It’s always exciting to find money you weren’t counting on. So today we figured we would look at some ideas for what you can do with this money should you be lucky enough to find some.

Note that some are a little more quirky than others.

A set and forget investment

Depending on the size of the money, perhaps any unexpected money could be put into a managed fund or batch or lower risk shares. Although I am not a big fan of either, if the money isn’t crucial to your living requirements and you weren’t expecting it anyway – this could be a good way to take a punt on long term growth of the money.

A debt killer

You could use the money to eliminate all of your debts. Or better yet, use what you can to eliminate your bad debts like credit cards and other high interest charging loans.

Definitely a wise move as you will unlikely ever get a windfall of money like this again, allowing very dollar you earn from that point on to work towards your actual goals – not your debt reduction goals.

A materialistic splurge

Some might simply want to splurge the money on some purchases. Although you will likely to have nothing to show for it into the future, some may enjoy the idea of treating themselves with this unexpected money.

Term deposit or high interest account

This of course is the more boring of the list, though safer none the less. A term deposit or high interest account could help yield more earnings from the current money. Depending on the sum of money, a term deposit paying 5% returns can be a rather attractive option.

Gambling

Perhaps you could attempt to double your money on a single hand of black jack. Definitely not a wise decision, nor one that any sane person would recommend, though could provide a good return or simply lose every dollar you have. For me, I would never go near this idea. Ever.

Though the idea of doubling your money is exciting (albeit unrealistic!).

An investment in your own idea

Perhaps you have some goals you always put off due to lack of resourcing or time. A fistful of unexpected cash may allow you to focus on your goals better. You may put the money towards a fitness goal of weight loss with a personal trainer. Or perhaps use the money to finally kick start that killer idea you never bothered with.

A karma creator

Perhaps you need some good karma. You could donate the money to a charity of your choosing. You know what they say right, every dollar you give tends to return 3x as much. It’s some kind of made up law of attraction with finances but seems to have worked for a few people based on blogs I have read.

Enter Jason Zweig, the most famous proponent of neuroeconomics with ‘Your Money, Your Brain’, and he’s got some great news. It’s not me. It’s my brain that’s letting everyone down. Here are some of the amazing things he suggests.

Out Of The Cave

Sadly, our brains didn’t evolve amongst the flashing lights of the stock exchange. We came from caves and our brains evolved to help us survive as long as possible and maintain the existence of our clan. In other words, we’re hardwired towards day-to-day survival as opposed to having a fantastic ability to plan for and envision our long-term financial security. We might struggle with our savings because our ability to envision decades ahead isn’t very well-developed. Brain Short Circuit: If all we can deal with is the day-to-day, make a couple of changes in yours that will save you money and invest it in your savings account. Or take yourself out of the equation and make it all automatic. Do not, ever, touch your emergency account unless it’s something you will still consider emergency level in 5 years time.

Swing At Every Pitch

Warren Buffett, surely a man who’s brain has evolved far beyond my own, loves to remind us that we don’t have to swing at every pitch. We don’t have to jump at every amazing investment that comes our way, every ‘sure-thing’ money making scheme. So why do we? Zweig says it’s because our brain is hardwired to action. Waiting for the right opportunity is a discipline that it might take a long time to develop. Brain Short Circuit: Understanding your own desire to make things happen now is a powerful tool. It’s like the millions of investors who change their investments every ten seconds. Put together a strategy you’re comfortable with and stick with it. Make the move when the right opportunity comes along, whatever your brain is telling you.

Seeing Red

Zweig suggests an amazing thing- amazing because it is so obvious, you can’t believe you hadn’t already thought of it. Back in the day before Internet, how often did people check their stocks? Probably around once a week, with the Saturday papers. These days, with iPhones, office jobs, emails, we could check 5 to ten times daily. And when we see red, our whole body goes into automatic defense mode. We probably don’t even recognise the stimulants coming from the brain, making us jumpy, constantly update our portfolios or panic and sell. Long-term investment has always been a key criteria for financial experts, and technology, Zweig suggests, has made it harder, not easier, to be a sound long-term investor. Brain Short Circuit: Recognise your body’s automatic panic button and stop checking the ups and downs of the stock market on an hourly basis. As Zweig says, technology is a tool, not an automatic path to great investing, and we should use it as such.

