Whenever I saw posts from “other people” asking how to handle a windfall, I always thought “Wow, lucky them.” I never thought we would be in a position where I would need to read the Bogleheads article on How to Manage a Windfall or the White Coat Investor’s version and how he personally handled his.
I like how WCI puts windfalls into 3 categories:
- Spare Cash – around 10K-200K
- Enough to make you financially independent – 1-3 million
- Ridiculous Money (think lottery)
Our windfall fell into the first category. The money is from selling M’s condo in Brooklyn, some owed reimbursements, me cashing out my 457(b) and some other sources. We’ve been discussing how to use this money for a while and here it is:
- First, we chose to pay off my student loans and become debt free. What a feeling!
- We bought a car in cash.
- We beefed up our emergency fund.
- Set aside money for new furniture for our new home.
- Frontloaded 529 for M’s first son.
- Started Eggy’s ESA.
- Started a taxable brokerage account at Vanguard.
I guess we didn’t put aside money to blow on ourselves per se, but we already budget for fun stuff like eating out at nice restaurants (and paying for a babysitter) and taking kid-less vacations. Aside from that, I think we did a pretty good job allocating the windfall to several things.
How did we decide what to use the money for? Our overall goal is reach FI
so paying off debt was a no brainer. The interest rate wasn’t high (3% and 2.25%) but losing a ~$3,000-$5,000 monthly payment felt GREAT. The rest fell in place pretty easily and logically when looking at our other financial goals.
We are in a good place. But something about moving and
having a new human to take care of made the windfall feel less good
since it feels like we are just burning money sometimes.
How did you handle a windfall? Comment below!