My first thought – to put it away in a fixed deposit so that I don’t do anything stupid with it. It is wayyy too easy to spend money. Especially when you think that this money is money which you didn’t have anyways, so spending it will not create a dent in whatever you have planned. (Because the logic makes sense, it is kind of even more dangerous )

Of course, spending it all away is always an option. But what if, you could use this money to strengthen your finances?

5 Ways To Use Windfall Gains To Strengthen Your Finances -

• Pay Off Your Debts/Loans

  I know I don’t need to sell you the idea of paying off debt. As you pay your debt off earlier, you will save money in terms of interest. In addition to that, if financial freedom is one of your life goal, paying off debt is the way to go.

  Which debt to pay first? The one which is costing you more (which basically means one which has higher interest rate). The more you prepay and reduce principal debt, lesser interest you will have to bear.

  Interestingly, there is one more strategy which is quite popular – known as snowball effect. As per this strategy, you pay off debt with lowest amount first. Don’t bother with interest. Reasoning behind this style is that when you pay off one debt in whole, it gives you the much required boost/motivation to keep working on the same.

  If you would like to see how both methods work out in a given scenario, Trent from TheSimpleDollar has written a detailed article on Which Debt Should You Pay Off First using a real life example.

• Put Them In Your Emergency Fund

  Your emergency fund should have at least 3-6 months of your monthly income. This seems to be true now more than ever.

  If you were a late starter and your emergency fund still has to catch up, use this money to give it a good jump. If you are a beginner, then too, this makes sense. Once you set up your emergency fund, you can start focusing on other investment options.

  And of course, once your form your emergency fund, don’t touch it unless there is a true emergency.

• Put Money In Your Preferred Investment

  There are a variety of options available to invest your money in. Fixed deposits, stocks, mutual funds, debentures, gold, other commodities, property etc. You can consider taking help from financial experts as well on where to invest money.

  If you are curious about certain investing options and would like to try out, but hesitate because of risk, you can invest partial amount from your windfall gain and see how it performs.

• Put It On Hold For Six Months

  This is one which I like the most. If the windfall gain is quite huge, it gets overwhelming to decide at once what to do with so much money. Parking it in a fixed deposit or a separate bank account (basically making it untouchable for a few months) gives you required space and time to get through emotions and think logically about what would you like to do with money.

  One added advantage of this method is that after six months or more, the windfall gain stops being a windfall gain and becomes your savings. The value of money from a windfall gain and value of money from savings is different. Just because after six months your windfall gain will become money that you saved, you will be more careful and thoughtful on how you use it.

• Use Envelope System

  The envelope system is very much like a dedicated piggy bank.

  You can dedicate your envelope to anything you want and let money accumulate in it. When you save enough money over a period of time, you will be able to buy something valuable which you want for yourself. This method is very effective when you get small amounts as gift (we get them on Birthday, Diwali, Meeting elders after a long time etc). The amount by itself wont get you anything. It will get spent in food or travel and create no memories.

  Accumulated money is a completely different matter. It has the power to buy you something valuable and cherished, something you will enjoy for a very long time. This is one of the best way to use gift money – it serves you a purpose and creates great memories.

  I usually buy gold coins from accumulated gift money.
  

• Set Percentages

  It is quite possible that you would want to do all of the above. You want to spend money, save money, invest money, increase emergency fund etc. In that scenario, setting percentages is the way to go. Decide before hand how will you divide money in all areas that interest you in percentages. For example – 10% for splurge, 10% for tithing, 40% debt reduction, 20% emergency, 20% invest.

  You can set whatever percentages you like based on your priorities and your financial position. What’s important is that you set this percentage before windfall gain and you stick to it.

  It will help greatly if you can decide before hand how would you like to splurge as well. If you focus on creating memorable experiences with your money, you will get a long term satisfaction from it.

What do you do with a windfall gain? What’s your strategy?

photo : wetwebwork

Use Windfall Gains To Strengthen Your Finances is a post from: Avani-Mehta.com Download & Share: The Fabulous Motivators E-Book.

A Penny Saved Is A Dollar Earned – B. Franklin

There is always room for improvement, you know – it’s the biggest room in the house – Louise Liber.
Top 8 Life Hacks aims to improve different life areas such as – health, finance, relationships and self.

Life Hack #7 : Pay Yourself First (Finance)

Recession or no recession, the habit to save is necessary and beneficial. As you look for ways to save money, forming the pay yourself first habit will smoothen the saving process -

‘Pay Yourself First’ is a golden rule of personal finance popularized by David bach in his books – Start Late, Finish Rich, The Automatic Millionaire etc, by Robert Kiyosaki in his books Rich Dad, Poor Dad, Increase Your Financial IQ etc.

