You have reached your limit of free articles this month.

Enjoy unlimited access to myStatesman.com

Starting at just 99¢ for 8 weeks.

GREAT REASONS TO SUBSCRIBE TODAY!

  • IN-DEPTH REPORTING
  • INTERACTIVE STORYTELLING
  • NEW TOPICS & COVERAGE
  • ePAPER
X

You have read of premium articles.

Get unlimited access to all of our breaking news, in-depth coverage and bonus content- exclusively for subscribers. Starting at just 99¢ for 8 weeks

X

Welcome to myStatesman.com

This subscriber-only site gives you exclusive access to breaking news, in-depth coverage, exclusive interactives and bonus content.

You can read free articles of your choice a month that are only available on myStatesman.com.

What’s the best use for a financial windfall?


I’m coming into some money and I have no idea what to do with it. What’s the best way to use a sudden windfall?

If you’re like most 20- or 30-somethings, a work bonus or a tax refund can feel like a gold mine. You need a plan so you don’t give yourself a free pass to live like fictional boy billionaire Richie Rich.

But if your windfall is from, say, a large inheritance, a settlement from a lawsuit or a profitable sale of company stock, you’ll want to call in the professionals.

“When that kind of money happens, that game-changer kind of money, it doesn’t just change your finances,” says Susan Bradley, a certified financial planner and author of “Sudden Money: Managing a Financial Windfall.” ”It changes who you are. It changes your life.”

Start with a financial planner, a tax professional and someone who can help you process the changes to come, Bradley says. Others might start to view you differently or expect you to share your wealth; if you have a partner, you’ll need to consider how to make decisions together about how to use your windfall, too.

For the rest of us facing a more modest cash influx in 2017, here’s how to divvy it up to meet financial goals — without giving up all the fun.

EARMARK ‘FUN MONEY’

You know that “sensible adult” voice in your head telling you to save every last penny or to fling it all at your student loans? We’ll get to that later. First, start with the fun stuff: Set aside 10 percent to 20 percent of your windfall’s after-tax total to spend however you want. Stick with the lower end of that range if you have a lot of high-interest debt or no savings.

The goal is to stop overspending before it happens. Those who come into smaller sums of money — like the $2,866 average tax refund in 2016 — might spend the whole thing.

Treat yourself to a slick pair of boots or a plane ticket so you feel you got something concrete and satisfying from your windfall. Then use the rest to move toward your long-term goals and create healthy money habits.

A SAVINGS PLAN

You’ve gotten a splurge out of your system, so now it’s time to do the mature thing and save the next 30 percent. If you have no cash reserves, open a high-interest online savings account with a lump sum, say $500 of your windfall. Create a monthly transfer until the account has three to six months’ living expenses.

After your emergency fund is off the ground — or if you’ve already got one in place — any remainder of the 30 percent should be directed toward retirement savings. Contribute at least enough to your 401(k) to get any employer match; if you’re already doing that or you don’t have access to a workplace retirement plan, open a Roth IRA. These allow you to contribute after-tax dollars so you won’t pay taxes when you withdraw funds at retirement.

ATTACK DEBT

Accruing debt at high interest is like stealing money from your future self. A windfall gives you the chance to put a dent in debt or get rid of it altogether.

Use up to 50 percent of your windfall to reduce your burden, but be strategic. Focus first on consumer debt, such as credit cards and medical bills, before student loans — especially if your credit cards have high interest rates. .

Repeat these steps, from splurge to systematic saving, every time you get a refund or a bonus. That way you’ll spend it responsibly, not spontaneously, year after year.



Reader Comments ...


Next Up in Business

Up the Ladder

Construction Journeyman Group has named Ross Hamilton vice president of development. Technology National Instruments has named Karen Rapp chief financial officer. The Clinical Data Interchange Standards Consortium has named Dave Evans, Masanori Fukushima and Steve Rosenberg to its board of directors.
Fitness Connection is latest addition to Shops at Tech Ridge
Fitness Connection is latest addition to Shops at Tech Ridge

A New York real estate firm is wasting no time filling up empty storefronts at a North Austin shopping center it recently acquired. RD Management last year took ownership of Shops at Tech Ridge, 12901 N. Interstate 35, shortly after a SuperTarget store closed, leaving more than 100,000 square feet of space vacant. First, RD Management and The Retail...
Top Local Business Stories of the Week

TAX CHANGE Texas Senate OKs plan to phase out state’s franchise tax: A measure that could eliminate Texas’ franchise tax — the state’s primary tax on business — within a decade won approval from the Texas Senate last week. Senate Bill 17, filed by state Sen. Jane Nelson, R-Flower Mound, and backed by the Texas Association...
Use economic research to call a truce in divorce wars

Thanks to their rich parents, my friends “Joe” and “Sue’s” wedding was a three-day, 200-guest extravaganza on Maryland’s Chesapeake shore. Day 1 featured a fantastic clambake. Day 2’s barbecue was to die for. Day 3’s nuptials were black-tie, with tears, cheers, mouth-watering canapes, filet mignon, Dom...
Austin job growth eased in 2016, but just to a more sustainable sprint
Austin job growth eased in 2016, but just to a more sustainable sprint

The latest revisions to last year’s workforce data confirmed that Austin-area employers added jobs at a much faster rate than initially reported — but also that its growth eased from the sizzling pace of the prior four years and has remained on that more modest trajectory through the start of 2017. The number of jobs in the Austin metro...
More Stories