Raise. Bonus. Inheritance. Lottery prize. What would you do with a windfall?

Chapter 46: Raise. Bonus. Inheritance. Lottery prize. What would you do with a windfall?

  • You receive a raise or bonus for doing a fantastic job at work.
  • A long-lost uncle unexpectedly leaves you money after he passes away.
  • You finally win a significant lottery prize.

What will you do with the money?

  • Spend it on yourself.
  • Do something nice for your family.
  • Save it for retirement.
  • Pay down your debt.

If you’re like most people, you probably want to spend it on yourself — or to help your family. However, this wouldn’t be the best way to use the money.

According to financial planning experts, the best uses for the cash, in order, are:

  1. Pay down your debt.
  2. Save it for retirement.
  3. Spend it on yourself.
  4. Do something nice for your family.

Here’s why these priorities are the right ones.

Pay down your debt.

If you’re paying interest on debt, it is costing you a LOT of money every year. It’s unlikely that you could ever make enough in interest on your savings — or returns on your investments — to counter it.

You probably pay four to six percent interest per year on a mortgage, home improvement line or auto loan. Personal or business loans typically charge between six and twelve percent a year. Credit card debt could cost you twenty percent or more per year in interest.

According to a recent study by NerdWallet, the average American household lives under the weight of $200,000 in debt. Much of that is mortgage and auto debt, but for the average household with debt, more than $15,000 of it is on high interest credit cards.

That means if your household is an average one, you’re spending more than $3,000 in interest per year on credit card debt alone.

However, you’d be lucky to find a bank account these days that pays one percent interest. And a good retirement investing plan provides an average six percent return.

Can you see how it’s impossible to get ahead unless you pay down debt?

If you have debt and receive a windfall, sit down with a financial advisor or credit counsellor. Work together to map a plan to get out of debt as quickly and efficiently as possible.

To clarify: I’m not saying you shouldn’t save in your workplace 401(k) if you’re in debt. Never miss a chance to save tax free money and earn a matching contribution. I’m recommending that you use an unexpected windfall to pay down debt before applying it to retirement savings.

Save for retirement.

Once you’re out of debt, the next thing you should use a significant portion of a raise, bonus or cash windfall is for retirement.

According to experts, the average person needs at least one million dollars to retire comfortably. Yet, the Government Accountability Office reports that the typical person approaching retirement has only about a tenth of that amount saved.

Unlike the money you earn through a regular paycheck, money from a windfall is unexpected, so you won’t miss it if you set it aside in savings. It’s easier to do this than finding ways to cut costs and expenses covered by your regular paycheck to find more to put aside for retirement.

Spend it on yourself.

Let’s get real here. Paying off debt and saving for retirement are the best ways to use a windfall. However, we’re all human and deserve a special treat every now and then. That’s particularly true when the windfall is the result of hard work and effort.

Set aside a small portion of a windfall to reward yourself. Think about something you really like doing and spend some of your money doing it. Enjoying experiences is more meaningful than buying things. Experiences leave you with a lifetime’s worth of memories, while things wear out over time.

A good benchmark of how much of a windfall to spend on yourself is between ten and twenty percent.

Do something nice for your family.

Giving money to friends and family members might seem like a generous thing to do, but most experts say it’s a big mistake.

Research shows that people who never tell family members about a lottery winning, inheritance or other windfall are more likely to have the money last a long time. Family members who find out about a windfall often “guilt” their relatives into giving the money to them, which can drain the windfall quickly.

Of course, I’m not advocating against helping people in need. Just make sure you talk to a financial professional before you hand-over any of your money to family members or friends. Work together to structure the gift or loan in a sensible way — and include a plan to get the money paid back over time.


Most people never receive a financial windfall. If you’re one of them, a good way to find extra money to pay down debt and make up for a retirement saving gap — and possibly treat yourself and help a family member — is to open an online business. Starting one is easy and the cost of entry is low.

What are you waiting for? You can earn additional income working any time you want from the comfort of your own home. The more you work, the more you earn. Get started today! It’s a financial windfall you have complete control over.


If you liked this article, then you might also like these:

The Best Time to Start Saving for Retirement?

Are You About to Blow Your Retirement Budget?

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