Pay Yourself First basically means – Every time you get a pay check, the first cut from it should be yours. You can pay others later, first you should pay yourself.

This ensures that every month (or biweekly or whatever your payment schedule is) you save money since you can’t make any excuse of not having money. Whatever percentage you decide, that much income should go into your savings and is not to be touched. The entire month is to be managed on rest of income as if that is all you earned (yeah it is kind of forced saving).

Reasons To Pay Yourself First –

• 1. You save money every month without fail; and that too a fixed amount (no irregularities)
• 2. Your budgeting skills improve as you try to manage entire month with the rest of money
• 3. When you pay yourself first, you are telling yourself that saving is important and on your priority list. This forms a strong backbone for your money saving habits.

How To Pay Yourself First -

• 1. Set up a separate account and transfer money everytime you recieve your pay.
• 2. If your employer matches your contributions to a retirement account, make most of it. You will not only save more every month, you will get bonus money in form of what your employer matches.
• 3. Take the pain out of the process. Automate it. Your bank should offer some kind of monthly savings/investment plan. If you find one suitable to you, take advantage of it.

Important Notes:

• 1. Pay yourself first means ‘saving money’ and not buying something for yourself. You can however, save money in any form you want – cash, gold, stocks, debentures, mutual funds etc – based on your preferance and comfort.
• 2. If you have debts, you might want to weight benefit of saving money against benefit of paying off debt.
• 3. Paying yourself first does not say that you can spend away the rest of amount. The more you save, the better for you. If you can chip in more at end of the month, do so.

Do you follow the pay yourself first strategy to save money? How do you do so?

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A Penny Saved Is A Dollar Earned – Pay Yourself First is a post from: Avani-Mehta.com Download & Share: The Fabulous Motivators E-Book.

The Art Is Not In Making Money But Keeping It

There is always room for improvement, you know – it’s the biggest room in the house – Louise Liber.
Top 8 Life Hacks aims to improve different life areas such as – health, finance, relationships and self.

Life Hack #3 : Keep Track Of Your Money (Finance)

Huh ! Where did all my money go ?

If you have had this experience even once, you know why keeping track of money is important. And if you haven’t had this experience, trust me, you don’t want to have one

• Why To Track Money

  Tracking money will help you find out where you stand right now. It will give you a black and white picture of how much are you earning, how much are you spending, how are you spending money etc.

  The first few months of tracking money were eye openers for us (me & hubby). We both are dedicated money trackers since the feedback it provides is so powerful. Every month, as we try to find more ways to save money, it is this data which gives us a clear picture of how effective our strategy was. It also gives an early warning if we slip up somewhere.

• Where To Track Money

  • Paper-Pen

    The most basic route of course is paper-pen. List your incoming money on one page and outgoing money on other. The objective is that both totals should match at end of every month. For detailed recordings, ledgers can be used, or paper for each category can be used.

  • Excel

    We use an excel sheet to track everything. The only reason being my hubby can do magic with excel. We record all transactions in detail – what was purchased and where, which category it fits into, which date, credit card or cash, which credit card etc. With help of all this data and using excels sort, filter and formula, we can play with data and find out whatever we want. It’s equivalent to having a software which can generate customized reports as required.

  • Financial Tools
    There are lot of online and offline financial tools (free and paid) available. Following are some links where you can find more about them :
    • Top 21 List Of Financial Software And Application For Efficient Money Management
    • top 25 Web 2.0 Apps for Money, Finance, and Investment
    • Massive Personal Finance Resource List

• How To Track Money

  Forming the habit to record each and every transaction is a bit difficult. Following are three things which helped us a lot :

  • Collect Reciepts

    This ensures that they don’t get lost or forgotten. Depending upon your convenience, you can have one or multiple receipt collectors placed at important places in the house – one in each room or at a central place, in a box or envelope or drawer … whatever works.

  • Record Cash Transactions Immediately

    Sometimes, we don’t get receipts for cash transactions. We tried to remember such transactions and jot them down at night – but there were times we forgot. Later, we tried keeping a small piece of paper and pen handy at all times – but didn’t work out – was too inconvenient. Now we simply add such transactions in mobile under notes section. And delete them after entering into the excel sheet at night.

  • Keep A Fixed Time / Day

    It gets really painful to do all data entry at end of a month. Having a set time every day or a set day every week (whichever works for you) helps a lot. It also ensures that we don’t forget recording transactions – which happened often when we had begun with tracking money.

What is your motivation to track money? And how do you do so? Share in comments.

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Track Your Money is a post from: Avani-Mehta.com Download & Share: The Fabulous Motivators E-Book.