Extra money? Stop it, you’re doing it all wrong! 3

You know the story line: Clark is expecting the Christmas bonus to pay for the money already put down for a swimming pool. Frank Shirley, Clark’s boss turns out to be a crook and the bonus doesn’t come. Things go south from there real quick and real bad. Yes, its from National Lampoon’s Christmas vacation but, truth is not too far from fiction. The minute that financial windfall comes along, many of you tend to spend it right away. Sometimes even before you have it. You’re all doing it wrong.

There is the misconception that the soul purpose of money is to spend it. Of course, most of today’s society and economy revolves around that believe. What does the government tell you when there is a financial crisis? Don’t panic, go out and keep spending. Get the money to the masses and they will spend it. People spending means more things need to be build and more services need to be provided. More services and more goods is good for the economy but, not so good for most people. It’s easy for the government to print extra money. It is easy to raise the debt ceiling when it has borrowed up to its last limit (again). There are things government can do that you can’t.

It is this endless spending of every bit of money coming your way, and even worse money that isn’t yours yet, that has so many of you in financial trouble or has left you unprepared for the future. Stop it, you’re doing it all wrong.

Do yourself a favor and separate yourself from the masses. I don’t have hope for everyone but the fact you’ve read up to this point means you’re interested at least and at best, ready to make a change.

Change your mindset! Money is not for spending only. Money should provide for your immediate needs (emphasis on “needs” and not “wants”) but what’s left should put to work for you. Here’s what you should do next time you get a break:

If you get an extra $100 in your paycheck and you have debt: Put that extra hundred towards your monthly debt payments.
If you get a promotion and get an extra $1,000 in your paycheck and you have debt: Guess what? Put that extra thousand towards those same payments.

If you have debt, your main financial goal should be to get out of it. There is no point in investing with an 8% return if you have more in debt with 19% interest.

If you are not in debt:
If you get an extra $100 in your paycheck and don’t have an emergency fund (EF): Put that extra hundred towards your emergency fund.
If you get a promotion and get an extra $1,000 and don’t have an emergency fund: Guess what? Put that extra thousand towards your emergency fund.

If you don’t have a fully funded emergency fund, work on getting one. Keep doing this until you have one. I’ll leave it up to you how much of an emergency fund. The thoughts on this range from 3 months living expenses up to 18 months. I have my own thoughts on where to put there emergency fund but the important part for now is, get an emergency fund!

If you don’t have debt and have a fully funded emergency fund:
If you get an extra $100 in your paycheck: Put that extra hundred in an investment and let it work for you.
If you get a promotion and get an extra $1,000: Guess what? Put that extra thousand in an investment and let it work for you.

Actually, if you are without debt, have a fully funded emergency fund and you get an extra thousand in your paycheck, I’d say take half of the extra thousand from that first paycheck and reward yourself with something you’ve been holding out for (or use it to replace all your lights to LED) and then put put the other $500 and all subsequent extra thousands in an investment and let it work for you.
Like with the emergency fund I’m not going to tell you here how to invest it. Again I have some thoughts on investing but for now the important thing is that you invest.

Stop thinking about money as something you have to spend. Put your financial goals and plans on paper (or spreadsheet) and think of it as your business plan. Extra money that comes in through whatever means becomes part of that business. Think of the money as brick and mortar for your business. You get an extra $50 you add another brick. You get an extra $100, you add a window. you get an extra $1000…, well you get the picture. After enough extras, your business will be fully operational and guess what… It will start producing more money. Actually, the cool thing is your business starts producing money after the first few bricks you lay. What happens when all bricks are laid, all windows are set and there is nothing to add. Well, you can always add-on but ideally, at that point it will produce enough money so you no longer have to put away that extra $50, $100 or whatever amount it is.

It takes a big shift in your mindset to start considering money as building blocks to your financial future instead of something to just spend. Once that shift has occurred it gets easy. When I was years into my plan and adding $3,500 worth of bricks to my financial business monthly, I didn’t think of what I could have done otherwise with that money. I considered that $3,500 investment as much “my money” as I did my mortgage payment. I didn’t think of it as “my money”, I thought of it as my business.

If you have extra money start thinking of it differently. If your living from paycheck to paycheck, budget, cut your expenses and start living below your means and then start thinking differently of the extra money you will have.

Also, when you do spend your money, spend it on something that won’t cost you more down the road. If you spend an extra $1,000 don’t spend it as a down payment on a car that is going to cost you $500 more every month for the next 60 months.

I’m not telling you to live on Ramen noodles, I’m not asking you to cut coupons till your fingers bleed. I’m not asking you to sacrifice anything, I’m just telling you to spend for only what you need and put the rest to good use.

Good luck reaching your financial goals