Wise Ways to Use Windfall Cash
A windfall is considered as a rather substantial amount of money that you may have come into unexpectedly – some individuals may be fortunate enough to be heirs in a family will, while others may strike it lucky with their state lottery, for example. Regardless of how your windfall ends up in your possession, it will be wise to take the following steps so that you can make the most of the extra cash.
Don’t Give up that Day Job Just Yet
While it’s certainly extremely tempting to ditch your day job after coming into a large sum of money, this may not be the wisest thing to do – especially not immediately.
It’s too easy to underestimate the amount of money that will have to be invested to take the place of the income you’re currently earning. For example, to replace annual pay of $50,000, you’d require a nest egg of approximately $1.7 million – at a conservative estimate.
Quitting your job will also cause contributions to your Social Security benefit to stop. In cases where your windfall investment experiences a downturn, you’d need to rely on Social Security to help cover that shortfall. If you’re genuinely unhappy in your job though, a windfall could provide you with the opportunity you need to take a short break and pursue a new career.
Set the Funds Aside Temporarily
Place your windfall cash into a relatively safe short-term investment option such as a savings account or CD. This will provide you with time to think and come up with a sound financial plan.
Take Taxes into Consideration
In most cases, you’ll owe at least a portion of your windfall in taxes. It’s recommended that you consult with a qualified financial advisor before spending a penny, as this will help ensure that you won’t be faced with any nasty surprises from the IRS. A financial advisor will also be able to advise you regarding the best places to invest your money so that you get the highest returns possible.
Pay Consumer Debts and Set up an Emergency Fund
If you have credit card or student loan debt, it’s strongly recommended that you use windfall funds to help eliminate this – or at least reduce the amounts you owe substantially. This will help free up your income for other uses, such as investing into your IRA.
It’s also recommended that you set aside part of your windfall cash as an emergency fund – a minimum of three to six months worth of expenses should be covered in this account.
Make a list of items or experiences you and your family have wanted, but not been able to afford, and consider splurging on some of them. You only live once, so the luxury of a windfall can at least help you and your family to have a little fun after meeting your other financial obligations.
Although coming into an unexpected sum of money can seem overwhelming, this need not be the case if you take some time to think and enlist the help of a qualified financial advisor. Contact us today to learn more about making the most of your windfall.