What To Do With Unexpected Money

Whether you finally landed that big client or you finally won the lottery, an influx of surprise cash is always a good thing. And it also requires some planning. Here are my thoughts on the best ways to allocate that extra money, in order:

Put the majority of the windfall towards your biggest financial goal

A windfall is a great way to fast forward yourself towards a big financial goal. Whether you’re working on paying off debt, saving up for a down payment, or budgeting for a round-the-world vacation, use your extra cash as a shortcut.

If you don’t have any financial goals right now, set some of the windfall aside - in a savings account, a money market account, or a brokerage account - so you’ll have that extra financial padding when you need it.

Put another chunk of the money into savings and/or investments

See above. (Also, I totally recommend investing even if you are anxious about market fluctuations.)

Spend a small percentage of the money on something fun

Putting all of your extra money towards your student loans might be the most financially prudent thing to do, but if you drop your entire windfall into a pit of debt it can leave you feeling... well... kinda like you stood on the edge of a pit and watched a bunch of opportunities drift away from you.

So put a portion of that money, the Financial Samurai suggests 10 per cent, towards something you’ve always wanted.

Spend at least some of the money on someone else

Whether you’re making a charitable donation, supporting your local library, or taking your parents out to dinner, make sure you spend some of that money on someone who isn’t you. Chances are, a lot of people helped you get to where you are today. Now that you have some extra cash, it’s time to pay it back - and pay it forward.

Consider buying more time

Remember that study from a few years ago that suggested the best way to turn money into happiness was to buy back your time? Consider using some of your windfall to outsource your least favourite time-suck, whether it’s grocery shopping, housecleaning, or doing your own laundry.

Or, if your windfall is large enough, use it to move to a house or apartment that’s closer to the places you usually go (or the places you’d go more often if it didn’t take so long to drive there). Commutes are often the worst time-sucks of all, so see if you can use your extra cash to reduce or eliminate them.

If you’re a freelancer or side hustler, invest in your business

If your extra cash came from a side hustle or freelance business, it’s a good idea to put at least some of that cash right back into the business. A business needs either debt or capital to grow, after all and I’d recommend using capital. Time to update your equipment, invest in marketing, attend that conference, etc. etc. etc. and see if you can use your upgraded tools and skills to land that next big client.

The Freelancers’ Union has some additional suggestions on what to do during the “feast” part of a feast-or-famine cycle:

  • What expensive debt could you pay off?

  • If you need a big boost to operations, what inexpensive lines of credit could you access?

  • You’ve been setting aside funds for taxes... right? Here’s the moment to catch up.

  • What investments in your business would give you the most bang for your buck?

I also recommend putting as much of that extra cash as possible into the type of retirement account that’ll get you an above-the-line tax deduction. Nobody wants to pay more in freelance taxes than they have to, right?

Lastly, don’t forget to set some of that money aside to help cover you during the next lean period.

Avoid lifestyle creep... or embrace it

As a financial writer, I’m obligated to warn you about the dreaded lifestyle creep. Once you improve some aspect of your life, whether you update your wardrobe or move into an apartment with in-unit laundry, you’ll never want to live without that improvement again.

Which, sure, there’s something to be said for not spending money thoughtlessly. But there’s also something to be said for improving whatever aspect of your life isn’t currently working.

In-unit laundry is way better than coin laundry, and once you move into the new apartment or buy the higher-quality clothes or go to that restaurant you’ve always wanted to try, well... you’ll have the lease or the clothes or the memory, and all of that stuff should stick around, at least for a little while. (If it’s a high-quality outfit in a classic style, and you’re not continually shoving it into a coin-operated washing machine, you could end up wearing it for the next decade.)

And yes, this high-earning period could be temporary. So set aside what you need to set aside, and pay off what you need to pay off.

And then use your extra cash to live your life, and to make life better for the people around you.


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