Ways to Spend Your Money
Most people begin the selling process with a specific need in mind. With money in your bank account, you finally have the resources to address a variety of financial dilemmas. When a pressing debt or emergency cost demands attention, people discover that funds locked in their structured settlement or annuity offer a solution, allowing them to move forward.
The majority of sellers use their cash to:
· Make a significant life purchase (house, car or business)
· Fund a divorce
· Pay off credit-card debt and improve their credit score
· Pay off medical bills
· Finance a college education or pay student loans
· Pay for a funeral
Know that how you spend this money now has repercussions for your future financial well-being. The best decisions are ones that ensure that the sacrifice you decided to make – giving up long-term income for money now – pays off.
Making a Major Life Purchase
At several points in our lives, we have to make a significant purchase, like purchasing a car, home or business. The emotional part of the decision is one thing. Making sure the investment is a wise one is another. Some fast facts:
· Buying a House – The average first time home buyer is 31 years old, according to the California Association of Realtors. The average price of an existing home is $188,000, according to the National Association of Realtors.
· Buying a Car – The average number of cars purchased in a lifetime is 9.4. The average transaction price for new, light vehicles in 2014 was $32,495, according to Kelley Blue Book.
· Starting a Business – The average cost of starting a business from scratch is $30,00, according to the Kauffman Foundation. The average startup raises $78,406 to get off the ground, according to Forbes.
Buying a House
Whether you’re single, married or starting a family, going from a rental apartment, condo or house to a home that you own is a big step. Culturally, it symbolizes a move to adulthood. Realistically, it means you’re putting down roots and making the call to build equity. After years of paying rent with no slice of ownership, home ownership involves having something tangible to sell when your next move comes.
The most significant obstacle to buying a house is the down payment. The amount is a percentage of the price of the home, and the exact percent depends on the type of loan you secure. The lowest down payment is usually 5 percent, and most loans ask for 10 percent down.
The good news is you can use the money from the sale of your annuity or structured settlement for the down payment or perhaps to even pay for the home in full.
Others use their lump sum to pay down a significant portion of their mortgage. It might be especially useful, for example, if you received a structured settlement following an accident you were in as a child. The annuity was set up to pay you a small amount each month for living expenses but didn’t take into account a significant amount of money required for new down payment on a home.
Buying a Car
Whether you’re buying your first car or your fifth, there are bound to be up-front costs. And as with home buying, the more expensive the vehicle, the higher the initial values. Cars deteriorate much faster than homes, though, meaning they will need to replaced at some point.
Even if you’re buying an inexpensive new car, you can benefit from putting down more money up front because you’ll have lower payments or fewer payments later.
Settling for a used car can sometimes also be a wise choice, but resist the urge to buy the cheapest vehicle out there — you could end up paying for repairs and consistent maintenance down the road. Leasing a car may also be a viable option. It’s similar to renting an apartment, during which period you pay a monthly fee for using the vehicle. That fee can skyrocket, though, if you drive more than miles.
If your car suddenly breaks down and you have no funds to replace it, the best solution may be to use some of your annuity funds. Selling your payments to receive this money up front can solve your car financing dilemmas and alleviate long-term debt.
Starting a Business
Gathering capital to get a business off the ground is difficult. The amount of money you need to buy or rent a commercial property could be substantially higher than what it could cost you to buy a house. Plus, purchasing or leasing property isn’t the only startup expense you’ll face. You’ll also need capital to buy equipment, start marketing campaigns, hire accountants or lawyers, recruit staff and pay overhead costs.
It can be difficult to attract investors at this time, primarily if you’ve never run a business before. Using some money from your structured settlement or annuity may be a way to finance your entrepreneurial goals.
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