What To Do With Unexpected Money
What To Do With Unexpected Money
Larry Keller The Physician Philosopher
A lot of us have an idea of what we should do with money that we earn on a regular basis from our physician jobs. Oftentimes it goes towards our typical cost of living expenses: bills, debts, savings, investments. But what about money you get that you weren’t expecting?
Because yes, most of us will, at some point, get at least a little money that we didn’t expect. Regardless of the source – whether it’s an inheritance, a tax refund, or a bonus at work – we end up with one question.
What should we do with this extra money?
Deciding on a plan for your extra money
I haven’t been fortunate enough to get an inheritance, but I have received bonuses from my job. In anesthesia at Wake Forest, we qualify for bonuses by working additional shifts, which I did for a few years to pay off student loans. Since then, as I’ve transitioned to working more on my business and not taking on extra shifts, I get nonclinical incentives for performing academic work.
When it comes to receiving extra money, it doesn’t have to be a large sum for you to be intentional about how you use it. Whether you’re getting extra money from a new bonus system implemented at work or you got a bigger tax refund than you were planning for, it helps to have a plan for how you want to put the extra money to use.
Apply the 10% rule for unexpected funds
The 10% rule is what I used when I first finished medical school. If my wife or I came into additional money, we would take 10% of it and spend it however we wanted to, guilt-free. This could be on anything you want: tennis issues, a television, a new sofa, a grill.
You can apply the same rule for an increase in pay. For example, if you make $4,000 per month post-tax as a resident, and it turns into $14,000, now you’ve got a $10,000 gap. Take $1000 a month and spend it on whatever you want.
But with that other 90%, I encourage you to lay a solid foundation: pay off student loans and start saving a significant portion of your money.
I paid $10,000 a month to pay off my student loans on average for the first 19 months after I finished training. So I really did take 90% of that extra money (working extra shifts and collecting bonuses by doing that) to pay off my student loans.
An option like a taxable brokerage account is an optimal way to invest some of that 90%. The money in these accounts is easier to access than retirement accounts, and it does actually offer certain tax advantages despite its name.
Five ways to use your unexpected funds
Spend it.
Save it.
Give it.
Invest it.
Pay debt.
Personal finance is personal. Many of us physicians have student loan debt, so maybe you’d use it to pay down some debt. Maybe you’re using it to pay down your mortgage or your car loan. The right answer for each person often varies, and it can vary even more based on your current stage of life.
Maybe when you were younger a lot of your extra money went towards your loans, but now you no longer have loans, and you’re able to spend or give or invest more of that money than you used to in the past.
Lisha’s value shift around handling extra money
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