It’s not unrealistic for you to ponder the possibility of a modest cash windfall in your lifetime. It could be an unusually large bonus, profit from the sale of your business, or an inheritance. For sake of discussion, let us assume that you didn’t plan on this money coming and let’s work with an amount of $50,000.
What to do with this windfall? Here are a few suggestions to consider:
1. Pay down your mortgage
Pay down the principal amount of your mortgage as soon as you can do so without paying a penalty. Your net worth goes up by the amount of the payment and you save money every month from now until your mortgage is paid off. Those savings can be invested in some other part of your financial plan and go on to make more money for years. Over a long enough time horizon, it’s likely your windfall will more than double.
2. Wipe out high-interest debt
Paying off high-interest debt, meaning the credit card kind, has a huge impact on your cash flow. Credit cards that charge upwards of 20% interest are cash-flow killers. Pay off this kind of debt first and then commit to contributing to long-term savings. If you have other forms of debt, your Lawyers Financial Advisor can help you weigh the benefits of paying it off now versus investing the balance of your windfall somewhere else.
3. Top up your RRSP
If you have RRSP contribution room and you are in one of the higher tax brackets, consider a contribution that provides for a significant tax refund. The refund could add up to 40% to your windfall and that money could be reinvested in your RRSP where it could grow tax deferred for years.
These are just a few of the ways you could maximize a cash windfall. Your Lawyers Financial Advisor would be happy to show you more ideas based on your financial situation. And, of course, if you just want to blow spend some of the new-found money, we can probably recommend some great vacation spots – and provide the travel insurance to keep you protected!