Received a Cash Gift? Here Are 5 Ways of Best Utilising It

A friendly guide on ways to put that windfall to good use

• A large windfall or monetary gift can seem disruptive to a daily routine. Understandably, it can be extremely tempting to spend it immediately, but just hear us out before you go and blow it all!
• There are many options and ways to use cash gifts besides mindless spending.
• It is important to have a solid financial plan and savings in the right places before considering the purchase of expensive goods.

Occasionally, we may receive a large windfall out of the blue. This may be a year-end bonus, a monetary gift on festive occasions like birthdays, or following the news of a loved one’s passing. 

Luckily, you have options at your disposal on how to spend that cash! You may want to spend the money on a good cause or save it for a rainy day - figuring out which is the best option to take may be challenging. Here are some ideas you can consider if you ever find yourself in this financial situation.

1. Pay Off Your Debts

This is important for individuals with high-interest debt, such as housing loans or credit card debt. If you are liable to those, you may want to consider settling them immediately, if possible. You may look to pay off other loans first, depending on the money you have received. This option may not be the most attractive, but it saves you from paying extra interest. You will have more money in your pocket to use on whatever you fancy in the long run. 

There are popular debt reduction strategies available to assist you in debt repayment. These include the debt snowball method and the debt avalanche method. Debt can be crippling and stifling. Some resources are always available for you to tap on if you ever feel overwhelmed.

2. Consider Your Financial Goals

Setting your financial goals will help motivate you to save and spend within your means. There are various reasons for setting aside that cash gift. You may need to renovate your home, start a family or even start a retirement savings plan. 

Once those goals have been set, you can consider building up an emergency fund first. Emergency funds should sustain you for three to six months of expenses. In these times of economic uncertainty, you may want to stretch that timeline to last more than six months. This is dependent on your lifestyle needs. Your emergency funds should be highly liquid so that you can access them readily in times of need.

3. Review Your Budget

Budgeting is a proven way to ensure you do not overspend and end up having to eat into your hard-earned savings. Ideally, you should already have one. Many adopt the 50/30/20 rule for budgeting. It is an easy, straightforward way to manage your earnings, savings and expenses. This rule has become popular for its simplicity and intuitiveness. You can modify it to suit your personalised needs. We believe that emphasis should be placed on the 20% savings and investment part. Implement a ‘pay yourself first’ rule that prioritises long-term saving goals like retirement. If you like to learn more, you can refer to the article link below:

When you get a cash gift, consider filling in any shortfalls from your essentials category over the last month or two. This will help prevent any high-interest debt from building up. 

After this, split the remainder of your cash gift between savings and discretionary how you want. 50:50 is a good suggestion; after all, it is the allocation we recommend for splitting your raises and bonuses.

4. Donate Money for a Good Cause

You can donate the cash gift to charity. Since the money is a gift, you are under no pressure to generate profits or returns. If you have always supported a cause, donate to a charity serving that purpose. This way, you are using the gift for a good reason and making a meaningful contribution to society.

We mentioned above about splitting the remainder of your cash gift (after paying off high-interest debt) between savings and discretionary spending. As a suggestion, your charitable donation could come out of the discretionary portion!

5. Treat Yourself

With all that said, as long as you are not drowning in debt, you can have some fun. Cut yourself some slack and splurge on yourself once in a while. You deserve it. Consider buying something you have been eyeing for a while. If you have a solid financial plan in place, purchasing something superfluous should not be too much of an issue. Make sure you have savings in all the right places first.

These are some suggestions to get you started. You will get wiser at making better financial decisions for your finances. Large inheritances or settlements can disappear without prudent financial planning. If you ever find yourself faced with that situation, you may want to consider putting this guide to good use.

WHAT TO DO WITH CASH GIFTS. COMPLETED. ✅