Have you ever gotten an unexpected large windfall of cash? Perhaps an unexpected performance bonus at work, an inheritance, or a larger-than-expected tax refund. The question that you always ask yourself in those situations is what to do with it. Usually it comes down to two choices; we can either be impulsive with it or try to make wise decisions.
Below is a rough guide to what we recommend you do with an unexpected financial windfall:
The first thing you would want to do is give some of it away. Giving is important because it takes the focus off of us and by giving your money away it allows you to realize the power of giving. Find a charity or religious organization that you support and find out for yourself that it is awesome to give.
Reduce your debt
After giving, focus on getting rid of any non-mortgage debt you having using the debt snowball approach. However, make sure that you and your family will not turn back to debt in the future, because if in 6 months your family goes back into debt to buy a car or overspend on the credit card, it will be like you wasted your windfall.
Spending is what we look most forward to, but it should be done only after giving and paying off any debt. If any is left over, now you can enjoy it on yourself! Depending on how much money is left over, you can now take that vacation, get an upgrade in car, or remodel around the house. It should be done in ratios however. Is it ok to spend $10,000 on a family vacation if you have $100,000? Probably. If you have $20,000? Probably not the wisest use of your money.
Investing is the best way to grow your windfall and make it the gift that keeps on giving. Below is a table listing various amounts where the amount is left alone earning 10% annually:
|$ 10,000||$ 25,000||$ 50,000||$ 100,000|
|5||$ 16,105.10||$ 40,262.75||$ 80,525.50||$ 161,051.00|
|10||$ 25,937.42||$ 64,843.56||$129,687.12||$ 259,374.25|
|20||$ 67,275.00||$168,187.50||$336,375.00||$ 672,749.99|
Remember, this is assuming you do not add any more money to the balance! If you are out of debt and contributing 15% towards investing, think how much more it will grow!
Overall, it is easy to be impulsive when receiving a large sum of money, especially when you were not expecting it. Paying down debt and investing most of it might not sound like the most enjoyable thing to do. However, if you have the discipline to give, pay down debt, spend, save, and invest, your money will grow 10 fold to what your original windfall was and has the potential to bless you for years to come. So hopefully the next time you come into some money you can use this as a guide whether you have an extra $1,000 or $100,000.