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5 Steps to Handle a Sudden Windfall of Cash

Most people won’t even open this post. Most will never even read the first line. You know why? They’ve got a destructive attitude that just continues to beat them down…and down…and down.

They say things like, “Nothing good ever happens to me,” and “My parents are broke, so I’ll never receive a windfall of cash.”

Just like the old saying goes, be careful what you wish for…

If you think money will never come your way, it won’t. BUT, if you leave that possibility open and actually plan for a windfall of cash, then you know what? It just might happen. AND, if you plan for the money, then it won’t accidentally get pissed away within the first few months that you get your hands on it.

5 Steps to Handle a Sudden Windfall of Cash

A sudden windfall of cash can be a curse or a blessing. It all depends on how you handle it.

Let’s say you inherit $500,000 unexpectedly from your Uncle Jim (that slob actually had half a million bucks? Who would have thought?). That money gets placed into your account and your adrenaline starts pumping – a smile works its way onto your face. “This is AWESOME” you think to yourself. Within the next few months you’ve purchased a bigger house, nicer clothes, and a faster, shinier car.

The money’s gone now, but at least you have this great stuff! Except… the house is too costly for you to maintain, the car is too expensive to fuel up (so it just sits there parked in the driveway), and the clothes cost too much to dry clean all the time. You have no money, your expenses are greater than you can handle, and you’re actually in a worse spot now than before you received that “awesome” inheritance.

That money was a curse to you.

I’d love to see your windfall of cash be a blessing, and I’m sure you’d wish for the same thing. Instead of spontaneously spending the money, let’s walk through the 5 steps to handle a sudden windfall of cash.

windfall of cash1) Pause. Breathe. Do Nothing.

A windfall of cash can come from many different sources:

  1. An inheritance due to someone passing in your family
  2. A lump-sum pension payment
  3. A settlement from a lawsuit
  4. An insurance payment from an accident
  5. A tax refund

No matter how you get your windfall of cash, step one is simple. Do as little as possible.

The main reason for this advice? Emotions. When you’re in the middle of a windfall, emotions can get the best of you. They can cause you to spend, give, and invest in ways that you would have never considered before. And typically, emotional decisions don’t turn out well.

So step one – take the money, put it in a low-risk savings account or CD. If you have lump-sum pension money, be sure to direct this to the bank for them to wrap in an IRA (to avoid taxes and fees), but beyond that, I’d still recommend you do the same thing. Put it into a low-risk investment that may only earn around 1%.

Your emotions will make you want to do something different, but fight the urge for now. Park that money into something safe and leave it alone for a year.

Yes, I said a year.

Did you need the money before you got it? You were surviving without it, right? Well then you can survive without spending any of it for another year.

During this period of emotional re-balancing, think about how this money could best bless you and others. Keep a physical log of your thoughts and change it whenever you get a more clear picture of your wants and needs.

Over the course of this year, you’ll find yourself crossing things off your list and adding others, and you’ll be thankful that you didn’t hurry up and go buy those things that you originally thought were important.

2) Make Repairs

Once you regain your emotional sanity and your money fever has subsided, it’s time to actually do something with your money.

I suggest that you start with the most practical expenses: repairs.

You know that leaky roof that you’ve been ignoring for two years? It’s time to get it fixed. Or that weird creaking nose in your car rims when you drive? Take it to the shop and tell them to figure it out.

The cost on these items should be pretty minor, but it will increase your quality of life immensely.

3) Pay Off Debts

Many advisors and PF bloggers would recommend that you pay off your debt immediately after receiving the windfall of cash.

Not me.

Debt is typically easy to get into…and incredibly difficult to get out of. It’s that difficulty that teaches us never to flippantly put ourselves into debt ever again. We learn, we avoid debt at all costs, and we grow wealthy.

If you use your windfall of cash to quickly pay off your debts, you’ll learn nothing – annnd you’ll probably just jump back into debt before your next birthday. By waiting a year or more, my hope is that you’ll learn to despise your debts and hate your restricted lifestyle enough to learn your lesson.

4) Invest

It’s time to use your good fortune to get rich – not all at once, but slowly over time.

Everyone has a brother-in-law that’s overly passionate about something – a coffee shop, a restaurant, or a technology business of some sort. When he hears that you’ve got cash….watch out. He’ll want some of it.

Chances are he’s not a bad guy, and maybe his business idea is actually a good one, but even with the best of ideas often comes failure. After all, 4 out of ever 5 new business ventures end in failure in just the first five years. Only one of ten survives over the span of 10 years. If you want to keep your relationship with your bro-in-law AND keep your money, then DO NOT loan anything to him. You’ll regret it, I promise you.

Instead, there are two main avenues you should take to invest your new windfall of cash:

  1. Invest for the long-term in a retirement fund
  2. Invest for income in the near-future

Investing for the Long Term

If you have no interest in using the lump sum of money now and don’t want to manage any additional responsibilities over the next few years, then it’s probably best to invest the cash in an IRA. To do this, simply contact a brokerage company (or your local bank), load up an IRA with your funds, and then invest them according to your investment preference (don’t know anything about investing? This article might help: The 5 Basics of Investing That Everyone Should Know).

Keep in mind that this option will keep you from accessing the funds until you’re 59.5 years old, so you’d better be certain that you don’t need it before you dump everything in an IRA.

