Sometimes it’s nice to just revisit the basics of good #personalfinance. This could be a refresher for you or something to talk to your kids about.
This is a quick list of what to do (in order) if you have a windfall of money. Like, maybe, a tax refund.
- Pay off credit card debt
- Make sure your emergency fund has at least 3 months’ of expenses in a savings account (or money market) separate from your checking.
- Plus any big expenses coming up in the next year (vacation, kids’ summer camp, home maintenance, etc.)
- Increase your 401k contribution and use the windfall to make up for the money that’s not in your paycheck.
- Open or add to a non-retirement investment fund. You can put as much in as you want and take it out at any time.
What I wouldn’t do:
- Pay extra on your mortgage, especially if you have a rate below 4%.
- Pay extra on student debt – again, this would depend on a few things:
- Assuming you have a low-ish interest rate (below 6%)
- Assuming your student debt load isn’t preventing you from other financial goals such as buying a house.
- Thinking you may qualify for student debt forgiveness sometime in the future.
- Pay extra on your car loan if you have a decent interest rate.
Of course, if your financial picture is solid, you could always use part of that windfall on a little splurge for yourself!
