What Should You Do With A Windfall?

Mighty Bargain Hunter offers some advice on what to do with your next windfall—it doesn’t have to be a lot of money, just a little more than you planned for in your budget, leaving you happily able to pick and choose how to spend or invest it.

Their first three choices: pay down debt, add to your emergency fund, or use it to replace an appliance or other big-ticket item that’s outlived its usefulness. Another interesting option is to “invest in yourself” with books, software, or a class in something you’d like to learn, like a new language. Or karate.

The common sense solution, of course, is to pay off debt, especially high-interest credit card accounts. But CNN Money suggests a slightly different route: invest at least part if not all of it in your retirement savings.

Their argument goes like this: it’s much easier to spend than to save, and if you use your windfall to pay down your credit cards, there’s no guarantee you won’t spend them back up again. We can see this happening especially if you experience some sort of “saver’s remorse” and splurge on that luxury item you told yourself you wouldn’t buy with the windfall in the first place. Yes, we know it’s not rational, but not everyone can be as good with money as the Leprechaun Frog in this photo.

“7 prudent things to do with small windfalls” [Mighty Bargain Hunter]
“What to do with a windfall” [CNN Money]
(Photo: Getty)

Comments

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  1. enm4r says:

    I say spend it on something that you normally wouldn’t.


    Finance is about having and establishing habits. Paying off debt in one huge lump some isn’t going to help establish the habit of keeping your consumer debt at/near 0, so I’m inclined to agree that because most people have poor spending habits, they would easily spend the money anyway after paying down the debt.

    Saving is the same way, and you should be saving regularly, every paycheck, every month, etc. I understand people don’t, but I’m inclined to think that if someone dumps some windfall into retirement savings, they’re not doing anything to establish proper savings habits and would actually be setting them back by falsely thinking they have done enough, and therefore don’t need to even work on proper habits in the first place.


    That’s why I say spend it, have a ball. You need to separate distinctly that what you’re spending is uncommon, and the more obvious you can make the distinction, the better for the long haul.

  2. Sudonum says:

    Sock it away or invest it in some way. Got a windfall in 1999, Bought a $50k car. Still have it, I might be able to get $25k for it now. Did I get $25k of use/enjoyment out of it? No, considering I could have rented that same car several times and would still have $50k+ now.

  3. thepounder says:

    Having no other debt than my house at the moment I might buy something that I’d like for the house… maybe a new stove, or a nice bar. Or maybe just buy all the pieces needed and build the bar, seeing as it’d be mucho cheaper that way and it’d maybe even leave money over to stock the bar. ;)

  4. RandomHookup says:

    @enm4r:

    Interesting theory, but I might posit that many people with bad spending habits get a windfall or two every year…tax returns, bonuses, perhaps a severance or 401k payout. If every year it gets blown, that becomes a habit itself. Hence why I believe most lottery winners end up broke…”free” money is treated as such.

    I’m not saying that saving windfalls might not cause other behavioral pattern problems, but I would rather see someone spend down debt than develop the habit of spending money just because it’s out of the ordinary.

  5. TheSeeker says:

    BY MIKE1731 AT 09:19 AM
    Although I think King of the Wild Frontier has a good point, I still like paying down debt, but with a twist. As you pay off credit cards, close them so they aren’t there for the next spending spree. If you box yourself in on credit cards, it makes it that much more difficult to go wild in the future
    —————-

    Do not cancel your paid off Credit Card if you are concerend about your credit score.

    Your score will go down if you cancel because your score is based on your debt to available creidt limit. If you cancel the card you have less available credit and your score will go down. If you keep the card your score will increase because you have lower debt but the same amount of available credit.

    old Suze Orman advices this.

  6. ben1711 says:

    Blueskylaw…lol…actually just a reference to George Constanza on my part.

  7. Peeved Guy says:

    Hmm. Something I didn’t know 10 minutes ago: Frogs in hats = funny