Expected and Unexpected Windfalls-what to do with them?

by David Bakke

lottery winner, extra moneyIt occurred to me recently that there are two types of so-called “windfalls” in our lives, the expected and the unexpected. The question is—what do we do with them?

An expected windfall I would consider to be something like your annual tax return money (hopefully you are getting money back) or in my case, and the reason behind this post, the fact that my family’s second car was recently paid off in full. In fact, just last week.

An unexpected windfall I would consider to be something like a cash gift as a birthday present, some lottery winnings (if you buy lottery tickets, which I do not advocate) or maybe some utility bill error in your favor where some sum of money is returned to you.

I think both types of windfalls are different and should be handled differently.

Of course, the way you handle either one of them depends on your current financial situation. We’ll deal with two types of scenarios-being financially fit, and financially unfit.

If you’re financially fit (little to no debt, bills paid on time every month, great credit rating, etc) I see no reason why you can’t just go out and spend this money on yourself, if you choose to do so. I think there are times where we can take the opportunity to reward ourselves for getting into the financial situation we are currently in. So, set the money aside if you want, but I wouldn’t feel guilty at all by “blowing it” on yourself.

Financially unfit? Well, you could blow it on yourself if you have been making and seeing some real progress in your personal economy, but I would think about it first. If you need a motivational boost, go right ahead, otherwise, I would consider keeping your nose to the grindstone and sending that little bit of extra cheese to a credit card or another debt.

Now an expected windfall is a different story. I won’t really get into the plans that I make annually for my tax return money because it’s a little more involved, but lets take my lack of a car note. This payment was approximately $250 a month for the past five years. Now, it’s gone. So, what do I do?
Some options are:

–The obvious one. Go buy another new car.
–Make some other big purchase to reward myself (flat screen TV, etc).
–Invest it all.
–Invest in home improvements
–Or some combination of the above.

Well, were going with the last choice-a combination of the above. After several months of thought, I decided NOT to buy a new car. We had seriously considered it even before this car was paid off, and never did it. So, my nagging question was and has been: If we didn’t do it then, why do it now? The car I drive now is old, but it gets me from point A to Point B, which is all I need.

To make a long story short, this is what we decided to do. Remember, it is $250 of extra income that we will now have. Here is the breakdown:

–An extra $50 per month to our mortgage.
–An extra $50 per month to my 401K.
–An extra $25 per month to my son’s college fund.

We will set aside $500 (November/December payment) for Christmas travel to Florida, and probably some extra Christmas gifts for our son.
And going forward a new laptop computer for our home (we need a second computer) to be paid with some sort of free financing and paid off in 3 months (assuming a $750 budget on it). Further on down the road, we will decide what else to do with that extra $125.

So there you go. We won’t blow it all, and we won’t tuck ALL of it away for a rainy day. Tell me what you think! Good or bad, trust me, I can take it. Or tell me what you’ve done with windfalls in your life. All comments greatly appreciated.

To learn more about this and other personal economy topics, stay tuned for my soon-to-be-published book, “Don’t Be A mule: A Common Sense Approach to Saving More, Spending Less, and Generating Extra Income in your Everyday Life.”

{ 1 comment }

1 Amanda October 23, 2009 at 1:36 am

We always tend to underspend, rather than overspend – so in a similar case to yours, I think we’d just stick it into a bank account for a rainy day, and if a new computer / car repairs etc are needed, the money’s sitting there ready and waiting.

I wouldn’t buy a new car either, in your shoes. But then, we only have one in our household, and it’s 11 years old, but works fine (-:

Comments on this entry are closed.

Previous post:

Next post: