What to Do With a Financial Windfall: Key Steps and Guide (2024)

FAQs

What to Do With a Financial Windfall: Key Steps and Guide? ›

Paying off debt is one thing, and it's a good thing. You do want to remove some of the weight debt places on your shoulders. But, you should also plan for the future with your windfall. That means setting aside some money for an emergency fund and investing the rest.

Paying off debt is one thing, and it's a good thing. You do want to remove some of the weight debt places on your shoulders. But, you should also plan for the future with your windfall. That means setting aside some money for an emergency fund and investing the rest.

Pitfall #1 – Hasty decision making

No matter the source of the windfall, financial inheritances trigger visceral emotional responses to this sudden change in circ*mstance. The best course of action to take after a windfall is to do nothing – at least for a while. Taking the time to take a step back is encouraged.

A financial windfall is when you receive a large, often unexpected, amount of money. It could be thousands or even millions of dollars, but either way, making a smart strategy is essential to getting the most out of your financial windfall.

Investing: Consider putting the funds into a taxable brokerage account if you're maxing out your retirement contributions but still want to invest. If you have kids and want to save for their future college expenses, you may want to put money in a 529 plan.

For windfalls, Malani suggests doing a reverse split: 80% of that cash infusion should go toward your long-term financial goals, like saving and debt payoff, and the other 20% is for buying something satisfying in the short-term. That way, you can treat yourself while still looking out for your future self.

The average American has inherited about $58,000 as of 2022. But that's if you include the majority of us whose total lifetime inheritance sits at $0. If you look only at the lucky few who inherited anything, their average is $266,000. And if you look only at those in their 70s, it climbs to $344,000.

How much money is considered a windfall? ›

A financial windfall is money you didn't expect to receive. Financial windfalls can range in size from hundreds to millions of dollars, but whatever the amount, they offer an opportunity to improve your financial situation.

First, put your funds to work in a low-risk, fully liquid investment like a savings account or money market fund. Savings accounts are insured by the FDIC (up to $250,000), providing a level of safety that is not available with many other types of investments.

Paying down debt, investing the money or growing an emergency fund are all solid options that can bring you closer to your financial goals. Even if you opt to do nothing with it right away, there are savings alternatives to ensure that it doesn't get mismanaged in the interim.

A windfall, by contrast, is unearned and unexpected. In that way, even though $10 earned has the same spending power as $10 unearned, we may see the money from a windfall as less valuable. It's easier not to “count” that money as part of our earnings, and thus, easier to spend it.

Definitions of windfall. a sudden happening that brings good fortune (as a sudden opportunity to make money) synonyms: bonanza, boom, bunce, godsend, gold rush, gravy, manna from heaven.

Any lump-sum payment applied against outstanding mortgage principal will lower your interest costs and the number of payments remaining on your loan. So even if you put some of your windfall toward other goals, using the remainder to prepay your mortgage could still save you money. If it makes sense for you, go for it!