Coming across unexpected money: What to do?
Obtaining money we didn’t expect to is a dream for most of us. When we have debts, rent, utilities, and other needs to pay, that money can feel like a lifeline.
Due to the nature of the season, the holidays are when people are more likely to come across such things. Be it because of a good holiday bonus at work, because family member or friend got very generous, or because you yourself added up several smaller gifts and bonuses, the result it’s the same: You now have a decent amount of money, and are wondering how to proceed with it.
Pay off existing debt
Starting with high-interest ones.
Yes, you probably thought of this one already. But still, unless your existing debt is extremely low-payment, low-interest, the best way to proceed is to pay it off. It may not feel like a huge improvement for your life, but freeing up monthly payments will allow you to better react to any inconveniences down the road, and even let you start a savings fund.
Once again, this only makes sense if the regular payments and interests are high enough. If this is one of those cases where paying off a debt isn’t in your best interests, then read on.
Keep it saved for emergencies
Depending on the amount of money, keeping it stashed for an emergency can be a good idea. You don’t even need to save it all – you could, say, take 30% of it and keep the rest for emergencies or unexpected expenses. Either way, it’s never a bad idea to have a cushion shall things go sideways, so do consider this option.
Spend it to save money
Yes, this might sound silly. And truly, it’s not necessarily the best thing you can do, but assuming you got a decent, but not huge amount of money, then saving money by taking advantage of offers you otherwise couldn’t partake of is a good idea.
Consider this: One of the most common tips to save money is to buy things in bulk, or to wait until they’re on sale (and then buy in bulk.) Buying a year-long supply of necessities, particularly if you get it on offer, can help you save money while further freeing your finances down the road.
Invest the money
It doesn’t have to be in the stock market.
While wall street is the first thing most of us think of when we hear “investment,” in truth an investment is anything we spend money on that can help us make more money.
For example, if you spend two hours in public transportation every day, buying a car (or a bike – electric bikes are easy to use, small, and cheaper than cars) can be a great investment as it can free up some time and, as we know, time is money.
If you work on your own, upgrading or replacing your working tools is also an investment. Let’s assume you work using your computer, as I do. If said computer is only a year old, then there’s no need to replace it – but what if it’s six or seven years old? Even if it’s working fine, it sure is nearing the end of its life, and suddenly losing the main tool you earn money with is a terrible thing to go through.
So, if you have areas in your life where spending some money can greatly enhance your ability to earn money, go for it. It doesn’t even have to be a work-related investment. You can purchase books or online courses to learn a new skill that will help you earn even more money. Investing in yourself is the best thing you can do for yourself.
Put it into your retirement fund
Those 401(k) funds don’t grow on their own.
Or they can, if you’ve set them up to automatically take some money from each paycheck. But it’s never a bad idea to help them grow quicker. Adding more money to your 401(k) is literally investing in your future, since the money will be managed to help the fund further grow.
Sure, it’s not a fun thing to do. But when you retire, you’ll probably be thankful for it. If it’s a large enough amount of money we’re speaking of, it might even mean being able to retire earlier.
Invest it, going big
This last option is good if you’ve come across really big amounts of money. If that’s the case, don’t let it sit and lose value, and don’t spend it on silly things.
Instead, use that money to make more money. Whether it’s the stock market, local investments, or real estate, don’t let all that money sit around and be ravaged by inflation. Take control and make it grow.