Five Things to Do With a £10,000 Windfall

Annie 8th Jun 2024 No Comments

Reading Time: 5 minutes

What would you do with a £10,000 windfall? Whether you’ve finally received a bonus at work or you’re headed for an inheritance, coming into cash that you weren’t expecting can be a welcome – if confusing – experience. While it’s easy to buy yourself ‘a few little treats’, there are lots of ways to make sure this extra cash works hard for you and your financial future to increase in size and boost your wealth! We’ve come up with five things to do with a surprise £10,000 windfall to give you some ideas.

First steps with a windfall

Fill your ISA

Start investing in stocks and shares

Top up your pension and National Insurance

Pay your debts

Invest in physical things

First Steps When You Get a £10,000 Windfall

So you’ve got a spare £10,000 – amazing! However, before you get too excited spending it, take a breath. There are a few things you ought to do before you get spendy.

First, make sure the bonus hasn’t put you over a tax bracket. At time of writing, the tax brackets were 0% up to £12,750, 20% between £12,751 and £50,270, and 40% between £50,271 and £125,040. If you’re very lucky, you’ll hit the highest additional rate which is for income over £125,041 and is 45%.

This means if your salary is, for example, usually £41,000, and work gives you a bonus of £10,000, that pushes you into the 40% tax bracket. Make sure you know where you stand before you spend a penny of your new money.

If your cash is an inheritance, make sure all Inheritance Tax has been paid before you receive the money.

For you lucky ones out there who have won the £10,000 such as on the National Lottery, there is no tax to pay.

Conduct a Financial Health Check

Make sure you know what state your finances are really in before you decide what to do with your £10,000 windfall. A financial health check means looking through all of your bank statements, credit cards, student loans, and your household budget to see if you’re overspending or in debt somewhere. Doing this will make sure you can assess where you really ought to spend your windfall to put you in the best financial position for the future possible.

When you know exactly where your finances stand, it’s time to plan what to do with your cash!

Fill Your ISA

Individual Savings Accounts (ISAs) are the most tax efficient savings accounts you can get. There are different types, from the easy access cash ISA to a stock and shares ISA, a Lifetime ISA for first-time buyers, and an Innovative Finance ISA for those who can afford to take more risk. There may soon be a ‘British ISA’ but that all depends on the outcome of the General Election in July 2024.

You can pay in £20,000 a year to your ISAs. You can do this across different ISA types, but the total allowance is £20,000. So, if you haven’t topped up your ISAs this financial year, or you have space left in your annual allowance, this could be a suitable investment for your £10,000 windfall. Remember that if you put the money into any type of investment ISA, the amount you get out could be less than you put in.

If you have children, remember they can also have an ISA and this is a great way to set them up with a nest egg when they turn 16. Paying something in now while they’re young gives the benefit of time – and that means compound interest – to add to their pot when they are old enough to access the money.

Start Investing in Stocks and Shares

If you’ve already maxxed out your ISA allowance for the year, or you want to try investing for the first time now you have cash that you didn’t plan on having before, it could be time to try your hand at the stock market. A stocks and shares ISA is the easiest and most tax-efficient way to do this.

However, you might also want to take a look at investing in cryptocurrency like Ethereum, or invest in individual stocks using an investment platform. We have plenty of investment guidance on MoneyMagpie, including the newsletter, but it’s important to always seek independent financial advice before you invest. There are so many different ways to invest in the stock market, from tracker funds to undervalued stocks, that you should take plenty of time to do your research before investing.

Remember: investments can go down as well as up, and nothing is ever a surefire win. Investments are usually designed to be long-term projects, to ride out the peaks and troughs of the market, so make sure you can afford to lock away your £10,000 windfall (or part of it) to give your investment portfolio time to grow.

Top Up Your Pension and National Insurance Contributions

We know this is a boring one but it’s also important. If you’re missing National Insurance contributions on your record, it could make sense to pay to top them up now. This will ensure you will receive the full State Pension amount when you reach your eligible age, and could make the difference between a lean and comfortable retirement.

If you can, put some of your £10,000 windfall into your workplace or private pension, too. Even if you’re in your twenties and retirement feels too far away to think about, it means your money will have literally decades to work hard for you in a tax-efficient way to help you settle in a comfortable retirement.

Pay Your Debts

Perhaps we should have listed this one first, but there is one key reason we didn’t: your debts might not have a high interest rate compared to savings accounts. If you only have a small credit card debt with 0% interest and pay it off each month anyway, settling the card early won’t make much difference, so you’re better off putting the cash into a high interest account.

Look at your debt AND the interest rate, and compare it to your other options like ISA savings rates before you decide what to do with your cash.

Of course, if debt is beginning to overwhelm you, then you should absolutely use a £10,000 windfall to get your head above water again. However, if the only big debt hanging over you is your student loan (for example), there could be other ways to invest your windfall that are more financially savvy.

If you’re not sure whether to use a windfall to pay off your debts, ask yourself:

Am I tied into a contract with early repayment charges (like a mortgage or car finance loan)?
Are my utilities bills overdue?
Is the interest higher than any on a savings account I could get?

If you answered ‘yes’ to any of them, paying your debts is your priority.

Invest in Physical Things

Investing doesn’t have to be stocks and shares! There are lots of ways you can invest your £10,000 windfall.

If you’re a homeowner, home improvements can make a huge difference to maximising the enjoyment of your home and the price you could get when you sell. Adding a bathroom under the stairs, or an en suite, or extending your kitchen into a sun room, for example – they’re all worthwhile investments.

You could look for designer handbags, whisky or wine, or even vintage toys if you want to start a collection. The thing is, there are so many ways to invest in physical things – even gold! – that can help you diversify your finances and help protect against the ups and downs of the stock market.