentages.

When we got an inheritance from FIL we received it in smaller chunks. First we just added to EF because that was desperately needed, then we bought some things for the home, new AC furnace, new carpeting...the rest went to towards paying off debt. We did buy a few fun things, but we really wanted to be smart with the windfall...something that would make a big inpact in our future.

Now we could have invested the whole amount and probably done even better, but what was the point in investing when there are things today that it would be better used. Now we can actually invest our own money towards the future since we used the windfall to get to a better place. It feels good and we know he would approve.

[amberbamber]

Right now anything we would happen to receive extra I would place towards debt. In the future I hope to allocate any extra money towards Christmas (since right now it's not able to be in the budget) and/or put it into savings.

[Bookie]

For me it would depend on the size of the windfall.

I tend to look at how long it would take me to assemble an equal sum out of my current income stream. The longer the time required, the more cautious I become. Money is easy to spend and difficult to accumulate.

I would also want to look at my financial situation. Am I in debt? Do I have an adequate emergency fund? Are there expenses I can anticipate over the next six, twelve, eighteen month for which I should provide?

Another consideration is what the amount involved could accomplish. A sum sufficient to clear my debts would be applied there because it would both save on interest and enhance my immediate cash flow. I would want a windfall to have a substantive and enduring benefit. Lesser sums would be divided between savings, debt service, and self-indulgence.

If that last sounds frivolous, such was my intention. I am of an age where I'm as serious about my pleasures as I am about my responsibilities. I owe money, and I'm in the process of paying that off, but I don't dedicate my life to debt service. I save money because prudence and common sense dictate that I hold cash reserves, but I'm not obsessed with piling up bank balances. There's more to my life than numbers in a ledger. If a portion of all I earn is mine to keep, so, too, is a portion mine to enjoy.

[Mathew Green]

Since all of my normal living expenses are accounted for in my budget, I put any extra money such as gifts or unexpected overtime into debt payments, my emergency fund, or my IRA. Percentages depend on where I stand on each of them. Right now, extras would go to the e-fund but when I've got $2000 in there the extras go to debt reduction. IRA mainly gets funded if I'm WAY ahead on my debt reduction plan, which seldom happens, but I'm currently rethinking that.

BTW I'm not sure what you mean by "extra money that might come in unexpectedly, like an extra pay period". If you're refering to some months having one more payday than others, that isn't really 'extra' money. It's part of regular income and should be allocated to your regular budget categories, keeping in mind that your budget categories are actually based on your average monthly income.

[LuxLiving]

No Mathew Green our budget categories are NOT based on our average monthly income, but are set and reset each payperiod as we deem the need(s) to be. Some months I have 120.00 to put into the gifts fund and other months only 5.00. They are not 'averages' at all. Some of our categories are somewhat set in stone, but not all of them.

We have only the mortgage payment and our trash hauler as 'set amounts' and all the other ones are more like 'flex' spending. I have a guestimate of what the electric, telephone, cell, etc. is going to be and I use those figures in my forecasting. At normal rates these are covered within the income generated in two payperiods a month. When the actual bills come in I adjust our budget accordingly. A third paycheck during the month is EXTRA to us and can be delegated where we see fit.

So, yes, there are some months when we have an extra pay period that would bring in income that is not necessary to meet our normal obligations and we have the privelege of deciding where we'd like to apply it. Yes, I COULD just set averages and live with them, but that leaves money sitting around unused in the electric category for months on end when I think it is better used to bring down the mortgage balance OR be used to invest.

[Mathew Green]

Originally Posted by LuxLiving

No Mathew Green our budget categories are NOT based on our average monthly income, but are set and reset each payperiod as we deem the need(s) to be.

Either you misread me, or I didn't say it right. I know nothing at all about the way you personally fund your budget categories on a paycheck to paycheck basis. My coments were in reply to your question about how to allocate 'extra' (ie: unpredictable) money that comes in during the year.

In the original post, you were talking about looking out to the end of the year and allocating money for various anticipated expenses, including truck tires that you won't need till next spring (IOW making at least a rough yearly or quarterly spending plan.) Within the context of such a multi-month spending plan, that third check isn't 'extra', because you know way in advance that you're going to receive it.

My point in a nutshell: If something is regular predictable income, I believe it should be allocated like regular income.

