Acquiring an unexpected windfall can seem like a dream come true and can certainly help improve your financial situation and prospects if you make sure you handle it correctly. Whether you receive an unexpected inheritance, hit the lottery, win a lawsuit, or end up with an investment that really paid off, follow these seven smart ways to invest your recent financial fortune.
1. Pay Taxes First
Unexpected windfalls are usually taxable so before you spend it or allocate it, take out however much you will owe on taxes and put it in a high-interest savings account until it’s time to pay taxes. That way you won’t be stuck needing to come up with the money during the tax season after you’ve already spent it. Then, you can invest the rest however it fits into your financial plan.
2. Pay Off Credit Card Debt
While this may not seem like a common investment, if you have a large amount of credit card debt and struggle to pay it off each month, ridding yourself of it will be a strong investment in your future as well as your credit score. Most credit cards carry a high-interest rate and carrying too much credit card debt can significantly hinder your ability to borrow in the future.
Pick the credit card with the highest interest rate and try to bring that one down as much as you can or pay it off first. Then, you can work on paying off the smaller or less detrimental cards.
3. Max Out Your 401(k) or Retirement Contribution
One of the most important parts of financial security is planning for the future. Having a well-padded retirement account can allow you to retire early as well as give you the freedom to do what you want without worrying about making ends meet. If you can, max out the amount, you can contribute up to your employer’s matching contribution in order to get the most out of your investment.
