Amy Hamilton-Chadwick 27 Apr 2023
Lifestyle Money

A tax refund, a bonus, an inheritance – what are your best options when a surprise sum of money falls into your lap? The spending possibilities are almost infinite, but if you want to improve your financial position, here are five ways you could utilise your newfound cash.


1.      Reduce high-interest debt

Paying off debt is a powerful way to make use of any spare money.

Short term lending like credit cards and personal loans have higher rates of interest. When you repay debts like these, you effectively ‘earn’ this rate of return on the money you invest, since you no longer need to make the repayments. Few other investments can give you returns this high, and investment returns can vary widely – but the ‘return’ on repaying your debts is guaranteed.

2.      Plump up your emergency fund

Hopefully you already have at least a small emergency fund – if you don’t, having a lump of cash is a great reason to establish one.

Having a few months in living expenses sitting in the bank gives your financial resilience a major boost. If your car needs repairing or you lose your job, you’ve got some money to help you weather the storm. Without any savings, you may find yourself needing to take out a high-interest loan, which can make it harder to save and get ahead.

3.      Put it into KiwiSaver

If you don’t have any high-interest debt and your emergency fund is looking healthy, you could put all or part of your windfall into your KiwiSaver account. Depending on your age and the type of fund you’re in, it could make a considerable difference by the time you’ve reached 65.

For example, if you turn 40 and put $10,000 into a fund returning 5.5% a year, it will likely grow to reach just over $38,000 by the time you’re 65.

Don’t want to lock your money in until you’re 65? You could consider investing in a similar but non-KiwiSaver fund so you can take your money out at any time.

4.      Pay off a bit of your mortgage

If you have a home loan, applying $10,000 can make a surprising difference over the life of your loan.

Let’s say you’re 40 and your home loan is $500,000. You have 25 years to run on this loan, and you’re paying an interest rate of 6%. The total interest you’ll pay is around $466,000. Making a one-off lump sum repayment of $10,000 now saves you around $33,000 in interest over the lifetime of the loan, assuming a steady 6% interest rate. Your return is lower than putting the money into KiwiSaver, but the bonus is that you’ll be mortgage-free one year sooner.

5.      Invest in yourself

Can you expand your knowledge, qualifications or skills in a way that will help you grow your future earnings? Often this means taking a course or paying for expert advice. For instance, learning a language that will help your career, getting an online diploma, or consulting a financial advisor to learn how to grow your money.

These types of investments can pay off in new job opportunities, higher pay and faster career progression. This might allow you to turn a $10,000 windfall into a job that pays you an extra $10,000 a year, so you keep making an outstanding return on your investment.


Please note: This article is general information only. It does not take your individual circumstances and financial situation into account and does not constitute financial advice. 

Lifestyle Money