Sudden Money: 6 Tips to Manage a Windfall

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It’s happened to all of us, at least in our dreams: a lottery win, a big inheritance, a streak of luck at the gaming tables.

Even if the amount is more modest, sooner or later some unexpected money is likely to fall into your lap. Manage it properly, and it can improve your quality of life. Mess it up, and it could ruin your life.

But whether it’s millions or just a $3,000 tax refund, here’s how to get the most out of unexpected money.

1. Stop

Woman gesturing "silence"

Don’t do anything at first: no shopping sprees, no donations to charity, no lending money to friends and family. Don’t even tell anyone. The last thing you want to do is risk wasting your windfall by acting on impulse or by encouraging friends and distant family to volunteer their assistance or hold their hands out.

The greater the sum, the longer you should take to assess your financial situation and identify some short- and long-term goals. If the amount is significant, a month isn’t too much. After all, the money is not going anywhere.

2. Pay off high-interest debt

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Tomasz Guzowsk /

Once the planning stage is over, the first step should be obvious. If you have debt, especially the high-interest kind, pay it off. Using a $5,000 bonus to eliminate a $5,000 credit card balance with a 24% interest rate is the same thing as earning 24% interest, risk-free and tax-free — something difficult to do elsewhere.

There are instances in which paying down debt makes less sense. For example, if you’re paying 3% on a mortgage and can earn 10% in the stock market or elsewhere, you’ll obviously come out ahead by leaving your debt intact. But in general, paying interest is bad, and reducing your debt is the best thing you can do with any extra money, windfall or otherwise.

3. Put some aside for emergencies

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All right then — you’ve thought about what to do and destroyed some debt. Now can you go to the mall?

Not yet. Put some of that cash aside for a rainy day. If you’re a paycheck away from a financial emergency, now’s the time to fix that.

Ideally, you want an amount at least equal to six months of living expenses in an emergency account that’s readily accessible, like a savings account or money market fund. For more, check out “9 Ways to Build an Emergency Fund When Money’s Tight.”

4. Grow the rest

Jars of change with plants sprouting.

If you’re fortunate enough to inherit an amount like $100,000, the best thing you can do is to turn it into $200,000. How? By investing it.

If you’re not sure what to do, now’s the time for a little research. Start by checking out “10 Tips for Sane, Successful Stock Investing.”

5. Seek expert advice

Couple meeting with financial planner in office.
Monkey Business Images /

It’s best to hire an expert if your windfall is of considerable size. Interview several financial advisers paid by the hour, never those paid by commission. And don’t ever deal with anyone without first checking their credentials.

Ask friends for referrals, and check the National Association of Personal Financial Advisors.

And don’t ever simply turn your money over to someone else. Helping you understand your investments is an adviser’s job. Being responsible for your own money is yours.

For more tips on finding the right help, check out “3 Steps to Finding the Perfect Financial Adviser.

6. Enjoy yourself

Woman on the bow of a sailboat.
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Finally, use some of that money to treat yourself to a great experience, like a trip to a place you’ve always wanted to see. One of the main reasons to have money is to enjoy it.

Obviously, the weight you’ll put on the steps above depends largely on the amount of your windfall. Inheriting $10 million is a lot different from a $2,000 bonus at work. But the principle is the same: Take your time, think it through and decide where the money will deliver the biggest bang for the buck.

Have you ever come into money? If so, did you use it wisely or blow it? Confess and enlighten others in comments below or on our Facebook page!

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