A lot of us have an idea of what we should do with money that we earn on a regular basis from our physician jobs. Oftentimes it goes towards our typical cost of living expenses: bills, debts, savings, investments. But what about money you get that you weren’t expecting?

Because yes, most of us will, at some point, get at least a little money that we didn’t expect. Regardless of the source – whether it’s an inheritance, a tax refund, or a bonus at work – we end up with one question.

What should we do with this extra money?

Deciding on a plan for your extra money

I haven’t been fortunate enough to get an inheritance, but I have received bonuses from my job. In anesthesia at Wake Forest, we qualify for bonuses by working additional shifts, which I did for a few years to pay off student loans. Since then, as I’ve transitioned to working more on my business and not taking on extra shifts, I get nonclinical incentives for performing academic work.

When it comes to receiving extra money, it doesn’t have to be a large sum for you to be intentional about how you use it. Whether you’re getting extra money from a new bonus system implemented at work or you got a bigger tax refund than you were planning for, it helps to have a plan for how you want to put the extra money to use.

Apply the 10% rule for unexpected funds

The 10% rule is what I used when I first finished medical school. If my wife or I came into additional money, we would take 10% of it and spend it however we wanted to, guilt-free. This could be on anything you want: tennis issues, a television, a new sofa, a grill.

You can apply the same rule for an increase in pay. For example, if you make $4,000 per month post-tax as a resident, and it turns into $14,000, now you’ve got a $10,000 gap. Take $1000 a month and spend it on whatever you want.

But with that other 90%, I encourage you to lay a solid foundation: pay off student loans and start saving a significant portion of your money.

I paid $10,000 a month to pay off my student loans on average for the first 19 months after I finished training. So I really did take 90% of that extra money (working extra shifts and collecting bonuses by doing that) to pay off my student loans.

An option like a taxable brokerage account is an optimal way to invest some of that 90%. The money in these accounts is easier to access than retirement accounts, and it does actually offer certain tax advantages despite its name.

Five ways to use your unexpected funds

Spend it.
Save it.
Give it.
Invest it.
Pay debt.

Personal finance is personal. Many of us physicians have student loan debt, so maybe you’d use it to pay down some debt. Maybe you’re using it to pay down your mortgage or your car loan. The right answer for each person often varies, and it can vary even more based on your current stage of life.

Maybe when you were younger a lot of your extra money went towards your loans, but now you no longer have loans, and you’re able to spend or give or invest more of that money than you used to in the past.

Lisha’s value shift around handling extra money

Lisha went through a period of saving and investing almost all of her money before she realized… she really wasn’t enjoying it. It was almost like she was looking forward to making money, or getting extra money just so she could invest it.

But her life didn’t really change or improve because of it.

She still wasn’t taking part in certain experiences. She was declining invitations to friends’ weddings because of the cost to fly in and stay in a hotel being $1000 for one weekend. So she realized she wanted to rethink her strategy and reframe some of these opportunities.

Like, maybe going to that wedding would result in an experience and a memory that she’ll never be able to have again.She would be able to see her medical school classmates all in one place, to see everyone all happy, to be able to witness a love union.

We often talk about return on investment in the personal finance space, and almost in some ways it’s like a return on experience.

Or at least viewing experiences like an investment. Like yeah, you put a thousand dollars into attending a wedding, but you get the anticipation leading up to it, you get the actual experience, you get the memories on the back end.

Behavioral finance studies show that experiences are powerful. So when you can reframe using your extra money on experiences and then viewing the experiences themselves as its own ROI, that’s when it becomes a worthy investment.

Finding the happy medium with your extra money

Many physicians are in one of two camps when it comes to how they handle unexpected funds.

1. Either they’re spending all their extra money because they didn’t expect it, and so they don’t feel like they need to be responsible with it, or

2. They’re almost too responsible with it and invest it all (or give it all or save it all) without enjoying any for themselves.

Everybody’s going to have a different goal.

But heading towards one extreme or the other without having any sort of moderation isn’t the best way to be sustainable with your money management efforts.

We all come from different financial backgrounds, and in teaching financial literacy classes to medical students, I often hear stories from residents who say they came from a household where they had to fight for every dollar they had.

I know people who still stuff a ton of money under their mattress or have $200,000 sitting stagnant in a bank account because they’re scared of losing it in investments. I myself went through a bankruptcy as a kid, and I have a deep amount of respect for being in a place in life where you may not have much extra money.

In this space, sometimes we forget to consider people’s personal history with money and how that might include a fear and a scarcity mindset around money.

But no matter our personal history, we each have to find our own happy medium with managing extra money so that we’re enjoying the money for what it can offer us – experiences, time freedom, financial independence – and not just living to work and pay bills.

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