Windfall money is a breath of fresh air for most people regardless if they are in the red and managing one late payment after the next or if they are doing fine with their budget. Collinsdictionary.com explains that windfall is something unexpected and usually brings good fortune particularly in the financial area of a person.
The most common example of this would be the tax refunds that are usually processed and released by the IRS around the month of February. If you have been overpaying your taxes for the year, then you are going to be a couple hundred dollars richer as you get a tax refund check. It can also be a performance bonus in the office from all the hard work you have put in for the last year.
There are also some people who gets an inheritance from a family member who more often than not are the parents. Some people test their luck and hit it big when they win the lottery and rake in thousands and millions of dollars with just minimal investment on the winning numbers. There are a lot of ways consumers can get windfall money.
But after the good news has been received, a lot of people already start counting the ways with which they will spend the money. They haven’t even received it yet but they are already thinking of ways of spending the amount. This is now an effective way of managing money and can actually bring more harm than good to a person.
Getting unexpected money either through hard work or sheer luck is a welcome change in a person’s financial life. But how it impacts a consumer’s budget depends largely with the way they handle the financial gain. It usually is a result of how they have been managing their financial background which will basically be the foundation of their financial principles in life.
Managing unexpected money
Statisticbrain.com shares that with all the lottery in the country, close to half of them wind up penniless inside five years after getting the money. Of course there are a lot of factors that affects this turnout with big money winners. But the fact remains that a lot of consumers are unable to handle windfall money.
In order to help consumers deal with the unexpected financial gain, here are a few things to consider when you find yourself with a happy financial problem.
- Do not announce it to the world. The last thing you need is letting the whole world know that you won in the lottery or you got your hands on big inheritance. This is quite difficult to achieve because this is the day and age where information can fly off to millions of people with just one post or tweet. Social networking works so fast that if you post a status that you won the lottery, a lot of people will start congratulating you and borrowing money from you. it is not that you should not help people in need but you need to structure the way you will use your money.
- Wait a few months before using the money. In fact, it is a good idea to sit on it for a few months while you put together a financial plan in making sure that your windfall money is maximized to the fullest. Letting days or even weeks pass might not cut it and it is best to actually hold off using the money for a few months. Pretend that nothing happened while you iron out your financial plans in ensuring that you use your smarts with the money.
- Talk to a financial expert. Financial advice is a great idea when you are dealing with unexpected money especially when it is a big amount and you have no experience in handling that kind of money. Getting financial experts is a mature way of tackling the situation because for one, you know that you need help with your situation and two, you reach out to the perfect person for the job. But just with anything, you need to exercise caution with financial experts and conduct due diligence to see who is a good fit. You can ask people around or better yet, research and look for some experts on your own
- Address your financial weaknesses. This simply means that if you have problem areas in your finances, it is best to put them on top of the list. It could be that you just consolidate your debt payments but can’t seem to send in the payments on time every month. You might also behind your mortgage payments for some months now. Or for some, they are way in over their heads with high interest credit card payments. It could also be that your retirement fund is not at a level that you need it to be. The idea is to do an assessment of your financial life and see where you need help the most.
- Put the money in a separate account. This is one trick that could work for your especially if you are the kind that has a history of impulse buying if you see that your salary is already in your account. The rationale behind this financial move is that you stick to how you have been budgeting your money. If you have an account where you pay off bills and other living expenses from, then continue with that. Chances are, you will not constantly see your excess funds and this can help prevent you from calling that telemarketer to buy an item you do not have any use for.
Where to save in the budget
When you get windfall money, the last thing you might want to do is to look for ways to save your budget. But this is more than that because if you are constantly looking for ways to make the most out of your budget with minimal spending, the you can have a promising retirement fund when the time comes you hang up your corporate suit. Here are a few things that might help you reach this goal.
- Lifestyle decrease. An increase in income should not be the on switch to instantly increase your lifestyle. Winning the lottery should not automatically send you packing to a more exclusive zip code and trying to rub elbows with the rich and famous. You might want to reconsider this move and stay within your current lifestyle at the most.
- Needs could be wants. There is a big temptation to start buying all those things that you have dreamed of in the past. That nice car or finally taking a long break in a secluded island somewhere in Bali. Put the brakes on these ones and ensure that you are not starting to cross out the lists on your wants lists but sticking to your needs list.
- Getting creative with expenses. Investopedia.com calls this as a downshift and others refer to it as frugal living. Whatever the term maybe the idea remains the same that even if you have a lot of excess in your income, it might be a good idea to try and live below your means to make sure that you have money in the future.
Windfall money can come in any shape and form and usually at the time when you least expect it. This catches you off-guard and more prone to financial mistakes. As you try and deal with it, remember that there are tips you can look into to make sure that you are able to use that amount to further your finances and not get you deeper in debt.