A windfall of cash is an unexpected, sudden gain of money. This can be an inheritance, a severance payout, the sale of property or winning the lottery. The amount can range from $10,000 to $656 million. Many people that receive a windfall are unsure of what to do with it. This leads to frivolous spending and before they know it the money is gone. I realize that $656 million is much harder to spend then $10,000, but it can happen if it is spent incorrectly. So here are 7 ways to either invest or spend your windfall wisely:
- Find a Financial Planner – I think this is extremely important for everyone, but even more important for someone who has received a windfall. Financial planners will give you unbiased advise from an outsiders perspective. You may not trust your money to other people, but if you do the proper research and interviews then it will put your mind at ease. Here is a website to start your financial planner search.
- Pay Off Debt – I am not talking about paying off your mortgage because it is not bad debt due to its interest tax write off. You should pay off high interest debt such as credit cards or in some cases car loans. High interest debt payments could eliminate the returns received from investments. If you have enough after paying off these debts then you should look to pay off lower interest debt like your mortgage.
- Open a Retirement Account – Start contributing to a traditional IRA or Roth IRA. If your company matches your 401k then contribute to that. It is a smart idea to stash the money away for retirement.
- Emergency Fund – Take a portion of the money and deposit in a savings account for life’s unforeseen events. You don’t need to put a large portion of the windfall in the account, just enough to cover expenses in case you lose your job or have a family medical emergency.
- Invest in Safe Assets – Depending on the amount of the windfall, invest some of it in government and municipal bonds. These will give you a guaranteed interest payments over the life of the bond and there is very little risk of them defaulting. Here are the most current interest rates on US Government Bonds.
- Invest in Real Estate – With the housing market in such turmoil now is a good time to purchase rental properties at low prices. You will receive monthly income from rent payments and there are many tax benefits. This could also be a way to supplement your retirement.
- Have a Little Fun – Take a bit of the cash and enjoy it. Go on a vacation or buy something you have always wanted. I am not saying go crazy and spend all of the windfall on a Lamborghini, but treat yourself. We all need to have fun once in a while.
Many people will receive a cash windfall at some point in their lives. It is important to spend it wisely so that it will last over time. If you have experienced a windfall or you feel like adding something I would like to hear about it.
“Money is not the most important thing in the world. Love is. Fortunately, I love money.”