If you receive a financial windfall, such as an inheritance, bonus or a lump sum from another source, what should you do with the money?
First, don’t rush into any decisions. If it's an inheritance from a close family member, you may need time to process your emotions. Consider how your family member would have wanted you to spend that money (e.g., on an advanced degree or home down payment) to help inform how you use it.
If your funds weren’t intended for a specific purpose, your financial strategy is likely a great roadmap for how to put them to work. Regardless of the size of your windfall or where it came from, it can be used to progress toward your goals and provide more flexibility in making financial choices in the years ahead.
So, in thinking of what to do with the windfall money, consider these ideas:
Build an emergency fund. You could use part of your financial windfall to help build an emergency fund containing three to six months’ worth of living expenses.
Invest for your retirement. You could use part of your inheritance or lump sum to fully fund your IRA for the year. You could also set aside some of the money for your daily expenses, freeing up more of your salary for your 401(k).
Pay down debt. If you have student loans or other debt outstanding, consider using your funds to pay them down.
Get some advice…
In deciding how to use your inheritance or other lump sum wisely, you may want to enlist some help. For example, an inheritance of an IRA could come with tax consequences, so you might need to consult with a tax professional. And a financial advisor can help you protect your newfound funds and integrate them into your financial strategy.
Receiving a financial windfall may truly be a “once in a lifetime” opportunity – so make the most of it.