The Borrower Is Slave To The Lender

The writers of the Book Of Proverbs, working over a thousand years ago, would have a lot to say about the current state of affairs. With personal debt at record levels, and debt crises between countries set to make 2012 a tense year, the slavery of borrowing is as fresh now as it was then. So, what’s the lesson? Get out of debt, or at least bad debt. Frugality isn’t so much old-fashioned as it sensible. It’s not about massive gains, but about protecting from massive losses. Conservative, yes. But also quite appealing with the current state of affairs.

Pay Yourself First

From history, we can probably only learn one thing for certain. Everything changes. Nothing stays the same. Kingdoms that looked certain to rise forever, just as quickly fall. The sun becomes the centre of the solar system, and the earth is no longer flat. So how can that one truth affect our finances? Some experts would suggest it’s a big argument in favour for allowing at least part of your investment strategy to include paying yourself fist. Setting aside ten percent of your income every paycheck, to be invested conservatively, might not sound all that inspiring but it will cushion you from the fluctuations that history tells us are bound to happen. Whether or not things get dicier in Europe, and what affect this has on Australia, a savings strategy of at least ten percent isn’t going to let you down.

Stay Flexible

If diversification is a crucial risk-protection, the flexibility is as important. Before we all pull out our yoga mats, consider how flexible your finances currently are. If you needed $5,000, would it be calamitous? Are you over-invested in one area, without an ability to withdraw should cash-flow become a problem? Emergency fund, a mix of long and short-term investment strategies and a manageable level of debt are all powerful tools for your finances.

Everything Turns

The flip-side of constant change is that no period, no matter how dark, can last forever. It would seem that it is anyone’s guess as to what might happen over the next couple of years. The Internet abounds with comparisons to the Great Depression and, in one article, an unexpected allusion to the Dark Ages. Economies inflate and deflate, often involving hardship on a personal level. But if what goes up must come down, we can take some comfort from the fact that the reverse is also true.

Your Everyday Life

The article suggests buying things for the life we live everyday, as opposed to the life we lead once in a while. It’s not a bad way to look at the way we spend a lot of our time, and our money. We wear cheap clothes that can run into rags quickly for our nine to five jobs, which we attend 5 days a week, and then invest a serious amount of money in a dress we might wear a couple of times a year. The other stunning example is my running shoes. Like the author of the MSN article, I would wear them most days and give them a pretty good workout. They’re falling to pieces, but I seem to spend the money instead on a pretty pair of heels. Ironically, we would probably have a much better chance of living the lifestyle we desire (whether it’s more international trips, an investment property or a chance to do up your own home) by investing in our current lives and making wiser financial decisions.

Your Health

Amazing how I spend a chunk of money on a nice bottle of wine and some cheese, but scrimp and save over vegetables. Which, in the long-run, is a better investment? It’s a no-brainer. Of course, luxury is great. Having some of it in our lives is important. But not at the expense of necessities. Wealth isn’t necessarily about what we have or how much status our objects give us- financial freedom goes far deeper than that and can be achieved by abandoning competition with the Jones’ and living our own lives to their utmost. Imagine missing the dentist because of the cost, but still heading out for a nice dinner which costs around the same.

Life-Rich

Another big example is people buying a house that ‘everyone can stay in’. Meaning a house big enough to accommodate the family at Christmas or being able to have everyone to stay over for a big birthday celebration. It’s a lovely thought, but chances are you’ll be paying the mortgage on a house too big for you most times during the year. Your house should suit you. If you’ve got house guests every weekend, then a spare room is logical. If not, buy a house that is the right size for you- you’ll have greater opportunities in terms of location or saving a greater percentage of the cost of purchase. Appreciating the life we live now is a great thing, for both our wellbeing and our wallets.

