6 of the Best Things You Can Do with a Cash Windfall
A cash windfall is a large and, in some cases, unexpected financial gain.
There are different sources of a cash windfall. An inheritance or the sale of a property are a couple of examples. If you settle a personal injury lawsuit following something like a car accident, that can also be considered a cash windfall.
When you get a large amount of cash all at once, you want to make it last and grow it as well. Resist the urge to spend it all at once.
Pay off any costs associated with the windfall—for example, your medical debts if you were in a car accident.
From there, the following are some other ways to put it to good use.
Create an Emergency Fund
If you don't already have one, creating an emergency fund is one of the first things you should do as part of your larger financial plan.
An emergency fund is usually around six months' worth of your expenses. Having this set aside will then give you more financial freedom in other areas because you have the peace of knowing you have a bit of protection if something unexpected, like the loss of a job, happens.
Pay Off Debt
You might want to use at least a portion of your windfall paying off existing debt, outside of what is linked to the windfall itself.
For example, maybe you pay off your credit cards. This might not be the most fun thing to spend the money on, but you can save on interest, and you can then start to meet other financial goals you have for yourself once you aren't dealing with expensive debt.
You don't necessarily need to pay off all your debt—focus on the "bad" debt that costs you the most in interest.
Buy a House
When you're a homeowner, it becomes your largest asset in many cases. Many times a home is an appreciating asset, too, meaning it goes up in value over time.
You can use a windfall as your down payment on a new home, and then each month, as you make your payment, you're building wealth because of the equity you're creating.
If you already have a mortgage, maybe you use a windfall to pay it down a bit. Most financial advisors say you shouldn't pay a mortgage in full because it's good debt. The interest you pay on a mortgage is tax-deductible. However, if you pay a little extra each month then you can pay it off faster.
Also, if you have a mortgage with a high interest rate, you could pay it down to the point where you'd then be able to refinance and get a lower rate.
Invest in a Rental Property
If you have the cash sitting around to buy a rental property, that's a great way to build on your initial cash windfall. Mortgage rates are incredibly low right now, making it an even more appealing investment.
You can finance a rental property or buy it outright.
You do need to be careful that you don't overpay, and you also have to remember that housing is not a liquid investment, but if you can take on the risk, it can pay back you many times over throughout the years.
Put Your Money in the Stock Market
Investing in the stock market, over the long-term, is almost always going to help you see some of the best possible returns of any investment option.
Before you invest in the stock market, you might want to talk to an investment advisor if you're completely new to the market.
There are a lot of different types of stocks, bonds, and funds you can invest in. You have to create a portfolio based on your investment timeline and your risk tolerance.
For example, if you want to create a broadly diversified portfolio, maybe you invest in index funds that track the S&P 500. If you want something more high-risk but with potentially greater returns, you might invest in individual stocks.
Start a Business
Finally, if you've come into a large amount of cash, and you've always had a viable business idea, why not put it toward that?
If you create a successful startup, you can grow it over the years, so you're never losing the windfall you initially had. Instead, you're just building on it.
If you do receive a cash windfall, there are a lot of creative ways you can make it last and even turn it into significantly more money.