Windfall money is any unexpected amount that comes your way and if you have been monitoring the news, the Powerball winning would be on top of mind. There are a lot of people trying their luck that it is able to provide incredible amounts as prizes. It can turn winners into instant millionaires.
One of the top stories today, as shared by LA Times is the fact that a $447.8 million Powerball sole winning ticket is yet to be claimed. There is no doubt that this ranks as one of the top winnings by any single ticket in the history of Powerball. The ticket holder might still be in shock and try to figure out their next move.
There are pitfalls of unexpected money that people need to be aware of. As much as you might think that getting instant money would solve most of your problems, it can also bring with it unexpected challenges in life. Windfall money can cover other sources as well not only lottery winnings.
There are people who get tax refund checks, unexpected bonuses in the office, or even inheritance from family members. Getting them can be a joy but you need to understand how best to use them. Here are a few ways you can manage windfall money to be able to come out on top.
Park the money
As soon as you get your hands on your money, it is so tempting to start spending them at once. There are even some people who already start to visualize what they will purchase with the money. This is because there could be so many “wants” you had to set aside all these years. Now that you have the money, you are already thinking about that car, jewelry, vacation, and even that collection you wanted to start.
There is nothing wrong in using your windfall money for your wants but you need to be careful to not overdo things. One way to accomplish this is to park the money before you do anything with it. You can leave it in a bank account for a few weeks or months until you have simmered down with all the things that you want to buy. This is like the times when you see a big red sale sign at the store, you walk away and make sure that you are composed to really know if you need to buy new clothes.
Get a financial adviser
Did you know that doctors often talk about medical cases with other doctors to seek opinion and help? They need other people’s expertise to help solve complex medical cases. The same goes with your finances, you need other experts to give you a different perspective on things. Working with a financial adviser can also help you increase your financial confidence.
What experts can bring to the table is an unbiased assessment of your current situation and how your windfall money can be best used to improve it. They can look at your finances and take into consideration your long-term goals, plot out an ideal course of action you can take. Of course, you do not have to blindly follow whatever recommendation they make. The idea is to work with them and arrive with a plan that you are also comfortable with.
Pay off debts with windfall money
You might not realize it but consumers are starting to fall in love with their credit cards all over again. CNBC shares that credit card debt has breached the $1 trillion mark this year. The same level last seen before the 2008 financial crisis hit. It can mean that people are starting to feel more comfortable in taking debt or they are again spiraling out of control.
At the end of the day, debt is a big financial responsibility that you have to address and windfall money can help you take care of them. The first step is to list down all your financial obligations – mortgage, student loans, auto loans, and even personal loans. Do not forget past due accounts and even those accounts that already defaulted due to non-payment. Take a look at the amount and see how you can use your money to pay them off.
As you do this, you do not only relieve stress but put your finances in a positive position. Though there are instances when you also need to weigh how much you received with your total debt amount and potential interest earnings on investment. It might make more sense to invest the money than pay off your debts.
Invest the money
If your windfall money amounts to more than your total financial obligations combined many times over, it is a good idea to pay off your debts first. However, if you get less than what you need to pay them off, you need to pause and look at the potential gains between paying off debts or investing the money.
One of the ways to do this is to look at the interest rate on your debt and potential gains on investment. If you stand to lose earnings if you pay off your debts first then it would be better to invest the money first. If your debts carry higher rates then it would be better to pay them off first before investing your money.
Create an emergency fund
The money will not last forever and the time will come that you might not have enough as you deal with financial challenges in life. That being said, it is also a smart financial move to make sure you strengthen you reserve funds with your windfall money. It can help you take on emergencies without falling into debt.
Your emergency fund needs to be able to cover your expenses for months at a time. There is a reason why some experts suggest amounts between 6 to 12 months’ worth of reserve funds. It is because when you lose your job, it can take anywhere between 6-12 months to look for a new one. As you are looking for a new job, you can still make payments on your financial obligations and prevent getting in the red.
Watch out for lifestyle inflation
As you get your windfall money, you could be in a hurry to start changing your lifestyle. It can be a bigger house in an upscale neighborhood, flashier cars, branded and expensive clothes, and even bigger parties. You might be able to pull them off at the beginning. However, you need to remember that this can take a toll on your funds.
A bigger house in a more expensive neighborhood would mean higher expenses. It can be in upkeep and maintenance as well as taxes and insurance. Insurance as well on your new vehicles could be higher. Not to mention that you might find the need to change your entire clothing line every season.
All these can quickly drain your whatever windfall money you have and you can end operating in the red. Be sure to check your lifestyle and it would be best to stick to the one you have. You can make improvements but be on the lookout that they are not too drastic.
Consider income-positive hobbies
Do you have hobbies you want to pursue using your windfall money? You can consider income-positive hobbies to help you earn and have fun at the same time. If you love taking photos, you can upgrade your equipment and take formal classes to upgrade your skill as well. You can then start getting paid to take photographs of events, parties or even for advertising companies.
Revisit your will
Global News shares that a will is one of the best ways to help make sure that people who are important to you benefit from your estate. It is a good idea to revise your will anytime you get your hands on unexpected money and make investments. This is to make sure that the family you leave behind are taken cared of long after you are gone.
Windfall money can come in many shapes and form. It can also bring its own set of advantages and disadvantages. It is best to have a clear idea of these factors so you can make informed decisions.