Unexpected Financial Windfalls

As I have mentioned here before, my family and I will be moving into a new home next month. The new house is rent-free because it belongs to my father-in-law and he is letting us live there until he retires in four years. I had fully expected that I would be making one more rent payment for the month of January. However, my landlord pointed out to me that I paid the first and last month's rent when I moved into my current home. As a result, my last rent payment was indeed my last rent payment. I had an unexpected windfall of $750 already in my checking account!

Like most people, I was tempted to go out and buy something for the family. I do plan to take them out to the movies, which we haven't done in a long time. I have already put the rest of the money to good use. I started working on one of my New Year's Resolutions: to eliminate $10,000 of debt this year.

I took $600 and completely paid off one of my credit cards. It was a great feeling to write the check and see the balance I owed drop all the way down to $0. It was also a tremendous load off my mind. I've probably paid $32 in finance charges on that card in the past year. That's not a lot, but it could have been put to better use in my own bank account.

So, I now have $9,400 in debt left to eliminate in 2008. The New Year hasn't even started, and I'm already off to a great start with my resolutions!

This brings up a good question: when you receive an unexpected financial windfall, what is the best way to handle it? I use the following list as a guideline:

1. Do I have outstanding debt? If so, apply it toward the highest-interest debt first.
2. If there are no outstanding debts, put the money in my emergency fund.
3. If my emergency fund is already fully funded, put the money towards my retirement.

Of course, I always keep a small portion...10 percent or so...for family entertainment, meals out, or for something my kids really need, like new shoes or clothes. This time, we'll be going to the movies. Never just completely blow an unexpected financial windfall. If you have debt or lack savings or need to catch up with your retirement fund, that unexpected windfall can help you catch up.