How to Spend a Windfall — Q & A

set of black opened envelope and cash dollars

Q: Recently my wife’s great uncle died and left us some money we weren’t expecting. At first, we thought of all the things we could buy for our own enjoyment. Then, we settled down and started thinking about how to spend the windfall wisely.

person holding black desk calculator
Photo by olia danilevich on Pexels.com

A few ideas we came up with were to apply the total windfall to our home mortgage, pay off a couple of credit card debts, or invest in mutual funds to make the money work for us. My wife and I are waffling over what’s the best way to spend this windfall. Can you help us to figure out how to spend a windfall?

A: Congratulations on coming up with three smart ideas about how to best spend the unexpected windfall. You should consider many different issues before making your final decision about what to do with the windfall.

Consider these points when considering how to spend a windfall:

If you’re within 5-10 years of retiring and the money would actually pay off your mortgage or ensure you’d successfully pay off the mortgage before you retire, applying the dollars in that direction might be an excellent plan for it, giving you greater financial freedom during retirement.

On the other hand, if you’re more than 10 years from retiring and you have credit card bills with high balances, it would likely be wiser to pay them off instead of the mortgage, especially if your credit cards have higher interest rates than your mortgage.

It’s usually best to pay off the debt with the highest interest rate to avoid wasting any more of your future dollars.

In the event you can invest the money where your expected return is higher than the interest rate of your debts (mortgage or credit cards), then investing the windfall would make you come out ahead in the future.

You have the power to make a lasting and positive impact on your finances because of the windfall. Embrace this wonderful financial opportunity by making a smart decision.

How to get started in Investing

stock exchange board

How to get started investing in the stock market can be intimidating while at the same time be exciting. For example, look at those that were looking to get started in investing and found the GameStop stock.

Those who invested in GameStop during its rise between 2020 and 2021 are seeing a huge return on their investment. If you had $300 when the stock was valued at only 3 dollars per share, that would be enough to sell off for about 50K!

I know, I know. The number of new investors to hit the scene since Gamestop blew up is unprecedented and if you haven’t hopped on board yet then now might be a good time for your first trip into day trading stocks!!

However volatile how to get started in stock investing may seem you can do it. Investing may in general give anyone who does their research an opportunity not just to make money but also to learn about ways that will help them protect themselves from losing the money they made.

3 Safe Ways to Get Started in Investing

It’s a common misconception that retirement should be spent solely on cash. The truth is, people need more than just funds in order to live comfortably during their golden years- they also require an investment portfolio with which they can generate returns and grow over time.

Retirement investing requires careful consideration so as not get too excited about potential gains while forgetting your long term goals (such as funding children’s education). It may seem daunting at first but if you approach the process thoughtfully from beginning stages then everything will become much simpler!

Setting up a conservative, diverse investment portfolio can be done in just a few easy steps – even if you don’t have tens of thousands of dollars to invest right away. Investing in a more conservative way will increase the chances of your assets being protected, and greatly decrease your chances of “losing it all”, as so many have done in the past.

Start a 401K or IRA

Many individuals get started in investing with a retirement account. Whether it’s a 401(k) plan through an employer, or an IRA, you can get started in investing with a retirement account today. Retirement accounts are designed for long-term investing, and they’re tax-sheltered, which can help minimize your tax liabilities.

Not everyone has an employer that will match their contributions. If you’re fortunate enough to have an employer that matches them, max your investments out ASAP! This may seem like a financial stretch, especially if you’re already struggling financially, but I promise you it is worth it in the long run. Even if you have to pick up a side hustle to ensure you can max out your matched investments, do it now – for your future self!

Get started in investing with Fundrise

Fundrise is a real estatement investment trust. You can get started with as little as a $500 investment. Real estate is always a hot topic when it comes to investing. Sometimes the market is up, sometimes it’s down, but if you get in at the right time, it all evens out – and you can earn some money in the process!

Fundrise is easy to use, even if you’ve never invested in real estate before. When you sign up, you can choose a long-term investing goal. Fundrise will keep you on track by letting you know exactly how much to invest each month to reach that goal. They’ll also give you a heads up if you’re off track.

While Fundrise does have typical advisory fees, they’re minimal and you can offset them by inviting your friends to join Fundrise. You’ll earn 90 days of investing without advisory fees for each friend who joins Fundrise through your link. Your friends will also get their fees waived.

Set your Fundrise account up to where your dividends are reinvested automatically and you’ll be surprised at just how quickly your portfolio grows!

Auto-invest makes it easy to schedule monthly recurring investments to be automatically withdrawn from your bank account, so you don’t forget to invest each month and stay on track! I’ve found it’s best to have everything as automated as possible, to get into the habit of making investing a priority. If you wait until you can “afford” to invest, that time may never come. Treat it just like you would your emergency fund: make it a priority.

Much like my advice with the matched contributions, I highly recommend finding a way to make some extra cash so you can invest. Even on a limited budget, investing $100 or $200 a month will add up in the grand scheme of things.

Try Robinhood & Stash

With no account minimums and interfaces that are extremely user-friendly, Robinhood and Stash are both popular investment apps among pretty much every demographic.

Everything you need to know about investing with Robinhood can be found here and with Stash can be found here.

Read up on stocks and investing before you dump all of your savings into any type of account. I highly recommend nerdwallet.com or learn.stash.com for learning more. Look at fractional shares if you’re only able to invest a little at a time.

If you’re able to invest a little more, look into ETFs or stocks that pay dividends. Even though the dividends aren’t usually that high, every little bit adds up.

Many people think they’re too old to start investing and getting a return, but that isn’t true at all! You can see large returns on investments in under a year in many cases. Long-term conservative investing is the safest option, but day trading or investing in single stocks you have faith in can return much bigger yields in a fraction of the time.

Get Started in Investing Now

Always remember to keep your portfolio diversified. You can diversify by using the methods we talked about today. Fundrise does a solid job letting you know exactly where your money is invested, when your portfolio acquires more projects, and what your projected earnings will be over time. Investing apps like Stash will even show you how diverse your portfolio is, at a glance, right in the app.

If you are struggling to figure out which stocks to invest in, you can watch YouTubers like Chris Sain. Learning more about stocks and investing is going to pay off better than following a “hunch” from a friend.

Well, what are you waiting for? The sooner you get started, the better off you’ll be!