If you suddenly get your hands on some extra cash, you need to think carefully about what you’re going to do with it. Many people just take the path of least resistance and go on a shopping spree – or just buy a couple of things, depending on how much money they got in the first place. But there’s so much more that you can do in situations like this, and it’s important to understand your options and be prepared for when this happens.
Because sooner or later, it’s going to happen to you too. Whether it’s from taxes, a raise, or just pure random luck, everyone gets this sort of boost every once in a while. The reason you don’t see everyone in a stable financial situation as a result of that is because many of the people out there are completely clueless about how to best handle their money.
It’s Usually Not a Blessing
The most important thing to remember is that coming into a large sum of money all of a sudden is not something you should look forward to as a positive event in your life. It can actually have some pretty negative implications, especially if you’re not very careful with your money. There are numerous stories of people who’ve gotten into deep debt as a result of developing some unsustainable spending habits after getting rich all of a sudden.
On the other hand, you also have the social aspect to worry about. Many people are going to start coming out of the woodwork upon discovering that you’re suddenly rich, and most of them won’t have the best intentions, as you’re probably guessing. Keeping your new wealth to yourself is a good idea if you want to avoid these kinds of awkward interactions.
Paying Off Pending Debts
If you have any outstanding debts, now is the time to give yourself a boost in paying them off. Try to use as much of that extra money as possible towards this goal, and prioritize this as best as you can in your upcoming expenses. Sometimes you won’t be able to repay a debt early because of potential penalties – but you can still put some of that money aside and use it towards the debt over time.
This will free up the rest of your finances for other purposes, and it can be a very useful approach when you want to ensure that your situation remains as stable as possible in the future, even while paying off those old debts.
You might be tempted to check out the investment market, but you should be careful with that. It’s not as simple as putting some money in and getting it back with some extra on top in a few weeks/months. Investing requires you to be smart, and to understand the implications of putting your money into different types of ventures.
You’ll find no shortage of investment opportunities out there. Some might even look very attractive for someone with little experience with the financial market. But always keep some minimum threshold that you never cross, so that you don’t burn out all your new money at once. It happens more often than you might think.
Saving a Little for the Future
You should think about putting a little of that money aside for the future as well. This should come after you’ve considered your investment opportunities, as investing is still a better long-term option if you do it right. But if you have something left over, definitely think about putting it into your savings account. And if you don’t have one, now is the time to think about starting one.
You don’t have to put that much money into it – in fact, it can be harmful to go overboard. But try to secure expenses for at least a few months, and this will go a long way towards giving you more financial stability, and more overall confidence as a result.
Can You Repeat the Situation?
Sometimes, that extra cash will come as a result of random luck. In other cases though, it’s a matter of you doing something right. If your situation is of the latter kind, think about how you can possibly repeat it in the future. Even if it takes some extra effort, if you know that it can produce a significant sum of money for you, then it’s worth taking the time and giving it a try.
Just don’t get too invested in this. Sometimes people keep chasing that first magical moment for too long, and end up ignoring other aspects of their lives. As a result, they find themselves worse off than they were to begin with.
Nobody knows where they’re going to be ten, even five years from now. Planning ahead for such a long period is challenging for many reasons, mostly because a lot can happen along the way that can change the situation significantly. Some of these factors are difficult to predict and account for, making it hard to do any reasonable planning for your finances.
But there are some things you can do to improve that situation and get a better overview of what your bank account might look like in the future. It’s important to take some time to plan ahead, because it’s going to affect your future development to a great extent. And while you can’t plan for every single factor, you can certainly do a lot to work around some of the potential issues that might come up along the way.
Have a Realistic Overview of Your Situation
The most important thing is to be realistic about the way things are. This is easier said than done for some people, because it’s not rare to see someone being dishonest with themselves about what they’re capable of, how bad things really are, and so on. This is commonly seen in cases like taking out a loan or planning another major move related to your finances.
It’s a very problematic approach if you keep telling yourself that you’re going to work harder and fix things later. If you haven’t been able to get the situation under control so far, then you can’t expect things to change at a later point. Unfortunately, many people refuse to see this simple truth and continue acting in ways that ultimately prove self-destructive.
Know How Much You’re Saving
You should also take a good look at your current savings situation. How much money can you really afford to put aside each month? Keep in mind what we said above. You shouldn’t expect to be able to do more than you’ve done so far. With that in mind, plan around your true saving potential and ensure that you’re sticking to the rules that you’ve created.
Because it’s one thing to come up with a detailed saving plan, but it’s a completely different story to actually complete it and stick around to the end. At many points, you’ll probably be tempted to dip into your savings for whatever reason. You have to realistically weigh down whether this is a good idea, and stick to making decisions that impact you in a good way in the future.
Can You Increase Your Earnings in any Area?
This might sound like a useless question, but it’s definitely worth asking yourself that at least once in a while. We have the tendency to fall into routines quite often, which can make it difficult to look at things from a different perspective. Going to your place of work every day, completing your tasks, coming back home… this can quickly turn into a blur where you can’t even tell today from yesterday.
And that, in turn, can make it more difficult to spot good opportunities even when they’re right in front of you. Always pay attention to how much you’re earning, and try to think of ways you could potentially increase your income in any way. As long as you’re not stretching yourself beyond the limits of comfort, you should keep exploring what you can do to get more money.
Kids and Family
Another factor that you can’t ignore in your planning is your family – especially if you have kids, or are planning to have them in the future. You might think that handling that sort of situation boils down to simply multiplying the household’s expenses by the number of family members, but it goes much deeper than that.
You have to stay vigilant about certain aspects of your family’s lives, especially in areas like education, social life, and other important factors in personal development. You should always prioritize those things in your planning, and make sure that you have enough resources set aside to deal with issues in this area as they come up in the future.
Last but not least, don’t forget the big one – your retirement funds. Many people put off having to worry about this until late in their lives, which is a problem because it’s something that you should start working on as early as possible. It simply doesn’t make sense to start building your retirement fund for the first time once you’ve hit 40, and yet many people live their lives in a very careless manner until they reach that time.
We’re not talking about your main retirement plan, either. This is something you have very little control over, as it’s usually an automated process that simply takes money out of your paycheck each month. What you should be thinking more actively about, is the opportunity to save money in other ways so that you can supplement your retirement account in the future. For example, look into investment options. You don’t have to go in with a lot of money at first, but simply studying what’s available to you can still go a long way later on when you do run into an opportunity to utilize that knowledge.