Handling an unexpected financial gain
At some point in your life, you may benefit from an unforeseen financial payout, such as an unexpected inheritance or a substantial bonus. While a splurge like a dream vacation may be an appealing option, it’s important to first consider how saving and investing can support your overarching goals before you make any major purchases. Here’s some advice that can help.
Learn all the facts
First, understand the potential financial impact of the payout. One area of particular importance is tax planning. An accountant can provide proper guidance, while asking these key questions can help you prepare. *
Build up your emergency fund
Especially in inflationary times, it’s important to make sure you maintain an emergency fund that covers 3 to 6 months of living expenses.Footnote 1 If your fund has slipped below that level, consider using your windfall to bolster it.
Consider reducing debt
As interest rates rise, consider using your windfall to pay down existing debt. A higher interest rate can prolong the amount of time it takes to pay off debt, and increase the total interest you’ll pay over that time.
Fund your future
Use some of the money to pad your retirement accounts. If you have children, put extra away to cover upcoming education costs.
If your immediate needs are taken care of, your long-term plans are on track, and you have ample cash reserves, go ahead and indulge in some life enhancing splurges. Check reviews, compare prices, then enjoy.