There are several smart things to do with a windfall, but unfortunately some people put free money to bad use. A windfall is any extra cash that falls into your lap unexpectedly. It might be an insurance settlement, severance pay, a work bonus or other free money. Most people use this money to go shopping and buy things that they don't need. But as a financially savvy person, you undoubtedly know the importance of good financial choices. Here are seven practical things to do with a windfall.
1. Purchase Health Insurance
Purchasing health insurance is one of the best things to do with a windfall. Insurance premiums are through the roof. Unfortunately, many families cannot afford coverage. But if you get a windfall, you might be able to get a health insurance policy, as well as pay your premiums upfront for an entire year.
2. Buy a House
Are you tired of renting and flushing money down the toilet? Using your windfall to purchase a house is a smart financial move. The cash can go towards the down payment and your closing costs, plus other mortgage related fees such as the home inspection. If you already own a house, you might use the money to pay down your principal, thus decreasing your mortgage balance and increasing your equity.
3. Get Life Insurance
Whether you're the breadwinner or a single parent, a life insurance policy can provide your family with the financial means they need in the event of your untimely death. The death benefit can pay off your house, your car, cover your child's education and provide monthly support. And if you're single, a life insurance policy can cover your final expenses, thus alleviating any financial burden on your family.
4. Start Planning Your Retirement
You’re not getting any younger, and the longer you put off planning for retirement, the less you'll have in your later years. Talk to your employer about joining the company’s 401(k) plan, or speak with a financial advisor about an individual retirement account. Aim to contribute between 2% and 6% of your income on a monthly basis to properly prepare for the future.
5. Pay off Your Debt
High credit card balances will not go away on their own. For this matter, use your extra money to pay off your credit card debt, and then cut up the cards. You can also use money to pay down a student loan or a home loan, if you don't have any credit card debt. The less you owe your creditors, the higher your credit score.
6. Invest in Your Future
Are you in a dead end job, or simply hate your job? Taking this extra money and investing in your future can provide job satisfaction and financial independence. For example, go back to school and get another degree, or take the money and start a business.
7. Donate to Charity
Not only should you enjoy life and improve your future, it also pays to help other people. There are several ways to give back. Donate a certain amount to your favorite organization, or help a family member who needs financial support. There is certainly more happiness in giving than receiving. Besides, you can’t go wrong by lending a helping hand.
Windfalls do not happen everyday; therefore, it's important that you make wise financial decisions and put the money to good use. There are no hard and fast rules regarding what to do with the money. But if you use it wisely, it’ll go further. What are other smart things to do with free money?