The Best Way to Spend Your Unexpected Windfall

windfallRecently, my wife’s aunt passed away and left us a decent windfall. Our big problem was clearly, the best way to use our windfall. Fortunately, we were able to work through our choices fairly quickly. In this article, I will lay out the choices available to most people, and how to sort through them.

When I am talking windfall, I do not mean a few hundred or even a few thousand dollars. I am talking about multiples of your gross monthly pay. Most people will experience this type of windfall because of an inheritance, a lottery win, or the sale of a significant asset. If this is you, your objective should be to maximize the impact of this windfall. With our windfall, we didn’t want to look back in a year or so and wish we had made a better choice for using this money. Of course your situation will be different, but I hope that our process will be useful to you.

More than 70% of people who experience a windfall end up worse off financially and personally because of it. It’s sometimes referred to as the curse of the lottery winner.

Helpers to Avoid

Before you start, be aware that any number of people will show up to “help” you decide what to do with your money. Friends and family will be front and centre with either claims as to why you should give them some, or schemes to make you wildly rich. You would probably be wise to ignore them all. Your co-workers should also be included in this group.

Expensive Advisors

Next on this list of folks who want to help you with your windfall are financial advisors (read salesmen). About 70% of them will be trying to sell you a product that they make a great commission on. If you feel that you need financial advice, find an advisor that will work for you (usually at an hourly rate). You want an advisor that will give you investment advice, not push products to earn a commission.

Your Friendly Banker

Your bank would love to hold your money for you. Banks have any number of investment products (mutual funds especially) that will earn them a lot whether you make anything or not. Most mutual funds charge a MER (management expense ratio – read commission) of 2.5% to 3.5% of the total amount invested each year. That’s right, of the amount invested, not the amount of profit or gain.

Look in the Mirror

The last helper to avoid is yourself. It’s amazing how many windfall recipients end up in a worse financial situation than they were before the windfall. This financial failing is usually due to over-buying. The two main culprits are houses and cars. Windfall recipients tend to buy more house or vehicle than they need, and end up in financial difficulty because they did not plan for the ongoing expenses – taxes, insurance, maintenance and repairs, HOA fees, mortgage and loan payments, etc.

Credit Cards

credit card debtCredit card debt eats up income through compounding interest. A credit card with an unpaid balance attracts interest at a horrendous rate. If you miss paying the full balance by the due date, in most cases, interest is charged on the full balance from the date of purchase. So even if you are only a week or two late with your payment, a chunk of interest will accrue. An unexpected, one-time bill can cause even the most carefully budgeted household to incur credit card debt.

If this is a one-time charge, paying it down can be an excellent use of your windfall.

Paying down your card because you overspend every month is a very bad choice. If you are in this situation, you need to carefully evaluate your spending and arrange to ensure that your income exceeds your expenses. The easiest way to do this is to create a zero based budget. If you need help with creating a budget, refer to my other articles:

Four Tips to Creating a Solid Budget,
Planning a Budget that Sets You Free,
8 Tips to Kick Your Overspending Habit, and
32 Tips to Help Control Your Spending.

You may also may wish to download my free budgeting template, or my free spending habit tracker.


The next highest interest money will probably be any outstanding loans. These could be car loans, student loans, cash advances and similar. If you have the will-power to take your savings on payments and invest them, this can be a great use for a windfall.


Paying off all or a large portion of your mortgage can be a great use of your funds. Channeling your savings into your investments should be your objective. If you can obtain a new mortgage at a low rate, it may be useful to remortgage and use the money for investing, especially since the interest can be written off on your tax return. Be careful of paying down your mortgage and then spending the monthly savings.


If you have little to no high interest debt, this can be a great option. Before you invest in stocks, bonds, real estate or a business, ensure that you understand the risks and rewards possible. Study the investment so that you are aware of the factors, both internal and external, that could affect this choice. You also need to understand your own tolerance for risk.

David Penna has written a great article to understand the various financial funds.

Since 2019, owning stocks has been like riding a roller coaster. Although history teaches that stocks always recover, albeit over somewhat long periods of time, there is no guarantee that will be the result in the future. Before investing in anything, invest in quality, unbiased, professional advice. A tip from Uncle Harry who works at the plant is not quality, unbiased or professional advice.

Other Choices

There are a number of other choices that are more personal choice than financial improvement. Such things as donating to charity, setting up education trusts for your children or grandchildren, or creating trusts to ensure that your windfall becomes generational wealth. I am sure that there are many other worthwhile investments that I missed.

After reviewing all of the above options, we realized that we were in a very fortunate position. We had no credit card debt, loans or mortgages, so we had only to decide on how to best invest our windfall. We decided to go with a rather risky strategy, owing to our ages and not having a large recovery window, and invested in exchange traded index funds. So far it has not been a profitable choice, but we are patient.

Tell me in the comments section how you would spend a windfall.

As always, I am not a qualified financial advisor. I just relate financial management to my own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of mine came from expensive experiences.

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