There is nothing quite as nice as getting an unexpected windfall, whether it’s from a government stimulus check, a tax refund, an inheritance, or even winning the lottery. After the elation dies down, though, you’ll probably wonder about the best ways to use that money.
Pay Off Your Debts
The first thing you should do with a windfall is pay off debt, like credit cards, personal loans, mortgages, auto loans and home equity loans. You can save hundreds of dollars in interest, and you can put the money you were using to make your monthly payments towards your other financial goals.
Build Your Emergency Fund
Experts recommend having at least three months’ worth of income in your savings account, but in uncertain times you’ll want to make sure you have closer to six months of income available. Set aside some money for an emergency fund, and make sure that it’s not only easily accessible, but also earning interest.
Finance Needed Expenses
If you have some expenses you’ve been putting off, like replacing a dying stove or getting a new car, you can use the money you get from a windfall to buy it. Just make sure you don’t overspend. You might want to replace your family sedan with a sports car, for instance, but avoid the temptation.
Invest Your Money
If your debts are paid off and you have a healthy emergency fund, consider investing your money. A certificate of deposit is a good first step, but you can also invest in IRAs to make sure you have a healthy retirement fund. A good first step is a Certificate of Deposit (CD), but you can also invest in IRAs and mutual funds. A financial advisor will be able to point you toward which investments will yield the best results.
Set Aside a Small Portion for Fun
When anyone gets a windfall, part of their mind starts thinking about all the great things they could buy with that money. While spending all the money in your windfall on things you want is a bad idea, set aside 10% for yourself. Consider it a reward for using the rest of your windfall so well—and it’s a good way to prevent yourself from feeling deprived.
Set Up a Financial Plan
Once you’re familiar with the best ways to use an unexpected windfall, come up with a financial plan. List all the categories for which you’d like to use the money in the windfall, then allocate money for each category. When you’ve finished, go ahead and put your plan into action.
Use Your Windfall to get Ahead With First Alliance Credit Union
A windfall can give your finances a much-needed boost. You can put the money to work for you by paying down debts, financing needed expenses and investing in the future.
If you want to use a windfall most effectively, become a First Alliance Credit Union member today. You’ll be able to put your money into a savings account, club accounts, health savings accounts, an IRA or a Certificate of Deposit.