Coming into a big sum of money may seem like the perfect problem.
I know I have caught myself day dreaming about what I would do if I won the lottery (except I would actually have to go against my value system and instincts to buy a ticket - what a waste of money).
But if you have ever received a windfall of money you may have found yourself nervous about the big sense of responsibility that it brings into your life or scared that you will do the wrong thing with it.
But like all decisions. It is best to give yourself space and time and then think through your options. You will realise that choosing how to spend it wisely it isn’t actually all that complicated.
You may be anticipating a windfall from a tax refund, inheritance or a bonus, so here are some ways to spend this extra money wisely:
1. Goodbye personal debt
You may be one of the many Australians who currently owe money on your credit card or have a personal loan. Either way make paying off any personal debt your number one priority. Debt is one of the greatest causes of financial stress so why not use this windfall wisely and care for your wellbeing.
2. Hello 'just in case' fund
Do you have any savings for emergencies? If not, then this should be a priority.
I usually suggest that you build up enough savings to cover 3-6 months of expenses to cover your rent or mortgage, groceries and electricity just 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. Think about what will give you peace of mind.
Try starting with at least $1,000 in a separate account to cover routine emergencies like car repairs and then make a plan to grow this amount to cover to the amount you desire.
3. Tuck some away for retirement
Are you on track for retirement? This can be a really challenging question and it’s a good idea to chat to your superannuation fund advisers or a financial planner to help you project your retirement income. If you need to save more, then you should contribute that pot of extra money straight into your superannuation fund. Extra contributions can really boost the amount you will retire on, especially since your super keeps on growing with compound interest.
If you are on a low income then this option becomes even more attractive, because the government will match your after-tax super contributions. They will match 50c for every dollar you contribute, up to a maximum of $500.
4. Pause & Start simple
The most simple thing to do while you are pausing and creating space so you can make a wise choice about how to spend it is to put it in a high interest savings account.
Keep it growing in the meantime. Although interest rates are low at the moment, if you put $4,000 into a high interest savings account that earns the current maximum total rate of 3%, then in 5 years’ time that deposit will grow to $4,637.