What do jackpots, tax returns, bonuses, and extra paychecks have in common? They are all usually misused. A windfall of money is when a household acquires an unplanned, sizable sum of money. We have a choice to make every time we have extra money, they can benefit us short-term or help us get ahead. Here are a few suggestions for productively using these windfalls.
The key to using windfalls successfully is to ignore them.
You read that right, ignore them!
If you forget these funds until after you create your budget, when you receive these windfalls they will not become necessity. If you rely on these funds to balance your budget, your budget is not balanced.
If you can use these windfalls to increase your savings, then you will have a cushion for unexpected situations. Having this cushion can help you avoid overdraft fees, loans for every day expenses and will reduce your financial stress. Remember every time you have to borrow money you must pay interest, which makes every emergency that much more expensive.
Periodic expenses are expenses we incur regularly, but not consistently. Examples are tires and other maintenance for vehicles, holiday gifts and income taxes. Building these expenses into your budget is best, but if it’s not possible, windfalls could make them more affordable.
Want to retire a millionaire? Investing windfalls into your retirement accounts is a way to stretch your savings dollars. If you are paid bi-weekly, you will receive two “extra” paychecks a year. If you invest that every year then you can exponentially increase your net worth without sacrificing your standard of living.
Life is less expensive for people with good credit. You can save a lifetime of money by increasing your credit score with your windfall. Paying off old debts or using your windfall to create a new trade line can increase your credit score. These are just a few ideas of how to take advantage of windfalls.
The Citizen Potawatomi Community Development Corporation has financial professionals who can help. If you want to strategize a windfall with a certified credit counselor, please call 405-878-4697 and make an appointment today.