When you find yourself with a fat wallet or an unexpected windfall of cash, you might be tempted to blow it on a shopping spree or a fancy new car. Don't! With the right financial know-how, you can use that money to help secure your financial future. Here are a few actions you can take when you have extra funds.
Pay down debt
Nearly 80 percent of Americans have debt and 37 percent felt they had too much debt, according to the 2018 FINRA Foundation National Financial Capability Study. Put any spare money you have towards paying down your debt. Less debt will save you money in interest, will free up money which would have gone towards debt payments and could boost your credit score. Try making minimum payments on some sources of debt, while concentrating on eliminating your largest source of debt, with the exception of your mortgage. Once that debt is paid off, move on to your other sources of debt, starting with the highest and working to the lowest.
Build your nest egg
After paying off your debt, your next step is to ensure you save between three and six months worth of expenses as an emergency fund. According to information from Vanguard, this fund can be used if you are unemployed, in the event of a medical emergency, or for unexpected home or car repairs. Vanguard recommended estimating your housing, food, health care, utilities, transportation, debt, and personal expenses to know how much you should save. Some people might want to save more than six months' worth of funds. Saving more is beneficial during a recession, if you work in a high-risk industry with frequent layoffs, if you don't have a steady income, or if you're retired.
Pad your retirement fund
Experts recommend that workers save 10 to 15 percent of their income for retirement, according to information from Synchrony Bank. Many fall far short of this. According to 2019 research from Northwestern Mutual, about 22 percent of American adults saved less than $5,000 for retirement and about 46 percent of Americans planned to work after age 65. Saving for retirement early allows more time for your investment to grow.
It can be tough to make ends meet today. Smart financial choices will help you plan ahead