Investing For Income in the Near Future

For most people, when they receive a windfall of cash they would really love to increase their lifestyle in some way, but they also want to be smart about it. Rather than just take some money out of the lump sum and spend it, they may wonder, “How can I use this money to make more money?…and then spend the earnings instead of the lump sum?”

This is one of the best questions you can ask yourself! And it’s what I get most excited about! So let’s explore all the ways you can make money with your windfall of cash.

a) Dividends – Some companies pay out money to their shareholders each quarter, sometimes as much as 4% per year. By purchasing stock in their company, not only do you have the chance of the stock going up in value, but you also get the cash from the dividends! The best way to invest? Wealthsimple. Just click the link and sign up. They’ll basically take care of the rest.

b) Real Estate – My personal favorite. My wife and I have a rental house and absolutely love the income it provides. If you’ve never invested in rental properties before, start slow and operate just one rental for a while, even if you have the funds to buy more. The key to a great rental property is attracting quality renters, so be sure to do your homework and accept only the most qualified of candidates to live in your home.

c) Annuities – Typically, I wouldn’t recommend annuities, but they do fit the bill if you don’t want to manage a lump sum, but want to see regular monthly payments from your money. With an annuity, you get a guaranteed return for money – typically somewhere around 5%. Watch out for additional fees and surrender charges though. Annuities are notorious for these. Related: 8 Questions to Ask Before You Buy Annuities.

d) High-Yield Checking Accounts – No matter how often I write about it, people always seem to be surprised that some credit unions pay up to 3% interest on your checking account balance. It’s fricken awesome, and it’s real. Liz and I earn hundreds of dollars every year thanks to a local credit union in our area.

e) Invest in Your Own Business – While I don’t recommend that you invest in your brother-in-law’s business, I DO recommend that you invest in your own – within reason anyway. If you received a lump sum of $100,000 and want to spend $5,000 to start a lawn-mowing business, go for it. If, however, you want to use the money as a down-payment for your $1,000,000 60th floor revolving restaurant downtown….ummm, no. Please don’t. Want some legitimate business ideas? Check out these 14 Cheap Business Ideas You Can Start Today.

f) Invest in Yourself – If you don’t earn a ton of money today, then your best option might just be to invest the windfall of cash into your own education. Here’s my rule of thumb: However much you spend on your education, make sure your increase in income could pay it back in three years or less. In other words, if you used $60,000 to get yourself through school and graduate, then your income better increase by at least $20,000 per year.

5) Enjoy It

Finally, a portion of your lump sum of cash should be enjoyed, but only after you’ve gone through each of the first four steps outlined here. Buy a decent car, take a vacation, donate some money to a local charity that you’re passionate about. Just keep it within 25% or less of your newfound money.

It’s Time to Make It Happen

Remember the steps:

  • Take your time
  • Make some repairs
  • Pay off debt
  • Invest
  • Enjoy it

Follow these steps and your windfall of cash will almost certainly be a blessing. Just remember the first and most important step – pause, breathe, and do nothing. The rest of the steps will be a breeze in comparison.

Battle of the Mind Money


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. Hi Derek!
    I love this post! I am actually going to be getting a lump sum settlement soon. I’m wondering this; I have known for a year now that I am going to get a settlement, and I have since day one not changed my mind on what I wanted to do with the money. I have 6k in credit card debt that is holding my credit back from being perfect and have no other plans for the rest of the money. I would like to invest it for short term gains to enjoy on a monthly basis while keeping the initial sum intact. Would it be ok to pay a grand a month for 6 months to knock out the credit debt while still investing the rest as stated above? Or should I still wait a year to do so and try to continue knocking down this credit debt? ( I have taken it down from it’s initial 10k in one year solely from my own payments that I can now afford) thanks for another insightful post!

    • Hi Amy. Glad this post helped you! Knowing you’re getting money vs. actually having money are two totally different things. While you might not need to take a whole year to decide what to do with the money, I would still make sure to pause and think after the money hits your account.

      Best of luck to you!!

  2. You knocked it our of the park with this one. Excellent.

    I had a car accident, and received a $10K payment, tax free. I used that money to refinance my mortgage at the time, when rates were falling fast, and it saved me $400/mo while dropping the remaining time from 27 years to 20.

    I had a friend of friend, who got a $200K inheritance from his sister who passed away. It was in an IRA. He was afraid of the market (which I understand) but on liquidating the assets, also withdrew the money from the IRA. A huge tax bill. He could have kept the money in money market/CDs, and taken RMDs and paid virtually no tax at all. He was on Social Security Disability. “Pause. Breathe. Do Nothing” is dead on, My own article was title “On my death, please take a breath,” a similar sentiment.

    It’s not fun to take that windfall and pay off debt, but it’s the right thing to do. I understand your point, and respect it. But those who are already responsible and paying off student loans (especially loans they used to send the kids to college) should take their windfall and kill that debt.

    Me? I have my charities. The $9000 windfall I’ll get from Trumpcare? It’s going right to a charity that provides medical care for the homeless. And I’ll post about it when it happens.

    • Thanks Joe. And yes, I respect each of your points as well. Sounds like we’re pretty much on the same page!

  3. As you say NEVER lend money, however if there is someone you would like to help.
    Give them the money! This way there are no guilty feelings by either party and the friendship is retained.

    • Very true David. Never lend the money, but if you want to give it as a gift and don’t expect anything in return, then by all means give it. Good clarifier!

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