What to do With Unexpected Income

According to a recent report, 71 percent of Americans purchased at least one lottery ticket within the last two years. That’s not surprising — the idea of getting a huge payday is exciting. An unexpected windfall of cash could be great, but only if you handle it correctly. And it’s not just lottery winnings we’re talking about. If you get a raise or a big bump in pay, instead of spending, think savvy. Here’s how to handle a big influx of cash.

Pump the Brakes

When you get a big, unexpected windfall of cash, you’re probably going to want to spend some of it. After all, what’s a little dent in a big wad of money? However, here are some things to consider first:

• Practice patience and restraint. Use the “24-Hour Rule.” If you want to buy something impulsively, wait 24 hours to think about it first. If you still “need” it after waiting, go ahead and buy it. This can help prevent you from making impulsive spending decisions.
• Make a list. Instead of making purchases right away, make a list of some things you’ve been wanting to buy alongside your long-term savings goals.
• Set up a plan. Make sure you have a plan for both categories before you do anything with the money. This will help you to have some fun with the money while also being smart with it.

Give Savings a Boost

No one ever complains about having too much money in retirement. A cash windfall can help you put more money away for emergencies or retirement.

• Get the match. If you’re not hitting the employer match on your 401(k), use the bonus or bump in pay to get the full employer match.
• Boost contributions. Increase your contributions to any other retirement vehicles or investments you have.
• Don’t delay. Set this up right away, so that you’re taking care of your long-term financial health first.

Cut Your Debt

Use an influx of cash to eliminate any debts you have. Even if paying down your debts leaves you with little left of your cash bump, it’ll save you heaps of money in the long run. It’ll also help boost your credit score, which can help you financially as well.

Do One Thing: Before spending any big pay bump, be patient and think through what you want to do.