10 smart ways to spend a windfall
Hit it big in your office's NCAA tournament pool?
Or are you one of the lucky few who are getting
an extra paycheck this year? No matter how you come by unexpected
income, it's always a bittersweet surprise. It's
nice to have the money, but what's the wisest way to use the windfall?
Remember, it's not the size of the windfall that
matters, it's how you use it. Any amount can go a long way if you
think before you spend.
Try one of these money-smart suggestions:
1. Pay down credit card debt.
OK, so this doesn't sound as appealing as a new DVD player. But
if you can knock out -- or knock down -- the balance of even one
high-interest credit card, you're making money. Think of all the
interest you won't be paying.
Open an IRA.
Or, if you already have one, use your windfall toward your annual
contribution. Been putting this move off until you had "a little
extra money?" Today's your lucky day. Any amount "will
compound nicely," says Chris Farrell, author of Right
on the Money.
Historically, stocks have produced nice returns and even a few hundred
can get your nest egg off to a nice start.
"The biggest mistake people make is thinking
[what they have] is too small an amount to invest," says Ric
Edelman, author of Ordinary
People, Extraordinary Wealth. "Rich people start off
as poor people. The difference is they take the nickels and dimes
and they invest it -- they didn't spend it all at the mall."
up a rainy day fund.
"Most people have a checking account and a savings account,"
says Farrell. "I like for them to set up a separate mutual
The money is there in an emergency, but since you
can't just empty it out by writing a series of little checks you're
less likely to touch it. The standard rule of thumb is to sock away
three to six months of living expenses. So start with your windfall
and take it from there.
Refinance your house.
Rates remain low, so if you've been looking at refinancing,
your windfall offers a piece of change to put toward closing costs.
Depending on the deal you get with your lender, your windfall might
not cover the whole cost, "but it could take care of a nice
chunk," says Farrell.
to your mortgage payment.
"For most people, this is better than putting it in a savings
account," says Robert Van Order, chief economist in the financial
research division of Freddie Mac.
up the homestead.
Thinking of a do-it-yourself landscaping or remodeling
job? Take the windfall and get a professional to sketch out
a plan for you to follow. For a few hundred dollars you will know
exactly what you're getting into and how much of it you want to
do yourself. Plus increasing the value of your home puts extra equity
in your pocket.
Auto details, details, details.
Planning on selling your car anytime soon? "Getting your car
detailed can make a huge difference if you are putting it up for
sale," said John Clor, the Detroit editor for Edmunds.com.
A thorough job, which costs about $175 for inside and out, could
increase the price you get by as much as $1,000, says Clor.
"The No. 1 thing people forget with cars is to maintain
them," says Clor. If you've been putting off that oil change
and tune-up because you just didn't have the money -- this is the
time. And check the tires. Extra bonus: A well-maintained
car with properly inflated tires burns less gas and saves you
money in the long run.
Get the star treatment.
If you've had your nose to the grindstone all year, your windfall
could be a way to give yourself a much-needed treat. A full day
at a local spa,
a dinner at the best restaurant in town or tickets to a show you've
been wanting to see for months could be the perfect way to give
you a new, and better, outlook on your life.
"You'll be totally relaxed, feel good and it's
probably something you wouldn't do under normal circumstances,"
says Farrell. "And you'll have a really nice memory."
Dana Dratch is
a freelance writer based in Atlanta.
-- Updated: April 1, 2004