|Photo by TomD. via Flickr|
As a college student there are a couple of times per year where I receive a fairly large sum of money. Two such times occur when scholarships and financial aid funds are disbursed each semester. Most recently, I finally did my 2010 taxes and am set to receive a much larger return than any previous years. The reason I'll be receiving more is because I became a father last year and was able to claim my son this time around when I filed. As a result of this change in living situation, I will be receiving somewhere around $3,000a nd find myself thinking of how exactly to handle this money most responsibly.
To some people, such a task seems simple. These people can feel free to skip reading this post and spend their time doing something else. For the other 98% of us who never seem to do what we planned to do when we receive a large sum of money, let's see if we can get to the root of such behavior. Maybe this year we can alter it before our checking account balance hits zero once more.
If you hang around any given workplace long enough you will hear employees speak about finances. Often times this comes out in the form of complaints and statements about what said employee would do if they had more money. The catch is when they get more money, they never do what they claimed they would. I see this in myself and others this time of year when we receive a large sum of money in the form of a tax return. After weeks of getting by on our regular incomes, suddenly when we receive this temporary boost in income we start behaving differently. Our weekend outings switch from having two or three beers at the local bar to having premium mixed drinks at the upscale club. The occasional stop at McDonald's for a couple dollar-menu items becomes a visit to a more expensive restaurant for full course meals. All of a sudden your jeans just don't seem to fit right and need to be replaced by a brand new pair of Levi's. Although what we choose to spend it on varies from person to person, I'm sure all of us have, at one point or another, regretted spending part of or all of our tax return the way we did.
After blowing through a couple of financial aid payments, I decided I couldn't be trusted to manage large sums of money on the go. Specifically, I pretended that I could have the funds in the same bank account as my regular income, would make sure to mark the money as separate, and spend accordingly. What happened instead was I would spend my entire weekly income then continually dip into the financial aid money until it was spent in it's entirety. As a solution to this problem, I decided to store the financial aid funds in a separate checking account. I figured this way I'd use my regular account to manage my regular income and wouldn't feel tempted to spend my financial aid money as quickly. Unfortunately this didn't work either. This time, since the accounts were separate, I didn't use the financial aid money to replenish my regular income. Unfortunately, I didn't use the financial aid money intelligently either. Since I saw it as such a large, infinite sum of money, I'd just use it as a means of treating myself. I'd go out to more expensive restaurants, buy pricier clothes, go to classy bars, etc. without feeling guilty as the money was coming from an account with a ton of extra money instead of from my regular income. Though the method was different, the end result was the same; I blew through my financial aid money without putting it to good use.
Through this pocket-emptying version of trial and error, I arrived at the method I use today and plan to use for this tax return. In a sort of paradox, I will prevent blowing through my tax return by spending it, in it's entirety, shortly after receiving it. Wait a second, doesn't one of the staples of frugal living involve avoiding spending impulsively? Yes, that is certainly true. In most cases, impulsive spending is indeed the enemy. In this case however, what seems to be impulsive spending is not at all impulsive. Prior to spending my return in it's entirety, I map out precisely what I will use it for. Usually I have to wait about a week before the money is deposited into my bank account. During this week I make a list of financial priorities. This includes stuff like looking at my debts, thinking of any expensive household items I truly need (usually baby-related) or paying a couple of months worth of bills in advance. Once I have chosen what is most important and how much of my return will go to each specific expenditure, I wait patiently to receive my return. Then when I receive the funds, I immediately spend the money on these prearranged expenditures, leaving no room to mindlessly waste any of it away.
This time my end result is quite different. Instead of looking back a couple of months later, thinking "where did all that money go?", I know precisely where it went. By extension, I won't feel any regret as I realize it was all put to good use and spent living past my usual means for a couple of months. It's an experience I thoroughly believe everyone should have the chance to partake in.