The Value Of A Dime

At the bottom of the difference, is a crucial understanding of the value of money. Of course, both frugal and cheap people are interested in the saving money. Where the two diverge is that cheap people will do anything to save money, taking the shortest route possible, while frugal people will consider the overall value of the money. That means taking into account the projected lifespan of an item and whether or not it will require continuing investment over the years. It’s one thing to buy a used car, lots of financially savvy people do. But someone who is cheap will buy the car with the lowest price tag and declare they’ve found a bargain, without thought of how much money might have to be put into maintenance over the long-term.

When Time Is Money

Often it’s easy to get caught up in money-saving habits, and sometimes we do so to the detriment of our finances. Ever spent hours chasing down a bargain, when you could have bought it around the corner and used the time far more effectively? Or driven out of your way to fill up at a cheaper petrol station? Frugality is about effectively weighing up choices and choosing the one that truly fulfils the notion of value, beyond the nitty gritty of price tag.

At Who’s Expense?

Frugality is at no one else’s expense- we live in a frugal manner, which affects us and what we buy, eat, do, but has little effect on those around us. Cheap, on the other hand, is always at someone else’s expense. It doesn’t necessarily have to be individuals (the inevitable friend who never buys a round) but can sometimes can be at the expense of a business. Sitting on a salad between three people when the restaurant is packed out might not seem like a huge offence, but it’s costing the business money. Being frugal also implies an empathy for other people’s financial wellbeing, as much as our own.

What We Do With It

As well as having a more realistic appreciation for money, people who are frugal also have great ideas about what they do with their money. If someone is cheap, they’re often saving money for saving alone. There’s nothing necessarily wrong with that, but wouldn’t it be better to be saving money in order to achieve some goals, financial or otherwise? After all, what else is our frugality about other than using the money we save as a tool to achieve the lifestyle we desire?

Different Sides

More than ever, people with different financial spectrums are friends. The increase of merit-based education, the big increases in salary for some jobs, and the breakdown of some aspects of the rigidity of the class system has meant we’re likely to know people with very different money backgrounds to our own. It’s not necessarily that we envy them, or the power that their money gives them, just that it can be an awkwardness. Experts suggest just getting it out there. Letting the issue boil over isn’t doing any one any favours. If you hate splitting the bill, when you’ve stayed on tap water and your mate has had a bottle of wine, then say so. Generally, they just haven’t thought about the issue. Of if someone suggests going somewhere you can’t afford, say so, as opposed to resenting the meal and the friends.

Same, Same, But Different

So often, we feel peer-pressured into purchasing habits. As the wondrous Suze Orman suggests, you could look at a group of women and see that they’re wearing similar clothes, same bag, same shoes. What you won’t necessarily see is that one might have a lot of money from work, another might have saved for months and another might have put the whole thing on her credit card and have little chance of paying it back. The friendship circles we swim in can put a lot of pressure on our purchasing, and it’s important to stay mindful of what really counts. In my life, I have less money than most of my friends because I work in the creative industries. It’s meant some sacrifices- I can’t afford to live in the city, I don’t go out as much as they do, I can’t save for a car. But they are all consequences of my decision and aiming for their lifestyle, without having their resources, is only a quick way to get into financial trouble.

Group Behaviour

The flipside of this is that group behaviour doesn’t necessarily have to be a bad thing. In a major study over 32 years, researchers looked at the effect of smoking and quitting on a social group. Not only does quitting effect those closest to you, making them more likely to quit, it also affects the people they know. The same is true of good financial behaviours. If you surround yourself with people who spend frugally, appreciate trying to save money, don’t give ostentatious presents, it’s more likely your behaviour will reflect that. So, what does that mean? To me, it means that the people in your life that make you feel guilty and awkward about money aren’t really worth your time. They’re not only affecting your mental state, they are affecting your hip pocket. So find some positive peeps and get saving.

