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.

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. *

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.

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.

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.

As you look toward the future, consider how much money to have on hand. Click below to learn how to have productive conversations about the right amount of cash to keep in your accounts.