What to Do With Found Money

By - February 1, 2013

Last spring I was expecting a semi-annual royalty check of about $800 from Wiley and Sons Publishing, for sales of my book, 101 Weird Ways to Make Money. I was shocked and happy to see that the check which arrived at the end of April was for over $5,000. My wife and I celebrated with an inexpensive night out and I split the rest of the money between our investment account and a car fund that we would use to purchase our next vehicle.

I am not suggesting that any reader do the same when dealing with unexpected income, or what is often referred to as "found money." But I do have a few thoughts to share about what to do in a situation like this. It is a mix of the practical and philosophical, and I happen to think that, when used properly, philosophy is very practical, as is knowledge of psychology.

Found Money

Sometimes you might actually find cash or valuables that can be turned into cash. We've probably all found lost money once or twice, and recently, while cleaning out an investor's recently-purchased house (a part-time job), myself and the other guys found hundreds of bags of golf tees in boxes in the garage, and though we threw most of them in the garbage I took 55 of them and sold them for $40 to a small golf shop. Sources of larger amounts of found money might include inherited money, unexpectedly large tax refunds, lottery or contest winnings, and selling some old collectible toys or antiques from the attic on eBay for hundreds or thousands of dollars.

What do you do with found money? The most common response is perhaps to spend it on some luxury or frivolity, a decision perhaps helped along by the thought that you didn't have to work for the money. Of course you could use the money to better your situation and/or pursue more important goals and values. Fortunately there is also the option to do both. For example, suppose you get an unexpected $1,000 bonus from your employer. Why not use $200 of it for fun activities or purchases, and then put the other $800 toward credit card debt or start a fund for a future business or investment?

A $3,000 income tax refund, which isn't all that uncommon, can really help out with important goals. Suppose, for example, that you typically find yourself in financial trouble several times each year due to an unexpected car repair or a doctor's bill or a broken appliance. Why not use that tax refund to start an emergency account. In fact, if you put your refund in the account every year and use it only for large unexpected expenses, you might no longer have stressful surprises. You are buying as better quality of life.

It might be a good idea to reward your wise "money stewardship" with a bit of play money for your short term pleasure. But if you repeatedly use the bulk of found money for important purposes it's a habit that can really change your life.

Found Money and Personal Values

My friend, who I will call Kyle, won a million-dollar lottery a few years ago here in Florida. My guess is that he got about $650,000 after taxes. He bought boats and a house, the latter for $200,000. He spent quite a bit on more lottery tickets of all things (you already won man!), and invested quite a bit in stocks. He is doing well, but still works to pay the bills.

Now, we all can play the mental game of "what I would have done," when we hear a story like this. I know what I value, so I have a good idea of what I would do with that kind of found money. I value freedom, including freedom from the necessity of jobs or complicated businesses. I'm not lazy, but I prefer to work when I want and on what I want, and without too much regard to whether it will pay the bills (this website no longer does, but here I am). I would have found a way to invest that $650,000 and get a safe 8% return, perhaps partly in rental real estate. The $52,000 in annual investment income would be enough to live comfortably, leaving me free to take -- and quit -- any job, or start any small business that seemed interesting, or to write all week long instead of interrupting this work to earn a living.

I'm not saying that there is anything wrong with what Kyle has done. He knows better than I what's important to him, and he seems happy enough. And if some lottery winners spend it all on big toys or parties, perhaps that what works well for them. But I suspect that most people don't spend enough time getting to know what's important and what makes them happier and how to get it. As a result many people squander the opportunity that found money represents.

There are opportunities with both smaller and larger amounts of found money. For example, if you win a bingo jackpot of $500 it might help you fund some future plan, especially if you keep putting other unexpected profits and income toward that goal. A few hundred dollars here and forty dollars there and eventually you can take time off to write that novel or climb that mountain or build that sailboat. Or you can spend those monetary surprises on another TV or a facelift or a trip to the beach. The choices are all yours.

Coming into a few hundred thousand dollars can quickly change things if you use it wisely. But again, the choices are yours, and to make them wisely you have to know what matters to you. You might think you want more time to spend with the kids, but if you spend your windfall instead of investing it, and so have to return to work, you made your choice. We say we value certain things, but when we have the power of large amounts of money we also demonstrate what we value in how we use it (and the same can be said for time).

Tax refunds are coming soon for some of you, so there are choices to make...

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