How to Spend a Windfall

In Investing, Spending by C.J. CatoLeave a Comment


Well I’m jealous because a bunch of money just fell in your lap instead of mine! Maybe it was $5,000 or $50,000… and now you’re wondering how to spend it all. Do you fly all your friends out to Vegas and play blackjack til you’re millionaires? Well Duh! Absolutely… I couldn’t think of a more practical way to unload all that money. Let’s Go!!! What do you mean we’re not that good of friends? And I’m not invited? Well, if you’re going to be that way, then I suppose there might be a few other ways you could spend the dough.

Disclaimer: I don’t know your situation as well as you know your situation. I don’t know how much you just got, or how much you owe. The point I am trying to make is that these are just my suggestions that would likely apply to most people, most of the time.

How to Spend a Windfall, in Order of Importance:

  1. Pay Your Taxes. Depending on what sort of windfall it was, Caesar may or may not require you to pay taxes on it. Things like gambling winnings, inheritances, estates, gifts, and others are often taxable and you may want to talk to a qualified tax professional to find out how best to handle this. 
  2. Take Care of Your Health. Maybe you have cavities that need to be filled, or checkups that need to be done. If you don’t have insurance, or the deductible has been too high to get these things done in the past, now is the time to take care of you. An ounce of prevention is a pound of cure. 
  3. Take Care of Your Stuff. Maybe you need a new roof on your house, or new tires on your car. Now is a great time to repair the things you need to last.
  4. Create a $1,000 Buffer in Your Checking Account. If you currently live paycheck to paycheck then you will want to create a $1,000 buffer in your checking account to reduce stress and possible late fees, overdraft fees, etc. You should keep this $1,000 in there always unless an emergency happens.
  5. Treat Yourself. If you managed to do all of the above then I think it’s OK to consider splurging on something for yourself. Maybe you’ve been wanting a new camera, or perhaps a road trip has been on your mind. I probably wouldn’t take more than 5% or so of the windfall though.
  6. Put Away 3 Month’s Worth of Bills. If you don’t have an emergency fund already then now is a great time to create one. Simply add up all your bills for the month and multiply by 3. Put this money somewhere you can get to it within a week or so. You can simply put it in a savings account at the bank, or you can keep it invested in a brokerage account, which is what I do. As long as you can get to it relatively quickly you’ll be fine.
  7. Pay Off Debt. Hey if you made it this far without running out of money, congratulations. At this point it would almost certainly be in your best interest to payoff any high interest credit cards or loans and/or anyone who plans on breaking your legs for not payin’ up.
    Whether you spend any of this on low interest loans is up to you. Your mortgage or car payment may be very low interest and technically you may do better investing that money with a 7% return than paying on a 3% debt. But, there is something to be said for security too and to know your home or car is paid off is a reward all to itself. So on the low interest stuff you’ll just have to use your best judgement.
  8. Invest the Rest. There are a million different strategies on what vehicles to use to invest your money in and you should talk to a financial planner if you aren’t sure which one is best for you. As far as “what” to invest in, I covered it in this previous article: THE EASY WAY TO INVEST MONEY AND CONSISTENTLY OUTPERFORM HEDGE FUND MANAGERS

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Photo By: iodrakon

C.J. is the blogger behind the Vow of Practicality. “Let’s grow your wealth, increase your productivity, and maximize your happiness.”