What Would You Do With a Cash Windfall?

What to Do with a Windfall

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in General

This question is kind of fun, but the answer to it can reveal how we think about money at the deepest levels. Budgeting paychecks is a matter of necessity; we have a certain amount of income that needs to be allocated to cover a certain level of expenses.

When it comes to windfalls however, options enter the equation. Unlike “have to” situations, we have some flexibility, and it’s in those options that we discover how we think about money and even how responsible we really are when it comes to handling it.

Some common windfall sources include:

  • Bonuses
  • Inheritance
  • Unusually large commission checks
  • Family gifts
  • Large tax refunds
  • Sale of an asset

For our purposes, let’s assume that the amount of the windfall is at least $1000, so as to be meaningful, but less than $20,000, which for most of us would keep it from being a grab bag large enough that we wouldn’t have to make hard choices.

What would you do with it, and what might that say about your attitude toward money? Would you”¦

Payoff Debt

This eliminates both a debt and the monthly payment on it. You’re using the windfall to improve cash flow, and to set up a future stream of smaller windfalls from the monthly payments you no longer have to make. This is like a gift that keeps on giving. You see money as a means to eliminate pain.

Spend it on something you really need

There are all kinds of possibilities here, but hopefully you’ll lean in favor of buying something that can provide a long term stream of recognizable benefits. Exercise equipment might be one such purchase which can reap dividends for many years. Replacing an outdated computer system is another, since it’s practically impossible to be a vital part of the 21st century economy without a good one. It’s likely that you see money as a means to improve the quality of your life.

Save it as an emergency fund

By saving the windfall, you’re keeping your powder dry in case of an unforeseen emergency. This type of allocation may not feel good in the short run, but there’s much to be said for having a sufficient amount of money salted away that you can sleep better and worry less. There’s a good chance you see money as a form of insurance to insulate you from disaster.

Invest it

Since it’s found money, you try to make it bigger by putting it into an investment vehicle that will enable it to grow and provide an even bigger windfall in the future. Maybe you’re investing it in an attempt to grow it until it’s large enough that it will enable you to buy something at a later date that the windfall isn’t large enough to cover. Like paying off debt, investing a windfall produces a gift that keeps giving. You’re comfortable with delayed gratification and see money as a tool to earn still more money.

Spend it on a good time or buying something fun

Since it’s found money that you can live without, you spend it doing something or buying something that will bring you pleasure. You mostly see money as a means to do what you like, or you’re an incurable optimist who expects a steady stream of windfalls in the future.

No real plan, you just roll along and see what happens

It may sound crazy to include this in the list of possibilities, but sometimes with some people, there is no plan. The windfall is just folded into the regular budget, and you live better for as long as the windfall lasts. When it’s gone, you simply go back to business as usual. You probably have a casual attitude toward money, and it mostly comes and goes in your life.

If I had to choose one over the others, it would be to bank it. Not only does this provide increased liquidity in the event of an emergency, but it also enables you to defer spending it until you have a purpose that’s truly out of the ordinary. There’s always a tendency to think “what will we spend it on” when a windfall comes in, but perhaps it doesn’t need to be spent, at least not in the short run.

We can all come up with a nearly infinite list of wants and needs to spend money on now, but if we think of windfalls as manna from above, perhaps it’s best to hold them for something truly special, something that will make a difference in our lives.

What would you do with a windfall? Any of the above, a combination, or maybe something not listed so far?

Kevin At Out of Your RutThis post is from FiscalGeek staff writer: Kevin Mercadante. I’m very excited to have him contributing to the site. You can find out more about him at his own blog OutOfYourRut.com.

(Photo courtesy of Amagill )

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