10 Savvy Money Moves When You Receive a Windfall

Young African American man relaxing at home in a loft apartment with his Caucasian female roommate, playing video games on a smart phone while sitting on a sofa and having fun.
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Most of us spend our lives dreaming that one day, out of the sky — clear blue or not — we’ll come into a sudden fortune.

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Maybe we’ll win the lottery or we’ll receive a handsome inheritance from a great-great-uncle we never met. And then we’ll finally be free to tell our boss what we really think of them as we submit our no-weeks notice and run off into the endless sunset of unbounded prosperity. 

It’s a beautiful dream, but a dream it should remain because if you do come into a financial windfall, the absolute last thing you want to do is blow up the life you have under the assumption that you no longer have to work hard to make or manage your money.

Financial Windfalls Can Lead To Bad Decisions — If You’re Not Careful 

“There are several mistakes people who land financial windfalls make, the most common one being rash and miscalculated decisions,” said Jessica Chase, a loan and finance expert at Premier Title Loans. “People often want to spend money without thinking about consequences and financial play when they acquire new wealth. It can result in investments that make little sense and the financial windfall can disappear without any savings.”

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Put the Money in a New Savings Account 

“Transfer the money into an account you don’t regularly use to spend,” said Kaitlyn Ranze, the senior manager of education and communications at the fintech start-up Nav.it. “Think of high yield savings or money market accounts.”

Ranze reasons that having the funds in a different account than where you spend daily serves as a guardrail for impulse spending. 

“Think of it this way: Amazon makes it really easy for you to purchase items with their one-click checkouts,” Ranze said. “You don’t even have to input your card information to get packages on your doorstep. The inverse also occurs. You’re less likely to spend money if it’s a tiny bit harder for you to make a purchase. Not to mention, sitting on the money can clear your head of spending it and will give you the time you need to develop a strategy.”

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Make a Plan — In No Rush 

The next step you should take after coming into a financial windfall is to do nothing. Take some time to acclimate to your sudden fortune before making moves of any kind. In other words, just wait.  

“Instead of taking action right away, let the money sit to give yourself time to think about your priorities and goals and to come up with a plan,” said Kat Tretina, finance expert and student loan counselor. 

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Get Help From a Financial Advisor

In order to come up with a plan, your best bet is to meet with a financial advisor, pronto. Hey, you can afford it now, and you certainly have a good excuse!

“[A financial advisor] will help you figure out what to do with that money that will most effectively help your current situation and also bring in additional money through opportunities like investing,” said Carter Seuthe, CEO, Credit Summit. “Having a financial advisor will also hold you accountable for not spending your money on big purchases.”

Pay Down High-Interest Debt 

“One of the best ways to use a windfall is to pay down high-interest debt,” Tretina said. “If you have credit card balances, the APRs can be well into the double digits, causing your balance to balloon. Using the windfall to wipe out the debt will help you save a significant amount on interest charges.” 

Set Aside Money for Savings and Emergency Fund

“Your windfall is a good opportunity to boost your savings and emergency funds, which I like to call ‘peace of mind fund,'” said Jeff Zhou, a personal finance expert and CEO of FigLoans. “You should have at least six months of expenses saved up, so you’ll be prepared in case you suddenly lose a job or face a medical need.”

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Contribute To Your HSA Fund and Retirement Funds 

You may be fantasizing about quitting your day job, but don’t sacrifice the tax-free perks that come with most salaried gigs, including a health savings account (HSA). 

“Contribute to, and fully fund an HSA if you have a health insurance policy that comes with a qualifying HSA,” said Tanya Peterson, vice president of brand with Freedom Financial Network. “Most contributions are tax-deductible, and if you pay for a qualifying medical expense with HSA funds, it’s tax-free (anytime in life). The tax bill of a few years ago did not directly affect HSAs. Those with an HSA still can contribute, earn interest and dividends, and distribute the funds, tax-free. Most states recognize HSA funds as tax-free, too, with a few exceptions, so it is best to consult a tax advisor for specifics.”

Those in receipt of financial windfalls should also beef up their contributions to their retirement funds. 

Refinance Your Mortgage

“If you own a house, plan to stay there for several years, and still have a high-interest mortgage, you can still refinance at excellent rates — if your credit is good enough to do so,” Peterson said. 

Give Yourself 10% To Spend 

“I always recommend that people set aside about 10% of their windfall for splurges, like a new smartphone or a nice dinner out,” Tretina said. “Setting aside some of the windfall prevents you from feeling deprived, so you’re more likely to use the rest of the money wisely to invest or pay off debt.”

Make an Investment Plan That Is Right for You

Investing most — or at least some — of your financial windfall is a must, but there’s no one-size-fits-all answer for everyone. It really depends on your situation. This is where the expertise of a financial advisor can be useful. With this professional, you’ll want to map out a plan that will benefit you and your family (if applicable) for the long haul. 

That said, you should always aim for a diversified portfolio. 

“Some of the best ways to grow your money are to invest it in stocks, bonds, mutual funds, real estate, and physical precious metals,” Zhou said. “Have a good mix of investment assets in your portfolio and think about long-term gains. For instance, stocks can give good returns, but when the economy is down, having gold and silver in your portfolio gives your investments a hedge.”

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About the Author

Nicole Spector is a writer, editor, and author based in Los Angeles by way of Brooklyn. Her work has appeared in Vogue, the Atlantic, Vice, and The New Yorker. She's a frequent contributor to NBC News and Publishers Weekly. Her 2013 debut novel, "Fifty Shades of Dorian Gray" received laudatory blurbs from the likes of Fred Armisen and Ken Kalfus, and was published in the US, UK, France, and Russia — though nobody knows whatever happened with the Russian edition! She has an affinity for Twitter.
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