So, You’ve Received a Windfall…Now What?

 

So, You've Recieved a Windfall...Now What?While driving home on my lunch break the other day, I happened to turn on the radio and catch a little bit of The Dave Ramsey Show. One of the callers had just received a windfall of money and needed some advice. The lady had recently suffered the loss of her husband, and he had left her with a million dollar life insurance policy. She was not very confident in her abilities to handle that amount of money, and she certainly did not want to squander it. After hearing her story, Mr. Ramsey gave her some very simple words of advice: don’t do anything. This advice may seem shocking to some, but I thought it was absolutely brilliant.

 

As most of you know, my day job is in the funeral industry, and this is the exact same advice that I give people on a daily basis. There are many well-meaning people – and some not so well-meaning – out there who are eager to help you spend or invest your new found windfall. However, when going through a period of grief, it is always best to hold off making financial decisions until the initial sting of the loss has worn off. (That goes for most major decisions, not just if you are receiving a large insurance death benefit.) We simply aren’t thinking clearly during these times, and it can lead us into making poor decisions. If a financial decision seems good right now, chances are it will still be a good decision down the line.

 

In fact, I would suggest that anytime somebody receives a windfall – whether that is through insurance, an estate, or the lottery – they should stop and do nothing. Whether you are experiencing grief due to a loss or extreme excitement due to an unexpected win, your emotions will be clouding your judgement. Once you have that money in your hand, it is not going to go anywhere unless you let it leave. A good investment now will usually still be a good investment 6 months from now. There is no reason to rush into anything that you do not understand. Doing so is a great way to see your sudden windfall dwindle to zero.

 

So, what should you do with the money? There are a lot of great options, from savings accounts to high value fixed rate bonds. Here are a few options to help you keep that money in your pocket!

 

Savings Accounts

Whenever you receive a windfall, the first thing I would do is pay off all of my debt. Once you’ve done that, you want to protect that money in the best way possible. Therefore, I suggest that you take the money and put it into a good bank until the intial shock has worn off. Savings accounts are great for this. Here in the U.S., most savings accounts are federally insured by the FDIC up to $250,000, which makes them one of the safest places that you can put your money.

 

Depending on the size of the windfall, you may want to split it up and put it in several different banks. There are tons of great banks around. You can look for a local bank or a national chain. You may even decide to put some of the money in an online bank. For our readers in the U.K., Birmingham Midshires Savings is one great option for savings accounts, along with a multitude of other banks.

 

Money Market Accounts

Money market accounts are similar to savings accounts, and you can find them at most any bank in the U.S. These types of accounts are generally insured by the FDIC and usually pay higher interest rates than savings accounts. However, they also require higher minimum deposits and limit the number of transactions that you can make each month. Depending on the size of your windfall, this may be a great way for you to keep your money in a very conservative investment vehicle while still earning a decent interest rate.

 

Certificate of Deposits

You can walk into almost any bank and be able to put your money into a Certificate of Deposit (CD). CD’s are great because they also offer insurance protection from the FDIC with higher interest rates than a savings account. However, you will not have access to that money until the CD’s maturation date – which is generally 3, 6, 9, 12, or 24 months, depending on the investment you choose. In an emergency, you can take your money out of the CD sooner. However, you will be hit with a stiff penalty.

 

Fixed Rate Bonds

If you are looking to not do anything with your windfall for several years, high value fixed rate bonds may be another option for you. With a bond, you are essentially buying debt (giving a loan) to the issuer (such as a local or federal government), which makes them a relatively conservative investment. The interest rate is fixed and is therefore not subject to interest rate fluctuations. However, fixed rate bonds usually have a maturity schedule of several years. Thus, they do hold the risk of not keeping up with inflation. Furthermore, in the United States, fixed rate bonds are not insured by the FDIC, which does add another element of risk.

 

As you can see, there are a lot of ways to protect your windfall from disappearing. Before you do anything, make sure that you understand the investment that you are making. Be sure to keep your emotions out of it. The best way to do that is to take your time, get over the initial period of shock, and understand your investment. That will give you the best chance of being able to make your windfall work for you now and in the future.

 

 

 
About Greg

Greg Johnson is a proud husband, father, and debt crusader who is in the process of becoming debt free. He is the co-founder of the personal finance website Club Thrifty, where he brings the awesome sauce each and every day.

