Get the Most Out of Unexpected Money

Get the Most Out of Unexpected Money
Whether it's an inheritance, a settlement, a bonus or lucky lottery ticket, you may find yourself with a large sum of unexpected money. It's a great problem to have, but studies have shown that up to 70 percent of people tend to spend it all within a couple of years. Here are a few tips to help you keep your sudden windfall from disappearing into thin air.

Big money always tends to stimulate big spending, which is why your first step should be to wait six months before shelling out a cent. This means no luxurious gifts for your family and friends, no new investments and no exotic vacations. Give yourself some time to come up with a solid plan, so you don't make any impulsive decisions you'll regret later.

Next, to help you with those plans, consider hiring a qualified financial adviser to help you create a budget and do some long-term financial planning. To help you find an advisor you can trust, ask friends for referrals and always check credentials by going online to sites like Here you'll be able to enter the background of an investment professional and receive full disclosure about their track record and practices. And while you're looking, try to find an adviser who is paid by the hour, not by commission.

Lastly, always assess your financial weaknesses, so you can strategically use your new windfall to improve your position. For example, if you're behind on the mortgage, use your money to catch up and eliminate those late fees. Or, take a look around the house and try to focus on things that will reduce your overhead, like installing energy efficient appliances.

Remember, just because you have money falling from the sky doesn't mean your head should be in the clouds. Use these strategies to get the most out of your money, while keeping your good fortune from going up in smoke.

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Get the Most Out of Unexpected Money -- Savings Experiment
Financial planners suggest you have a minimum of three months of living expenses in a savings account, but some say 12 months is better. If you don't have any savings, you won't be able to pay your bills the minute your car breaks down, you have an unexpected trip to the emergency room, or you're unemployed. The problem can compound if you put those expenses on a high-interest-rate credit card and are unable to pay it off for a long time.
While an occasional slip-up in your checking account may not mean much, if you've paid overdraft fees more than once, you're clearly spending on the edge of what your paycheck can support.
Those "convenience" checks are something you should shred when you get them. You're simply expanding your debt level by paying a bill with a credit card, which will mean you'll pay hundreds or thousands of dollars in interest rather than actually paying that bill.
This move will definitely hurt your credit score: Using more than 25 to 30 percent of your credit card limit will lower your credit score a little, and going above it will drive it down fast. On top of that, you'll have to pay over-limit fees until you can get the balance back down, and you're likely to pay a higher interest rate on that credit card and on other future lines of credit.
Making the minimum payment on time every month won't hurt your credit score, but you'll never, ever make a dent in that credit card balance that way. If the minimum payment is all you can afford, then you've got some belt tightening to do.
If you're entering every possible lottery hoping for a big bonus, or counting on an inheritance, you're expecting something to solve your problems that may not come to pass. Put a plan into place to handle your own finances and then, if a windfall does come your way, you'll be in even better shape financially.
Your 401(k) is money that belongs to you, but it's meant to be there for your retirement years, not to pay your electric bill or your kid's orthodontist bills when you're in your 40s. Even if you somehow find a way to pay the money back, you're still going to be out on the interest earnings while that money was out of the account on top of any early withdrawal penalties and taxes you may have to pay.
Money is one of the main things couples fight about, but if you're hiding spending from each other or keeping the credit card bill out of sight, then you could be headed for a financial disaster, if not divorce court.
You may already be in a financial free fall if you've got debt collectors hounding you.
If any of these warning signs rings true, it's time to face facts and put yourself on the path to financial freedom. These free courses on DailyFinance will guide you through everything from setting goals you can achieve to getting out of debt and planning for retirement.

If your money woes are too overwhelming, contact a nonprofit credit counselor (find one at the National Foundation for Credit Counseling) who can help you develop a strategy to prevent your financial breakdown.
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