Thursday, June 23, 2011
Managing a Financial Windfall
When I was 27 years old and living from paycheck to paycheck, I inherited some money from my Aunt Katee. It wasn’t a huge sum, but it was enough to change my life for the better. I paid off my credit cards and car loan, put a down payment on a townhouse, and bought some furniture. Admittedly, I also splurged a little by going on a cruise with a girlfriend (my first non-family-centric vacation ever). In hindsight, I feel good about all of my decisions. What I feel best about is that I know exactly where the money went – I didn’t just piss it away little by little on frivolous purchases.
Looking back, I would give this advice to young adults who come into a financial windfall:
PAY OFF TOXIC DEBT - NOW
First, pay off any credit cards, or high interest loans like car loans. Resolve not to accrue any more toxic debt if it can be avoided. Put your credit cards away somewhere safe, and use them sparingly and wisely. Cancel department store cards and cut them up.
WRITE DOWN YOUR LIFE GOALS
Spend some time thinking about what you want out of life. Money can’t buy love or happiness, but it can help you attain other goals. Do you want to own a home, start a business, live abroad, share your life with someone, and/or have a family? Be sure decisions you make with your money support your life goals. Understand that your goals may change over time. This is fine; but keep thinking and talking about them.
CREATE A BUDGET
Do you know where your money goes today? Get a handle on it, before you start spending your newly-acquired funds. Determine whether you want or need to revise your budget going forward.
TAKE TIME TO MAKE DECISIONS
You may get plenty of unsolicited advice (and requests) from family and friends. Don’t make major decisions too quickly. This is your money and your life at stake. The money can sit in the bank for a while you think it over and get advice.
INVEST IN YOUR EDUCATION
Nothing will enhance your quality of life long-term like a good education. If you don’t already have your college degree – invest some money toward that goal. There is nothing that can replace having a positive college experience, or that credential on your resume. Aside from what you learn, you will meet smart people who will become influential friends for life, and part of your supportive network. Do not miss this opportunity.
Be sure you are properly insured. You need health insurance, comprehensive automobile and property insurance (including liability coverage). If you’ve been relying on your parents for coverage, it’s time to make the leap to independence. Open an Individual Retirement Account (IRA). You may think it’s too early to plan for retirement, but it’s not.
RETAIN SOME CASH