When I was 14, I got my first real job. It wasn’t much–working part-time at a warehouse for minimum wage–but getting a paycheck was so exciting! What was even better, though, was tax-time. I really looked forward to it because I’d seen those deductions on each paycheck and knew I’d be getting some of it back.
Then I did my taxes and calculated my rebate. Something like $100, which was more than I was making each week. As soon as I’d come up with the number, I was thinking of all kinds of ways I could spend it. It was like getting free money. I spent some of it before I even had it. And at 14, I wasn’t disciplined enough to even make a sheet of how much I was going to get and tally off how much I was spending.
Fortunately, I was disciplined enough not to spend beyond my means or anything.
Eventually, I became more disciplined. For example, when I was saving for a trip to Europe, I put about 2/3 of the rebate in savings and spent the other 1/3 on fabric. But I still didn’t use a sheet to figure out specifics. Now any rebate we have (both the economic stimulus package and any money we happen to have overpaid in taxes) will go to debt repayment.
Here are some things I would have told my younger, less-disciplined self:
This is not free money.
The government was holding onto this money at in a 0% interest no-access account. It’s not nearly as exciting as you think. You earned all this money, so treat it that way. It’s ok to want a nice cup of coffee, as long as you remember that you’re really paying for it from your salary. It’s not free coffee.
Don’t spend your rebate before it arrives.
It’s ok to make plans for the money, but don’t spend it. Until the check clears, it’s not actually your money. And to my older, slightly better-disciplined self, this includes not using it for debt repayment before you get it.
Do avoid the “well it’s ok because we have this money” mentality.
One big problem with coming into unexpected money is that it makes you feel richer. You know you have increased spending power and you start to buy lots of little things. It’s easy to justify the purchases as “with the rebate money.” Those little things add up. You may find yourself spending twice as much because you had this mentality.
Do keep some sort of tally.
(it’ll help you avoid the previous one.) If you’re going to be spending it on a few different things–trip to the fabric store, special chocolate bar, dinner out–and can’t budget specific sums for each one, keep a tally. I’d advise making a budget as well, but if you underspend in one category, the tally/spreadsheet lets you know just how much you really have left.
So you can’t think “Well, I didn’t spend up to budget on X, Y, and Z, so I’ve got money left for AA.” You need to know exactly how much money you have left for AA, not just some fuzzy idea. I did ok on fuzzy ideas for years, but concrete numbers are far superior.