At some point in our lives, we ponder the question, “What would you do if you were given a large sum of money?” We usually answer the question with a bunch of wishful thoughts like traveling around the world or buying a boat. We don’t like thinking about being responsible with a large sum of money. I think this is because many of us never think that we’ll ever run into a windfall of money. However, it could be more feasible than you think. Baby Boomers were a very successful generation, and as they pass away, their children will inherit large sums of money and assets. Many people feel burdened with the responsibility of managing the money, so here is a list of things to do with the money that you won’t regret.
Pay Off Debt
This should be the number one priority for anyone that falls into a large lump sum of money, whether an inheritance or contest winnings. Clean up your consumer debt such as car loans, credit cards, student loans, and home equity loans.
Fully Fund An Emergency Fund
Open a money market account or an online high-yield savings account. Fund it with 3 to 6 months of household expenses, and don’t touch the money except only for TRUE emergencies.
Invest For Retirement
If you have a lump sum of money, you can open up an IRA for you and your spouse (if married), and fully fund them for this year and next year, which will set you back about $22k.
Set Money Aside For An Upgrade In Car
Got a couple of clunkers in the driveway? Upgrade to better cars by paying cash, and this will set you up in a cycle that will help you never to have car payments again.
Set Up College Funds For The Kids
Many 529 plans let you put away $10,000 a year. If your children are young, contributing the maximum amount and letting it grow for the next 10 to 15 years will set them up for a nice college savings fund at age 18.
Have A Little Fun
If you’ve still got money left over after the above steps, then proceed to the next three steps. It’s your money, and you’ve already been responsible with it if you’ve followed the above steps, so have some fun with the money. Take a vacation you’ve been dreaming about, buy a jet ski or a motorcycle, or go on a mini shopping spree.
Give A Little
Make sure you give away some of the money to your favorite charity, church, or someone close you that needs it most. Be sure to be discreet about this, because you don’t want a bunch of people knocking on your door asking for a handout.
Pay Down Your House Mortgage
Last but not least, if you are still fortunate to have some money left over from the lump sum, you can apply it toward paying off your mortgage. Imagine how much money you could save in the future without a mortgage payment. You could pile up cash quickly, be more generous, and speed up your investment goals.
I realize that many of you don’t have the luxury of falling into a windfall of money, but there are still many people who have a pile of cash thrown into their lap, and they don’t know what to do with it. Be responsible, don’t go crazy, and take care of your financial priorities first.