While unexpectedly coming into a large sum of money may feel like a far-off idea for most of us, it happens more often than you might think.
Perhaps waking up to a lofty inheritance is not happening for you any time soon, but maybe you’ve received a promotion at work with a bigger-than-expected salary increase, or maybe you’ve recently gotten married and received generous cash gifts from family and friends. Either way, it’s more important than ever to make some wise decisions about what to do with it.
And if you should ever be so lucky as to wake up one day to some surprise cash in your bank account, here are some of the best ways you can make that newfound money work for you.
1. Pay Down Debt
If you suddenly came into some money that you weren’t expecting, there is no better time to release yourself from the burden of debt. Not only does debt affect your credit score, your disposable income, and overall purchasing power, it can also be a heavy burden that leads to unwanted stress and anxiety.
Whether it be paying off your remaining student loans, clearing that credit card debt you’ve been trying to tackle or simply paying down your mortgage, paying off your outstanding debts could be the financial freedom you’ve been dreaming of.
2. Contribute to a Savings Goal
Sending your money straight to savings is another safe option, especially if you have a high yield savings account. While some might say you should only stash away an emergency fund to cover six months’ worth of living expenses and invest the rest, adding that larger sum of money might just be what you needed to bring your otherwise stagnant savings goals up to speed.
Or better yet this money could be the breakthrough you needed to afford a new home or car. And if all you’ve been saving up for the last few years is to take your family on an incredible vacation, that’s perfectly fine too as long you’re not pushing aside other important financial goals.
3. Increase Retirement Account Contributions
Starting early contributions to your retirement fund is crucial for ensuring that you can afford to live a comfortable life in your later years. Making sure you’re contributing the right amount to either a 401k or an IRA account is one of the smartest moves you can make with a sudden increase in disposable income.
If you’re contributing to a retirement account provided by your workplace, your dollars will go even further since money will be taken out of your paycheck pre-tax. But contributing to any account that you can tap into during retirement to offset your living and healthcare costs, like a Health Savings Account, is still a good option. The sooner you can do this, the more time your money will have to grow and it will be waiting for you when you’re ready to retire.
4. Purchase a Whole Life Insurance Policy
This option is often overlooked but is a huge contributing factor to your financial security, not just now but also down the road. A whole life insurance policy, in addition to protecting your loved ones with financial security should you pass away prematurely, comes with a cash value component that is often forgotten about, but can serve as a useful tool to save up some money for the future that can actually be used in your lifetime. You can borrow against the cash value of the policy tax-free for any reason and at any time if needed, not just once you’ve hit retirement age.
5. Treat Yourself
Most days it’s an urge that’s hard to resist, so this is the perfect time to buy yourself something on your wish list without setting yourself back. Maybe it’s a day at the spa, a new gadget you’ve been eyeing or a weekend getaway. Either way, it is important to remember to have little fun and reward ourselves from the day in and day out stresses of life. Or if you’re anything like me, doing any of the above would be a treat in itself!
One thing is for sure if you’ve come into some money you never thought you’d have, what’s most important is not to squander it away. Investing it, saving it or using it to pay down or purchase something that will still hold value for you in the future are always good bets to make.
Briana is the Marketing Specialist at Vantis Life Insurance Company. She has a degree in Marketing from Bentley University and over five years of experience in the digital marketing communications arena. She is passionate about social media and empowering younger generations of women to live more financially confident lives.