What to do with a lump sum of money? We have all heard about people that win the lottery, receive a large tax refund or an unexpected inheritance from a family member that past away.
Many of us have never experienced a windfall of cash, therefore we never plan for it. Being prepared for unexpected sums of money rather its large or small, will prepare you to maximize your financial needs.
Listed below are 4 suggestions for an unexpected lump sum of money.
Pay Off High Interest Debt
Paying off high interest debt is a win for anyone. High interest payments above 10 percent can keep you in debt for years. Paying a chunk of money toward your debt can pay off or reduce the amount of interest on future payments. Saving on interest payments will allow you to do other things like save for a home or invest for your future.
Start An Emergency Fund
Build your emergency fund. If something can go wrong it will. Cars break down, homes need repair or you can lose your job. Start your emergency fund with $1,000. Having an emergency fund will prevent you from using high interest credit cards to cover the cost. An emergency fund equal to 6 to 12 months of living expenses will allow you to weather any storm.
Invest Your Lump Sum
If you don’t have credit card debt and your emergency fund is set. Make your money work for you by saving and investing for the future.
Investing in a tax-advantaged account can be a great start. If you have a Roth IRA, see if you can add to it. In a Roth IRA your investments grow tax-free. If you don’t qualify for a Roth IRA, consider a Traditional Roth, EFT, mutual fund or invest in the stock market with an online brokerage firm. Many online brokers allow you to invest without charging fees.
Invest in real estate. Using the money to invest in real estate can help you attain your goal of owning a home.
Treat Yourself
If all of the above needs have been filled, treat yourself. Consider taking that vacation you’ve been dreaming of. Make that special purchase that you’ve been longing for. It’s important to treat yourself for your small and large accomplishments.
We are not financial advisors, we are a financial friends.