5 Tips for Managing a Financial Windfall

Years ago, I was walking to a restaurant with a couple of friends when I spotted a fifty-dollar bill on the ground.

After making sure there wasn’t a distraught individual frantically searching for their missing cash, I pocketed the bill and quickly announced that dinner would be on me. I thought to myself, “I didn’t have to do anything to earn this money. Why not pick up tonight’s check?”

Looking back on the experience, I don’t regret treating myself and my friends to a “free” meal.

What I find interesting, though, is how differently I treated that money than I usually would. Because I didn’t need to work or use any personal resources to obtain the fifty-dollar bill, it was entirely disposable for me.

Money in and of itself has clearly defined value. That is to say, the value of money in the marketplace does not change based upon the nature or difficulty of the task performed to acquire the funds.

$50 is worth $50, whether I found it or worked hours to earn it.

Nevertheless, in this instance, I wasn’t concerned with how wisely I spent that money because it didn’t take much effort to get it.

But what if it wasn’t just a $50 bill? What if it was $10,000 or $100,000 or $1 million? Would I have the same attitude about a larger chunk of money if I didn’t have to work to get it?

I’m talking about a financial windfall, and the example above illustrates why it’s crucial to have a plan for managing your money if you should suddenly gain more of it. It’s so rare to get money without putting in some effort, so you’ll want to make sure you put that money to good use if you’re ever on the receiving end of a financial windfall.

So, let’s jump right into it. How should you manage a financial windfall?

What Is a Financial Windfall?

Before we get into the tips of managing a financial windfall, we need first to understand what a financial windfall is.

A financial windfall is simply a sum of money you received that you weren’t expecting. Things such as finding money (such as my story), getting a surprise inheritance, and winning the lottery are all examples of financial windfalls.

Getting a financial windfall is great; who wouldn’t want some unexpected money?!

However, the problem is not getting a financial windfall. It’s how most people manage a financial windfall.

A research study was done where two groups of people were given money. One group was told they would be given money, and the other was not. The study found that the group that received the money unexpectedly spent more of the money on average than the group that knew they were receiving money.

Even though the study was done a long time ago, the psychology of human behavior remains the same. We tend to treat money from financial windfalls with less value than the money we work for or the money we are expecting to receive.

I’m not saying it’s terrible to spend money, but I am saying that you need to have a plan for managing your money so that you don’t waste a financial windfall if you’re ever fortunate enough to receive one.

Related: What Is a Sinking Fund and How To Use Them Effectively

Easy Come, Easy Go: “The Dollar on the Ground Mentality”

I doubt that my decision to spend that fifty-dollar bill on dinner has had much of an impact on my current financial standing. But what if I applied the same “dollar on the ground” mentality to other financial decisions in my life?

I have a feeling the consequences could be far more significant.

Most of us don’t spend money as if it grows on trees or lives on sidewalks, but there are times when we come across money either unexpectedly or with little effort, and the ease of acquisition increases the ease with which we spend it.

Here are a few examples of financial windfalls that come to mind:

  • You receive a $50k inheritance when a relative passes away unexpectedly.
  • Your bank sends you a $500 check reimbursing you for three years’ worth of maintenance fees they should’ve never charged you for.
  • You get a $300 credit card sign-up bonus.
  • You and your spouse receive wedding gifts totaling $5,000 cash.

The energy, effort, and resources expended are not commensurate with the dollar amount received in each case.

A $50k inheritance just for being related to another person?! Who you’re related to, how much money they have, and whether they give any to you is primarily out of your control. It doesn’t feel much different than finding a fifty-dollar bill on the ground.

A huge refund check from your bank?! Sounds like a gift from the heavens. It’s either money you never knew was gone, or if you did know, it was money you probably never expected to see again.

Earning a credit card bonus might take a little more time and effort than I needed to reach down and grab that $50, but overall that’s easy money. Do a little research. Complete an application. Get approved. Meet some basic spending requirements. And boom, $300!

Whether you receive cash or not, wedding gifts are basically a windfall. Growing your relationship into marriage material took years of hard work, but surely you and your spouse wouldn’t consider wedding gifts as part of your compensation for those efforts, right?

A Quick Word About Taxes

Before we jump into the tips for managing a financial windfall, I’d be remiss if I didn’t mention taxes.

Nobody likes taxes, but unfortunately, most of the time, you receive a financial windfall a portion of it will need to go to taxes. Windfalls are income, so you’ll typically need to pay state/federal taxes on the money. You also may need to pay estate or capital gains taxes.

