Getting a little extra cash always feels fantastic. Perhaps you got a bonus at work, inherited some money, or just did really well on your March Madness bracket. Whatever the reason, it’s important to carefully plan out how you will spend your money so it doesn’t go to waste.
1. Set aside some fun money
Depending on how much money you received, set aside a certain percentage to use however you please. Maybe you want to take a small vacation or just get a massage. Either way, set aside 5-10% of your windfall to simply enjoy. Doing so will make you feel good and will make it easier to invest responsibly with the rest of your money.
2. Pay off high-interest debts
If you have a high-interest credit card or other loan, use the extra money to pay off some or all of your debt. However, if your only debts are a low-interest mortgage or student loans, consider putting the extra money towards retirement or investments. Doing so may be a better bang for your buck.
3. Start or add to your emergency fund
You should always have 3-6 months worth of living expenses saved in case of emergency. Windfalls of cash could allow you to start this emergency fund, or add to one you’ve already started. Always be preparing for the future!
4. Invest in your retirement
Put your extra cash into your 401(K) or another retirement account. Doing so will also allow you to review how much money you have saved towards retirement, and you can adjust your saving goals to ensure you are putting enough money into your retirement accounts.
5. Save for your child or grandchild’s college expenses
Are your children or grandchildren heading off to college? Use the extra cash to help them with tuition, meal plans, textbooks, or other expenses. Better yet, sit down with them and show them how they could budget the extra money. It will help them with their expenses and allow for you to impart some financial wisdom!