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What would you do with a surprise £500 windfall?

It’s your lucky day – a £500 surprise windfall simply lands in your lap. Result!

But what do you do with it? Pick up a pair of designer shoes? Shove it in a savings account? Treat yourself to a weekend away?

Well, according to the Money Matters survey from McCallum Layton Research and Marketing Consultants, we’re actually much more likely to save the money than spend it on treats.

And the number of people who would save their unexpected stash has grown over the past four years too, while the number who would pay off debts or use it to cover day-to-day expenses has fallen.

The average amount that would be spent on treats remains roughly the same at £104.

Best ways to spend £500

We asked our money expert Andrew Johnson for his top five ways to spend an unexpected £500 windfall; here’s what he said:

1. Pay off any outstanding debts.

First I’d pay my priority debts, things like any mortgage, rent or council tax I owe . These aren’t necessarily the largest debts or the debts with the highest interest rate. They’re the ones with the biggest impact if I couldn’t cover them. Then I would target any other debts starting with the highest interest rates - as shown on your monthly statement or loan agreement.


2. Make a lump sum contribution into your personal pension.

The money wouldn’t be available till you’re over 55, but new pension freedoms allow more flexibility in how you’ll be able to access your fund. The lump sum would attract tax relief at 20%, effectively increasing the gross payment into my scheme to £625.

If you’re a higher rate tax payer then additional tax relief of £205 could be claimed either through PAYE or a personal tax return, reducing how much you need to pay income tax on. In addition any growth within the pension would be free of capital gains tax.

3. Pay off some of your mortgage.

The £500 could be worth typically two to three times this amount in saved interest rate payments over the term of the mortgage. Be careful though as you could be charged for paying your mortgage off early or making additional monthly payments. Most mortgages will have an agreed monthly limit of up to 10% a year without penalties.

4. Put the money into a Cash Isa (NISA)

Cash ISAs are savings accounts that pay interest that is free of income tax. On 1 July 2014, Cash ISAs and Stocks and Shares ISAs were merged into a new single ISA (NISA) with a much higher limit of £15,000 per year. Many Cash NISAs will tempt you in with a high first-year bonus rate. If you go for one of these, set up a reminder to check what rate you’ll be switched to after the bonus rate runs out.

5. Build a savings buffer against unexpected costs and treat your girlfriend.

 Treat your girlfriend to some flowers or a nice meal and put the rest towards building an emergency fund.  It’s important to be prepared for unexpected expenses or a change in your circumstance that would hit your income, such as losing your job. An emergency savings fund would help create some breathing space to help you get back on your feet. As a general rule of thumb, three months’ income after tax is a good buffer to aim for.

What would you do with a lucky £500 windfall? Let us know below.

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  • denis maddy / 23 April 2015

    I have a deat against my property, I would use the money to pay towards it

  • andrew / 5 March 2015

    if i go self employed ,does this effect my pension status


    ADMIN - Hi Andrew, Self-employment doesn't effect your pension status but extra income could effect your tax position