[LuxLiving]

My point in a nutshell with the original question...what is the weighting system that others use? Do you have your budget categories listed out in a prioritized manner to begin with?

Does general car repair come before or after investments?
Does extra food/bulk shopping come before or after socking more back in the gift fund?
Should we put more back towards roof replacement before we stick it into the vacation fund?

Of course, these 'emphasises' will be different for everyone according to their needs and situations -- some of these things are just vague things on the horizons. I don't need a new roof now or in the next 5-7 years, but at some point it has to come topside in the forecasting and allocating. Was just trying to see how others weight these things. For me investing come before the roof, but the roof needs to be there too. So investing comes higher in the 'extra allocation' algorithim than the roofing needs FOR NOW. What do you do?

[Fern]

If I had debt other than my mortgage, i would put nearly all the windfall $$ toward that debt and play with maybe 10% of the windfall. I have no debt other than the mortgage, and i already prepay that each month, so i would put 75% of the windfall into savings and buy something nice iwth 25%. It really depends where you stand with your retirement savings, whether you anticipate any big expenses coming down the pike and that sort of thing. If the windfall was really sizeable, i would probably allocate less than 25% to 'play' with.

[TBH]

Great question. I have thought about this, and written about it here.

I've tweaked my percentages a little. Here's where they stand now:

25% retirement (Roth IRA)
25% long term savings (for grad school and a big cross-country move)
40% short term savings (E fund, vacation fund, house and car repairs)
10% donations

We do have a lot of windfalls because we both freelance a little, and because unfortunately we've lost a lot of family members recently before they were able to spend all their money. We also never get our tax withholdings right so we usually have a big refund.

These perecentages are really not set in stone. I've hit the short term savings way too hard this year, so if I got a big windfall TODAY I would probably put almost all of it toward replenishing that account.

Altho I look really virtuous, saving 90% and giving away 10%, the short term savings account gets pillaged too often for vacations, so part of that is really self indulgence. I really think you have to let yourself spend at least a little bit of a windfall or you can't be good long term. At least I can't.

[Ima saver]

If I did not have a big emergency fund, i would use the money for that. But I do have a large ef, so mine would be allocated solely for debt! I would have a hard time, just blowing some of the money!

[Mathew Green]

Originally Posted by LuxLiving

My point in a nutshell with the original question...what is the weighting system that others use? Do you have your budget categories listed out in a prioritized manner to begin with?

No. This months actual 'payment due' bills get paid first, then specific amounts get set aside for the 'car repair/replacement fund', 'car insurance fund', and some other expenses I know will happen sometime in the future. I consider all of those normal living expenses and make no distinction between them, except that the bills currently due get paid before the 'future expense' savings accounts. If there were not enough money to fund everything for some reason, I'd shortchange all the savings accounts an equal percentage and plan to make it up next month. Those specialized accounts get down to <$20 once or twice a year anyway as whatever I'm saving for comes due.

Once the normal living expenses are out of the way, I fund my emergency fund first, then my retirement account, then an account for 'dreams, goals, or whatever'. The last account is vague on purpose because I've never started it and won't until I'm in better shape financially. The cut off point for me on funding these accounts isn't a percentage of income but a $ goal: A $2000 balance in the e-fund first, then maxing out my IRA (which ain't gonna happen.)

I've recently turned my priorities upside down. I was concentrating on paying down my debt as quickly as possible, but as a result had NO e-fund and had only put $1300 in my IRA in the last 12 months. After running a bunch of numbers, looking at what the money flow had actually been during the last few years, and weighing the various costs/savings of different debt repayment schedules, it was obvious to me that I needed to build up the e-fund and IRA quickly, even if it meant not reducing my debt at all for up to a year. Your priorities are probably different.

[BCHGRL]

It depends on the amount of the unexpected $$. I will be in receipt of a cash award for $400 soon. I will probably just put that towards Christmas.

Options for the $10K or below category:
-save for a down payment on land
-get LASIK for my husband (really help him on his job)
-new flooring
-pay off my student loan
-combination of choices above plus save and invest

Options for $10K or more:
-make a down payment on land
-Pay against mortgage
-save and invest
-a combination of the things listed above

$50K or more:
-a combination of list above and monetary gifts to our parents and siblings

We have no other debt besides mortgage and my student loan, and our e-fund is up to snuff.