Whether you found money or got a cash bonus of $500 – you need to spend it wisely! These tips for unexpected financial windfalls will give you some ideas on how to spend it.
“No matter how big or small the amount, and despite the temptation to celebrate and splurge, make your choice on what to do with an unexpected windfall carefully,” says financial expert Ethan Ewing. “In an uncertain economy, it’s all too easy to act before thinking. Take time to make sure you put any and all money to work for you.”
If you want to have a blast with your newfound money, read Live It Up Without Outliving Your Money!: Getting the Most From Your Investments in Retirement.
And, read on for a few tips on spending found money…
Found Money! 7 Things to Do With an Unexpected Financial Windfall
1. Pay off your debt. Few investments can top the rate of return for eliminating debt. Paying off credit card debt at typical interest rates effectively makes an investment that returns 20% or more per year. “The only caveat: Be certain you change your mindset as well,” Ewing said. “If you pay off debts, only to charge up the credit cards or sign for a new car loan a few weeks or months later, you have ultimately gained nothing. If credit card debt is your problem, for example, cut up or freeze your credit cards to ensure you do not re-create the same problem you have left behind. Use a debit card for future purchases that require a card.”
2. Invest in a retirement fund or 401K company plan. For someone who is not in dire, immediate economic straits, investing a financial bonus or cash gift in a retirement fund is an outstanding choice. Investing $10,000 in a tax-benefited investment plan that earns 8 percent interest will generate nearly $40,000 in returns over 20 years.
3. Build an emergency savings fund. Those who do not yet have an emergency savings fund – enough readily accessible money set aside to cover several months’ worth of expenses – should consider a cash gift a prime opportunity to create that fund. An emergency fund should be in a savings or money market account where funds can be withdrawn without undue complications. “However, do not make it too easy to retrieve the money,” Ewing says. “If your checking account automatically transfers savings to cover overdrafts, careless management could result in your emergency funds dwindling to nothing.”
To learn how save money for the future (which is a good idea even if you haven’t received an unexpected windfall), read Build an Emergency Fund – 9 Tips for Saving Money.
4. Buy a new home. Those who are already en route to purchasing a home could find that a financial bonus or cash gift helps with a down payment, especially in today’s buyer’s market. Nevertheless, do not purchase more home than you can afford. The monthly payments will continue long after the money has been invested. If you already own a home, using some of the funds to take care of small upgrades and larger repairs around the property can be an excellent way to maintain your investment.
Do you already have a home mortgage – and should your found money go towards that? Read Is Paying Off the Mortgage Early A Good Idea? It Depends.
5. Invest in yourself. A way to manage wealth is to invest in yourself. Have you thought about returning to school, or taking some classes to advance your career? A financial bonus can be just the push you need to take that leap. “Furthering your education, when planned properly, can improve your career and result in higher earnings — improving your financial prospects for the rest of your working life,” Ewing said.
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6. Eliminate home mortgage or car payments. If you have your emergency fund covered, consider using the cash gift to pay off a car loan (or a mortgage if the amount is large enough) or purchase a needed vehicle outright. By eliminating auto loan or home loan payments, you could gain breathing room to secure retirement, consider a career change or take a sabbatical.
7. Divide your money into categories. If you cannot decide how to manage a financial bonus or other money windfall, divide it into segments. “Save one, invest one, pay down some debt, and – if possible – use one piece to purchase something for your home or take a relaxing, memorable weekend away,” Ewing said.
“Whatever action you decide to take, sleep on your choice before you put it into effect,” Ewing says. “The last thing you want is to look back and wish you had made more of your windfall. If you make a sound choice for your personal situation, your money will continue paying benefits for years to come.”
For more ideas on spending money you found, read Most Popular Money Articles – Financial Tips and Goals.
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