It can be a great relief when you come into some windfall money. But you must be careful to use it wisely, or it can feel like you have nothing, and you will be back to square one. A little treat is fine, but be aware you may owe taxes, and it could help in an emergency. Here are some tips.
First, Be Reasonable with Assumptions
Before you have even been granted any money, it can be easy to fall into the trap of expecting more than you will get. And this means being reasonable about expectations. You may not get what you think unless you have been expressly informed of an exact amount. And even then, something like a settlement for a car accident is subject to fees that will be deducted. So try not to have the money spent before you have even got it in your hands to avoid disappointment.
Pay Taxes Before Anything Else
As mentioned, some windfalls, such as a claim, will have fees attached. But any money you come into may also be subject to taxes depending on where you live. For example, a gift of money over $16,000 is subject to federal taxes in the United States, and you can be fined if you don’t declare this. So, always check what you owe and pay any taxes before you spend anything because you may not have as much of a financial windfall as you initially thought.
Use Windfall Money to Clear Debts
It could be the case that you don’t need to pay any taxes from your sudden luck. However, like millions of other people, you might have debts. And if you use the money on frivolous things before paying debts, you will miss a good opportunity to be clear of them. Of course, you won’t have as much money after paying debts. But the emotional and financial freedom of not having banks and debtors breathing down your neck is priceless, and it will only get better from there.
Hold It for an Emergency Fund
Anything can happen at any time. From your oven breaking down to your home being flooded, there are many emergencies in life. Yet most people don’t save for these things that can really have a massive impact on your life, especially if you have kids. Most financial experts agree that it is best to have at least $1,000 or £1,000 to cover an unexpected problem at home. Therefore, you can put a windfall to good use by storing some away just in case something bad happens.
Use the Money for a Downpayment
Perhaps the best use for a sudden influx of money is to use it for something your family needs. But many needful things are expensive and require a downpayment to show your commitment. Maybe you need a safer SUV for a growing family, or your home is no longer large enough. A windfall is a great way to make the downpayment you need for some of the finer and more adequate things in life. So don’t squander the chance to make your family’s life much better.
Windfall money may only come once in your lifetime. So why waste it on things you don’t need? It helps to stay aware that there may be taxes and fees before you even get the cash. But once you have it, you can use it for improvements such as clearing debts and down payments.