While coming into extra money is a good feeling, figuring out what to do with the extra funds can prove difficult. For those of us who have always struggled with money management, it’s easy to become careless with extra money, so it’s important to take some time to figure out where you want to put it.
What you do with unexpected money can sometimes depend on the amount that you receive. Generally, if you’re already being responsible with your finances, this won’t change—regardless of the amount—and making good decisions with your influx of cash will make it last longer and help you to develop better money management habits along the way. If you’re unsure about what to do with an unexpected windfall, follow these helpful tips.
Start or Grow Your Emergency Fund
Whether you already have or need an emergency fund, most financial professionals agree that having one is essential. In fact, the general advice is that a person should have an emergency fund of at least $1,000 before putting money toward anything else. While it all depends on how much you’ve acquired, an emergency fund will protect you if something unexpected happens, such as a job loss.
The best place to begin is with your goals and figuring out what you want and what kind of life you want to live moving forward. Keeping your savings secure is a priority, so providing a safe haven such as a savings account can help to protect your money. The type of savings account you choose will be based on a variety of factors, so it’s important to research your options in order to help you make the best choice. Having a solid emergency fund can prevent you from increasing your debt to solve financial issues. Instead of putting unexpected expenses on a credit card with high interest, using your emergency fund can help you to save money in the long run.
Lower Your Credit Card Balance
If your emergency fund is at least $1,000, then paying off debt is another good use for unexpected funds. Credit cards and loans have the potential to impact your finances due to the interest charged, so it makes sense to lower your balances as much as possible.
Decreasing your debt will help to raise your credit score, and that’s crucial if you’re looking to buy a home or new car. Using an unanticipated windfall to pay off debt will also help to reduce the stress associated with crushing debt. Stress is linked to numerous health issues, so even if you don’t have enough extra money to change your life completely, putting it toward your debt is a good idea.
Consider Speaking with a Financial Planner
Depending on how much money you have come into, it may prove beneficial to consult with a financial planner. You might already know where you want to put your money but have no idea how to allocate it, or perhaps you’re so overwhelmed with the windfall that you’re unsure of what the next step is. That’s where a financial planner can come in.
Generally, you should seek out a financial planner who is a fiduciary in order to facilitate your journey. A fiduciary will prioritize your needs over theirs, which is important since financial advisory services can prove costly. If you’re still struggling to find a financial planner for your specific needs, then you should read online reviews and ask someone whom you trust for a recommendation.
Not only can a financial planner help you to divide your money, but they can also educate you about how to invest it wisely. For more important aspects such as estate representation, it’s best to consult with an estate planning attorney. Reviewing your options will help you to create the best course of action in order to manage your money and make it last.
Be Strategic, But Don’t Overthink
Using a strategic approach is the most important thing you can do if you come into extra money. No matter how small or large the amount is, going slowly can help you to monitor the outgoing amount and provide you with more time to decide what your next move is. You shouldn’t feel pressured to make any hasty decisions. What may have worked in another person’s situation may not necessarily work for you.
Making a note of your goals and creating a timeline for them will provide you with direction. Regardless of whether you’re planning this out yourself or consulting with a professional, outlining your goals will help to keep you to stay on track and make it easier to check things off as you reach them.
It’s good to remember that you can still treat yourself, as well. Handling your own responsibilities first is key, but you shouldn’t feel the need to deprive yourself in order to save money. Don’t be hard on yourself or beat yourself up for past financial mistakes, as restricting your spending can just lead you to overspend later. As long as you plan and put everything in perspective, then having extra income doesn’t have to be stressful.