Windfalls: Bonus or Bust? How to Handle An Unexpected Windfall of Money.

Windmill with dollar bills as paddles

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What would you do if you have a massive windfall of money? What if it was a smaller windfall? Would it help you, bless you or mess up your financial life?

Do you Have a Rich Uncle?

Have you ever dreamed that you won the lottery or that an extremely rich, 32-times-removed relative died and left you a fortune? Of course, you know exactly what you would do with all the money — new houses for yourself and all the relatives, a major vacation around the world and maybe even a little charitable giving. Despite the unlikelihood of this type of situation, smaller “fortunes” on which we fail to capitalize, come our way on a regular basis.

Windfall Defined

Windfall (noun)
Receiving unexpected good fortune, usually one that involves receiving money in a large. For example “Our company had “windfall profits” this last quarter.

Synonyms include:  jackpot, bonanza, manna from heaven, striking it rich, pennies from heaven, stroke of luck, money dump, godsend.

“The inheritance we received from Uncle Martin was a windfall of epic proportions!”

There Are Windfalls Everywhere!

Think about tax refunds, cash birthday gifts, overtime pay, bonuses, garage sale proceeds, stock dividends (remember those?) and overcharges in your impound account. These additional funds aren’t fairy tales or dreams, but financial “prizes” that can help you reach goals faster or throw you into depression if they are squandered or have to be used to catch up on bills. We’re talking about windfalls, extra money that comes at unexpected times. If you take a walk through last year’s checkbook register, you’ll find them sitting there, those wonderful little unexpected bonuses. What did you do with them? If you’re like most of us, they evaporated . . . absorbed into the abyss of everyday living and bill paying.

Blue and white check written out to Warren Windfall.

A Plan for Windfalls of Money!

Years ago, we decided to stop letting the windfalls evaporate. We came up with a plan, a general agreement between the two of us on how we would deal with any excess, big or small, that came our way. But before we get into the specifics of the plan we used, we’ve got to define how to tell when you truly have excess.

Do You Have a Spending Plan for Your Money?

We’ve always had a spending plan. It’s a system similar to the “envelope system” we use to teach our kids to handle money. Of course, our system is a bit more complex than theirs. We track our spending plan on paper while all the money actually resides in the bank. We have categories for every regularly occurring expense. Nineteen different accounts cover categories such as Utilities, Food, Pets, and Gifts. The balance in all the accounts, added together, equals the total in our checkbook. So, when we want to make a purchase, instead of consulting the larger balance of our checkbook, we review the smaller balance on the corresponding account sheet. If the money is there, we buy, if not, we wait.

The beauty of the spending plan is knowing that all our living expenses and savings goals are provided for. We know exactly what it takes to fund our monthly budget. Some accounts accumulate money for months without being spent, and others are simply flow-through accounts.

Because we regularly update and consult our spending plan, we know when we really do have a windfall – money that can be spent outside of normal spending plan limits. This kind of money truly is excess that can be used for what we call The Windfall Plan.

I Want a Boat! Is Not a Money Windfall Plan.

This is our standing joke. Whenever we’re out driving around and see a boat for sale, Steve will usually quip, “Honey, there it is, the boat I want to buy with our next windfall.” He admits, “As a man, I seem to have an incurable ability to find all kinds of toys – most of them costly to maintain –  on which to spend our money.” Author Larry Burkett observes that most women will overspend a bit on groceries or buy a few too many clothes, while their husbands will come home with a new car or boat.

After having a few extended “discussions” about different desires or goals for a specific windfall, we knew we needed to do things differently. We started out using a “wish list” on which we both wrote things we would like to buy with the extra money. Then we discussed the items and came up with agreed-upon priorities. While this system was better than the wrangling of the past, the situation was still pretty stressful. It’s hard to negotiate and be patient while the money is just sitting there in the bank waiting to be spent. We needed something better so we could really enjoy the benefits of the windfall and avoid martial conflict.

Develop a Plan Before the Windfall

What we needed was a more proactive approach. So we developed a percentage plan before any more windfalls came into our possession. This proved to be much less stressful and increased our enjoyment level.

When we were paying off our first house, we came up with a plan. Whatever excess money came in would be divided into three categories:

  1. one-third to an extra house payment;
  2. one-third to charitable giving;
  3. one-third to special projects – buying stuff we wanted and having fun.

We were debt-free except for the house, and through the application of this percentage plan, we paid it off in nine years. We could have eliminated the special projects/fun portion of the plan and paid the house off faster, but we came to the conclusion that if we allowed ourselves some enjoyment in the midst of working toward a sacrificial goal, we would be more likely to stay the course and reach the goal. It was truly amazing to see the mortgage principal amount plummet as we applied the extra payments. We still remember the last payment, the phone calls to the mortgage holder, setting the final date and payment amount, writing the check and getting the deed in the mail! WOW, what a great feeling.

Start Your Financial Windfall Plan with These Ideas

So what might your plan look like? Of course, it’s different for every family, but you might consider the following if you’re liquidating debt:

  1. 60% to liquidating your smallest debt
  2. 20% to save (emergency funds to keep from using credit)
  3. 10% to charitable giving
  4. 10% to enjoy

Are you out of debt and paying off your house? Try the following windfall  plan:

  1. 30% to additional principal
  2. 30% to save (emergency funds or IRA/retirement savings)
  3. 20% to house projects
  4. 10% to charitable giving
  5. 10% to enjoy

Are you a Member of the Windfall Hall of Fame?

Whatever your plan, spend some time thinking and talking about it. Come up with percentages that you can live with. Write down the plan and then apply it. Remember that you can always fine-tune it if you’re not 100 percent satisfied. By taking these steps, you’ll join the many people we’ve seen enjoy windfalls, members of our Windfall Hall of Fame. Here is a short list of some windfall-savvy people.

Christmas Windfall

A $500 Christmas gift came at the perfect time for a couple who had just started applying their spending plan and debt reduction strategies. This windfall allowed them to buy a “new” used refrigerator (theirs was leaking), reupholster their car and purchase some dress shoes and a suit for the husband so he could go out and interview for a new job. The timing was ideal, they had agreed on the priorities and they enjoyed the results.

Wedding Bells Windfall

In another instance, a pastor and his wife, with a very modest income, made a plan for their windfalls and within few weeks received some unexpected money from a wedding he performed. They were in agreement about where the money should go and were really blessed.

Grape Windfall

A divorcee we were coaching was given $30,000 from the sale of a vineyard her ex-husband had sold. It allowed her to pay off the small balance on her mortgage, get completely out of debt and start an emergency fund.

Wow Windfall

We were coaching a couple with four children and one on the way. They received $49,000 from the liquidation of an investment plan at the husband’s office – the owner had been putting the money away for years and never told the employee. This windfall had to be handled carefully due to the tax liabilities and penalties. But it came at a time when they especially needed the money to expand their home and buy a larger car.

No matter what the amount, windfalls will come your way. Be prepared – have a spending plan and a windfall plan. Then enjoy the bonus of reaching goals and laughing all the way to the bank.

Editors’ Note: The 3-minute interview below describes our windfall plan in more detail.


Read one reader’s experience of applying our Windfall Plan


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