Whether you’ve just found out Grandma Betty died and left you a sum of money, or you got a huge bonus or miraculously won the lotto, you’re probably wondering one thing: What’s the best way to use your newfound wealth? There are no shortage of ways to spend money but without having a plan, you can easily stick to where you’re at or be more worse off than you were before the windfall.
That’s because when you get a money windfall it’s easy to slip into spender mode. So before dropping all your cash, here are 5 ways to get the most out of a money windfall.
1. Know how much you’re really getting
If you’re getting a bonus or you won the lotto, there’s some bad news. That amount of money will be taxed by the IRS. Yep, that’s right, Uncle Sam will get a cut of your windfall.
So before you do anything with your money, know how much you’re really getting after any taxes are taken out. You don’t want to set any goals or make any plans until you know the true amount that will hit your bank.
2. Pay off high-interest debt
If you have credit card debt and get a money windfall, pay off that ball and chain ASAP! High-interest debt like credit card debt can be costly and prohibits you from building true wealth. Using your windfall to pay off credit card debt is a guaranteed return on your investment. On top of that, it could boost your credit score as you will lower your credit utilization. Say bye to debt!
3. Max out your emergency fund
Maybe you have some emergency savings but not the prescribed three to six months of expenses. If that’s the case, use your money windfall to max out your emergency fund. If your windfall is big enough, save a solid six months of expenses so you’ll have that cash on hand for the next time life decides it’s your turn for a big curveball. You can put the money in a high-yield savings account that is easily accessible.
4. Invest, invest, invest
Want to make your money windfall grow even more? The best surefire way to do so is to invest. You can invest with your retirement accounts, such as your 401(k) and/or a Traditional IRA or Roth IRA.
On top of that, you can choose to invest in the stock market. Be sure to understand how much risk you’re willing to take on and choose the right investing vehicles. For example, you might want to consider ETFs, which offer more diversity in your investment portfolio.
You can also invest in a business idea that you want to get off the ground. Maybe you’ve needed capital for your idea or you have a side hustle or small business and this newfound money can be used to help your biz grow.
The key with investing is finding how to grow your money in a way that makes sense with your lifestyle, risk tolerance, and goals.
5. Fund a big goal or experience
Spending money on experiences can pay dividends into your happiness and health. Though buying certain things can be nice too, spending money on your big goals or experiences can have a lasting impact.
Have you always wanted to train with a personal trainer for a year? Have you wanted to take your family on vacation to Europe and get everyone together? Do you want to surprise your parents for their 50th wedding anniversary and go on a cruise?
You can never go wrong spending money on big goals and events with your family that will create unforgettable experiences. Life is about creating memories and using your windfall wisely to do that won’t lead you astray.
Responsible first, play later
For any type of money windfall, live by the rule of being responsible first and playing later. So that means making sure your savings, debt, and investments are covered first and then you get to have guilt-free fun. That way your money can go further but you can still enjoy it, too.
Did you recently come into a money windfall and need help managing it? Schedule your free 20-minute call here to speak with a member of our team and learn how we can help you!
