How to make your financial windfall last longer…
A financial windfall can come in many different ways. It can be something expected, like a tax refund. Or it can be something unexpected, like an inheritance or redundancy.
Here are some tips on how you can make your financial windfall last longer. We're not saying that you can't reward yourself, but it's important not to spend all your money at once. Find out what others did with their financial windfall.
Making a financial windfall last longer
1. Dale and Rachel are retiring
Rachel (aged 60) and her husband Dale (aged 63) have decided to retire from full-time work.
They’ve done plenty of research about how they’re going to manage their money to support themselves in retirement, including playing around with FIDO's Retirement planner calculator.
They know that they can afford to retire now by making some changes and compromises:
- They are selling their suburban home and buying a townhouse out of town. By downsizing to a home that costs less, they will have some more money for their retirement and boost their super savings.
- They are keeping most of their super money (including the money from downsizing their home) in their super fund and setting up a retirement income stream. This is tax effective and helps them manage their money and make it last, because they get paid a regular amount (monthly in this case). Their investments will be managed by the fund.
- They are going to take a small amount of money (from either their house sale or by getting part of their super as a lump sum) and are going to go on an overseas holiday.
2. Tony gets an inheritance
When Tony's mother died it was a sad time. As an only child, Tony was the sole beneficiary of her estate. He went through all his Mum's stuff and donated a lot of clothes and items to local community groups.
The house was valued at $300,000. Tony’s parents had worked hard to own their own home and he wanted to use this money wisely. So, he decided the best thing to do was to sell the home and put all the proceeds into paying off his own mortgage.
Tony was glad that he could now pay off his entire mortgage. He even had some money leftover to invest in shares, which is something he'd wanted to find out more about for a while. Find out more about starting to invest in shares.
3. Glynn the caterer wins a big contract
As a sole trader and caterer, Glynn is used to supplying local clubs and schools with morning and afternoon teas. But recently she won a six-month contract to supply the local council with all their daytime meals, including lunches.
This is a big commitment for Glynn. She is very busy, but is pleased she will be bringing in a lot more money than she used to.
After a few months, Glynn has a few thousand dollars extra sitting in the bank. She decides to re-invest back into her business by buying new trays, plates and utensils to make the presentation of her food look great. She also puts $5,000 into her super fund and gets the added benefit of the government co-contribution.
Glynn could have gone on a spending spree. But by making a few small, smart decisions, she's well placed to grow her business further.
4. Ahmar gets his annual bonus
Ahmar, 28, works really hard for his firm and is pleased when he gets rewarded with a big bonus. Ahmar's housemate tries to convince him to go on a luxurious holiday, to reward himself for his hard work.
But instead, Ahmar puts most of the bonus into a savings account, to kick start his plan to save up a deposit so he can buy his own home in a few years' time. His only splurge is on a new MP3 player - after all, he’s worked very hard and wants to give himself a treat. But Ahmar’s long-term goal is to have his own place and he feels great about having some savings - he’s looking forward to watching his money grow.
More about buying your own home.
5. Cheng gets her tax refund
When tax time comes around, Cheng is happily surprised to find she's getting a tax refund of $1,800.
Cheng doesn't have a special goal in mind for the unexpected money and she decides she can use it wisely by making an extra payment on the mortgage she and her partner have on their apartment.
But her partner reminds Cheng of her big credit card debt. Checking the interest rate, Cheng finds she is paying 18.5% interest on her credit card. Because this is much more costly than her mortgage interest rate, she decides to pay her credit card debt instead of contributing more towards the mortgage.
It's always wise to pay off the higher interest debts first. See FIDO's information on credit cards and FIDO's Credit card calculator.
| TIP | For something straightforward like a small tax refund you can decide what to do with your money yourself (eg pay off your credit card debt). But for a more complex decision involving a lot of money, consider getting financial advice. |
More stories from FIDO readers about financial windfalls
FIDO Website: Printed 07/31/2010
