Windfall money is one of life’s great surprises and receiving a tidy sum at the start of a new year can excite you but confuse you at the same time. Since you did not really plan for this, you might have a hard time figuring out how to use it wisely. At the end of the day, you want to make sure that you get to strengthen your finances and reach your goals.
However, at the back of your mind, this is money that you did not plan for so you can use it whichever way you want. You start to make a mental list of all the things you were not able to get over the holidays from shoes to clothes and even gadgets. It is also possible that you begin to daydream about that trip you have always wanted to take this money can be the answer to that.
There is no question that windfall money poses a lot of possibilities that can either strengthen your finances or feed your wants. The sensible thing to do is to make sure that your finances are well taken cared of first before you think about your wants. It is simply paying yourself first before splurging on other purchases.
If you find yourself in a crossroads whether to improve your finances first or give in to your wants, here are a few pointers to help you out. This is important as CNBC shares a lot of people are financially stressed and might make wrong money decisions. There is nothing wrong with using the money to help you pay for some luxuries in life but there are ways to help you strengthen your finances first.
Pay off holiday debt with windfall money
Windfall money after the holidays can be seen by most as a lifesaver because it comes just after some heavy spending for the Christmas and New Year season. You could already be in the red even before the year ends. The gifts you bought for people around you, the travel expenses you incurred visiting family and friends over the holidays, and even social events you had to attend to all contributed to a big dent on your finances.
The challenging part in all these is that you could have been using your credit card and you are now facing huge credit card statements. There is a good chance that this is already out of budget and more than what you can pay for in one month. You could then end up having to pay only the minimum amount just to keep the account current. This leads to bigger payments over the course of time due to fees and penalties by your lender.
This is one of the reasons why it could be a good idea to use that unexpected amount you received at the start of the year to pay down your holiday debt. For one, you get to save money paying interest, fees, and other types of penalties from your monthly payments. You also get the chance to put your focus back on your goals rather than having to worry about your holiday debt. One thing to remember is that this should not make you dismiss the importance of a holiday budget. In fact, this should push you to do even better next year so you do not end the year in debt.
Strengthen your emergency fund
Windfall money can be an immensely beneficial development in your finances that you might not be able to quickly think of a way to make the most of it. You might end up just buying all the things you wanted and feeling guilty afterward. This is a common reaction for most people and though this is possible, there are a few things you might want to prioritize first.
One of them is your reserve fund where a boost early in the year can be a great way to help you strengthen your financial position. You never know when you will have a need for it and it is one of those accounts that you never really want to find a use for. However, life can throw a number of curveballs your way and having a strong reserve fund can help you cushion that blow.
In your reserve fund, you can have your emergency fund as well as a rainy day fund to help you cover smaller emergencies. This way, you keep your emergency fund intact to tackle huge problems. You might have a problem when that small yet consistent house repair expense eats up on your emergency fund. By the time that you have a big emergency on your hand, your fund is severely depleted already.
Fastrack your journey to your goals
Windfall money can also help you fast track some of the other financial goals you might have for the year. This is money you did not expect to receive and you really do not have any plans on how to best use it. Have you been carrying a credit card debt for most of last year and you want to pay it off this year? Are you planning to finally put together that down payment for a house you want to buy? You might even be planning to convert one of the rooms in your house into a nursery in preparation for a baby?
All these plans can have a significant boost with windfall funds you just got your hands on. You might be able to finally pay off that card debt you have been carrying for some time now. This is a good idea since NBC News shares that consumer credit card debt started at over $1 trillion at the start of the year. This can take off a great amount of weight off of your shoulders. The money can also be used to put together the last few amounts you need for the house downpayment or even get a contractor for the nursery room at home.
The idea is to use the money to be able to give you the chance to reach your goals a lot faster for the year. You can put everything in one goal or spread it across several targets to help you move up your timeline. The faster you reach your goals, the sooner you can create new ones or simply take your time to relax and enjoy life.
Buy what you want
Windfall money is unexpected and you could be tempted to splurge everything buying things you want. There is nothing wrong with this but the key is moderation. Do not use everything up on one go where you might regret it later on. The reason why you can use the money for items or experiences you want is so you do not deprive yourself too much that it hurts you in the end.
You can buy that pair of shoes you need t no help you at work or even a new suit you can wear in the office. If you have been dreaming of a vacation, check if the money you have could be enough to fund that. If you are saving for a vacation, put down some money towards that goal to help you make it happen earlier. it is also possible to look for alternatives such as a staycation so you can have that time for yourself without having to break the bank.
Windfall money is always a happy surprise and the challenge is how you can make the most of it to help you strengthen your finances. It is tough to make that decision when you are faced with money that you did not expect to receive.