Question: When is a cash windfall not really a cash windfall?

Answer: When you’ve already spent the money – several times – before it lands in your checking account.

Ian (the YNAB developer from “down unduh”*) pointed me at an especially insightful forum post from a YNABer who goes by “tmpst.”

“[I’ve changed] how I handle small windfalls (holiday pays, tax-returns etc.). Pre-YNAB it seemed like I always found a way to “spend” them in advance. Not only did I spend them, I probably spent them several times over.

“The insurance is due in December… No worries, I have my tax-returns coming up. I’ll have money.”

“Remember that we are taking that trip during the holidays and need money for gas? I’ll cover it with my tax-returns!”

“I want to buy <insert random item>. Now I can do it, because I’m getting free moniez as a tax-return.”

In the end, the windfall serves as an excuse NOT to save for known upcoming events, and ends up actually costing me money as I plan to cover more then the windfall is actually worth!”

What a great insight for non-budgeters:

Not only does your lack of budget keep you on the stressed-out, check-to-check roller coaster, it also eats up (and renders useless) any cash windfall that happens to come your way.

What a drag.

Luckily, there’s a better way: maintaining a budget that reflects your real expenses and your most important “wants.” More from tmpst:

“ up for the insurance. I…save up for the trip. I…won’t buy the ‘random item’ because I have no money left after saving up for the insurance and the trip.”

Having acknowledged his/her true expenses in the budget, tmpst enjoys the windfall for what it really ought to be: an accelerator!

“After I make up my normal budget there will just be an abnormal amount of money [left over]. Then I just invest all or almost all of it. It doesn’t feel difficult, because I didn’t have to make any sacrifices in my budget, as it is covered completely by my “normal” income.”

Thanks for the great insights, tmpst.

Many of us have tax refunds coming in the next couple of months. If a lack of effective budgeting has forced you to use the money to catch up, learn the lesson: build those expenses into your budget. If you happen to get a tax refund next year, it will be pure gravy.**

*Ian loves it when Americans refer to Australia as “Down Under.” In fact, Ian loves pretty much everything Americans do and say, and America in general. Right, Ian?

**If you always get a tax refund, you may be over-withholding. Because you’re a YNABer who knows how to give every dollar a job, you ought to talk to a tax expert about how to reduce your withholding and put that money to better use (ie savings, debt elimination) during the year.