Whether it’s a bonus at work or a lucky lottery ticket, few things in life feel as good as unexpected money.
Instead of spending it as fast as it arrived, let’s look at a few ways to use it wisely:
Does your car need new tires? Have you been putting off some dental work? Some things in life, while not glamorous, are essential. Try to put your health and well-being ahead of wants and desires.
Pay down debt
This is a golden opportunity and the reason is simple: the more you pay down a principal balance, the lower your monthly payments may be going forward. Above all, the lower your principal balance, the less you might pay in interest over time.
Create or add to an emergency fund
Life can be unpredictable. Sometimes you find a pot of gold, other times you’re hit with unexpected medical bills or car repairs. If the going gets rough, an emergency fund can help cover the costs and give you peace of mind. Most importantly, it might prevent you from dipping into your retirement savings or adding debt to your credit cards.
Put some toward retirement
Common ways of saving for retirement include individual retirement accounts (IRAs) and traditional savings accounts. If you have an IRA and haven’t yet maxed out your contributions, you could use your extra funds to cover the difference. People under the age of 50 can contribute up to $5,500 per year, and people over the age of 50 can contribute up to $6,500 per year.1 If you’re maxing out your IRA contributions already, you can still invest in a traditional bank account and get closer to your retirement goal.
Invest in Yourself
Developing yourself personally or professionally is a great use of resources. Why? Because it can offer both current payoffs and future returns. So advance your education. Sign up for an art class. Learn how to cook. No matter what you choose, the return on investment could last a lifetime.
Hit the jackpot of financial responsibility
The rush of unexpected income can only be topped by the feeling of spending it wisely. As the old saying goes: “Don't save what is left after spending; spend what is left after saving.”
1. Internal Revenue Service. “Retirement Topics - IRA Contribution Limits.” IRS.gov. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits (accessed March 8, 2017).