We recently had been needing to watch our spending a lot more carefully than usual because of a number of very large outlays. Between buying a newer used van and getting some medical care, we took a big hit on our savings cushion.
Then between work and the blog's income we received a few nice little windfalls — enough to give us a little bit of breathing room again.
Windfalls don't have to be inheritances. They can be quarterly bonuses, large sales commissions, yard sale proceeds — anything that is a one-time positive in your checkbook register. Here are seven ways to put that little windfall to productive use:
- Pay down debt. If you have consumer debt, then a good chunk, if not all, of that windfall would be well-placed knocking that debt down. This is a low-pain way to pay down a credit card balance, because using a windfall doesn't cramp your normal budgeting. Maybe increase your mortgage payment $25/month.
- Add to an emergency fund. This is what we'll do with our windfalls this time around. Now that the emergencies are behind us (or so we hope for a while) we plan for the next one.
- Replace that appliance that is more trouble than it's worth. Has your clothes dryer been giving you problems for a couple of years? Is the metal-on-metal squeal of the bearing getting to be too much? If an appliance is past the point of easy maintenance then it's probably well worth it to bid it farewell and get a newer model.
- Invest it. Maybe diversify a little bit into a sector that isn't well-represented in your portfolio. A tenth-ounce gold coin is a pretty choice.
- Park it. Doing nothing (or just putting it in a savings account) is fine, too.
- Invest in yourself. This can take many forms. Maybe it is books on a subject you want to learn. Maybe it's software to help you read faster
or learn Spanish. Something that adds to your skill set and makes you more marketable and adaptable.
- Invest in your family. Maybe a weekend camping trip is in the cards, or a night at a coffee shop with your friends. Anything that restores or strengthens bonds with family and friends. Those bonds pay dividends that the Federal Reserve can't manipulate. 😉
Any other suggestions?
This is great. I have written about my decision-making process on what to do with a windfall (matured bonds I inherited). At first, I planned to buy some furnishings, but I can't bring myself to do it. So I paid off the last of our credit cards and put the rest in savings, with the intention of paying myself back. I might spend a little to update our bathroom and perhaps buy a stereo for our family. Interestingly, my sister is in the same situation – she replaced their camper with an updated version and saved the rest.
I'd heard the invest it before, but never "invest in yourself." That sounds great. There are some community college courses I've thought about taking to brush up on things, but don't really have the money now.
Right now I'd probably pay down debt a bit…
Very timely article. I also am thinking on what to do with my 'windfall'.
From all I have read paying off as much high interest debt as possible is a sound move. Although my Aunt always said that when you get a few thousand dollars (ie a bonus) it is special and you should do something significant with it. We will always have debt (not my plan just a modern proverb)…
I had planned to do some home improvements (build a patio) but now I think a better move would be to get my wife some life insurance, I am already covered. Getting it early will assure we are locked into a low payment. Some day we may thank our foresight.
My plan at this point is to divide my sum into 3 parts. One to pay off debt, one to invest in some way (savings acct or mutual fund) and third to secure life insurance.
Keep up the great work on this blog and thanks to everyone who leaves comments to enhance the articles.
-m
When a lottery win fell into my lap I splurged. I got it out of my system. I didn't go out and buy new cars or anything like big like that. Just a new Bigsreen and a laptop. Then I paid off my student loans, gave family 10% and 10% tithing. Then an emergeny fund was established and I invested the rest. That was two years ago and I have about 60% of the orignal amount in Saving's CD's and stocks. I hope to buy a house in a year. I know others that have won and are now the same finaicially before they won…
I wrote about unexpected cash windfalls a couple months ago and unfortunately most Americans make an impulse buy with the money (and spend it on the world's worst investment – a car!) or they treat it like "bonus money" and view it as outside of their normal spending constraints and purchase something they shouldn't.
I like all the above suggestions, but I also like the idea of having fun with your money (you know what they say about all work and no play).
As a compromise, you could decide to spend a certain amount of your windfall (10%, maybe?) on something fun. Even that small amount will probably give you more psychological incentive to work towards that bonus than spending 100% of it on boring (but prudent) things.
2007 has been good to me (OK, except for that internet matchmaking phase I went through). I had several small unexpected windfalls. 10 years ago I would have gone on a shopping spree. With these windfalls I re-did my kitchen. Not like on HGTV mind you – no new appliances here. I had the textured ceiling taken down ($600) and replaced the worn flooring ($1300) but did everything else myself, from painting to refinishing cabinets to replacing electrical sockets and rotten window trim. It needed it AND was an investment. I will replace my one countertop and the sink in about a year when I have saved for it.
The majority of the rest of the money went into emergency savings ($6000) to make monthly interest babies.
With the other I paid down credit card debt to a very manageable amount and now have an aggressive payoff plan for the little that remains. In 4 months I will be debt-free (except for the mortgage and HELOC), I have 4 months of living expenses in the bank, and I have a gorgeous kitchen which I enjoy.
Yes, I am wearing 5 year old clothing and shoes and have not had a haircut in 6 months but hey – can you say "telecommuter?"
I think the debt paydown is great, that's what we do with every windfall we get. Once we are out of debt we will use it them for bigger items, vacations, or maybe do a half and half thing (invest half, spend half).
Good job K! There's absolutely nothing wrong with wearing 5 year old clothes or not getting your haircut every 6 weeks. Replace your clothes as you need to, when they start getting holes in them. The kitchen is a much better investment.
As for the 7 prudent things…the "park it" method should only be used if you are getting a good return on your savings, ie, your interest earned is greater than inflation the taxes you have to pay on the interest. Otherwise, your money is becoming worth less and less as it sits there. If you're paying 25% on your credit card balance and only earning 5% (or less) in a savings account, then putting your spare change in savings doesn't make a whole lot of fiscal sense, or cents… 😉
On the parking item. If a saving account is not the best and I do have credit card balances at 25% or more.
gift 10% to a favourite charity, someone in need or to someone you love. If gifting to an individual remember to verbally "offer the gift" and make sure the recipiant accepts it and you are then guaranteed another return on that gift (as you sow, so will you reap multiplied). Of course gifting to established charities automatically ensures the return.
Kindest regards,
J'iam (reverendjiam@hotmail.com)
Very smart ideas. Less upbeat times can also be put to use. It’s just a question of making the choice of a purpose adapted to the circumstances at hand.
Lulls are certainly not the time to have no purpose.