Even if you have no problem resisting the call of the shops with your usual paycheck, a sudden windfall of money can leave your fingers itching to pull out your wallet and splurge. Vacations, new cars, and the latest tech when last year’s still works fine have powerful buyer magnets built in. Self-control and planning can help you put your money to good — rather than quick — use.
Pay Down Debt First
While your yearly tax return or money received from selling a life insurance policy will not pay off an entire mortgage, it can make a considerable dent in it, a car loan, student debt, or credit card balances. The freedom and ongoing savings on interest will be worth more financially and emotionally than a new pair of shoes or a weekend at a resort. For example, paying an extra $500 on a $10,000 car loan can save you $500 or more, and you will own the car free and clear a few months earlier.
Plan for Emergencies
Experts suggest three to six months of income tucked away in a savings account or other accessible fund in case of medical emergencies, layoffs at work, or any other problem that affects income. Without this safety net, you are living on the edge of financial disaster. Inheritances, life settlement, or other windfalls can instantly bring you from paycheck-to-paycheck to peace of mind.
After dealing with necessary taxes and other associated fees, research intelligent investment opportunities. Avoid risks with an emergency fund and make sure you can get the money whenever you need it. Then mentally steel yourself to forget about it until something drastic affects your income.
Consider “Fun Money” Carefully
Fighting the “gotta spend it now” mindset does not mean you need to adopt a “never spend it ever” one. Consider purchases carefully and get the best value for your money. A sudden influx of money can cause a temporary thrill of excitement and open up a world of possibilities. Blowing it all on unnecessary items, upgrades, and outings makes that positive feeling short-lived.
Saving money may not be sexy like a new sports car, and several months off the end of your car loan may not create fun memories like a vacation. But it does bring comfort, confidence, and security. By avoiding extra interest charges and investing wisely, it also brings more money to have fun with in the long run.