Who doesn’t love the idea of a cash windfall? While we all dream of someday winning the big lottery, it’s more likely we might benefit from a more modest win like an income tax refund, a work bonus, money from the sale of an asset or maybe a generous gift from a favorite relative. Any amount will do!
After the initial thrill of seeing an unexpected deposit in your high interest savings account, a SavenSmart move is to take a step back to think about ways this extra cash can help support your financial goals.
Spend, Save, or Pay Down Debt?
Decisions about how to make the most of extra money are influenced by many factors including your current financial situation and stage of life. No matter what your circumstances are, choosing to wait before doing anything can be a good first step.
You might have to wrestle with the temptation to splurge and take a dream vacation or buy a luxury item – or to cover more practical expenses like replacing a broken dishwasher. While spending the money may ultimately end up being what’s best, it’s worth taking a moment to consider the options of saving it or paying down debt.
Could some or all your newfound cash be used to boost your savings and achieve goals like having an emergency fund, saving for a child’s education, planning for retirement or other longer-term plans? Thinking about how this extra money can support your financial plan is time well spent.
Paying off debt – especially high-interest debt – is another way to strengthen your finances. Having credit card balances can cost upwards of 20% or more so eliminating this monthly expense quickly will free up money for future spending and saving.
Your final decision doesn’t have to be spend versus save, all-or-nothing. A feel-good compromise might be to treat yourself to a small reward, save some of it and reduce debt with the rest.
Practice Makes Perfect
Thinking through how to handle a windfall for your long-term advantage takes a bit of patience. The good news is you have options. If you wait for a little while to decide what to do, the best decision for you will usually rise to the top of the list.
At Saven Financial,
we’re passionate about helping people save so our members can achieve their goals through smart saving.