For me it always pops up when I am thinking about changing jobs and get made an offer. Other times it might be in a new article or a friends conversation, so here is the definitive explanation of GROSS and NET profit so you can be armed to understand this lingo next time it comes up.

What is GROSS profit?

Gross profit is the amount of money BEFORE any deductions are made. This means you might get a job that has a gross salary of $45,000 – though this doesn’t include the ATO’s tax and any other costs you might incur.

What is NET profit?

NET profit is the amount of money you have left AFTER you deduct tax and any tax deductions you might have. For example, the $45,000 salary is gross, though the net salary would be that number MINUS your individual income tax rates.

In this case that means $45,000 minus $4,650 plus 30cents for every dollar over $37,000. To understand this, you need to see the ATO’s income tax rate breakdown from the link above (note that they are for 2011/2012) and the ATO’s official page can be found here.

This is why it is called your ‘take home pay’ as such.

Have A Goal

It’s an exciting thing, to be getting out of debt. Or saving for your first home. Every day, every extra bit of saving, is one step closer to the dream. So make sure you keep reminders of how you’re achieving your goal. Put your debt on the fridge, and mark down the amount in a big red texta. Have a picture of a great home you might one day buy. It’s important as well to have smaller goals, as well as the usual big ones. 

If you like a dress or a kind of running shoes, it’s a valid goal to save for them. That kind of purchasing is only a problem if it’s on credit you can’t pay or at the expense of your saving goals. If it’s not either of those things, then small goals for enjoyment are top notch.

Have A Purpose

Once you’ve ascertained what your financial goals are, think about what purpose underlies all of them. Freedom from debt? Financial stability? A well-stocked retirement? The purpose is the road map and goals are the markers along the way. Knowing what you want, and how you’re going to get there, nothing could bring greater feelings of calm and presence.

All Fun And Games

Good personal finance is not about denial. It’s about making small changes that will result in big savings. So approach is as a challenge, something that you can excel at. Think of out-of-the-box ways you can save money- have a no-spending day once a month, join the local library, learn how to make your favourite meal from your local Indian restaurant at home. My flatmates and I used to go to the supermarket and call out the cheapest price of the items- no one ever really won anything, except the much-gloried feeling of being the best spotter of the house for the evening. The feeling of looking in your wallet at the end of the week and there still being money in it- it’s better than fun, it’s great.

Get Others Involved

If you have kids, get them involved. Not only are you teaching them valuable skills for their personal finance futures, they’ll get excited about trying to find the best bargain. Get your friends over for a potluck meal instead of the usual expensive restaurant, suggest picnics in the park. It shouldn’t be about you, struggling along on your own. Ask people for their best savings tips; everyone has an opinion and is bound to enjoy an opportunity to share it.
At this time of year, it’s a rare chance to loosen the tie and enjoy the good things we have in life. It’s also an opportunity to make some small changes that will allow us to continue living as we are, and move towards a financially stable future. Have a great Christmas all!

The Hoarder

There’s frugal, and then there’s taking it too far. Hoarders tend to be extremely careful with money, love saving it and rarely spend it. While this is a fantastic approach to money, it can have a tendency to go too far and resolve in people saving all their money and never spending any of it, on themselves or others. Tip: Write down a list of your financial goals and what you would like to achieve with your money. Promise yourself you’ll achieve one by the end of the year, and make sure the list comprises of things you actually do with money as opposed to solely having savings goals.

The Spender

The lover of instant gratification, the spender finds holding onto money tricky. In fact, they don’t even know where it goes. Generous to a fault, spenders can do serious damage to their finances by being unable to save any of their money. I wish I knew less about it, but personal experience does tend to make me a complete insider on this one. Tip: Don’t completely cut back, just start a budget. Set up a direct debit from your paycheck into a savings account that you can’t touch for six months. If you can’t see it, you can’t spend it. Oh, and Mellan suggests not dating hoarders as each other’s habits tend to be a recipe for a disaster.

