If you have a windfall, you can be overwhelmed and excited all at the same time, and a mix of emotions swirling in you holds you back from putting that money to work in an effective way. You will rue the day if you blow it on a spending spree.
When used smartly, this lump sum could be a deposit of your mortgage, a down payment on your car, or simply a part of your sinking fund. How you should use this money depends on the size of the windfall and how much savings and debts you already have.
A financial windfall is nothing but a sudden influx of money. It can be in the form of generous gifts on your big day or an inheritance from your family member who has passed away. It also includes alimony, extra bonuses, capital gains, and tax refunds.
If a windfall is paltry
Your windfall will not drastically change your financial situation if it is just a little cash, for instance, €1,000. However, it does not mean that you will not be judicious while putting it to some use for your financial problems. First of all, aim to settle your debts – not just loans with bad credit in Ireland but also store cards, credit cards, and overdrafts. Make sure you target the most expensive credits first.
If you are lucky to have left some cash, you should transfer it to your savings account, provided it offers you at least 1% interest. You should transfer the sum to your sinking fund if that is not an option. This money will help you tide over when you have an emergency. Since the amount is not too much, you should avoid spending on and saving for fun and recreational activities.
If your windfall is the size worth €5,000
Again, this amount is unlikely to change your life, but you can improve your finances in a much better way. The first priority should be debt settlement. You can save a lot of money, especially on high-interest debts such as credit card balances. Bear in mind that you should use this money only to pay outstanding debts, threatening you to push deeper and deeper into a vicious cycle of debt. If you have been keeping up with payments smoothly, early settlement will cost you even more due to early repayment fees.
If you do not have outstanding debts or you have left with some cash after the settlement of your unpaid obligations, you should put it into your sinking fund. Yes, it makes more sense than investing in the stock market and other short-term investments because you might need your savings for the down payment on your car, house, and the like.
You can also think of putting this money into your retirement account. If you do not need money for a house deposit or car down payment in the next five years, you can consider investing this money in the stock market. The risk is high, but it is rewarding. You can manage your risk by investing in diversified assets. Consult an investment expert who will help you pick assets tailored to your risk-tolerance capacity and financial goals.
At the time of utilising your windfall, do not forget that certain benefits are subject to taxes. Carefully plan your finances so you can save as much money as possible.
Your windfall is worth a six-figure amount
You will be over the moon if you have got a windfall worth at least €100,000. This can happen when you get an inheritance from a deceased. Well, you cannot make any rash decisions. You will also have to think about tax implications. You can save a significant amount of money, say, up to €20,000. In addition to gaining some tax benefits, you can shift some of your money from individual savings accounts to personal pension accounts.
If you are yet to buy a house, you can put down some portion of it to the deposit of your house. A higher deposit will reduce your mortgage size, meaning you will save a lot of money in interest in the long run.
If your luck favours you in the investment world, do not shy away from creating a diversified investment portfolio. If your financial condition has already been smooth before getting a windfall, you can use this sum to invest in property to create a rental income source. If that is not possible, you will continue to build equity in your property that you can enjoy after the sale of the property.
To ace out, you should invest for the long term, spread your risk by creating a diversified investment portfolio and stay calm in the face of market vitality. You can have a bash at it even if you are new to the investment world. Get advice from an expert so you do not end up losing your valuable assets.
What should you not use this windfall for?
You can be tempted to use your windfall on recreational activities, funds, entertainment or buying something that hardly adds value to your life. Make sure that you do not use this money at all on anything that is simply a waste. Even if you want some break and wind down, using this money this way is not suggested.
The bottom line
When you get a windfall, you should carefully plan around its uses. Once it is lost, you cannot get it back. A rule of thumb says that you should settle your debts first. If it is not enough to clear your outstanding debts, it is advisable to pay off high-interest debts.
Set aside some money for a rainy day. If possible, you can also put it into your retirement account. Bear in mind that this will not solve your financial problems. You may still need to borrow from money lenders in case of an emergency. Watch out for the best lender. Just type “money lenders near me” in the search bar, and you will find a list of lenders. Compare their rates and then finalise your decision.
Caleb works as a senior content writer at Financealoan for the past 3 years. He is a writing enthusiast and invests a good time in exploring and writing about financial trends. His keenness in exploring a topic to create a research-based piece is simply unmatched. He believes in including a texture of authenticity with real-time examples and facts.
Caleb’s blogs and articles reveal deep-seated knowledge and expertise. His educational qualification forms the base of his excellent command over the industry and Jargon. He is a postgraduate in Finance and is currently involved in exploring the world of the stock market.
