Getting an unexpected windfall can seem like a dream come true and can definitely help improve your financial situation and prospects if you make sure you handle it correctly. Whether you receive an unexpected inheritance, hit the lottery or end up with an investment that really paid off, follow these five smart ways to invest your recently financial fortune.
1. Pay off Credit Card Debt
While this may not seem like a common investment, if you have a large amount of credit card debt and struggle to pay it off each month, ridding yourself of it will be a strong investment in your future as well as your credit score. Most credit cards carry a high interest rate and carrying too much credit card debt can significantly hinder your ability to borrow in the future.
2. Max out Your 401(k) or Retirement Contribution
One of the most important parts of financial security is planning for the future. Having a well-padded retirement account can allow you to retire early as well as give you the freedom to do what you want without worrying about making ends meet. If you can, max out the amount, you can contribute up to your employer's matching contribution in order to get the most out of your investment.
3. Invest in an Asset That Makes You Happy
One of the first things everyone wants to do after coming into a financial windfall is buy something they've always wanted. It is actually important to indulge yourself with a little something to enjoy the money. Just be sure to budget for it appropriately and then don't exceed that budget. Consider something that gives value while doubling as an asset for your future, such as artwork, investment properties or jewelry -- anything likely to hold, or appreciate in, value is a good choice. Enjoy them today while planning for tomorrow.
4. Buy Some Land
Land can be a great investment if purchased at the right price. Undeveloped land requires little maintenance or upkeep and the costs typically only include the property taxes which will not be as high as a property with a house on it. You will be able to hold onto the land for development in the future, as a site for a retirement property, or just allow it to appreciate in value and sell it off when the price is right.
5. Create Both a Short- and Long-Term Portfolio
It might be wise to retain the services of a financial advisor to either build on your current portfolio or start one that offers both short- and long-term investments. The short-term portfolio will be used to address the next ten years in terms of living expenses and other financial needs you incur. This can involve investing a small portion of the money in safe investments with potentially low, but consistent, yield such as annuities, money market accounts or certificates of deposit.
Then take the balance of the money and invest in long-term financial goals with a higher return, but a potential higher risk, such like stocks and bonds. It is important to include both short- and long-term financial goals so that you can not only have money for necessary living expenses when you need but investments to take care of you in the long game.
Planning is essential to ensure you make smart investments with your unexpected financial windfall. If you need help determining the best course of action to take with your new-found fortune, follow the tips above or contact a financial planner to discuss your options.