If you received a windfall out of the blue, you must plan a budget for it.
You’ve finally hit the jackpot! Now what? Just as you should budget for emergencies, you can also be prepared for unexpected windfalls.
We all know what it feels like to get hit with an unanticipated bill or expense. On the other hand, there are times money falls into our hands unexpectedly: a big tax refund, a major cash gift from a relative, a stock that skyrockets in value, a run of luck at the casino, or even hitting the lottery.
Having a plan for unexpected windfalls can be as important as anticipating surprise expenses. Just remember; debt first, savings second, and spending last.
Windfall Budget Priority 1: Debt
Paying down your high-interest debt will bring some immediate benefits. For example, reducing the amount of credit you have in use will have a positive impact on your credit scores. In fact, the boost can be both quick and dramatic. Also, lowering your balances will reduce or eliminate your monthly interest payments, freeing up those funds for other uses.
The key here is to resist the urge to charge your credit cards back up after you’ve paid them down. You don’t need more than two major credit cards (avoid store-based cards), and you should only be carrying one (at most). Stash the other away for emergencies only, such as an unexpected home maintenance or auto repair bill. Keeping your credit in use to no more than a third of your available credit will further strengthen your credit scores.
See? You’ve already made your big payoff, well, pay off!
Windfall Budget Priority 2: Savings
Windfall Budget Priority 3: Spending
Third, have fun with what’s left! Spend it any way you want to. It’s a great way to reward yourself for making debt reduction and boosting savings higher priorities than just blowing your windfall.
However, don’t get carried away. Spend only what’s left of your windfall. Again, resist the urge to splurge your way to new debt. In fact, if you have a compulsive spending problem it might be best for you to forego this third option entirely.
The Lesson: Don’t expect a temporary change in your income–no matter how big–to finance a permanent upgrade in your lifestyle.
Source: Black Enterprise