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What to do with a sudden financial windfall

How to manage your finances when you come into newfound money

Whether you expect it or not, a financial windfall—money you receive outside of your regular income—can open up a range of financial questions as you consider the best use for the funds. Here are a few actions to help you make a decision with your financial future in mind.

6 ways to manage a windfall

Ask for advice


A windfall can present its own set of financial challenges, especially if you’re not ready for it. It’s always a good idea to know who you can turn to for navigating some of the trickier and more nuanced areas of money management. Consider consulting with a financial planner or advisor, a tax professional or an attorney to help find the right balance of legal, estate and tax planning.

Common types of windfalls

Large raise or bonus
Tax refund
Inheritance
Lottery winnings
Lawsuit settlement
Sale of a business

Pay down debt


Though it may not be the most exciting option when you have a little extra money, it’s smart to make paying down high-interest debt like credit cards or personal loans a priority. Lowering or eliminating debt can free up money for your other financial goals and help improve your credit score.

Boost your emergency fund


Now is the perfect time to set aside some of this money for future emergencies, disasters or purchases that may not be part of your normal planning—things like a sudden need for a flight for a family event, a home repair or a surprise medical bill, to name a few. If you haven’t already started, building an emergency fund can bring greater financial security and peace of mind.

Fund your retirement


After you’ve saved for a rainy day and paid down debt, it’s time to make sure you have enough for retirement. It’s a good idea to max out contributions to your 401(k) plan or individual retirement account, better known as an IRA. Once you hit your savings targets for retirement, you might consider setting up an inheritance for your children or grandchildren—meaning they will eventually experience a windfall of their own.

Start investing


Another way to handle a windfall is to invest it. With the right investment approach, you may have the potential to grow your windfall so that it can be used for your mid- to long-term financial goals, such as buying a home, saving for college or preparing for retirement.

Resist the urge to splurge


The temptation to spend the money on something costly you’ve always wanted, but don’t necessarily need, will be tough to ignore, as the nature of a windfall is that it’s extra money you didn’t expect to receive. It’s okay to spend a small percentage to treat yourself or your family. However, the best way to handle a financial injection is to be thorough in your spending approach and target the future rather than the short term.

Close Disclaimer

The material provided on this website is for informational use only and is not intended for financial, tax or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional and tax advisor when making decisions regarding your financial situation.

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