How To Make The Most Of A Windfall

Most of us dream of the day when we stumble across a large pile of money that appears to have fallen from the sky. While you shouldn’t base your budget on receiving a windfall, there are plenty of situations in life when you might suddenly gain access to a large sum of money.

If you were to suddenly be in possession of a inheritance, bonus, settlement or other windfall, do you know how you would spend that money?  Many people who receive a windfall piddle away the money with little or nothing to show for it a few years down the road. What can you do to avoid being one of these people? The following tips will offer ways to manage a windfall so you reap the most rewards from this “gift” of money.

Splurge

Yes, I believe it is important to splurge a little or else you will end up splurging a lot. It is human nature to want to use “found money” to buy for something you wouldn’t normally be able to afford.  That being said, there is a difference between splurging a little and wasting a golden opportunity to jump start future financial growth.  Even something as small as a $50,000 windfall can secure your retirement if you resist the urge to piddle it all away.  So go ahead, treat yourself to something nice if that’s what it takes to satisfy your need to splurge.

Pay Down Debt

Once you have spent a little money on yourself or loved ones, consider your current financial situation. In almost all cases debt will cost you more than you will earn in investments therefore you should pay off or at least pay down high interest debt. Consider paying off other small financial obligations which will slowly eat away money that could otherwise be used for savings and investments.  Paying down debt isn’t so hard if you have a plan (many of them cleverly-named, such as the debt tsunami and debt snowball).

Pad Your Savings

Before moving on to investments which carry a higher risk, stash some money away in a high yield savings account or other short term savings vehicle. This way you have access to the money should you need it in the near future as well as some growth opportunity with limited risk.

Think About The Long Term

Regardless of the changes in the economy, the best opportunity for growth over the long term is placing some money in the stock market. Long term investments render your money unavailable in the immediate future but offer the chance for your money to make money over a long period of time. Once you have taken care of your short term goals, you should be looking at how this windfall today can pay off years from now. Coming out of the recession few people need to be reminded of the dangers of putting all of their money in one place, make sure you spread the wealth or risk losing it all should things take a turn for the worse down the road.

Millions of consumers would love to have the opportunity to play with some extra money. If you are fortunate enough to experience any type of windfall, think twice before you spend it to ensure you are getting the most bang for your buck.