People worry about not being able to pay their bills.When you suddenly have a lot of money, what do you do?You need to assess your situation after you receive a surprise tax refund, bonus, or inheritance.If you want to build an emergency fund, pay off high-interest debts.If you got a lot of money, invest it wisely.It is okay to spend a lot, but limit it.
Step 1: High-interest debts can be paid off.
Use your windfall to pay off debt with high interest rates.Paying off debt is like earning money on an investment.You will be able to save money in the future.Other high-interest loans include credit cards, as well as car loans, title loans and private student loans.If you have enough money to invest, you don't need to pay off all of your debts.A mortgage with a 3.5% interest rate is equal to 2.3% after taxes.If you invest the money, your rate of return should exceed this amount, so it's probably best not to pay off your mortgage in this situation.
Step 2: An emergency fund is needed.
In case of emergencies, everyone should have money saved.It is recommended that you save between three and six months of expenses in cash.If you don't have a lot of money saved, you can deposit the extra money into a savings account.Your emergency fund can be larger.It is possible to save up to twelve months of expenses.
Step 3: Purchase necessities.
You may have delayed spending money on things like new tires for your car, work clothes, or dental work.It's time to spend money on necessities.If you need to get to your job, repair work on your car is a necessity.If you want a newer model, buying a new car is a luxury.
Step 4: Take the money and divide it.
If you get a $6,000 tax refund, you don't need to spend it all on your credit card debt or save it in your emergency fund.The 3-3-3 rule can be used.Spend the last third of your debt, emergency fund, and luxuries.You will benefit financially and be able to have fun at the same time.
Step 5: If you do not know what to do with the money, save it.
Extra money should be treated the same as regular money.To keep yourself from spending the money, you can immediately deposit it into your savings account.
Step 6: Donate to charity.
You can give your windfall away.Thousands of charities accept donations big or small.You will be able to claim a tax deduction when you file your taxes.
Step 7: It's a good idea to give money to the family.
If you let people know you have money, you can expect them to lend you money or give you a gift.Don't feel obligated to help people.Think about how you can help them in other ways.If someone needs a new car, you don't need to lend them money.Allow them to borrow your car a few times.You can help them find a part-time job to save for their new car.Don't give a long excuse if you turn down a family member.Say no and then talk about how you will help them.It's possible to keep friends and family from hitting you up with money by not talking about it.
Step 8: How much do you owe in taxes?
Your lump sum may not be worth as much as you think.You may have to pay taxes on it.If you won the lottery, your winnings are taxed.Other unexpected money will not be taxed.You might have already paid taxes on the bonus.You can check your pay stub.Some inheritances are not taxed.If you don't know if you owe taxes, meet with an accountant.
Step 9: Take it easy.
You shouldn't feel pressured to quickly invest the money, there are a lot of investment options.You can keep it in a safe account, such as a money market account or a savings account.You should take your time doing research.Wait at least six months to make an investment decision.It's possible to wait up to 12 months.
Step 10: Pick out your goals.
Make a list of your goals and deadlines.You can either pay for your children's college education in 10 years or you can open a business in five years.Your investment decisions will be influenced by your goals.Remember to involve your spouse or partner in the discussions as well.How you invest or spend your money will have an impact on them as well.
Step 11: Learn how to invest.
You might not know what to do with your money.You can find books on investing at the library.The Intelligent Investor by Benjamin Graham and The Only Investment Guide You'll Ever Need are good choices for beginners.
Step 12: A financial advisor is needed.
If you have a lot of money, you might want to hire a financial professional to make investment decisions for you.It is not for everyone to hire a financial advisor.You can find a financial advisor.You can check the National Association of Personal Financial Advisors.There is a fee-only advisor.Someone will only charge an hourly rate.
Step 13: Don't max out your retirement savings.
If you increase the amount you save for retirement, you can invest your windfall.Employers will match your contribution up to a certain amount.Use your windfall to cover shortfalls in your paycheck if you haven't maxed out your contributions yet.A traditional IRA can be set up by you.You can invest after-tax income into a Roth IRA.You can withdraw money tax-free at any age.If you make less than a certain amount, you should consider whether your windfall puts you over the income threshold.A traditional IRA can be invested on a pre-tax basis.When you withdraw, you will pay income taxes.A traditional IRA can be set up with a bank.
Step 14: You can invest in mutual funds.
If you have money left over after maxing out your retirement savings, you can buy mutual funds with a broker.If you want to invest in accounts based on your goals, talk to your financial advisor.If you want to invest but keep your taxes low, you can use tax-free municipal bonds or low turnover stock mutual funds.If you have been investing for a while, you might want to change the allocation of your investments.You might have been focused on growth.If you have a large windfall, you can change your portfolio to be less risky.
Step 15: You can buy a home.
A home is more than just a place to live.When you retire, you will have a place to live rent free if you pay off the mortgage.If you can sell your home and move into a smaller place, you'll pocket the difference in the process.Rental property can provide a steady stream of income, depending on the size of your windfall.Think about whether you would like to be a landlord.
Step 16: Only 10% of the windfall can be spent.
It is easy to blow your money and you should have fun with it.Don't spend more than 10%.If you get $50,000 out of the blue, you should only spend $5,000.
Step 17: Purchase experiences, not objects.
If you spend all of your money on clothes, they will sit in your closet.Buy an experience.For example, pay for a family vacation or eat lunch with a long-lost friend.
Step 18: Go for something that makes you happy.
Think about what will make you happy.Don't buy more of what you spend money on.You should judge how happy the experience will make you on a scale of 1 to 10.The experience should be close to 10.If you want to try something new, that's an exception.You could go white water rafting.You don't know if you'll like it, but trying something new is a great experience.