A windfall is a large, unexpected sum of money received. You may be thinking, okay that sounds amazing and how can I get one? Unfortunately, as windfalls are “unexpected,” they are difficult to plan for. Windfalls generally come from things like winning the lottery, a settlement from a lawsuit, an inheritance, a gain from selling property, a bonus or an unanticipated gain on an investment. With all this craze around GameStop, AMC and other stocks, there are bound to be people out there who walked away with more money than they put into these investments (though there are also plenty who walked away with a loss, as well). This would count as a windfall. So, what, then, should one do with a windfall?
Pay Off Debt
I always recommend paying down debt with extra cash and money from a windfall is no different in my mind. If you have looming high interest debt, whether it be credit cards, person loans, auto loans, try to pay it down ASAP and a windfall would make that a lot easier to do.
Use for a Down Payment
Whether you have been wanting a house, saving for a house or entertaining the idea of an income property, a windfall is a great way to fast track that down payment savings. That being said, don’t treat a windfall as an opportunity for lifestyle inflation. What I mean is, if you have been saving for a 20% down payment for a $400,000 house, do not suddenly think you can afford a way more expensive house because you currently have more cash on hand. Larger houses mean higher expenses, so while you may have the cash now, it won’t last forever to keep up with consistently high expenses.
Invest It for the Future
Whether your windfall came from an investment or not, you can use the earnings to invest in safer, more reliable, long-term investment for your retirement or your kids’ college tuition even. I know of several people who invested in GameStop stock in hopes of coming out with a gain, but are not typically investors. If you fall into this category, use this as an opportunity to learn about investing and either put it into index funds or mutual funds or do some research to confidently pick stocks to invest in.
Big House Project
I am super frugal when it comes to home projects. I have lots of ideas, but I hate how expensive anything and everything for the home is. I do, however, have an easier time stomaching the cost when using proceeds from a windfall, as it feels like it’s no loss to my money for some reason. So, if you’ve been putting off renovating a room, buying new furniture, decorating, replacing appliances, etc. consider using proceeds from a windfall for that purpose.
Increase Your Emergency Savings
Emergency savings is money set aside for sudden and unforeseen circumstances. For example, your hot water heater bursts and needs to be replaced ASAP, you need emergency surgery that won’t be fully covered by your health insurance or you lose your job. Having an emergency savings helps give peace of mind that you have the financial means to take care of these situations. Some people have a hard time coming to terms with saving money for “if” situations, so the same way a windfall is unexpected money coming in, you should try to be prepared for the potential for unexpected money coming out.
Start a Business
The initial costs of starting a business can be a big deterrent for some people. If this is how you feel and you’ve received money from a windfall, consider using some of those funds to put towards your new venture. To be honest, whether you receive money from a windfall or not, you will never know how successful you will be until you try, so go for it!
Put it Towards Learning
Maybe you’ve been putting off a master’s degree, learning a new skill/trade, changing careers or never went to college because you couldn’t afford to at the time. Whatever the case, you would not regret furthering your education or learning something new through the use of funds from a windfall.
So, what would you do with a windfall?
Or, if you have you ever experienced a financial windfall, what did you do with the money?