Comments

  1. Nick @ ayoungpro.com says:

    I have heard Dave give that advice before and I agree that it is great advice. He usually tells them to wait 6-12 months before they even thing about doing anything with the money. That way, they are less likely to make emotional decisions with it.
    Nick @ ayoungpro.com recently posted..Apply for Every Job You SeeMy Profile

  2. That’s a good tip, about waiting before making a decision while in the midst of grief. Too many people unfortunately, make emotional decisions that they come to regret later.
    Mackenzie recently posted..Dear College Newbie…My Profile

  3. You should do that for any big decision, whether it is financial or personal. There are many things that cloud our judgement and there are many people that would love to be there to “help” you along during those times. Take time to get yourself together, then figure it ou.
    Grayson @ Debt RoundUp recently posted..Went In The Grocery Store For One Item, But….My Profile

  4. I agree it’s smart to consider one’s emotional state before making plans for the money. Receiving a windfall as a result of a death is very different from receiving generous financial gift from a relative. If I were to receive a windfall, I would spend the money in this order: pay off the mortgage, donate 10%, go on an overseas trip, buy an rental property, invest in stocks. Clearly, I’ve thought about this scenario quite a bit, lol.
    My Shiny Pennies recently posted..My One-Year House Purchase AnniversaryMy Profile

  5. This is so simple yet such wise advice. I think the feeling at times is to run out and do something right away. I think times like this call for having a cool head and being ale to look at things analytically to make sure you pick the best possible option(s) available.
    John S @ Frugal Rules recently posted..What’s Your Definition of Insanity?My Profile

  6. Any emotional time in your life- highs and lows-and NOT a time to be doing anything with money. My friends step father died unexpectedly his mom booked a trip for the entire family, bought a new car and a timeshare all within six months of his death. I honestly don’t think she’d make these same decisions now, three years later.
    Catherine recently posted..Annoyed With Sugar Coated AdvertisingMy Profile

  7. I have to climb on the bandwagon about waiting before making any financial decision. Great post Greg.
    Jerry recently posted..Finding The Best Prepaid CardMy Profile

  8. Good advice not to let emotions affect what you`re going to do with the money. I´d definitely put the money on a high interest savings account, until I`d decided what to do with them. Of course, I have certain ideas, such as buying a house, paying down my student debt and helping out my parents and brother financially, but I guess the circumstances around the money (inheritance, lottery) would affect my choices of how soon. But I do like the idea of just having a lot of money untouched on a savings account and just see those interests add up! :-)
    The Norwegian Girl recently posted..The Great Norwegian AdventureMy Profile

  9. YourWealthPlanners says:

    I’m jumping on that bandwagon too!! The longer you wait, the wiser the decision. Impulse buying is a killer.

  10. I don’t know what we would do if we won a million dollars, likely the same. The one thing I would do is talk to my advisor and see what he suggests as a million dollars is a huge sum of money. The last thing I would want to do is make decisions that are not thought out properly. Great post
    Canadian Budget Binder recently posted..How I Paid Off My OSAP Loan FastMy Profile

  11. I would put most in real estate to generate a rental income. But if I didn’t know much about money, I guess a 4% return on a safe savings account would be realistic, and provide a sweet $3,333/month for life!
    pauline recently posted..What is your survival budget?My Profile

  12. I didn’t realize you had a job in the funeral industry. You don’t here that too often. I’m a Marine and I have to attend funerals pretty regularly for veterans that die in our area. It’s pretty rewarding ;)

    I don’t like Dave Ramsey at all, but his advice there is pretty decent. I think if I came into a windfall, I would just pay off my house, and that’s it.
    Johnny Moneyseed recently posted..Traveling without blowing a hole in our walletMy Profile

  13. I’m usually do not like most of Dave Ramsey’s advice but I do agree with him on this one. Since she is probably an older lady without much need for high return she would probably be served well by investing in municple bonds and earning some tax free interest to live off of. Add that to her social security (including his death benefit) and she would probably be doing pretty ok for herself.

  14. Under normal conditions any windfalls I get would go towards paying off debt. Now with the layoff, it would be set aside to stretch how long I can go without a job!
    Jose recently posted..The Axeman Cometh – Dealing with the Loss of a JobMy Profile

  15. Although I do not disagree, this is why you surround yourself with good advisers I have an attorney, CPA and banker that could advise my wife or I if this were to happen. I have known these people for 30+ years and they know my goals etc. This is in addition to 2 adult children who could help as well.
    krantcents recently posted..How to Select Investment Property?My Profile

  16. Great advice indeed… The chances of having an amazing investment opportunity that will expire in the next few months is very slim… as you say. It’s amazing how grief can cloud our judgement and change perceptions! :(
    Savvy Scot recently posted..Industrial Accidents cost companies HOW MUCH?My Profile

  17. Yup that’s some good advice! That’s what my BF did when he experienced a death in his family and got some money. Nothing, then after several months he put it into some low-risk investments and savings accounts.
    Mo’ Money Mo’ Houses recently posted..Thailand Trip Days 14, 15, & 16 – Phuket and the Horror That is Patong BeachMy Profile

