I have had a few people ask me over the years, “What should I do with this found money?”, where found money is effectively money from an inheritance, a rebate from a source, or simply found money (i.e. unplanned income). This is the found money trap.
I have talked about this before, and I am still vehement that found money should first and foremost go to paying down or off debt. If you have debt and you suddenly receive extra money that is not ear marked for something specific, you should be paying off your debt, first.
The arguments I have heard to the contrary are many, and just a few I have heard are:
- I have a plan to pay off my debts, this money is found, so I should be able to spend it on whatever I want.
- Getting out of debt is boring, I want to do something fun and exciting
- I’ll die in debt, so why should I worry about getting out of debt?
The excuses are many, but the important question to ask yourself is, the following:
If you are in debt, how did you get there?
That question really is the decision point for this found money.
If the only debt you have is your mortgage, you carry no credit card debt, or any other debt vehicles, then the arguments about having fun, hold a little sway with me (but if you pay off your mortgage earlier, how much money will you save, is the question for you).
If you have student loans and home repair debts that you need to pay off, remember you borrowed money from your future to get an education or to renovate or repair your house, The Future is NOW!, pay off your debts, this is your rainy day.
If you have debt on a line of credit or have a bunch of “don’t pay for a year” type debts with stores, let me reiterate, The Future is NOW! pay off the debt, you borrowed from your future, it wants you to pay it back now.
Should you be holding Credit Card Debt, or worse, Store Credit Card debt, that you have not paid off and are incurring interest charges, how can you even ask what you should do with this found money? If you think you deserve something nice from this money, you are correct, the nice thing is to pay off, or pay down a debt which will eventually crush you and your family (if you don’t pay for it), so pay the debt down.
Any other debt that you might hold which is even riskier (owing money to finance companies, pay day loan places, or non-standard loan firms (i.e. loan sharks)), you need to help yourself escape the vicious cycle, and pay them off now.
What is interesting is that, folks who have a lot of Credit Card debt are usually the folks who will want to squander the found money, whereas the folks who have less debt, are the ones who would save the money, or better still donate it, or give it to their kids.
Found Money = Binge Dieting
It becomes the nature of the beasts, if you can’t manage your funds and keep them under control found money no matter how large will never help you. It is like a binge diet, where you might lose a little weight, only eating pickles, but eventually you will find that Cheesecake that you love, and the weight will come back (with many more to add on). Debt avoidance and pay down is a lifestyle change, and you must live your life differently, or you will simply go back into debt.
No, I am also not saying that if you think you will not stay out of debt, you shouldn’t pay down your debt, I am saying, Get Help and try to get a more fiscally sound lifestyle.