Unexpected Money? Questions to Ask Before Paying Off Debt or Saving

March 12, 2024

Hi dreamer, Emily here.

We all know it's way more fun to receive an unexpected amount of money than it is to owe it.

I'm talking a larger-than-expected tax refund, a bonus, a sizable gift. The kind that has you spending it a million ways in your head.

As a high schooler, I made money—and lots of it—collecting insects for biological week control.

Bonus: It also gave me ample opportunity to develop my character since it was dirty and unglamorous—picture crawling around in the mud with a mouth aspirator dangling out of your mouth. No teen girl wants to be seen by anyone, especially high school peers or worse—the popular kids—in such a condition. But hey, money.

Anyway, on the subject of big money:

Here are the questions I'd put to anyone asking me how to best allocate a windfall. As you read, I think you'll see that this is far more than a financial exercise.

1. Do you know how much your life costs?

I'm talking about your monthly average cost of living—the one with the monthly impact of occasional and annual things included.

Most people don't.

Everyone knows or can quickly calculate their monthly bills.

I'm talking about an average monthly amount that includes clothes, the eating out, the gifts, the travel, annual subscriptions, car and house repair, kids' activities, etc.

2. Do you have a good budget?

Have you developed a proactive budgeting system/structure to make sure you don't just accumulate more debt when this money runs out?

Here's my criteria for a good budget:

  • It's a place where you proactively plan your spending instead of simply a place you track it.
  • It's realistic and matches your actual cost of living.
  • It's one you actively use.
  • It works, meaning it helps you live according to your plans.

​YNAB​ is my favorite tool, even if there is a learning curve, and I do recommend it to anyone ready for change with their money.

For those who think good tools should be free or easy, I would just say that there's an investment of focus, money, or effort for everything worthwhile in life.  

3. Do you have consumer debt?

You might be surprised to find this as my last question, but it's very intentional that I do so.

Because if you don't have #1 and #2 in place, and you start with worthy things like debt-payoff or even investing, you will eventually undo your own progress.

If you pay off debt but haven't changed the habits that led to debt, you'll return to debt.

If you save or invest money that you actually need in your present life given your current habits, you'll end up doing one of two things:

a. pulling that money out, or

b. covering the gap between your income and your true expenses using credit (again).

As my favorite James Clear quote says:

You do not rise to the level of your goals. You fall to the level of your systems.

Your energy is better spent on fixing or creating systems that will support your goals and progress, than it is to pour all your energy into your goals and dreams while neglecting your roots.

You wouldn't build an amazing building without a foundation or supports or structure, would you? A life is very much the same—it needs a good foundation. Healthy, tall trees have great roots.

To wrap up:

As you know, I am very much about thriving and living on purpose and big dreams.

It's just that dreams pursued from a place of disorder aren't nearly as lasting or satisfying as they can be when your roots are right.

And it ends up demoralizing you to try and focus on big stuff when it's the little stuff that needs your effort and attention.

Demoralization is something I like to avoid when at all possible :-) And in this case, it is really quite possible, since it's at the roots where we have the greatest influence.

Until next time...

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