What to Do With a Financial Windfall?

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We’ve all heard the stories of lotto winners who win millions, think they’re set for life, and then go broke within a decade. Or people who inherit large sums of money and end up in financial ruin, family feuds, or both. The word “windfall” can mean different things to different people — if you’re young and drowning in debt, even $10,000 can do wonders for your quality of life. If you’re older with no debt and decent retirement savings, it will probably take a lot more to really change your life. Whatever the amount is, here are 12 things you should consider if you receive a large financial windfall.


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12 Considerations to Better Manage Your Financial Windfall

1. Say/do nothing

When you first receive the news, keep it to yourself for at least a few days. Tell your spouse, but that’s it. Don’t quit your job, don’t shout from the rooftops, don’t give $1,000 to everybody you know. Just take a deep breath and think about how you might want to use the money. This is especially key if your windfall is the result of an inheritance or life insurance policy — take the time to grieve your loved one, and put the money in a savings account until you can deal with it with a clear head.

2. Take offers to help, or “great business ideas” with a grain of salt

If word of your windfall gets out, “financial experts” will turn up out of nowhere. Ditto for friends, acquaintances, or even perfect strangers just dying for investors in their new business. Say no to everything the first time around. If any of the offers to help are legitimate, the person will keep trying. And if any of the business ideas were that good, they probably would have been done already. Don’t part with any of your money until you have a chance to evaluate your options.

3. Set aside as much as necessary for taxes

Depending on where the windfall came from, it may be taxable. Lottery, (legal) gambling, or other prize winnings are taxed as ordinary income. Life insurance proceeds are generally not taxable, while other inheritances may be subject to income and/or estate tax. If necessary, hire a tax advisor to help determine how much tax you will owe. Set aside that amount immediately so that you have it when the time comes to pay.

4. Use a small portion to do some good

If there’s a charitable cause you really believe in, it would be great to donate a portion of your windfall to that cause. You might even want to donate to your church. If you truly want to and can help individual family members or friends, do so. But beware that helping one might mean others asking for handouts. Limit your assistance to those who truly need it and can keep it to themselves. And don’t feel the need to give more than a small portion of your money away, unless you really want to and are otherwise in a position to do so. Your own needs and those of your immediate family must come first!

5. Use a little for fun

When you receive a financial windfall, it’s ok to use a small portion for fun (say, no more than 10%, though it depends on the total amount). Take a nice vacation. Treat your wife to the spa day she’s been asking for, or yourself to some new golf clubs. If we’re looking at a windfall of $5,000 and you’re a grad student on a shoestring budget, this might just mean treating yourself and a date to dinner and a movie! Whatever your mini-splurge is, plan for it, and make it a one-time deal. No fancy steak dinners every other night, with lobster on the nights in between!

6. Maximize your emergency fund

If you don’t yet have at least six months of expenses saved, put at least that much aside now in a high-interest savings account, short-term CD ladder, or money market fund.

7. Don’t plan to live off of the money unless you can truly afford it

Depending on how old you are, and unless we are talking about a really hefty sum of money, it is doubtful that your windfall can replace your income for the rest of your life. Don’t quit your job or substantially increase your standard of living unless you are really certain that the money will last. In order to be really certain, it’s probably best to hire a professional to run the numbers, which brings us to the next tip.

8. Hire a trusted financial advisor and create a plan

At some point after you received your windfall, it is probably a good idea to get a professional involved to help you evaluate your options for future, spending, savings and investments. If you have a financial planner already, ask him if he is comfortable advising you on such a large sum of money, and if he can provide references from current or former clients.

If not, ask for a referral to another planner. You want a financial planner who specializes in lump-sum management or high net worth clients. If you don’t have a current advisor and you’re not sure where to start, discreetly ask a trusted (financially comfortable) friend or colleague for a referral. You can also turn to the Garrett Planning Network for a list of fee-only advisors in your area.

When dealing with a large sum of money I would definitely recommend a planner with an hourly rate rather than one that charges a percentage of your assets or a commission on investments. Your financial planner will help you create a plan for the rest of your money — I discuss some possible options in the final four tips below.

