How to make the most of your windfall.
There are few feelings better than getting an unexpected lump sum of cash. But, before you go spending it all, here’s a great way to both enjoy your money now and to make things easier for yourself in future.
It’s called “The Rule of Three.”
Let’s assume you come into $10,000.
Split it into three piles of money, let’s say $3,500 each.
With the first pile, go on an amazing vacation or create truly lasting memories and experiences— Take a trip across Europe or the US; go somewhere you would never normally go — See the world. This will give you great rewards — Experience, memories, skills, and confidence — All of these things will pay dividends in the future, plus you’ll have a great time and will feel that you’ve rewarded yourself for your hard work.
With the second pile, save for the medium term — You might want to get married, buy a house or start investing. Put the money into a high-interest account or other low-risk investment and regularly build it up. This can also work as a short term ‘safety net’ pile of cash and gets you into the habit of regularly saving.
With the third pile, invest in the longer term. Put the money into either a retirement plan / pension, or if you think you might need the money sooner, into an IRA or other tax shelter. Over a period of five or ten years, you’re likely to see good returns.
That’s the “rule of three” — One pile for now, one pile for the mid-term, and one pile for the long-term. This rule will help you get the most out of your money for the rest of your life.
It means that you’ll both be enjoying life and building up security for your future, so that you can enjoy it then as well.