Four tips on what to do with a windfall
If you were lucky enough to land a windfall, before you rush off on that long dreamed of holiday, here are four practical considerations:
- Reduce your debt
The most financially sensible thing you could do, is pay off debt. Before doing anything else with you cash, it would be wise to pay off loans which charge you the highest rates of interest, such as credit cards, car or personal loans, store cards or short term loans.
Only then should you consider paying off your mortgage, in full or in part, because your mortgage is likely to be charging you the lowest interest rates. Apart from the savings you’ll make from lower interest payments, getting rid of debt could also eliminate financial stress and allow you to focus on smarter financial decisions for your future.
You should speak with a financial adviser about your current situation. It doesn’t matter what stage of life you’re at, how much money you have, or how much advice you need
- Plan for retirement and build up your super balance
You should consider taking advantage of non-concessional contributions and build more of your wealth within super, rather than having it all invested in your own name in the bank. Non-concessional contributions refer to after-tax amounts which are indexed each year.
Under current rules, you could contribute $180,000 in non-concessional contributions. Further, and subject to regulatory compliance, if you are 64 years old or less anytime in the financial year and you make a non-concessional contribution, it would trigger a ‘bring-forward’ provision, and you could contribute up to $540,000. This would result in a significant tax saving on your investment earnings, but it would depend on your personal income levels. Keep in mind, though, that the downside of building up your super is that you cannot access the money until you stop working or retire (subject to meeting a condition of release).
- Diversify your investments
Keeping large sums of money in the bank at current term deposit interest rates may not be the best investment in the long term. You could work out what large capital expenses you may have over the next three years and leave this sum in the bank, but the remainder could be invested in a more growth-oriented manner, depending on your appetite for risk.
If you have already purchased an investment property, you could consider building up investments in Australian shares, international shares and other asset classes to diversify your investment portfolio.
You could also look at a managed fund that is appropriately diversified across a number of asset classes, but a good portion could be in Australian shares which aim to deliver the growth that can be achieved over the long term with this asset class.
- Find a financial adviser
You should speak with a financial adviser about your current situation. It doesn’t matter what stage of life you’re at, how much money you have, or how much advice you need, it could be beneficial for you to sit down with a financial adviser and work out your short and long term financial goals and aspirations. For more on how you could benefit from financial advice, see The right advice can make all the difference.