Most people think that being handed an unexpected snd significant sum of money would be a dream come true, and it really can be if you handle it well, but if you receive a windfall and you don’t know what to do with it, it can be a disaster too! You might think that this is only a dream, but you might be surprised to find an unexpected sum of money coming your way. Perhaps it’s a larger than expected tax return, a small payout from work (Mrs. Money is randomly get a small surprise bonus from her employer), a big raise at work, or maybe Dogecoin finally hits $1 and you’re rich!

As mentioned, handling a financial windfall poorly will not be great in the long run, so to help you be wiser with it, here are some of the best tips for handling a financial windfall should you be lucky enough to be on the receiving end of one.

Spend some spend-free time

If you’ve been awarded compensation after the personal injury law firm near me fought hard for you in court and ensured you won a settlement, or maybe you’ve had a win on the lottery or you have inherited a significant sum of money from a family member, you might be very tempted to go off and spend your newly found wealth on all manner of gadgets and gizmos. As tempting as it is to go a bit wild and crazy indulging yourself, you really shouldn’t at least not right away.

It’s wise to resolve to freeze any new or big spending for a few weeks while the news of the windfall sinks in. Doing so will likely prevent you from essentially throwing the money away and give you the time snd space you need to really think about what that money could do for you. Chances are there is something you can spend it on, like a downpayment on a home or your child’s education that will improve your life more than a few frivolous purchases.

Create an emergency fund

If you don’t have any savings, then the first thing you should do with any windfall you are lucky enough to receive is to change that. Make sure you use at least some of the money you have received to build up an emergency fund which is equal to at least 6 months’ salary.

Why should you do this? Because it will give you a really important financial cushion that will ensure you can get by even if disaster strikes and you love your job or have some other financial emergency crop up. It might not be as exciting as blowing it all on a new car or taking a long vacation, but knowing you have savings in the bank will help to give you peace of mind about your finances and that really is better than any fancy purchases, as you will find when you have a full emergency fund.

You’ll sleep a lot better at night knowing that you’ve got a safety net under you.

Pay down your debts

If you have debts, when you receive a windfall, one of the best things you can do is to pay down those debts as soon as possible, if that is, they are high-interest debts like credit cards and loans. Debts with low interest like mortgages, you can probably leave alone, unless clearing them is a priority, but by paying off as many high-interest debts as you can, you can save yourself a whole lot of money on interest charges, wipe the slate clean and start building a stronger financial future.

Again, this might seem like a boring way of spending your windfall, but when you think about it, the feeling of being debt-free is better than any fancy new gadget that you’ll get bored with after a few months, isn’t it?

Plan for your retirement

No matter how young or old you are when you get your windfall, it is a really good idea to think about what you can do to use the money for your future. From investing in stocks and shares to using the money in a Roth IRA that will ensure you can retire comfortably when the time comes, it always pays to consider the future when you have a significant windfall precisely because you never know what is going to happen in the future; you might think that you have enough years to build a retirement fund ahead of you, but you never know if you’ll get sick or be unemployed, however, you do know you have the money now, so invest it wisely and you won’t have to worry so much about your future going forward.  

Treat yourself

Once all of that is sorted, it’s time to treat yourself to something nice! Most of your money should be used sensibly, but life has to be fun, so spend a little of your windfall on something sweet like a vacation or a new wardrobe.

Summary

When you get a windfall, it can be tempting to splash out on lots of luxuries, but as you can see above, that is probably not the best way to use your newfound wealth. Sure, you can treat yourself to the occasional nice thing, but primarily, you should use any windfalls you receive to bolster your financial security as that is what will make your life better in the long term.

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