9. Pay off debt and other obligations

Pay off as much debt as you can, including credit cards, student loans, auto loans, and even your mortgage if you can afford it. Especially if your windfall comes from a life insurance policy on your spouse, make sure that you set aside enough to cover all the expenses that your spouse would have paid for, such as mortgage, tuition, childcare, etc.

Additionally, make a commitment to stay out of debt — if you can truly afford to buy a fancy new car IN CASH with your newfound wealth, that’s one thing. Financing your dream car because you have a lot of money to pay it off with “later” is quite another.

10. Use a portion to fund short-term goals

If you were already saving for multiple short-term goals such as a new house, a large vacation, a wedding, car, or continuing education, you may want to fund some or all of those goals with your windfall. A financial planner can help determine what you can afford and on what schedule.

11. Allocate portions to long-term goals

If you have longer-term goals like early retirement, paying for school for your kids or grandkids, making large charitable contributions, or moving to a different state or country, begin planning for the payment of those items now. A professional can help you determine a time horizon and appropriate saving/investing strategy for each one.

12. Invest the rest wisely and use only the income until retirement or later

When all your goals are planned for, and the rest is truly yours to spend as you wish, consider investing the remainder conservatively (say in a bond fund or treasury bills) and living off the income. Once you reach retirement, you can begin drawing down the principle as needed. This strategy will help you make the money last over your life expectancy, and maybe even leave some as a windfall for your own beneficiaries.

The Bottom Line

The bottom line is that you should be as careful with this newfound “free” money as you would with money you worked hard to earn. Used correctly, a windfall can push you dramatically forward on your path to financial freedom. But if you get caught up in buying lots of things or helping too many people, you could end up worse off than before. Regardless of the specific course you take, remember to make well-thought-out decisions and involve your immediate family and a professional where appropriate.

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AmyAndrew GelleneJillFinancial SamuraiJosh Recent comment authors
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these are very nice pointers but you may find that those who are lucky(or unlucky) to will the lottery have absolutely no interest in personal finance. This post may help future winners but you may find that non of them have read this post. But if i do win a hundred million, i know what to do with it all thanks to you 🙂


Good article and nice tips. I just wonder why when luck comes our way and we have that so called “Financial Windfall” we often gets confused and sometimes sees no reason of how we spend our money or if we have tucked enough amount for the future.

I really enjoyed reading the article..i wish i could win millions in a lottery or whatsoever, then i will take all your advices and spend my old age happy and financially free. thanks.


Great advice! I would share these with any good friend.


Jill, I couldn’t find any way to email you directly but had a question. Why do you recommend a hourly financial planner instead of a AUM financial planner? Working toward your CFP you must be aware that there are many cases when a AUM financial planner is preferable.

Financial Samurai

Nice article Jill. Ahhh, if we could only dream of hitting the big time 🙂 I guess I kind of had a windfall when I was in my early 20’s. I spent $3,000 on a stock that went up to $180,000 in 6 months and I sold it at around $150,000. Admittedly, I splurged on a car, motorbike, and fine eating, and after about 25K I woke up and realized I was flushing my good fortune down the drain. I sold everything, started eating regularly, and eventually used it to put down 25% on a 2/2 condo in a nice… Read more »

Andrew Gellene

I would add to the list: education. Perhaps to enhance your career (a professional degree, if you don’t already have one) also just to explore what the world has to offer. Life is constant learning and a financial windfall maybe just the thing to get you started on that dream job or learn about 14th century Danes.


I totally agree most don’t think ahead and run through their winnings and wind up deeper in debt. I personally would put aside funds for taxes, my church offering and the other 3 things that I prayed about. The separate account for the rest to earn interest and certainly would have a trusted financial adviser to keep everything in perspective. Take a real vacation something I haven’t done in 15 years. I would live modestly. Oh I’d purchase a 4-5 bedroom home. Praise GOD for it all.

What to Do With a Financial Windfall?

by Jill time to read: 5 min