Windfall Management – Investing in Yourself

By October 5, 2011Debt, Save Money

If your boss offered you a $100 a month raise, would it make a difference in your life? Almost certainly, no matter what your current income level, an extra $100 per month would come in handy.

You don’t have to wait for your boss to offer you a raise to change your standard of living, and tax time gives you a chance to give yourself a raise.

If you have survived the tax season and the check really is in the mail – or more likely, headed by direct deposit to your account within a couple of weeks, think fast – how are you going to spend the money?

Do you have a list of things you’d like to buy? A big screen TV? A used car you’ve had your eye on?

When a windfall comes your way, the first thing you may think of doing is spending the money, but there’s something better you can do with the windfall that is almost like giving yourself $100 a month raise: pay off or pay down a credit card.

Why? Paying off a credit card with high interest rates not only immediately affects how much you’re spending each month on high interest minimum payments, but it also improves your credit rating, and when you improve your credit rating, the money you do have to borrow costs you less.

Consider trying to purchase a new car with a credit score hovering around 560. The car dealership can either laugh you out the door, or offer you a payment plan that includes a 7.5% or higher interest rate. With better credit, you could get a 2.9 – 3.5% interest rate. The difference? $1200 per year or more!

Raising your credit score is a slow process which means that you will have to wait to buy the things you want right now, but consider the things you’ll afford in the future, without going in to debt for them.

Rather than spend the tax refund money immediately, take some time to go through the pile of bills on your desk and make a note of the ones that have the highest interest. Pay as much as you can afford into the one with the highest interest rate, paying it off completely if you can.

One tax return or financial windfall can be enough to get you started on the path to debt freedom. Once there, you can reward yourself by using your free cash to buy that TV or a brand new car. Invest in yourself now, so you can actually enjoy your money later.

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