Unfortunately according to The National Endowment for Financial Education in America 70 percent of us will lose the money within a couple of years.
Coming into a big sum of money may seem like the perfect problem, but if you have ever received a windfall of money you may have found yourself nervous about the big sense responsibility or scared that you will do the wrong thing with it.
But it isn’t actually that complicated.
Whether your windfall is from a tax refund, inheritance or a bonus, here are some ways to spend this extra cash wisely:
Pay off personal debt
According to The Reserve Bank New Zealand, Kiwis are paying interest on around $4 billion of credit card debt.
So, if you owe anything on your credit card then paying it off should be one of your top priorities. Putting your extra money towards your debt will reduce your financial stress and get you on track to being debt free.
You may also choose to use this extra money to pay down your mortgage or any personal loans. By paying off your debts you will save money by paying less interest.
Create an emergency fund
Do you have any savings for emergencies? If not then this should be a priority. Ideally you will want to build up enough savings to cover 3-6 months of expenses to cover your rent or mortgage, groceries and electricity in case you are ever between jobs for that long. You may even choose to put aside enough to cover 6-12 months. It is up to you. This may seem like a lot of money so it is best to start will at least $1,000 in the bank to cover routine emergencies like car repairs and then build it up.
Put some aside for retirement – Are you on track for retirement? If you are not sure then it is a good idea to chat to your financial planner to help you project your retirement income. If you need to save more then consider using this extra money to contribute to your Kiwisaver fund. Extra contributions can really boost the amount you will retire on.
Put it in high interest savings account
While you are choosing what to do with the money why not make it grow in a high interest savings account. Although interest rates are low at the moment if you put a $4,000 tax refund into a high interest savings account that earns 3%, in 5 years’ time it will grow to $4,637.
Lastly, make sure you also have a little fun with your windfall and allow yourself to celebrate. Make a reservation at a nice restaurant, book a holiday or buy yourself a nice gift.