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What to Do With Your Unexpected Income


Have you ever been in a situation where you unexpectedly received a large sum of money? Perhaps you got way more back than you expected at tax time (due to 2011 tax credits or 2011 energy tax credits perhaps?), or maybe you received an unexpected bonus at work (I know, this really doesn’t happen that often anymore), or maybe there was a death in the family and you received an inheritance…. what do you do with this unexpected income?

What you Shouldn’t Do

Before we get into the process of what you should do, let’s talk about what you shouldn’t do.

First of all, this isn’t “free money”. I agree that it most likely wasn’t earned, but that doesn’t mean that you have the green light to go out and buy a ski boat (this would really be a bad idea by the way, since it’s a depreciating asset and it will cost an arm and a leg in gas…).

Don’t make any hasty decisions – those are the ones that we all end up regretting.

What We Are Advised to Do

Many wise individuals would suggest that you put that money into a high-yield savings account for an entire year before we even touch it. I understand this idea – it forces you to really think through what you will do with the money without doing anything really stupid. Typically, if you still think your idea is a good one after a year, it’s probably not too bad.

What I Vote You Should Do

My advice actually involves some planning before you receive the unexpected income. Yes, that may sound crazy, but at some point in your life, you WILL receive some income that you didn’t expect, and wouldn’t it be nice to already have a plan in place for it?

Here’s what you do: create a list of things that you would really like to do with your newly discovered cash – something like this:

If We Receive Unexpected Income, We Will….

  1. Go on a ski trip to Colorado ($2,000)
  2. Invest in the company stock ($5,000)
  3. Buy that property up north ($30,000)
  4. Pay off the house ($40,000)
  5. Go to Europe ($8,000)
  6. Buy a Grand Piano ($12,000)

Put the things that you would most like to do at the top. In this instance, the top pick is going on a ski trip. Then the next thing you’d like to do will go right beneath it, and so on. The ideas might get a little crazy toward the bottom, but that’s ok.

So, let’s say your great aunt passed away and you were her only living relative. Her inheritance to you was $50,000. Rather than wondering what the heck you’ll do with $50,000, you just pull out your list!

Looks like you’re going skiing, investing $5,000 in the company stocks, you’re buying property up north, and the remaining $13,000 will go toward the house mortgage. Simple huh?

What would YOUR list be? It’s kind of fun, give it a shot!



My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.


  1. I like the idea of a list, and doing “all of the above”!

    • Yep, all of the above would be pretty great! That would be one awesome inheritance!

  2. This is a great idea!

    I inherited and since I barely earn enough to get by, I first paid my house off. Then I bought an annuity to give me extra monthly income.
    I increased my monthly contribution to my IRA at work to the highest that I could. I also opened a Roth IRA and I try to keep a couple of high interest checking accts going.

    I have taken a couple of small vacations but nothing that I can’t paid back in a few months.

    I think that I will make a list to be able to fit things in that I would like to do.


    • I’m glad you liked the idea Sharon! Sounds like you are contributing quite a lot to your investment funds – great job! I’d be interested to hear what’s on your list too!

  3. Love the list – that must be a short ski trip in CO, which mountain(s) do you plan on hitting?
    Having a list is a great idea – I may just do that (I dont get that many windfalls, most go to debt before passing go)

    • This list is actually only for example purposes, but I do hope to go skiing (actually, snowboarding) in Colorado someday. But first, I have to get used to it again! There aren’t too many sloped in Florida….. Now that I’m in Michigan, I can get a little practice in, come next winter.

  4. for me, my annual bonus is my unexpected income as it is performance base, solely dependent on your bosses. Thus, when I finally get it in the bank, i’ve paid down/settled in full debts with the highest interests first – the usual suspects c/cards, car/mortgage.
    Since my mortgage is structured akin to a current account i have to make sure that that i have the discipline not to dip my fingers into the honey jar for the next few months!
    I save for my trips / holidays fr my monthly income and as such my unexpected income is almost always used to reduce/eliminate debt.

    • That’s great that you are paying down your debts with your bonuses! Are you attempting to become debt free in the future?

  5. I like the idea of a list and a hierarchy is good. Perhaps you should create the list before it happens because the excitement of the surprise may influence your choices. There is an urgency to spend too quickly or pick the first thought that sounds good.

    • Yep! That’s why I suggested making the list now, in the event that an unexpected financial gain should come when you least expect it! This way, the excitement won’t play into the decision. You just have to consult the list! 🙂

  6. My best advice for unexpected income is to pretend it’s not there! Except for the tax planning aspect of course.

    • For a time, yes, I agree. But, one should eventually do SOMETHING with the money. If I dug a hole and buried my money 50 years ago, it would be 10 times more worthless than when I dug the hole.

  7. Paying off debt would be my top priority.

    • Awesome choice Scott! I know that was my choice when we had a winfall of cash! Good luck!

  8. Unexpected income goes into savings. If I want to have fun, it has to fit into my current budget.

  9. We just came into an unexpected amount of money that we weren’t planned for. We hadn’t made a list prior, but we have now. I’m glad we are on the right track because as much as it is a blessing, it is also stressful. Our 1st thing on the list are tithing, paying off some debt, and going on our 20th anniversary trip next yr. We will have a large amount left over. My question is do we pay down a chunk of our mortgage or put it back to build on and save? My hubby works hard to provide and he would like some breathing room. But we also know that if we don’t enjoy a little of it we will be sorry.

    • It’s never the answer anyone wants to hear, but it depends! Send me an email if you want – send me a few more details like, how well prepared are you for retirement? And, how much is left to pay on your house? What percent is your mortgage currently? My email is [email protected]

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