Handling a Financial Windfall


Landing on a large amount of money can be a great thing if it is handled correctly. With some foresight and planning, you could be well on your way to retirement of financial independence. However, if used irresponsibly you could look back with regret or nothing to show for it. When investing large sums of cash, there are a few items that should be considered.

Is Your Financial House in Order?

Before making any decisions as to where your windfall can be best spent, it is crucial to do a thorough analysis on your overall financial situation. If there is any high-interest debt, this should be made a priority. Furthermore, an emergency fund is always recommended. It is advised to have at least three months of emergency savings on hand. Otherwise, a look towards the future is a great way to see if there are any big ticket expenditures that you should be saving for such as a new roof, car maintenance, children’s education, etc.

If your financial house is in order, perhaps the best avenue is to indeed invest your money. However if you have high interest debt, it is recommended you pay this off first, followed by an emergency fund, and then saving for any large expenses that are looming.


Determine Your Investment Goals

If you are in the position to invest, it is first advised to determine what your investment strategy should be. The best way to do this is to consider what you are investing for. What are your short and long term goals for this money?

  • Short term (5 years or less) – What are some short term expenses that you need to save for?

  • Medium term (10-15 years) – Do you plan to pay off your home early? Do your children need help with tuition?

  • Long term (15+ years) – Are you ready for retirement?

Knowing your goals and your needs is the first step when deciding how to invest. Prioritizing your short, medium, and long term goals will help you to decide in what type of investments your money will be most valuable to you.

If you’ve prioritized your goals and still are at a loss as to how to invest there are a few pieces of advice from financial advisers that are pretty universal when it comes to investing. First, start maxing out your Roth IRA or other tax advantaged retirement vehicles. These will offer you the most benefit when it comes to long term tax benefits based on tax calculators and estimators. The earlier you start maxing these vehicles out, the better, as it is difficult to play catch up after too much time has passed. If there is still money left over after this, consider investing in other medium and long term goals in a standard taxable account.

Coming across a windfall does not have to be a stressful occurrence and with careful planning and analysis of your needs it can set you up for financial success. If you do not feel comfortable investing such a large amount of money at once it can be invested overtime or you can seek the advice of a financial planner. Regardless, at the end of the day it should be a decision that you are comfortable with and one that will return to you the greatest amount of value.

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  1. Hindsight is always 20/20, but prevention takes real guts. Great insight here.

  2. I just wish I got a financial windfall, haha! But if I did get one, I’d pay off the student loan, and invest the rest.

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