All of this is to say that a large portion of your windfall may go straight out the door to the government.

However, this bill won’t typically come due until tax time, so it’s crucial you figure out what you’ll need to pay in taxes for your windfall BEFORE you spend any of it. Talk to a tax professional to figure out what you’ll need to pay in taxes and set that money aside so you don’t end up with a surprise tax bill later on.

Tips for Managing a Financial Windfall

I usually treat my money like it took 40 hours of sitting in a cubicle to earn it – because that’s precisely the case.

But I imagine that if I were in any of these situations, I’d be tempted to spend some or all of the money in a way I usually wouldn’t.

When we come upon money that does not require the requisite 40-hour workweek, it becomes tempting to treat it like it’s entirely disposable. But a $50k inheritance can be a life-changing amount of money if used wisely.

So how can we make sure we use it to change our life? Here are some tips for managing a financial windfall so that you’ll be putting that unexpected blessing to good use.

Acknowledge the Temptation To Spend and Wait

One method you can use when you receive surprise money is to develop a system where you aren’t allowed to do anything with the funds for a specified amount of time.

If you receive a few hundred dollars, for example, you might wait two weeks. If you received a few thousand dollars, you might wait four weeks.

By intentionally delaying the fate of your surprise money, you give yourself time to consider the pros and cons of several options available for directing the funds. You also give yourself time for the surprise and excitement to wear off so that you can hopefully think logically about the situation instead of emotionally.

This method is universally used with all types of applicability and has roots in Greek mythology.

When Odysseus encountered the irresistible tones of the Sirens, he told his shipmates to plug their ears with wax and tie his body to the mast to ensure he was not tempted by the deadly enchantment that had been the downfall of numerous others. Odysseus recognized the probable pitfall he would face and made a plan to protect himself from it.

Yes, this example might be a little dramatic, but you get the idea.

Be sure you stop for a moment and think about how significant the situation can be for your life. That will give you a little more time to make the best decision!

Put It in Your Savings, Invest It, or Pay Off Debt

This sounds like a no-brainer, but many people don’t even think of these things as options.

Integrating newly-inherited money with money you earned the old-fashioned way can quickly make your windfall indistinguishable and more challenging to spend carelessly. The funds will feel less disposable when blended with the rest of your money that you treat so carefully.

You should opt to put your financial windfall in your savings, invest it, or use it to pay off debt. The option you choose depends entirely on your financial situation, but you can always spread your financial windfall between all three.

However, one certain thing is if you have a lot of consumer debt, you should definitely consider using the windfall to pay that down or off before anything else. This is because consumer debt, like credit cards, tends to carry high-interest rates and is a monthly money-suck until you pay it off.

Once you’ve paid off high-interest debt or a significant portion of it, next consider building an emergency fund if you don’t have one.

An emergency fund helps buffer you from future financial hardships by having money already set aside for unexpected expenses or loss of income. You should aim to build up to at least six months worth of expenses.

Finally, if your consumer debt is under control and you have an emergency fund, consider investing so that your money begins to make money and you start building wealth.

Investing in assets and getting to the point where your money makes money is one of the keys to becoming independently wealthy and building generational wealth for your family.

Whatever your situation, these three options are the best tips for managing a financial windfall because all three options positively impact your future.

Mark a Portion of the Financial Windfall as “Fun Money”

As mentioned earlier, spending money isn’t necessarily bad, and there are things that you should spend money on while you try to improve your finances. So, you should consider using a portion of your surprise money as “fun money.”

To be clear, when I say “fun money,” I mean it in the sense that you are buying things that bring joy to you. Now, I don’t mean that you should use this as a loophole where you use the bulk of your financial windfall to buy frivolous things!

You shouldn’t make a rash decision to purchase things like a new car with your windfall, give it some thought and make all decisions on purchases you don’t need very carefully.

Simply put, use the bulk of your financial windfall to purchase things you need and on things that will benefit you in the future, but also use a portion to have some fun in the present to keep your sanity!

Related: Don’t Be a Monkey With Your Finances


Coming into money is a blessing that rarely greets us.

For that reason, you should consider implementing some safeguards or strategies to make sure you make the most of the opportunity.

Whether you want to treat yourself to a vacation, a special shopping trip, or pursue specific financial goals, it’s essential to think through how you will use the opportunity to better yourself now and in the future.

All in all, make sure you have a plan and use whatever monetary blessings come your way to enrich your life and positively impact your future.



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