A sudden windfall of money doesn’t occur often, but when it does, it can keep a lot of you thinking, “Now what am I supposed to do?” On the other hand, some of you might spend all of that money on things you’ve always wanted and dreamed about having but couldn’t afford. And of course, you’d want to celebrate by treating your family and friends to something special. While this is a perfectly natural urge, doing this may deplete your cash windfall sooner than expected, without having made the most of it.
When you’re living on a tight budget, any amount of extra money should be looked at as an opportunity for you to improve your financial situation first and then for your enjoyment and entertainment. If you’d like to avoid any hasty decisions, it’s better to put the extra money aside until you have a plan on how to use this good fortune. Once the joy of earning a windfall sinks in, you can use the tips below to manage your windfall gains so that your money will last for the longest time.
Calculate the After-Tax Earnings
There are different tax implications based on the type of income you’ve earned. So, the very first step while deciding on how to manage any unexpected cash flow is to know the net amount expected to be received. You can receive help from the experts to determine your exact after-tax income. If you’re lucky, the entire amount you’ve received could be a source of non-taxable income, widening your financial and investment options.
Chalk Out a Financial Plan
You can have a pre-defined plan for the windfall to make it easier for you to address your financial priorities. If you already have a smart budget that helps you manage your spending and ensures that you save a fixed portion each month out of your income, you can use the unexpected gain exclusively to help you meet your long-term financial goals like retirement planning.
Create a Special Account
To not let the regular expenses eat up your newfound wealth, create a separate account to manage this money. This can help you keep track of the savings you make from both your monthly income and windfall. The savings from one could be directed towards the emergency funds account that should be accessed only in case of real emergencies and the other for your retirement savings.
Pay Off or Invest?
If you owe on a registration loan in Chandler AZ, making monthly payments shouldn’t be difficult for you. Hence, you can decide to invest the majority of your windfall money and see the amount grow. The interest that you earn can then go into a particular account on maturity.
Mutual funds are one of the safest and most comfortable options to invest your money if you’re looking for high annual yield. However, a financial advisor would be the best person to guide you about the best investment options for you.
Don’t Give Up Your Job
The thought of quitting your job could cross your mind if you earn a massive amount of windfall. But you should understand that it’s a fixed amount which might not last forever. Also, investment decisions are made in a world of uncertainty and have all the possibilities of going wrong. So quitting your job can be a bad idea. Instead, you can always have a small percentage out of the considerable sum of money to fund a trip to your favorite holiday destination.
Don’t Hesitate to Seek Advice
There is no time limit on deciding how you want to spend or invest your unexpected windfall. You can let the money stay in the bank and take your time. It’s better to lose some potential return on your investment than make huge investment mistakes. Talk with experts and family members who have earned such unexpected income and made the most of it. Remember, the further you push your income earned, the more financially secure you will be.