Windfall

It’s it wonderful when you get money you were not expecting?  A windfall where money almost seems to fall out of the sky into your hand.  It almost doesn’t seem the matter on how much it is or how you get it.  You still get that burst of excitement when you pick up that $5 bill on the ground or get a big bonus from your work.

Yet regardless of how you get the extra money just about everyone seems to have the same thought right after getting it: how do I spend this?  Oh, should I get a coffee with this money or perhaps some donuts (mmm, donuts so sweet and…what was I talking about? Oh right).  Which I do understand the reaction, but I should point out it isn’t a particularly healthy habit to have.

Why? Because you really should set some reasonable limits about investing some of your windfalls in life.  This isn’t to say you should always invest all of your windfalls, but rather consider investing most of them.  While I don’t have any particularly hard and fast rules about mine I do have some general rules of thumb regarding money that fall into my lap.

Rule #1 – If it is less than $20, do what ever you want with it.  This rule then allows me to not bother tracking small amounts of extra money.  Of course I could still invest the money, but I usually don’t for very small amounts.  I generally just put it in my wallet and send it on something that catches my eye later on.  I’m usually not in a rush to spend small amounts of found money.

Rule #2 – Celebrate your big windfalls (greater than $100).  I don’t know about you but I once won a colour contest and got like $75 as a prize and that was a BIG deal to a little kid.  So while I’ve adjusted the amount slightly upwards I still tend to celebrate windfalls.  Now the term celebrate usually means I either buy something small or do something fun to note the occasion.  My most recent one I picked up some beer ($14) on the way home and enjoyed a glass with my wife that evening.  That’s it.  Why? Because this allows me to get the buy something with unexpected money out of system and to note the occasion.

Rule #3 – Invest the vast majority of the money into your priorities in life.  Now your priorities change in life but windfalls can provide a nice boost to what ever you happen to be working for in life.  So if you are focusing on paying off the mortgage, then you make a lump sum payment.  Or if you are going back to school, then you put the money towards your tuition.  Or if you are saving for an early retirement, then you put that extra money in an investing account.  The point here is to move things along a bit faster than you expected and then you really do appreciate the extra help of the windfall.

Rule #4 – Do NOT depend on windfalls.  I used to have a job that I would get huge bonuses (I mean like in the range of $5000 to $12,000) ever quarter (if we met our targets). Yet I never lived off that bonus money.  The mortgage was paid and our groceries bought with our tiny base salary, because I never spent or investment a cent of my quarterly bonus until it was in my bank account.  Why?  Because you can’t depend on variable money…what happens when things beyond your control take that money away?  You end up borrowing money to keep  going and you are breaking one of the core rules of money: don’t spend more than you have.

So those are my guidelines for windfalls, how you handle bonuses, tax refunds or 50/50 draws winnings?

4 thoughts on “Windfall”

  1. I have read about poor folks winning huge lottery and spending all of it within a year. We are talking of about hundreds of thousands or even a million dollars. Often, these folks have not seen big money before. They spend on luxury goods, lend money to family or even go into failed business ventures.

    As for me, I cherish every amount that I receive. As a minimalist, I keep track of my material possessions (clothes, food, furniture etc.) so that I do not overspend. I also do not want to end up having too many things, leading to clutter. I spend only when it’s necessary and on quality goods. Whatever surplus that I have, I invest in my list of dividend growth stocks.

    RN

  2. I have had windfalls of various amounts throughout my life, starting from finding a $20 bill on the floor of a store back in the 1970s when I was a kid.

    Back in 2003, I received $5,000 when a friend of mine bought out my share in an informal investment group in which I had put in $2,500 back in 1987. I wasn’t terribly optimistic I’d ever do better than break even, so doubling my money in 16 years was pretty good (about 4.4% a year, compounded). I used $200 of that on a Broadway show with the woman I was dating at the time.

    Back in 2008, I had a run of finders-keepers incidents of finding money on the ground, on a subway train, a train conductor forgetting to punch my ticket (so I could reuse it), amounting to about $60 spread out over 6 months. They saved me a trip to the ATM.

    But the biggest windfall I received was the $300k I got from cashing out the company stock in my old company’s ESOP plan. I never paid a dime for the stock, so it was basically found money. That money, now invested carefully, has been providing me with monthly dividend income to fund most of my early retirement’s (at 45) expenses.

  3. I get quarterly bonuses anywhere from $40,000 to $150,000 usually a mix of taxable bonus and dividends. Money always goes right into our portfolio unless we have other plans like renos, vacations, etc. Sounds like a lot of money but always a heavy tax burden and paying mega tax instalments to RCA due to all the dividends. Not complaining, life is good. Should gross $600k this year, maybe more. Business is booming so the gravy train keeps chugging along.

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