So you won some money in the lottery, got a bigger bonus than you were expecting, or inherited some money you didn’t know was coming. Fantastic! Now, what should you do to grow, not blow, that windfall?
First off, take a breath.
You will make better decisions if you stop and plan before you touch the money. Getting a windfall is pretty heady stuff, and it is best to give yourself a chance to calm down, so you can make sober and rational decisions you won’t regret later.
Here are four strategies to consider while you pause to think about what comes next.
Pay Off that Debt
Paying off your debt doesn’t sound like a way to grow your windfall, but think about it. Every debt that you pay off increases the amount of cash in your pocket at the end of the month. It’s like adding money to every paycheck. And in the longer term, you will be saving lots on interest. You can think of those savings as the growth of the capital you put into paying off the debt. Prioritize your high-interest debts, and pay off as much as possible before turning to other investments.
There are so many ways to invest your windfall! Carefully consider the amount of your windfall and your financial situation generally to determine how much risk you can tolerate. Your risk tolerance will determine the kind of investments you should make. Lower risk investments may not have such high pay-offs, but if you don’t have much to spare, safe is generally better than sorry.
Your first step should be to fund your retirement with safe options, like 401(k)s and IRAs. Maximize your contributions if possible. Make sure you are contributing enough to trigger all of any matching by your employer. If there is money left over, consider other stock market investments or even riskier high-yield investing, like buying and selling bitcoin. If you have a higher risk tolerance, the pay-offs can be fantastic. If this kind of investment is for you, make sure you have a strategy.
If you are in a position to do it, one of the most effective ways to literally grow your money is to give it away. When you donate your dollars, the multiplier effect kicks in. Every dollar that you spend on a charitable contribution can be seen as being spent several times over. If it goes to, say, a college fund for low-income kids, it, in some sense, is re-spent in every dollar those kids spend in the economy in their lifetimes. Even if you donate to something like your local society for the protection of animals, your donated dollar is reflected in the economy every time an adopter buys toys and treats for their rescued pet.
Invest in Yourself
There are many useful ways to look at investing in yourself. A happier, healthier you is a more productive you. Putting some money into a hobby you love or an exercise plan you can stick to can pay big dividends. And increasing your educational attainments can lead to higher pay. Going back to school for a degree or just taking some classes to learn new skills can pay off in a big way.
One other thing… After you have paid off your high-interest debts, before you start putting all your money in investments, make sure you have some savings in case of emergencies. Experts recommend having enough put by in an easily-accessible, high-interest savings account to live on for three to six months.
And, of course, don’t forget to treat yourself moderately. Don’t blow all your new cash on a weeks-long resort extravaganza, but it’s probably okay to treat your family or friends to a nice dinner out to celebrate.