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What to do with surprise money?

Updated: Oct 18, 2023

Whether you are reaching your hand into your winter jacket that has been in storage all summer to find forgotten cash, or it is tax season and you have received a refund from overpaying taxes, surprise money is a fantastic windfall. We want to help guide you towards making the best financial decision for setting yourself up for a happy and stress free future by utilizing the windfalls when they occur. When you receive unexpected or "surprise" money, it's an excellent opportunity to make strategic decisions that align with your financial goals. Here are some suggestions on what you can do with surprise money:


Build or Boost Your Emergency Fund:

If you don't already have an emergency fund, first and foremost, we recommend you create one. You should have at least $500 - $1000 set aside for emergencies. Now would be a great time to put that in place. Now that we are in a high interest rate environment, an emergency fund is a great way to protect yourself from the high cost of using credit in case accidental overspending, a medical cost, loss of a job, etc.


Pay Down Debt:

Next, if you have outstanding debts with high-interest rates (such as credit card debt), consider using the surprise money to make a payment towards reducing your debt. This can save you a substantial amount of interest in the long run. As mentioned in our previous articles, high-interest debt should always be paid off first. You can read more about this in our blog article: https://www.uoufinance.com/post/us-government-debt-was-downgraded


Build your short-term savings:

If you have accomplished steps one and two, you are way ahead of most people. Next, we recommend establishing some short-term savings. This is so that if you lose your job or have a similar event, you can pay your bills for several months. Depending on the stability of your job, we recommend having three to six months’ worth of expenses in short-term savings. The good news is that money market funds are paying interest again.


Invest for the Future:

Next, we recommend investing the maximum allowable amount in a tax advantaged retirement account, such as an IRA or a 401(k). Once you have reached the maximum allowed in a tax advantaged account, you can build a portfolio of stocks, bonds, or mutual funds. We don’t give investment advice, but we do recommend that you diversify your investments. Once you have an emergency fund and are debt free, it is never too early or too late to begin saving for your retirement. There are a multitude of websites which provide retirement calculators. We recommend the following two options:

  1. A very through one can be found through Forbes: https://www.forbes.com/advisor/retirement/retirement-calculator/

  2. For a more simplified and comprehensive calculator, you can look to Nerdwallet : https://www.nerdwallet.com/calculator/retirement-calculator


Save for Specific Future Goals:

Surprise money can be an excellent opportunity to make progress towards a specific savings goal, such as a down payment on a home, a vacation, or furthering your education. If you have a family to support or are planning to have children, consider using this money towards preparing for their future. For example, setting up a trust for a child’s education, or setting up a Health Savings Account (HSA) or Flexible Spending Account (FSA) to cover future medical expenses, which can offer tax benefits.


Invest in Yourself:

Consider using the money for personal development, such as taking a course or attending a workshop that can enhance your skills and career prospects. If you have a business idea or a passion project in mind, consider using the surprise money as seed capital.

While it's important to be prudent with your finances, it's also okay to indulge yourself occasionally. Consider using a portion of the money for a special treat or experience that brings you joy.


Remember, the best option for you depends on your individual financial situation and goals. It's often a good idea to consult with a financial advisor or planner to help you make the most strategic decisions with your surprise money.


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