Don't fritter away your year-end windfall

By HANK EZELL

The Atlanta Journal-Constitution

The holiday season always brings showers of blessings — sometimes in cash.

Many thousands of Georgians will get bonuses this season, and the best workers among them will get an average of nearly 10 percent of their pay.

Many more found a check under the Christmas tree or in a stocking. And some have gotten year-end distributions from profits of mutual funds they own.

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Now the question is what to do with the money. The easiest answer is to head straight for the mall, bringing good cheer to those retailers moping over slow sales.

The other choice is to do good works for yourself and your family. You know, the boring stuff: Pay bills, put it in the bank, anything to build a better tomorrow.

"You should think twice, or even three times, before you spend it all on personal pleasure," said Bobbie D. Munroe, a certified financial planner and owner of Fraser Financial in Atlanta.

"When you're just getting started, windfalls are hard to come by."

Munroe, like many other financial advisers, has her own short list of good ideas for good stewards. While her ideas are admirable, people with small windfalls may need to pick just one or two.

Don't go away yet — Munroe's first step is to have some fun.

• Enjoy yourself. "We all need rewards," Munroe said. "When you reward yourself, saving becomes more palatable. That could mean anything from a weekend vacation to just a nice night out."

How much fun? "I suggest 10 percent of the money," she replied. "By limiting the amount at the outset, you can avoid the guilt pangs of blowing it all out."

• Give to charity. If you've got a big enough windfall, set aside an additional 10 percent for a favorite charity. And give before year's end, if possible, so you can get the deduction on your 2004 tax return.

• Be prepared. "If you don't have an emergency fund, this is the time to start," Munroe said. Your goal is to build a stash sufficient to pay your basic bills for six months. Think of this as comfort and joy if you or your companion lose a job or get sick.

• Squirrel some away. If you know you'll need money soon for one of life's biggies — car, house, college, wedding — consider setting a portion aside in certificates of deposit or a money-market account.

• Pay the bills. "Start by paying off the credit card with the highest interest rate," Munroe said. "One of the best things you can do to achieve financial freedom is to be debt-free."

• Gild your golden years. Most advisers put retirement savings high on their lists of what to do with windfalls. "You can set up an individual retirement account, preferably a Roth IRA if you're younger," Munroe said.

If you're still feeling the holiday spirit, you can look into the field of socially responsible investing.

Several hundred mutual funds now cater to values-based investors, including offerings from Vanguard and TIAA-CREF. Values include the environment, shunning the usual sins, nonviolence and religious beliefs — Catholic, conservative Christian, Presbyterian, Muslim and others.

You can check out the offerings at www.socialinvest.org or www.socialfunds.com.

It's also possible to start investing with a small amount of money. A survey from Hewitt Associates, a human resources consultant, showed that the average cash award, among companies that give holiday bonuses to every employee, was $550. If you're looking at a check from grandma, it may be much less.

For ideas on starting small, look at www.ajc.com/smallinvest.

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