We all make plans: get a house, grow a business or get a super-job, save money for our kids’ college. While plans always make sense, life is not linear and unexpected things happen: good things (job / business opportunities, a financial windfall) or bad things (accidents, death, job loss).
Since I’d like to focus more on the financial side of life in these articles, let’s see what a financial windfall is at first and what to do / not to do with it.
What Is a Financial Windfall
A financial windfall is when you strike gold. When Fortuna smiles to you with all her teeth and you get some money. You can get an inheritance, win the Lottery, get some pandemic financial relief, get some well-paying clients etc.
What Not to Do When Getting a Financial Windfall
“Ohhh, money, let’s buy stuff!”
No, don’t do that!
Just the fact you NOW have some money doesn’t mean you’ll always have it. A financial windfall is usually a singular event, you’re not winning the Lottery on a daily basis, I assume.
After the excitement passed, sit down with your spouse (if married) or alone / with family / a close friend and think about how this fortune can change your life for the better and how you can squander it in 2 hours.
The majority of the people who win the Lottery or get a large financial windfall spend the money in 1-2 years and are back at square one (if not even deeper in debt).
This is your opportunity to solve some of your financial problems and get back on track.
So, don’t:
- buy a new car, fancy electronics etc. – they soon lose value, so does your money.
- party all day long – it’s easy to over-spend, as you feel you are “rich” now, but you don’t have an infinite wallet.
- start blindly investing – if you are not the business type or, just like me, know nothing about investments, don’t start throwing money at “opportunities”, unless you know exactly what you’re doing.
Don’t hurry up to spend your new money. It doesn’t rot few more weeks, until you find a better way to spend it. Just take it easy and think about:
- if you can multiply it – meaning get more money off the financial windfall you got
- save it – keep it the same or slightly increase your financial windfall
- solve your current money needs and check a lifetime goal (pay off debt, get a house for your family, save for your kids’ college etc.)
What to Do with a Financial Windfall
Now that you haven’t hit the Porsche car dealer in the city to get a brand new car or a fancy 10 million mansion in Beverly Hills, let’s sit down and see what you can really do with your financial windfall.
Assess Your Current Financial Situation
An useful exercise we like to do, every once in a while, is to see exactly what our net worth looks like, what credit card payments we have to make now (we pay in full every month and the payments are automated, but we still look over this data) and how much money we have saved.
Do the same.
As soon as you got that financial windfall, write down exactly how much money you got and keep this information nearby.
Then write down EVERYTHING that has to do with your current money situation:
- current debt – student loans, credit card debt etc. How much money does this cost you (write down your APRs and see which of all your debts is the most costly one)
- net worth – what’s your current “wealth”. Investments, properties etc.
- savings – got any? Even a small emergency fund?
- financial plans – getting a mortgage? Starting investing etc.
After you know exactly what your biggest money issues are right now and where your new money could get you the better results, use it wisely: pay off your most expensive debt (credit cards, personal loans etc.).
Establish an emergency fund, if you don’t already have one. You never know what lies ahead: you could lose your job, you could suffer a car accident injury and need more treatment, maybe your family needs a financial help etc.
Save money aggressively, so that you have that emergency fund ready, if you don’t know right now what to do with your windfall.
Reassess your money situation and change tactics, if needed. A financial windfall, even if smaller, can really help you with paying off debt or securing your financial future.
