It happens more often than you might think; sudden windfalls are quite common, and even occur to the people you’d least suspect! An unexpected influx of cash can come from an inheritance, a large work bonus, a lawsuit settlement, a tax refund, or even something as exciting as a good weekend in Vegas.
Unfortunately, the result that we often see from these situations is an impulse purchase, followed by regret. That’s because those who don’t plan for large sums of cash, often have no idea what to do when it happens to them! It’s always good to have a plan in place, even for events that you consider unlikely. But if you consider your options now, you’re far more likely to commit to a wise decision if Lady Luck looks your way.
Get out of debt. It might not be the most exciting thing to do with a windfall, but getting out of debt buys you peace of mind and freedom. And you can’t really put a price on that.
Establish an emergency fund. If you don’t need to pay down debts, stash your extra cash in an emergency fund. Now you have access to liquid resources in the event of an emergency, and you can prevent difficult decisions (such as borrowing) that you would likely regret later.
Invest in yourself. Could additional work training or a second degree help you advance in your career? Are you a business owner who could expand, if only you had access to newer equipment or advertising? Investing in yourself is often a wise decision that can pay off for years.
Grab a terrific tax deduction. You can earn a sizable tax deduction by donating to charity, plus you will feel at peace with your decision. Just make sure the charity is qualified by the IRS, or you won’t get credit for the donation.
Prepare for retirement. We saved our best idea for last. There is no such thing as preparing too well for retirement, so stashing extra cash in your retirement fund (or using it to open an IRA) is always a great idea. Over time, compounding interest can help that money grow.
The most important thing to remember about windfalls is research. Give us a call before you make any big decisions, and we’ll help you analyze any unexpected impacts of your decisions. Then, we can help you decide how extra cash can be best utilized to build a brighter future.