How to spend a sudden financial windfall

If you’re in line to receive a bonus, or you expect a windfall from an inheritance, a gain from an asset sale or a tax refund, you have a nice problem: how to make the most of that extra money.

Focusing on projects that enhance and protect your home makes great sense, given that your home is likely your biggest investment.

Consider these house-smart uses for your extra money. Even if you don’t get a windfall, you can still use these strategies to maximize your investment with a home equity loan from loanDepot. Call today for more information.

Build up your emergency savings

Having three to six months of living expenses set aside for life’s curveballs means you will be less inclined to run up an expensive credit card bill when you encounter a big-ticket, unexpected expense such as repairing a leaky roof or replacing a broken heating and cooling (HVAC) system.

Save up for upgrades

A home equity loan can be a smart way to finance large renovation projects such as a kitchen redo or adding on a bathroom. For smaller projects - maybe swapping outdated fixtures or creaky appliances - a dedicated home improvement bank savings account can be smart. Having money set aside separate from your regular checking and savings accounts can help you stay focused on not overspending (and running up expensive credit card debt.)

Get energized

Investing in energy-efficient projects can help reduce utility costs - and be a plus for the environment. Some money-saving projects from EnergyStar.gov:

Insulate: Annual savings of up to $200 a year.
Lighten up: Energy-efficient light bulbs use around 70 percent less energy than traditional incandescent bulbs. They also need low maintenance, lasting up to 15 times longer. While the initial cost is higher, the lifetime savings per bulb is around $80.
Clean up. It’s estimated that Americans with old washing machines (at least 10 years old) shell out an extra $2.9 billion in energy and water costs. Old dishwashers are also energy and water hogs.
Step into cheaper hot water. Replacing a warhorse water heater with an energy miser can save you up to $3,500 over the life of the new system.

You can explore more projects at the Energy Star website checking whether upgrades qualify you for rebates or tax breaks.

Make sure your investment is properly protected

If it has been a few years since you reviewed your home insurance policy, you may need to increase your coverage to reflect building costs in your area.

And if your policy is for actual cash value (ACV), consider upgrading to a policy that will provide replacement cost (or extended replacement cost) coverage. An ACV policy will pay out only the depreciated value of lost or damaged property.

Let’s say your roof has an expected life span of 30 years. If it is seriously damaged when it’s 10 years old, you will be paid only two-thirds of the original cost (10 years = one-third of the life span) when you have basic ACV coverage. That won’t likely cover the cost of a new roof. With a replacement cost policy, you will be paid the going market rate to replace any lost or damaged property covered by your insurance policy.

Your year-end windfall is a great place to start with these money-saving changes. If you want to supplement that nest egg or implement the changes regardless, a home equity loan from loanDepot can be the first step. Talk to a licensed lending officer about your options.

Published Dec. 7, 2016

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