What to do with a Windfall?
GUEST CONTRIBUTOR: MELANIE DABB, USU EXTENSION ASSISTANT PROFESSOR
Receiving a windfall of cash (money that you were not planning on or expecting) can be really exciting! The temptation is probably to go on a spending spree. But, taking the time to explore other alternatives may just turn that windfall into an opportunity to build your wealth or get ahead. If you don’t need your unexpected cash influx to pay your bills, here are two important questions to ask yourself:
Is my Emergency Fund Filled?
Saving money for emergencies is an important part of protecting yourself and your family. Figuring out how much money you need for occasional expenses such as a flat tire or repairing a broken appliance along with calculating how much you need to cover essential expenses if you lose your job or your income drops will tell you if you should “purchase” some additional protection by putting your windfall into your emergency savings.
How Much Can I Pay Myself by Paying Down Debt?
Any time you borrow money and pay it back over time, you are also going to be paying interest. The reality is you will end up paying more than what you borrowed. The good news is, paying a little extra can put some of that money back into your own pocket. For example, if you have a $6,200 balance on a credit card with a minimum payment of $186 per month at an interest rate of 17.06% making an extra payment of $1000 on the credit card will reduce the amount of interest you pay by $900 and reduce the amount of time it takes to pay off the card by 11 months, assuming you put no new charges on the card. Powerpay.org is an interactive tool provided by USU Extension that can show you the benefits to using a windfall towards paying down debt.
While the lure of indulging in a guilty pleasure with unexpected cash is tempting, being strategic can actually make your extra money work for you.
Melanie Dabb is a pizza addict, food snob, travel adventurer and musician. She uses her best quality of making people laugh to teach and empower people to improve their financial life.
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