What would you do with a financial windfall?  For clarification, by windfall I mean any unexpected money like a tax refund, bonus from work, inheritance or lottery.

Would you splurge and treat yourself to something you’ve always wanted? Or would you put yourself in a better place financially?  (Answer truthfully.)

Your first impulse may be to go on a big shopping spree, take an extravagant trip or “sponsor” family and friends “WANTS”.  (Remember needs should ALWAYS be greater than wants.) Let me just say if you do any of those things, it will be just a matter of time before you end up back in the same place financially that you were before you received the “windfall”.  Think about the instant millionaires who are now homeless OR worse off than they were before.  No matter what the amount of the financial “windfall” is, you should STOP and take some time to identify how this additional income will most benefit your finances.  It should be used to put you in a better place financially than before you received it.

As you do with your earned money, the first thing you should do is create a plan BEFORE you receive it.  While I don’t receive financial “windfalls” often, I have received bonuses from work and tax refunds.  The very first thing I do is make a plan for EVERY dollar.  I actually take a look at my finances and create a plan that will have the best impact to my financial picture.

Here are 5 things to do with a financial “windfall”:

1. Pay yourself FIRST– Your first priority with any money is to pay yourself first.  Assign a certain amount or percentage that you will put into your savings accounts.
2. Pay off Debt– Since more than likely interest is associated with your debt, it is important to pay off or down as much as possible. This will free up money that can be used for savings, retirement or even your children’s college fund.
3. Start an Emergency Fund– We all know how unexpected expenses can pop up at the most inconvenient time and could possibly derail your financial progress.
4. Contribute to Retirement– With talk of Social Security running dry by 2034; it is imperative to put as much money away as possible so that you can enjoy retirement without financial worry.
5. Start a College Fund for your child– With the rise of tuition and student loan debt totaling well over $1 TRILLION, putting away money to fund your child’s education will give them one less thing to worry about when it comes to their finances. 

Don’t get me wrong, you should also use a SMALL portion to treat yourself.  I emphasize, SMALL.  Financial “windfalls” can move you closer to or further away from your financial goals, the decision is up to you.  Make sure you choose wisely.