“When I make it big” is the opening line of many financial daydreams. We’ve all spent time fantasizing about what we’d buy, where we’d go and what we’d do if we received a sudden windfall of extra cash. Of course, unexpected cash would be a welcome surprise but waiting on one is a far cry from a financial strategy.
While you can’t count on winning the lottery, having a plan that goes beyond the fantasy is a great exercise that can prepare you for life’s unexpected bounties such as a stimulus check, a signing bonus or even your Great Aunt Birgit naming you as her sole heir.
Understanding how to make smart financial choices will help you make the most of your money whether you’re saving steadily or cashing in your first big paycheck from making the big leagues.
Master Your Own Financial Destiny
Whether you’re a student athlete negotiating endorsement deals or a job hunter with an eye out for a signing bonus, you can be your own financial MVP. You may not be the next NCAA superstar, but in the current job market, prospective employers have started offering significant signing bonuses to attract top talent. By coming into contract negotiations with this knowledge, you can champion yourself and make sure to get what you’re worth.
What you do next after a wealth-building opportunity will be critical to your financial success. All too often, the beneficiaries of monetary windfalls end up in worse financial situations than they were in before the influx of cash (nearly one-third of lottery winners will declare bankruptcy). Without the knowledge to support high living expenses, managing a new budget and lifestyle can be challenging. Whether your windfall arrives by chance or negotiation, financial planning and best practices will be essential in making the most of your new wealth.
Think Three Steps Ahead
Unless your financial fantasy involves filling your own swimming pool full of cash and coins, there are few benefits to hoarding your windfall. But before you go on a spending spree, think ahead. Investing for the future is a good place to start (especially if you’ve yet to start saving for retirement).
If you’re looking for an investment strategy for a tax refund or inheritance, consider talking with an investment professional who can guide you based on your unique goals and needs. Don’t forget to consult with a tax professional as well since a cash influx will likely have tax implications.
If you’re new to investing, a Robo Portfolio from Ally Invest can do the work for you, managing and monitoring your portfolio daily and rebalancing as needed.
Remember, spending and investing are not mutually exclusive. A wealth professional can help you determine how much to set aside while still enjoying some of those earnings today.
Don’t Dump the Debt Too Quickly
Your first instinct may be to immediately pay off debt with your influx of cash. And for some debt, that can be a smart financial decision. For instance, ridding yourself of high-interest credit card debt will save you money in the long run by eliminating exorbitant interest payments. But not all debt is bad. Paying steadily toward low-interest debt like student loans and mortgages can help you strengthen your credit score and benefit you financially in the long run.
Maintaining some debt can also give you greater flexibility to use your savings for investments with higher earning potential, helping you build your wealth over the long term. So, before you schedule that final mega-payment, consider the advantages and drawbacks to paying off certain types of debt.
Live Your Best Life
While you don’t want to fall in the trap of overspending, that doesn’t mean you have to put everything towards debt and shrewd investments either. Don’t be a miser. Enjoy your new wealth with a splurge or two. Take that trip you’ve been pining for or buy that pair of shoes sitting in your shopping cart. Just be sure to keep track of your purchases, since it can be oh-so-tempting to keep spending. Create a budget — using a method that works for you — and include room in it for moments of joy.
Remember the Rainy Days
No matter the size of your sudden windfall, saving best practices should always be a part of your financial strategy. None of us knows what the future may hold and saving for those what-ifs ensures you’re able to handle whatever challenges lie ahead. If you don’t already have an emergency fund, now’s the time to start building. If you do, be sure to sock away three to six months’ worth of living costs in a liquid account that is easily accessible, like an Online Savings Account with Ally Bank.
You Can’t Win If You Don’t Play
Windfalls aren’t meant to be a retirement strategy, nor should they become a boundless spending spree, but you do have a role to play in making it rain. Understand the opportunities available to you and make the most of them as they occur. You can set yourself up for financial success today and well into the future.
We’re all better off with an ally. Let us help you map out your financial future.