Thursday, March 20, 2014

Preparing for a Financial Windfall - Revisited

Last May, I wrote about financial windfalls. I did a little exercise where I determined how I would allocate a sudden influx of money. Back then, I still had $12k in student loan debt. Now that I'm debt-free, my financial goals are wide-open. So what if I were to come into a financial windfall now, post-debt? Here's how I would handle each of the following windfall ranges:

1k-10k
1. Get emergency fund up to 6 months of expenses ~ $7k
2. Take a trip to a country I've never been to ~$2-3k

10k-25k
1. Get emergency fund up to 6 months of expenses ~$7k
2. Take a trip to a country I've never been to ~2-3k
3. Invest the rest (Max out Roth IRA and start a Traditional IRA) ~$11k
4. Start a "house fund" - money for when I want to buy my own place - $3k

25k-50k
1. Get emergency fund up to 6 months of expenses ~$7k
2. Take a trip to a country I've never been to ~2-3k
3. Invest the rest (Max out Roth IRA and start a Traditional IRA) ~$11k
4. Start a "house fund" - money for when I want to buy my own place - $29k

50k-100k
1. Get emergency fund up to 6 months of expenses ~$7k
2. Take a trip to a country I've never been to ~2-3k
3. Invest the rest (Max out Roth IRA and start a Traditional IRA) ~$11k
4. Start a "house fund" - money for when I want to buy my own place - $79k

100k and above
1. Get emergency fund up to 6 months of expenses ~$7k
2. Take a trip to a country I've never been to ~2-3k
3. Invest the rest (Max out Roth IRA and start a Traditional IRA) ~$11k
4. Buy a house or condo with cash!~ $200k

The rest is pie in the sky!
5. Put half of the remaining amount towards helping my parents
6. Contribute the rest to charity. Ideas: Give a loan via kiva.org; Gift an endowment to my alma mater; Set up a study abroad or language scholarship at my high school; Donate to a local nursing home, assisted living, or hospice.

Now that I've paid off my debt, the answers really haven't changed that much from when I did this exercise almost a year ago. I care about building up my emergency fund and building my assets, both by socking away money in my investments and by purchasing a home of some kind. Any excess would go to helping my family and to charity.

Again, I'm not splurging on fancy cars or high-end clothes. I did make room for a vacation to a different country. And if I'm completely honest with myself, I'd probably take $500 of a windfall and buy a new lens for my camera!

It has been fun to revisit this concept of a windfall now that I'm out of debt. It seems like the possibilities are so much more fun now!

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