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So, you’ve just come into a nice chunk of money—congratulations.

But to spend, save or invest it? That is the question.

For the answer, well, that really depends on your financial situation (and how good you are at resisting the immediate urge to go shopping).

Here are 5 scenarios to help you figure out what to do with that sudden windfall:

1: If you’re carrying a lot of high-interest debt, consider using that money to pay it down faster.

Lump sum debt payment is one of the best ways to get the biggest bang, not only for those bonus bucks, but also for your overall financial situation. After all, high-interest debt such as credit cards, lines of credit and car loans are among the largest drains on a person’s budget. The more money you can put toward (paying down) that debt, the more disposable income you’ll be freeing up in the long run.

Ideally, your goal should be to have zero debt by the time you start collecting your pension.

If not, you run the risk of still trying to pay down debt and manage all of the other day-to-day expenses in retirement—all on your pension income (which, don’t forget, will be less money than your working years).

Are your credit cards already at a zero balance?

Then consider putting that newfound money towards the outstanding principal on your mortgage. Just be sure to double-check how much of a prepayment you’re allowed to make without having to pay a penalty.

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2: Help your kids save for post-secondary education costs by opening/contributing to an RESP.

It seems every year the cost of post-secondary education increases.

That’s where your financial windfall and an RESP equal the perfect team when it comes to saving for your children’s future tuition. In addition to tax-deferred growth, you can also capitalize on the Canadian Education Savings Grant (CESG), where you’ll earn 20% on every dollar you contribute annually—up to $500 per year on a $2,500 contribution per child (and a maximum lifetime CESG amount of $7,200 per child).

RESP 101: a 3-step guide to maximizing its total savings potential

3: Invest in yourself by growing that money for life-sized future goals.

From home renovations and summer trips abroad to purchasing a vacation home for retirement—big dreams come with a big price tag. Investing any extra money you receive can get you one giant step closer to making those dreams a reality.

The Tax-Free Savings Account is a great place to start your investment journey.

With a TFSA, not only will you benefit from growing that money exponentially over time (thanks to compound interest), when you eventually decide to withdraw those funds, you’ll be able to do so, tax-free.

Trying to save for your first home? Contribute that sudden windfall to a FHSA.

Through the First Home Savings Account (FHSA), you can put away up to $8,000 per year, up to a lifetime maximum of $40,000. Money you will then be able to withdraw tax-free (similar to a TFSA), so long as those funds are used towards making a first-time home purchase.

Learn more about the FHSA

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4: Also consider setting those extra funds aside for next year’s RRSP contribution.

Receiving a cash flow boost (especially a sizable one) can potentially push you into another tax bracket.

Get a head start on reducing your tax liability for this year by putting that windfall towards next year’s RRSP contribution.

Not only will you be avoiding the last-minute contribution rush, but it just might also help you get a (bigger) refund.

5: Review your overall financial situation and make any necessary changes/updates.

As exciting as it can be, a windfall also has the potential to complicate matters, not only on the financial side of things, but personal.

What does this mean?

Well, to put it simply—life happens.

People get married/divorced, have kids, retire and pass away. Throw in a sudden windfall amidst these types of life-changing events and you may find yourself dealing with a whole new set of challenges. That’s why it’s always a good idea to continually review and update important financial documents (such as your estate plan) to ensure both your personal and financial interests are protected.

Need advice on how to make the best use of a lump sum boost in cash flow? We can help with that.

From the pay grid to your pension plan, we have a unique understanding of your world. It’s the kind of educator-specific insight that will help you to maximize every dollar of that windfall so you can achieve your ultimate financial goals for the future.

Speak to one of our financial advisors today

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