What Should You Do With a Financial Windfall?

What Should You Do With a Financial Windfall?

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Have you ever stuck your hands in your pocket and pulled out a $5, $10 or $20 bill? It’s a great feeling, isn’t it? When you literally “find” money in these amounts like this, it’s often fun to go spend it on something fun, like maybe dinner or a movie or a new book or CD.

But what if you are the recipient of a true financial windfall consisting of thousands of dollars? Individuals who (often unexpectedly) receive large sums of money all at once need to make some important decisions, and sometimes very quickly. The tax implications of a windfall, in particular, can be complicated, which may make receiving counsel from a tax professional crucial.

Financial windfalls can take several different forms, including inheritance, lottery winnings, early distributions from a pension plan, and proceeds from the sale of a home. There are two primary options for individuals who receive a financial windfall: spend the money or invest it. Here’s a quick look at the pros and cons of each option:

Save or Invest the Money

Pros:Saved money may be available for future financial emergencies, like major car or home repairs or large medical bills. Having the cash to pay for financial emergencies could help you avoid having to use credit cards to pay for them, and possibly having to pay higher credit card interest rates. Or, the money could be invested for a long-term future goal, like retirement or a child’s college education.

Cons:Saving often isn’t as much fun as spending. Many people will get more enjoyment out of a vacation or new toys than they will out of stashing their windfall in a savings account or investment. Some people, though, do get as much (if not more) enjoyment out of investing money as they do spending it.

Spend the Money

Pros:It’s fun! Individuals often feel freer to spend an unexpected financial windfall on luxuries or extras than they do spending “regular” money on these things. Depending on the amount of the windfall, it could be used to fund a vacation; buy “toys” like a new car, boat or RV; or make home improvements like finishing a basement, adding a bonus room or remodeling a kitchen or master bathroom.

Cons:The biggest drawback to spending the money is that it’s, well, gone. Should you face an unexpected financial emergency later, you might wish you had saved the money instead. While some of the things bought with the money (like a car, boat or RV) could possibly be resold later, if necessary, they will have likely depreciated and not be worth as much money as was originally spent on them.

One strategy is to compromise by spending some of the windfall and saving some of it. If you have a more carefree, “live for today” attitude about money, for example, you might spend 70 percent and save 30 percent. But if you’re more cautious when it comes to your finances, you might spend 30 percent and save 70 percent. Everyone has a different financial personality, so there’s no single strategy that’s right for everybody.


Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates,Inc. (DLA). This material does not constitute an offer or recommendation to buy or sell securities and should not be considering in connection with the purchase or sale of securities. Member FINRA & SIDavid Lerner Associates does not provide tax or legal advice.


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Founded in 1976, David Lerner Associates is a privately-held dealer/broker with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Teaneck and Princeton, NJ; and White Plains, NY. For more information contact David Lerner Associates 1 877 367 5960 http://www.davidlerner.com


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Jake Mendlinger
Account Manager
516.829.8374 X 232

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