A financial windfall can come from many places, and in many instances, you may not know you have the money coming to you. When it does come, you may not know how to deal with it. If you do receive a lump sum of money, it’s a good idea to put it aside without touching it so you can think about your finances. There are a few things you should consider doing with the funds before taking that once in a lifetime vacation.
Consider Future Opportunities
Think about how you can invest your money to better yourself in the future. If you don’t have an emergency fund, creating one should be the first thing you do with some of your money. If you are not already a homeowner, you may want to use some of the lump sum for a down payment on a home so you can start building equity. If you are already a homeowner, you could use some of the money to pay off part of the mortgage.
You may want to use some of the money to invest in yourself as well. If your current job pays only average, you may want to consider taking some classes or even getting a degree so you can advance in your career or enter a higher-paying field. You don’t have to use the entire lump sum to pay for your education. There are lots of scholarships that you can find financial opportunities online to pay for some of your degree.
Consider Your Debt Situation
Part of increasing your net worth is decreasing your debts. If you have debt, look at the overall situation. Do you have enough money to pay off some of the debt? It’s important to start with the debt with the highest interest. If you can, try to pay it all off. Even if you can’t pay off the entire amount, try to pay off as much as you can. This prevents the debt from spiraling out of control and negatively impacting other areas of your life.
Come Up with a Plan
Make sure you take care of any taxes you owe. You don’t want to find you have to come up with fees and penalties after you have already spent your windfall. Consider working with an accountant to get your taxes in order. Your income tax rate may be different, so make sure you take that into account. You should also set aside some money to enjoy. When you allow yourself to treat yourself, you won’t feel deprived about putting the rest of the money into long-term savings.
Thinking of the future is smart, but it isn’t a good idea to only think of the future without considering today. Create a plan to deal with debts as well. You might want to talk with your creditors about coming up with a repayment plan for things like personal loans or credit card bills. When you have cash on hand, you may be able to negotiate with you. They may be happy to lower your total bill if it means they receive the amount right now.