Bonus. Pay raise. Tax refund. Inheritance. Whatever the source, it’s fun and exciting to have unexpected cash. Your imagination runs wild with what to do with the extra money—perhaps a new car, vacation or big-screen TV.
As you work on your wish list, don’t forget to include investing in your financial well-being. The extra money in your pocket is a potential opportunity to get your finances in order and plan for the future—one of the best treats you can give yourself and your family.
Here are five simple ways you could splurge on your financial self.
1. Fuel Your Retirement
Are you participating in your employer’s retirement plan? Consider using your bonus or pay raise to increase your contributions. The money would be automatically deducted from your paycheck and invested in your account so you may not miss it. Plus, you’ll take a step forward on the path to a more secure future.
If your employer doesn’t offer a retirement plan or you want to maximize your retirement savings, consider establishing an Individual Retirement Account (IRA) or contributing to an existing one. As long as you have earned income for the year, you can use your unexpected cash to make a contribution. For 2018, individuals under age 50 can contribute $5,500, while those over 50 can save $6,500. Check out Advantages of IRAs to learn more.
2. Start or Replenish a Rainy-Day Fund
According to a report from the Federal Reserve, 44% of adults can’t cover a $400 emergency expense without borrowing money or selling something. Don’t be one of them. Set up a rainy-day fund that you can access quickly when an unforeseen event occurs, such as a job loss or medical expenses. Some financial professionals suggest having a cushion of three to six months of living expenses (mortgage/rent, utilities, groceries, etc.) in reserve for emergencies.
Because you’ll want to be able to access the money when you need it, you may wish to put it in a checking or savings account, money market fund or short-term certificate of deposit (CD). CDs generally offer a higher yield than checking or savings accounts, but you may pay a penalty if you withdraw the funds before the CD matures.
3. Pay Down High-interest Debt
Do you have any high-interest revolving debt? Considering the average credit card interest rate is over 16%, paying down an outstanding balance can help you save hundreds or even thousands of dollars. Plus, it may give you some peace of mind and let you focus on your savings goals.
4. Pursue Your Short-Term Goals
Look down the road, say one to five years. Are you thinking about buying a home? Are the kitchen appliances and cabinets on their last legs? Or maybe you have a milestone birthday or anniversary coming up and you’d like to celebrate some place tropical. Consider putting some of your found money in a short-term savings account to help turn your goals into reality.
5. Feed the Mind
Have kids or grandkids? You could consider investing in their future by starting a college fund; 529 and other college savings plans may offer you tax benefits, including the potential for tax-free growth and tax-free withdrawals for qualified expenses. Or consider investing in your own education. An advanced degree may spur career growth and boost income potential in years to come. Explore the benefits and choices available to help you or a loved one save for educational pursuits.
Curb the Temptation
It’s natural to want to treat yourself when you have extra money. And there’s nothing wrong with that. However, it’s important to keep your spending in check. So before you buy something, ask yourself two questions. Do I need this item? Will buying it help me get to where I want to be in the future?
Hands-On Goal Planning
Evaluate your financial situation and continue to pursue your goals.