If you are fortunate enough to receive any form of financial windfall, whether it be an inheritance, bonus, investment returns or money won through a competition, use that money to service your debt first, Farzana Botha, says segment solutions manager at Sanlam Savings.
“A windfall can be overwhelming, especially if its unexpected and as a result of losing a loved one. Regardless of how you have landed your new-found cash, you should take a week or two to apply to digest this new financial situation,” Botha said.
She said that when people pay off debts they create more disposable income and can then use their disposable income to start investing.
Botha said: “Pay off debt with the highest interest rate first, such as loans and credit cards. The things that you are paying the most amount of interest on, are the things you need to squash as quickly as possible.”
Charnel Collins, CEO of National Debt Advisors (NDA), said: “Paying off your debts in manageable monthly instalments and using any extra cash towards settling your debts will help ease financial stress.”
Botha recommends that people put their money into an appreciating asset, such as a bond or an interest-bearing account where the funds will earn capital growth.
Cash windfalls can also be put towards emergency savings.
People need to have at least three months of salary saved up in an emergency fund, according to Katlego Gaborone, a financial planner at Momentum.
Botha said, “When you have this unexpected cash flow if you put some money aside, you are protecting yourself from future risks.
“Advice is free. A financial advisor or a professional who is impartial and who can help you to make decisions when it comes to the best way to manage your money. A financial planner can also advise what the tax implications of an unexpected lump sum might entail.”
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