Updated on July 28, 2021
If some unexpected cash makes its way into your wallet, you may have an important decision to make: What do I do with it? After receiving a large lump sum payment, you’ll want to take into consideration your current financial situation. For some, these unexpected funds could prove to be essential for keeping their household running, while others may be on relatively stable financial footing and be able to use the money to get closer to other financial goals. For ideas on how to use your newfound money responsibly, read on.
In this scenario, you should take a look at your budget (or make one) to prioritize your spending. Examine each item to make sure it’s truly a need (like rent or a mortgage payment). Consider what things may have felt like needs in the past but are realistically something you could live without in order to help get yourself back on stable financial ground. For example, after a long week, it might have felt essential to unwind on a Friday night by dining out with friends. Now, however, a meal out should fall into the wants category if you’re focused on ways to cut your spending.
Once you have your budget in place, remember that keeping your bill payments current is important and a wise use of any extra money you receive. You want to avoid making late payments (or no payments at all) because of the negative affect on your credit score. Because you might need to stretch every dollar, review your bills and identify those that could possibly be deferred or put on a payment plan. But don’t assume each can be.
It’s very important to contact utilities, landlords/mortgage companies, and anyone else you owe to learn about your options. After deciding what bills can be deferred and which ones must be paid, prioritize your list of bills and use your money to keep your bills current.
If you can maintain your bill and loan payments, you have some other options for using your financial windfall responsibly.
The first is to create or add to your emergency fund, aiming for a minimum of three to six months of net income. You might also want to consider covering a longer period of time for extra cushion.
A second responsible use of your money is paying down debt. You can make a lump sum payment to eliminate credit card bills or, if you don’t have enough to pay off your cards, consider a credit card balance transfer. If you find an offer that lowers your interest rate, you may be able to pay off the debt faster and lower how much you pay in interest over time. For instance, our Visa® balance transfer rate and terms are consumer friendly, and there is no PSECU balance transfer fee.
We offer two more ideas, if your situation allows them.
The first is making a charitable donation. Sharing your windfall with others can make a positive impact in your community by helping others who are less fortunate. Choose a cause you care about and research organizations that are working to meet needs in your local community. Just be sure to vet any organization to ensure their legitimacy. Charity Navigator is a trusted source to help you choose where to contribute your dollars.
The second might seem to go against most advice: Buy stuff! Our economy is driven to a large degree by consumer spending. If you’re in a financial position to do so, making purchases helps the economy and, as long as you’re not purchasing things you don’t need or that you’ll throw away shortly, could be another good use of your payment. To increase the impact your spending makes, consider shopping local and supporting small businesses near you.
For more money-management tips, visit our blog.