I Have Money Now, But I Don't Know What to Do With It
A financial windfall is good news, but what do you do with the money? Find out the best way to grow money and other important considerations inside.
January 31, 2022
If you’ve recently received some financial good fortune, it can be tough to decide what to do with the money.
Whether you got a big bonus at work, upgraded to a better-paying job or inherited a giant chunk of change, you may be wondering what to do with all that extra cash. Similarly, if you’ve recently paid off debt, your monthly expenses may suddenly be lower than they were before.
So, what should you do with these fresh funds in your budget?
This guide will explain how to be proactive about financial decisions, helping you find ways to make your money work for you, versus letting lifestyle inflation take over.
Before you start researching how to invest and make money daily, let’s discuss the best way to grow money and which financial priorities to tackle first.
Financial priorities to tackle
A financial windfall is a great opportunity to step back and reassess your financial standing. Are you on track towards meeting your financial goals? Here’s a checklist to make sure.
Have you handled any tax liabilities?
If you win the lottery, receive an inheritance or have another sudden financial windfall, there will likely be tax implications.
Before you spend a dime of your newfound money, it’s important to handle the tax aspect of things. Think about speaking to a CPA to determine how to proceed.
Have you built an emergency fund?
If you have a healthy emergency fund, move on to the next item on the list.
If not, this should be a top priority to tackle with your recent wealth. Many financial advisors recommend you have at least 3 to 6 months of living expenses set aside. For example, if your total expenses are $4,000 each month, that means you should have $12,000- $24,000 in your emergency fund.
It’s wise to keep emergency funds in liquid savings, like a high-yield savings account. Before you start asking “how much can I make from stocks in a month,” it’s not recommended to invest emergency money in stocks, as you could be forced to sell during a market crash if you need the money.
Have you paid off all high-interest debt?
If you have any “bad debt” — credit card debt, personal loans or other high-interest debt — your next priority should be paying it off. Read this guide on which debt to pay off first, then eliminate those debts once and for all.
High-interest debt can be a massive drain on your financial health, as the interest expenses can seriously stack up over time. Paying it off will remove a huge financial burden, and makes excellent financial sense.
Although investing is a great way to grow money, paying off high-interest debt first is a more prudent financial decision. Here’s why:
If you have credit card debt at 20% interest, that means you’d have to earn more than 20% returns in the stock market in order to make investing a better option than simply paying off the debt. Considering the long-run average return of the US stock market is closer to 10%, that’s pretty unlikely.
Have credit card debt to pay off? Tally† may be able to help. Tally is a personal finance app that may help qualifying Americans get out of debt faster with a lower-interest line of credit, and save money on interest along the way.
Are your retirement savings on track?
There’s a reason why so many financial experts go on about the importance of saving for retirement. Investing for retirement is vital, as social security alone will not be sufficient to fund many people’s retirements.
Are your retirement savings on track for your age? First, figure out how much you will need to save to retire. Then, make a plan on how to get there.
It’s wise to max out any employer-matched retirement plans first, then move on to other retirement savings like a Roth IRA. Check out Tally’s investment order of operations guide for more details.
Are your other savings goals on track?
If retirement is sorted, it’s smart to start thinking about other major expenses down the line.
Do you have money for a down payment? Have you started college savings accounts for your children? Do you have any other mid-term financial goals that you want to prioritize?
Having a lump sum of cash to save or invest can be a powerful way to jumpstart these financial goals.
Do you have any dreams that this money could help fulfill?
Perhaps you’ve always wanted to visit Portugal or take time off work to write a novel.
Maybe you’ve dreamed of launching a side hustle and spend countless hours browsing home business ideas for inspiration and fun.
It could just be that you want to switch careers to something you’re passionate about — even if it means taking a paycut.
A financial windfall can help make these dreams a reality. And now could be your opportunity to take that leap!
Having extra money can be a major blessing. And, if you’re intentional about your financial choices, a financial windfall can be truly life-changing.
If you want help, it can be worthwhile to speak with a financial planner or advisor, preferably a fiduciary planner. This means the professional is legally required to act in your best interest (instead of trying to sell you on specific investments or other products that benefit them).
And finally, remember that it’s okay to splurge once in a while. Life is short. Tackle your financial priorities first, but don’t be afraid to take a vacation or enjoy a fancy restaurant meal without guilt.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.