Found money is any money that comes to you unexpectedly…money you did not necessarily earn as Jimmy Buffett would say. And there are 3 things you must do every time you are lucky enough to fine some money.
I’ll start by describing what you should not do. A volunteer firefighter in Colorado won a $1.2 million home in Maryland. After selling the home and paying the taxes the found money amounted to about $200,000.
So what did she and her husband do with their found money? They took $50,000 and bought a new truck, paid off some debt and saved the rest.
- $50,000 for a new truck. Not a good choice. The truck will go down in value fastest in the first years of ownership. I would have suggested buying a 2 year-old, low mileage truck.
- Paid off some debt. I would have suggested paying off all debt.
- Saved the rest. Good and I would suggest it go in an emergency fund.
The 3 things you must do when you get found money are:
- Establish a $1000 emergency fund.
- Catch up on any past due bills and if there are none then use it to pay off debt.
- If you have no debt, other than a mortgage, then use it build your emergency fund to equal 3 to 6 months of living expenses.
Following these 3 steps make sure you are on the path to financial independence.