Windfalls can come in a completely unexpected event in one’s life, particularly when they are not expecting anything. Whether it’s winning the lottery, receiving settlement, or getting inheriting money, people think that winning from a windfall is far-fetched. So when the opportunity comes, they tend to spend everything until they realize that they have nothing left anymore. This leaves the question: what to do with a windfall?
Even if it’s not as big as the unexpected scenarios mentioned above, it is still important to know how you can be prepared when a windfall comes. Whether you have received a windfall as a birthday gift, graduation gift, or a tax refund, you still need to know how you can spend your money wisely. If not, you might put yourself in deeper financial trouble than before.
What to Do With a Windfall
Accepting the fact that sudden money is a reality is the first thing that needs to be done. Most of the time, people who accept windfalls still live in a subconscious part of their brain that tells them everything is a dream. Because of this, they spend their money like there’s no tomorrow. Later on, they realize that they have spent all the money on useless things without even realizing it—this is about the time they wake up. If you don’t want this to happen to you, you have to know how you can make smart choices with the sudden money you have received.
Get Out of Debt
After you have accepted the reality that you actually received a windfall, the next thing you need to do is get out of debt. Pay off all your debt so you can be free of them. When you do this, you will get to enjoy your windfall more. Even if it takes up most of the money, you will no longer be bothered with your debt.
Investing Your Money
After you have paid off your debt, the next thing you need to do is invest your money on a certificate of deposit or a high-yield savings account. You can talk to a professional financial planner who will help you manage your new wealth. Through his guidance, you can find the help you need in building more money in investments. He will teach you how you can invest the money wisely and properly. But before you do, save about 5% from the windfall that you have received.
Enjoy Your Winnings
Remember the 5% that you saved? Yes, enjoy it. This will allow you to have no regrets and stop you from wondering ‘what if’ on the money you received. With this money, you can buy new things that you’ve always wanted for your home or yourself. If you feel this is enough to spend on a vacation, then you should do it. You can choose where you want to spend the money on. However, you have to be sure that it will only cost you 5% from the windfall that you received. If it is not enough to pay for a new car, then opt for something else. Resist the temptation to add more to the 5% money you have set aside for fun.
Remember, a windfall can occur just once in your life. It is up to you how you control yourself. Always keep in mind that you do not need to change your lifestyle just because you have received some money. Instead, consider yourself as a quiet millionaire and live a frugal lifestyle. This is the best thing you can do with a windfall.
So, if you ever got a windfall, what would you do with it? I want to know.
This post was written by YFS.
What will I do? Hmm… I’m gonna cross that bridge when I come to it! 😉
I suggest you give me half!
I think setting aside a small portion to outright ENJOY is important. That way you can use the rest of the windfall responsibly… and not feel like you’re missing out on it.
I agree, good call. But, it depends on how much debt I’m in. I might just pay down something and act like the windfall never happened.
Good plan! I am definitely a fan of having a little fun with the windfall.. but it depends on how far in debt I am.
I love the idea of saving some of it for FUN. I guess it depends on how big of a windfall it was, but I’d use the larger portion that I didn’t have fun with to pay off debt, buy a house, and save for retirement/kids’ college (in that order.)
Pay off debt would be the number 1 thing after fun for me as well. Might as well pay for my past mistakes with the new money
This is a great post! Coincidentally, we wrote a similar one not too long ago about how to not blow your tax refund.
Similar to what you said above, if I received a windfall I’d take care of urgent pressing needs first and then save and budget the rest.
Thank you for sharing this post!
I think if people just get the urgent stuff out the way they can enjoy the windfall more. No need to stress after you take care of the big stuff.
I guess I’m the boring one for thinking that all of it should go towards paying off debt first.
Paying off debt is fine. If that makes you happy go for it.