7 Ways to Handle A Windfall

Bill Parrott |

Growing up, my friends and I often attended the horse races. One afternoon, I hit an exacta and won $150 – a fortune for me at the time. I bought dinner for my friends with my windfall.

Financial windfalls can come from various sources like an acquisition, year-end bonus, tax-refund, or lottery winnings. A windfall is a relative term, of course.  A $10,000 windfall is pocket change for Bill Gates, but life changing for someone with limited means. Regardless of the source or the amount, you’re now faced with several financial decisions. Here are 7 ideas to help you with your new-found wealth.

Give. Giving a portion of your windfall to help others will benefit many. According to the World Bank, half the world lives on less than $5.50 per day, so donating your money to an organization or group you support will pay dividends to a multitude of people.[1]  In addition, you’ll be able to write off your contribution on next year’s tax return.

Reduce your debt. If your windfall is substantial, reduce, or eliminate, your debt. Let’s say you have 20 years left on a $300,000 mortgage. If you paid off your note, you’d save about $238,000 in interest and $19,000 in annual mortgage payments. Can you find a better way to invest or spend $19,000 per year?

Create an emergency fund. Use your bounty to establish an emergency fund. Your enhanced cash flow can be used as a financial buffer. A recommended amount to save is 3 to 6 months of expenses deposited in a savings account or money market fund. If your expenses are $10,000 per month, then the value of your emergency fund should be $30,000 to $60,000.

Invest. Investing your haul will help grow your nest egg. A $10,000 investment in the Vanguard 500 Index Fund five years ago, is worth $16,400 today.[2]

Spend. Do you want a new boat? Car? If your financial house is in order, go for it. Spend a portion of your windfall on something you’ve had your eyes on for a while.

Take a trip. Hiking in the mountains or walking on the beach is good for the soul. Spending money on experiences may be more beneficial than buying things. A lifetime of family memories is worth the expense. Top travel destinations this year include the Amalfi Coast, Machu Picchu, and Yellowstone National Park.[3]

Remodel. Is your kitchen ready for an upgrade? Is it time to put in a swimming pool? Now’s your chance. The projects generating the best payback are kitchens, garage doors, and decks.[4]

Before you make any financial decisions spend time deciding on the best course of action for you and your family. Avoid an impulse purchase. Hold a family meeting to get input and buy in from your spouse and children. Regardless of what you do, don’t borrow to leverage your windfall. Pay cash and stay out of debt.

Working with a financial planner to help you decide on how to proceed would be a wise decision. A planner can guide you and your family on the best way to allocate your resources.

I almost forgot, congratulations on your windfall!

Money can’t buy happiness, but it will certainly get you a better class of memories. ~ Ronald Reagan.

March 19, 2019

Bill Parrott, CFP®, CKA® is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.