Armchair Millionaire Community Bulletin: Capitalizing on a Windfall
It’s fun to daydream about what you’d do with a windfall, but when the real thing happens, step out of the clouds and onto solid ground. Set your priorities and then stick with them to make the best decision possible.
New York, New York (PRWEB) November 8, 2005
A lot of people think of this kind of sudden “extra” money as just that--extra, and somehow not related to the rest of their financial lives. As a result, many folks tend to splurge that money away and end up with the same financial situation as before that money dropped into their laps.
This is too bad, since a one-time windfall, no matter how small, can have a very positive and lasting impact--if you take it seriously.
When we polled members of the Armchair Millionaire community about what they’d do if they suddenly received $10,000, we heard some common sense answers. Here are a few:
“I would use some of the money to pay off my college loans and my car. I would use the rest to pay for graduate school. If there was anything left, I'd invest it.” --BJones
“I would pay off the rest of my debts, open Roth IRAs for my husband and myself and begin some of the work on our house that will increase its value and our equity.” --V. Ganster
“I am a young professional just out of college and would put almost 100 percent of that money to pay off all sorts of debt--school loans, car payment, credit cards, etc. Then I would put a little aside and take a trip to Ireland.” --Eric
“If I suddenly received a windfall, I would put it towards graduate school and retirement savings. I would also spend a little on something fun.” --J.
Whether you get a raise, a bonus, a tax refund or even an inheritance, always consider the best, highest use of that money. To help you decide, my guide provides the key questions to ask yourself.
The Armchair Millionaire’s Guide to Capitalizing on a Windfall
What’s worrying me the most? Do a gut check. If worries about your leaky roof are keeping you awake at night, by all means get it fixed. Likewise, if you’re worried about making your bills each month, then stash that extra money into an emergency fund.
What’s costing me the most? Not all debts are created equal. Obviously, high-interest credit card debt hurts the most. If you use your extra money to pay off a card with an 18 percent interest rate, you’ll get an immediate 18 percent return. On the other hand, a 4.75 percent mortgage (which might be more like 3.5 percent in real terms once you figure in your tax deduction) is not costing your nearly as much. Paying down the credit card is clearly the better bet.
What could give me the biggest bang for my buck? If you’ve got a solid financial base and have paid down your high-interest debt, consider investing that money. Where can you get the best return on your money? Inside a tax-advantaged account. This means beef up your 401(k) contribution or set up an IRA account. Either way, your money will grow faster because taxes will be deferred until you take that money out in retirement.
What do I really want most? If you’ve got all your bases covered, you have the luxury of indulging a little. But before you go out and by that wide-screen TV, consider some splurges that might have more meaning over the long run. This might be an investment in your own health by signing up with a personal trainer, creating a small legacy for your kids, or donating to a good cause.
THE BOTTOM LINE: It’s fun to daydream about what you’d do with a windfall, but when the real thing happens, step out of the clouds and onto solid ground. Set your priorities and then stick with them to make the best decision possible.
THE ARMCHAIR MILLIONAIRE WEEKLY SURVEY: Is your credit card company ripping you off? Log on to www. armchairmillionaire. com and let us know.
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Lewis Schiff founded the Armchair Millionaire Web site in 1997. His first book, The Armchair Millionaire, was published in 2001. Schiff's newest report, "How to Know When You Are Rich," is now available at www. armchairmillionaire. com.
CONTACT INFORMATION:
Lewis Schiff
Armchair Millionaire
877-833-2823
Http://www. armchairmillionaire. com (http://www. armchairmillionaire. com)
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