When it comes to spending a windfall like 10,000 dollars, you have a lot of choices. Some of them will of course, be better financial decisions than others. Here are some options to consider.
Fund A Savings Account
If you do not have an emergency savings, now is the time to start one. Ideally you need 3 to 6 months of expenses in a readily accessible account.
This does not mean that you can not secure a return on your investment however. Search the best savings account rates and you should be able to find one that still returns 2 to 3 percent.
I just recently switched my emergency savings from Capital One to Marcus by Goldman Sachs. While I was getting a decent 1 percent APY, the move netted me a much more attractive 2.15 percent APY.
Be sure to do your research when choosing a high yield savings. This means looking for reviews and not just choosing the bank that claims to offer the highest interest. When you read the reviews, you will see that those returns are not always real and are often negated with fees.
Pay Off Credit Card Debt
This one is a no brainer but can be a tough one, depending on your situation.
If you have been trying to pay off those cards, you are already in the getting rid of debt mindset. You will probably have no problem making a huge payment to get rid of your debt. In fact, it will probably the most satisfying money payment you make all year.
If you have just been plodding along making minimum payments, it might be a bit tougher. In that case, you might need some convincing. Let’s assume that you have 10000 dollars in debt.
At 18 percent interest, making the minimum payment, it would take you 94 months or almost 8 years to pay off your credit card debt. During that time, you would pay $8600 in interest. So, if you pay the entire $10,000 on your cards, you get almost the entire amount back in saved interest. You can not beat that.
Pay Off Student Loan Debt
While not as bad as credit card debt, you still may be paying as much as 6 percent on those student loans. Unfortunately, the power of compound interest works not only in your advantage but also against you.
A big lump sum payment of $10,000 can erase a good portion of your debt and it is money that will not be costing you interest over the next ten years.
Student loan debt is often considered good debt, but it is still debt. Don’t be fooled into thinking that you should just carry this debt for 20 years.
Invest Your Money
You can go a lot of ways with investing. But some stocks or perhaps open an IRA.
While the return is sure to be good, it is not a given however. Keep in mind that there is risk in any investment.
That being said, you need to invest to truly build wealth.
Go On A Dream Vacation
The smart thing to do with windfall income is to save or invest it but that dream vacation might be alluring. When, after all, are you going to have this kind of extra money again. Plus, if you already have a nice investment plan and a well stocked emergency savings, why not.
So, while not top on my list of things to do, a dream vacation has to at least be considered. If you have a milestone coming up, such as a 10 or 20 year anniversary, it becomes an even more attractive idea.