As a freelance writer, I occasionally end up with what might be considered a “windfall.” A large project might fall in my lap, or a rush job that I can charge a premium for. It would be nice to win the lottery, or to have a long-lost wealthy relative leave me a huge fortune, but neither of those events is likely.
But there are those who receive windfalls. Whether those windfalls are the result of a gift, an unexpected bonus, or some other good fortune, it’s tempting to spend the money on something fun. After all, it’s money that falls outside of any budget or spending plan you have in place.
Before you spend the money on something frivolous, though, think twice. Consider that your windfall might be just the thing to put you ahead of the curve.
Options for Your Financial Windfall
When a client contracts with me for a large project, or if I receive some sort of unexpected bonus, the first thing I do is consider my upcoming expenses. Since my income is somewhat variable (I have a fairly reliable core of long-term clients, but some of my income depends on additional projects), I like to look ahead when good fortune appears. What’s coming up? Quarterly taxes? Mortgage payment? If I have something coming up, my instinct is to pay that expense first, getting it out of the way. I recently received an unexpected flurry of high-paying articles. I immediately set the money aside in the high-yield account I use for taxes. Now, when quarterly taxes are due, I already have the money.
There are other options for a financial windfall:
- Pay Off High Interest Debt: One of the worst things for your finances is high interest debt. If you have debt with high rates, use your windfall to pay it down. You’ll save money, and you’ll get out of debt a little bit faster.
- Invest: You can also invest the money. If you only have low interest debt (like student loan or mortgage debt), consider whether or not you might be able to earn a better return by investing. You can choose to invest using a tax-advantaged account, like your TFSA or RRSP (or a 529 or IRA in the United States), or you can use a taxable account. Investments like index funds and index ETFs often offer an acceptable level of return for the risk you take on.
- Do Something Fun: Of course you don’t have to spend all of your money on something “smart.” You can also do something fun. While you should definitely put a large portion of your windfall toward meeting your financial goals and putting yourself in a better position, you can take a fraction of the money and use it for something that gives you pleasure.
Think about what is likely to make you happy when it comes to your windfall, as well as what is likely to help you get ahead financially. With a little planning and effort, you can improve your financial situation with your unexpected good fortune.
What would you do with a financial windfall?
If it were large enough, I would pay off the mortgage. I hate having it!
Definitely kill the mortgage Miranda.
Mark
If I was in debt, I’d pay off something that needs paying. In my case, since we’re debt free, I’d save the money. It’s always better to have money ready for a future emergency and not waste it.