Photo by calvertinvestmentcounsel.com
There are various ways in which you can obtain a fortune. You may sell a big business or receive a sudden chunk of money after a lucky set of numbers coincided with numbers that you chose for your lottery ticket. A big pile of cash surely seems to be quite useful and many want to spend money right away.
One of the first things that anyone should do if they came into possession of a large sum of money is to adjust their financial plan. Rethinking your approach to spending in general is also a very important part of money management. The general advice is to allow the news of getting rich settle in. You won’t make rushed emotional purchases that can be detrimental to your financial wellbeing.
There are several ways to preserve your capital from evaporating.
#1. Invest in retirement
If you have enough money to contribute enough to match the full employer contribution, you should definitely do just that. You can easily secure your retirement preemptively and reduce the “leakage” in your budget.
One of the best thing about this move is that it provides you with several important advantages including a serious tax benefit. A contribution to your 401(k) will not be taxed due to coming from your own pocket. This is a very good long term commitment. Remember that extracting funds from your 401(k) will not be taxed as well.
#2. Get of rid of your debt
There are various really annoying and limiting debts that may hinder your financial mobility and significantly reduce the very quality of your life. Getting rid of them as quickly as possible should be amongst your top priorities. The main advice will be to pay off the biggest debts with highest interest rates first and then aim for smaller less menacing debts.
Payday loans should be covered immediately. While there is a ton of various options to get a payday loan or an installment loan from private providers, you should always remember that they provide a fast and convenient service for a high price. You will have to deal with high interest rates that may go up to 400% per year. Paying them off on time is imperative.
Researches show that the vast majority of Americans with debt struggle to pay back their loans on time meaning that they often fall into a debt hole that does not always have a clear exit.
#3. Save your money
Creating a conserved emergency fund is a good idea. This will ensure a more stable overall financial situation since you will have a backup fund that can be utilized when you have some troubles. Most experts suggest that you should have enough money to allow you last comfortably for at least 3 months. The optimal size of your emergency fund should be around a sum that will help you to get by without any income for at least 6 months.
There are various factors that may determine how much money you need to have in your secret jar. Your total debt, current income, and some other factors may contribute to your calculations.
#4. Spend on Yourself
There is a big difference between mindlessly spending money of clothes and new devices and spending your money on yourself and self-development. You can invest your money in education, a new skill or a hobby. Something that can be both enjoyable and useful. Consider spending money on something really important for you or your family.
Get your second degree, invest in a trust fund for your children or give money to your spouse so that they could return back to school. You can avoid taxes by spending money on tuition (any sum under $10 000 will not be subjected to taxation if spent on education).
#5. Don’t forget about charities
While it is quite a good feeling to give and support s valuable social cause, but there are other interesting benefits to donating. For example, you can count on a deduction if you make a donation of $12 thousand (for single people) or $24 thousand (for married couples). Remember that you cannot give your money to friends or relatives, this will never help you to achieve better deductions.