Bonus, tax refund, inheritance, or other unexpected windfall? Here are 5 ways you could splurge on your financial self.
It can be exhilarating to receive a windfall of cash, whether it’s through a bonus, a pay raise, a tax refund, or an inheritance. With an extra chunk of money, your imagination may run wild with things you can spend it on—perhaps a new car, a dream vacation, or a big-screen TV.
As you determine what to do with extra money, make sure to consider using the money to invest in your financial well-being. After all, it’s is an opportunity to rev up your savings and plan for the future, which is one of the best rewards you can have.
Here are five simple ways you might use extra money to splurge on your financial well-being.
If you are participating in your employer’s retirement plan, perhaps a 401(k), consider using your bonus or pay raise to increase your contributions. Most firms would automatically deduct the money from your paycheck and invested it in your account, so you may not miss it. Plus, you’ll take a step forward on the path to building your nest egg for a more secure future and perhaps an early retirement.
If your employer doesn’t offer a retirement plan or if you want to maximize your retirement savings, consider contributing to an Individual Retirement Account (IRA). As long as you have earned income for the year, you can use your unexpected cash to make a contribution. For 2019, individuals under age 50 can contribute $6,000, while those over 50 can save $7,000. Contributions to IRAs can have various tax advantages. Traditional IRAs provide a tax deduction for the tax year that you make the contribution. In the case of Roth IRAs, you can receive tax-free withdrawals during retirement.
It’s natural to want to pamper yourself with a luxurious splurge when you have a windfall of cash. However, it’s important to keep your spending in check when you figure out what to do with extra money, especially if you carry debt or have other goals that your new money could help you meet. So before you buy on impulse, ask yourself if you really need the item, or whether it will help you get to where you want to be.
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