What to do with a $10,000 windfall

Scenario 2: Married with children

You're in your 30s, with rug rats underfoot and more debt than you've had in the past. You're a homeowner now and, like most workers your age, saving at least something for retirement. Here's how to handle your windfall:

• Use $500 to $1,000 for a weekend away. By that, I mean just the two of you. Making time to reconnect is essential in these busy times, when most of your waking hours are filled with work, child care and other obligations that distract you from each other. Consider it an investment in your marriage, since it can help you avoid divorce, that great destroyer of wealth.

• Pay down toxic debt. You're more likely to have credit card debt than you were in your 20s, according to Federal Reserve statistics, and the amount you owe is likely to be higher. Get rid of this drag on your finances and resolve to pay off credit card balances in full each month. If you can't, switch to cash.

• Boost your 401k contributions. You're probably in a higher tax bracket now, so you get more tax benefits from contributing to 401k's and other tax-deductible plans. Once you've increased your contribution percentage at work, you can draw from your windfall to help compensate for the slightly smaller paycheck. Since you're getting a tax break on the contributions, you'll probably miss the money less than you think; in any case, your windfall can give you time to trim your expenses to adapt.

• Save for your kids' college expenses with a 529 plan. You need to be on track for retirement savings before you think about your kids' college funds, but assuming you are, savings plans known as 529s are a great place to save. They're treated favorably in financial-aid calculations, and withdrawals are tax-free when used for qualified education expenses. Read "How Uncle Sam wants you to save for college" for details.

One thing you shouldn't spend your windfall on: paying down your mortgage. You almost certainly have better things to do with your money than pay off low-rate, tax-deductible debt. Read "Don't rush to pay off that mortgage" for more details.

Scenario 3: Divorced in your 50s and staring down retirement

Divorce is a serious financial (as well as emotional) setback, and chances are good you're left with significantly less wealth than had you remained part of a couple. Meanwhile, retirement is looming. Here's what to do with your windfall:

• Spend $2,000 or so on a fee-only financial planner. Do-it-yourself planning might be fine for younger folks, but you're entering a critical period of your life where financial mistakes can have serious, permanent repercussions. You may not have the time or earning power to recover from bad investment decisions, so you need to seek out objective, experienced help. You can get referrals to fee-only planners from the National Association of Personal Financial Advisors, although these advisers tend to limit their practices to high-net-worth individuals. For by-the-hour help, you can find fee-only planners who deal with middle-income folks at the Garrett Planning Network. Your planner will outline a plan for dealing with any toxic debt, such as credit cards, as well as for boosting your retirement funds. You might also want to read "8 moves you must make at 50" and "55 and haven't saved a dime?" for more advice.

• Boost that emergency fund. You're likely in your peak earning years right now, but a job loss can be devastating. The more you earn and the older you are, the longer it can take to find equivalent employment. You don't have a wage-earning partner, so it's even more critical that you have at least three months' expenses, and preferably six months' worth, in a high-yield savings account.

One thing you shouldn't spend your windfall on: supporting your adult children. Unless they're disabled, they should be on their own.

Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "Your Credit Score: Your Money & What's at Stake." Weston’s award-winning columns appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Updated June 16, 2009

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