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Roughly 40% of American households have struggled with financial problems in recent months. Whether it’s struggling to afford to pay for food, medical needs, or rent, the same feelings of stress are conjured up. The pandemic is a major contributor to this feeling.
How would you define your current relationship with money? Does it fall more on the abundant or scarcity side of the scale? The good news is that there is always room to grow and improve this relationship.
If you’ve received a windfall of money (a large, unexpected financial gain), what should you do with it? If you haven’t yet developed a positive relationship with money, this guide is for you. Keep reading to learn five things you can do with the extra money.
- Create an Emergency Fund
Unexpected things happen, so it bodes well to be ready for them when they occur. If you’ve received a windfall of money, one of the smartest things you can do is create a cushion if and when unexpected events happen.
You can start by putting your emergency fun into a high-yield savings account. You’ll still have easy access to your extra money while at the same time benefitting from the APY.
- Get Your 401(K) Match
Don’t hesitate to start investing in your 401(k). This is especially true if your employer offers a match.
For example, if your employer offers a 3% match and your annual income is $50,000 this means that you put in $1,500 and so does your employer. Your total annual 401(k) would be $3,000 and that would be an excellent starting point, don’t you think?
- Pay Down High-Interest Debt
We encourage you to start thinking about your future with your newfound extra money. Do you have a balance on a credit card or loan that you’ve been meaning to pay off, but haven’t had the funds until now? It would be in your best interest to pay off that balance right away.
If your interest rate is higher than a stock you’ve invested in, you may be better off (and get a better ROI) by paying off your debt first.
- Start Funding an IRA
What if you don’t have a 401(k) or have already matched your expending income with your employer? You can go the traditional or Roth IRA route.
It’s important to note that individual retirement accounts aren’t investments. Rather, these are specific retirement accounts with tax benefits you’d use to buy investments. For example, with ROTH IRAs, you won’t pay taxes on investment earnings.
If you’d rather not choose your investments, use a robo-advisor to open an IRA.
- Save for Your Other Money Goals
When a windfall of money falls in your lap, it’s important to remember your future is more than your retirement. What do you want your money to do for you? Whether it’s saving for a home, starting a college fund, or heading to a casino for high rollers, it’s best to think in terms of five years or more.
For your short-term goals, keep your money in a savings account, so you’ll be able to access it easily without losing your principal.
Watch for a Windfall of Money
Whether you’ve received an inheritance, sold a property, or got a salary bonus, it’s necessary to learn what you can do to set yourself up in the future. A windfall of money can be exciting, but it’s best to get a level head and do the right thing.
When you do this, you’ll be able to enjoy your expendable money that much more.
We hope you enjoyed our short informative guide. For more financial tips and insights, we advise you to check out the rest of our blog.
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