Spending Money Wisely
Your first instinct when you come into a lot of money is probably to go treat yourself with something extravagant. Maybe buy something that you never thought you could afford or take a dream vacation.
While I am not against taking some of the money and treating yourself, the majority of it should be used to improve your financial situation. Here are some ways that you can spend it that make the most sense.
1. Invest In Your Career
Take the money that you just came into and make yourself a better employee. Take a class at the local community college or get certified in a new area of your career. There are many ways to improve your skillset.
Investing in yourself and your career can pay huge dividends down the road. It may improve your chances of getting a big raise or make you more likely to get hired if you decide to reach for a better job.
2. Save Your Money
Now is the time to increase your short term savings. Everyone should have an emergency savings account with enough money to cover 3 to 6 months worth of expenses. If you do not have one, now is the time to start one. If you already have one, now is the time to take it to the next level.
It might not be the most glamorous way to spend your money but when you look at that balance in a few months and realize that the money in your account could have been wasted, you will be happy.
Tip: To keep yourself out of your savings, open your account at another bank. It will make it just a bit harder to transfer money over to your regular checking account but your money will still be accessible in an emergency.
3. Pay Off High Interest Credit
If you have high interest credit card accounts or loans, you are wasting money every month on huge interest payments. Take your newfound money and pay down your debts. Then take the money you save the first month on interest and treat yourself.
If your windfall is not enough to pay down your debt fully, consider an installment loan to consolidate this debt, potentially lowering your payment. It could also shorten the time it takes to pay off your debt completely.
If you don’t want a loan, but still want to keep paying down that debt, consider the debt snowball method. You pay off the lowest balance cards first as motivation to keep going. It works.
4. Make An Investment
Have you been thinking about getting into the market? Now might be a time to do so.
You were lucky to come into a windfall amount of money so why not continue the luck with an investment in stock. If you are a new trader, stick with blue chip stocks which are less risky and avoid day trading at all costs.
Buying stocks is easier than ever these days and you can even do it without trading fees. Apps like Robinhood allow you to invest fee free. You might not get all the reports and data that you get with another brokerage but the money saved is worth it. Besides, all of that information is available for free online if you just look for it.
5. Spend It On A Need
Instead of spending your money on a luxury, what about spending it on a need. Is your car’s transmission on it’s last legs or does it need new tires? Have you been doing without health insurance or skipping on dental work because money wasn’t in the budget.
Now might be a great time to address your needs while you have the money to do so. Take a minute to determine what you truly need now and what is really a luxury.
6. Start A Home Based Business
There are plenty of businesses that you can start for just a few thousand dollars. Now that you have the money, why not dip your feet into the self employment market. Plus, without the pressure of a interest bearing loan payment, you can build your business slowly on your own time.
The list of home based business ideas is endless. You can go out on your own doing bookkeeping, hair styling, lawn care, graphic design, etc, etc. What is your passion?
7. Make Home Improvements
If you have been putting off some home improvements, now might be the time to tackle them. Depending on the improvements that you make, you might get almost all of the value back in home equity.
To do this, you need to be choosey about what repairs or improvements that you make. A garage door upgrade will, for example, will get you a 98% in value. A deck addition, might only get you 63%. Check out average home returns and see what makes the most sense for you.
8. Go Half & Half
If it is really killing you, not being able to spend your money on yourself, why not compromise. Take half of the money and spend it on whatever you like. Then take the rest and put it into a savings account.
You get the best of both worlds, a treat and you can feel responsible at the same time.
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