  18. Man, I miss that show. They no longer carry it locally on the radio, so I have to podcast when I can. And I totally agree. Give it some time. For me, I kicked my money out faster than a rebellious teenager, and ended up blowing through $100,000 in less than 3 years. Probably should have just sat on it for a few years, My house would have been half paid for, would have probably been able to invest well……UGH! Don’t want to think about it
    Jacob @ iHeartBudgets recently posted..7 Steps To Becoming Your Best FriendMy Profile

  19. If I ever came into that much money I would put a lot of into saving spread across several banks so I wouldn’t go over the $250k FDIC mark, I would take 10% in cash for emergency use, and finally I’d invest 20% of it into more risky investment via an investment adviser to avoid the big fees.
    Chris @ Stumble Forward recently posted..How To Build A Niche Site Series Part 1: Accepting The ChallengeMy Profile

  20. Rushing into things is always a recipe for disaster…

    I tend to sleep on even the smallest purchases, like a pair of shoes, so you can bet it would take me a hella long time to reach any serious decisions about a significant sum of money.
    eemusings recently posted..The pros and cons of shift workMy Profile

  21. Great breakdown of multiple options. Thanks for the side-by-side comparisons. Great post.

  22. I listen to Dave everyday via podcast on my commute into work. I think that waiting to spend/save the money is very wise. With all the emotion tied to losing a loved one, you don’t want to be pushed into spending or saving before you’re ready (and understand the pros and cons of each option).
    KK @ Student Debt Survivor recently posted..Mean Spirited Friends: House HatersMy Profile

  23. I think that’s great advice. If you are getting a windfall, some emotionally crazy event must have happened. You also might need to look into taxes if it’s money you won. Waiting a while isn’t going to burn holes in your pockets. It might be fun to see lots of zeros in your bank account.
    Kim@Eyesonthedollar recently posted..Are Graduate Degrees Worth the Money?My Profile

  24. Excellent advice. There is no rush to make a decision with her windfall. Waiting until she feels ready to start making decisions is the best decision she can make. And it is sad that there are predatory people who will take advantage of someone grieving. Going slow and taking the time to figure out what you want your money to do for you and others is good advice whenever you’re handling money.
    Shannon @ The Heavy Purse recently posted..Money Conversations: Shopping with TaylorMy Profile

  25. One of my favorite things I heard watching Oprah was very similar advice. “If you don’t know what to do, don’t do anything.” Or something like that. Emotional decision are not good decision. That’s one of the reasons I’m very cautious about being bored and finding something to spend my money on. I’m just exploring right now. Anyway, good advice!
    Budget and the Beach recently posted..No Wind in my SailMy Profile

  26. These are all so wonderful advice. I’d surely take note of these just in case.
    Felix Lee recently posted..What is Leadership?My Profile

  27. You know, one thing you might consider is giving a portion of the windfall away. Now that we’re back on track financially and building assets, we’ve already started to involve the family (particularly the kids) in giving and I think we’re going to formalize this soon, in the sense that we’re just going to start to find things to give to in a really deliberate way.

    I think maybe giving money away is a great way to keep it at arm’s length– to be oriented on it properly.
    Mike recently posted..The iPad Mini Phone: Yes, I’m Serious…My Profile

  28. I would love to receive a windfall! I agree that it’s good to do nothing with it for a bit. That way you’re not making impassioned decisions on a whim.
    CT – Cashtastrophe recently posted..Why Infomercials Are the Best Things on TVMy Profile

  29. I might do slightly more than nothing. My starting point for thinking about windfalls is that I’m living pretty comfortably as it is, so when a windfall comes (for me, these have come in the form of a raise, big tax refund (oops), annual bonus, or unexpected freebie from a bank) I treat them as though they never happened and put them straight toward paying down debt or straight into an untouchable retirement account.
    @pfinMario recently posted..How I’m saving money on foodMy Profile

  30. Such great advice. Emotional financial decisions are usually never good ones. I’d probably use a savings account. We used to do bonds, but the rates just got so dang low I was building more interest via a savings account. Haven’t checked what they are as of late, though.
    femmefrugality recently posted..Financial Wisdom from Irish ProverbsMy Profile

  31. In case you are missing watching your favored UK shows when in Spain afterward this video might help. Reveals how to alter your internet protocol address to a British one whenever you desire.

Trackbacks

  1. [...] gives advice on how to invest a lump sum on Retire by 40. Greg from Club Thrifty recommends you do nothing until the emotions wear off, to avoid any costly [...]

  2. [...] You`ve received a windfall; now what? – Club Thrifty [...]

  3. [...] at Club Thrifty talks about what happens when and if you receive a windfall.  So, You’ve Received a Windfall…Now What? I haven’t received a windfall necessarily, but I have made A LOT more this month, which [...]

  4. [...] you live long enough, you will eventually have money drop in your lap. Don’t be stupid with it. It may not be huge sums, but any money that drops in unannounced [...]

  5. […] Club Thrifty – So, You’ve Received a Windfall…Now What? […]

Speak Your Mind

*

CommentLuv badge