The Monk

Some people are genuinely uncomfortable with money. They cover their basic needs and are otherwise unconcerned or uncomfortable with the money they have. I know very few monks, but they do exist. Tip: Make sure you’ve covered essential goals; your retirement, your emergency fund and your expenses. Never compromise your own wellbeing because of your personality type. Then, if you’re genuinely uncomfortable, choose a couple of your favourite charities and invest in them. It’s a fantastic thing to be doing with your money.

The Amasser (Or Obsessor)

Think about money all the time? You’re an amasser. You’re serious about money, serious about making it and serious about watching it grow. That’s great, but your obsessive nature can sometimes make seeing the forest for the trees a bit tricky. You’re very in tune with what’s happening with your money, but thinking about it all the time can be more stress than anything. Tip: Set aside a certain time every day to check in with your finances and the stock market and do not, repeat do not, check it outside of this time. You’ll look forward to it, and it will keep your money worries from invading every part of your life.

The Avoider

Three years overdue with your tax? Unable to pay a credit card bill because you haven’t looked at a statement in months? If knowledge is power, the avoider can tend slightly towards the powerless when it comes to finances. Thinking about money constantly is damaging, but avoiding the thought all together isn’t a great strategy either. Tip: Just like an amasser, set aside a time once a week to look at your finances. Like a bandaid, just get it all over and done with in one hit. Automatic deductions that will help you achieve your financial goals without depending on your energies are important.

Before We Begin

Yes, we want to make the best decision possible. Yet, all we can hope for really is to make the best decision for us at the time. And any decision is better than none- I find nothing more debilitating to my quality of life than continually vacillating between choices and I am significantly better off once a decision, any decision, has been reached.

The Steps To Making A Decision

We all go through this process a thousand times a day. The shops or the post office first? What dress to wear? But breaking down the process can make it easier when we are confronting decisions that go bigger than that. Step one is identifying the goal and outcome. If you’re wishy washy on this, it’ll be very hard to make an appropriate decision. Work out the major goal, say debt free in five years. Then work out the sub-goals, say paying off the credit card. Once you have broken it down, the path to your goal does become much clearer. Step two is gathering data. This can be research. For me, it’s often sitting down and talking it out with lots of people. It’s not necessarily about taking their advice, as it is about clarifying where I stand. It’s amazing how quickly you know what you really think, once someone starts offering advice. Next, you want to work out some alternatives and list the pros and cons of each alternative. Hopefully, this step will show which alternative has the most cons. Sometimes it won’t. Either way, you now have all the information at your disposal to make a decision. It’s suggested you immediately take action; negativity tends to spring up in any moment of prevaricating. It’s also a good idea to reflect on your decision-making process and take note of anything you would alter in the future.

Everyday Decision Making Methods

These are not all positive techniques, but they are common. It’s a good thing to identify them, so we can more fully understand our own decision making profile. For instance, do you deliberately make decisions contrary to advice from authorities, just because you can? Or do you make decisions based solely on advice from authorities? Neither is a great technique, though common. Understanding your own decision-making personality will help prevent leaning on these techniques. Other common techniques are pros and cons, flipism (flipping a coin etc) or taking opportunities as they appear and before there is a problem that would necessitate a decision. A technique called sacrificing is where we choose the first positive alternative, without establishing all the alternatives. Generally, we make decisions by simple prioritisation, where we give each outcome a weight and choose it that way.

The Crux

Decision making is hard. And we’re not always going to be right. The best advice I ever received was this: make the decision. Once that’s done, make another decision. And then another decision. You make the best decision you can, and go from there. With your finances, it’s about getting as much information you can and staying flexible and open-minded about what happens next.

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