What should you do with a sudden influx of money, a financial windfall? Did you earn a bonus at work, get a large income tax refund, receive an inheritance, sell something big, etc.? Here are a few great ideas to spend your new found money on.
1. Pay Off Debt. Paying off credit card debt that has an annual interest rate of 18%, for example, is exactly like earning an 18% return on your investment. There is no better feeling than being debt free, and there is almost nothing better for your finances. Using 90% of your windfall, bonus, or inheritance on paying off debt is never a bad choice. Just make sure that you never go back into debt.
2. Fully Fund Your Roth IRA. If you qualify to contribute to a Roth IRA, you could use your windfall to fully fund your Roth. This year, you can contribute up to $5,000 for you and another $5,000 for your wife (assuming that you have earned income of over $5,000 this year). If you are over 50 years-old, you can additionally make a catch up contribution of $1,000 ($6,000 total per account).
3. Fully Fund Your Emergency Fund. You should have three to six months of living expenses set aside in a very liquid, readily available account to use in the case of emergencies. Using a windfall to finally fully fund your emergency fund would be an awesome choice for that money.
4. Invest In A New Business. Do you have a business plan that is killer? Have you been putting off jump starting the business you have always dreamed of? Now may be your chance.
5. Down Payment For A Home. My wife and I used a windfall to pay for the down payment of our home. It was an excellent choice for us. If you can make a down payment of 20% of the home’s price or more, you can avoid Private Mortgage Insurance and save yourself over $100 a month.
6. Down Payment For A Rental Property. Call me weird, but I’ve always wanted to be a landlord. The next windfall my family receives (by the grace of God) will find its way into a beach house!
But, what is the fun of having a little new found wealth if you are just going to sock it all away and not touch it? You should spend a small portion on yourself, on something that you always wanted. Many experts recommend that you spend 10% of a bonus, raise, or windfall with no questions asked. Spend it on something that will bring you a lot of personal joy which will make the windfall seem worthwhile.
Here are four things that you should only spend 10% of your windfall on. Make sure that you use cash from your bonus or unexpected money. Don’t go into debt for these four things. They are a small pat on the back for a job well done.
7. Go On Vacation. How long has it been since you have been to Disney World? Have you and your family ever been out of the country? What vacations have you always wanted to take but have not been able to? Now might be your chance.
8. Buy Something You Always Wanted. Have you always wanted a jet ski? Have you simply wanted a new computer? Now is a chance for you to splurge on yourself with cash. Make sure that you spend a little money on yourself but no more than 10%.
9. Give Some To Your Spouse. How many late nights have you worked to get that bonus? How many soccer games on Saturday have you missed? Your spouse has given a lot in blood, sweat, and tears just like you have. Don’t forget to reward your partner in crime for their contributions.
10. Give Some To Charity. Giving to charity is not for everyone. I understand that. But, if you are so inclined, this would be a great use of a small portion of your windfall.