3 Things to Do When a Bunch of Money Falls in Your Lap

A windfall of cash can seem like a dream come true, but it turns out that if you’re not careful, that money can disappear quickly. It is all too common to ignore the warning and end up squandering the money before putting it to good use. Consider taking the following steps if you ever come into a hefty sum so you can make the most of your newfound wealth.

1. Stop & Think

You just received a massive influx of cash so you should hit the stores, right? Wrong. Shopping sprees as soon as your check clears is the No. 1 mistake to avoid. The shock of a sudden large-figure windfall can cause irrational behaviors, lavish spending or sharing too extravagantly. It’s a good idea to avoid spending all the money you just received without making proper use of it.

You can try to take a few months and consider your short- and long-term financial goals. Then you can make sure your spending decisions align with those goals. Park your money somewhere safe like a savings account or CD so you have time to get your emotions under control, evaluate your needs or wants and get in the right mindset for better decision-making. You can also always consider working with a financial adviser if you are unsure about what to do with the money and feeling overwhelmed with the options.

2. Dump the Debt

It’s a good idea to consider your whole financial picture when determining how best to use that new money. It may be hard to learn which debts should be paid off first, but consider the high-interest balances like credit card bills before you get to other debts like student loans or mortgages (the lifetime cost of debt is staggering — paying off high-interest debt can make a big dent in that cost). If you can make prepayments or even finish paying out all the money you owe, your life could be in for a big, positive change. It’s important to make sure you won’t have to pay any penalties if you pre-pay any loans, including your mortgage. Also, even as you pay off debt, it can be a good idea to save some money in an emergency fund so you are covered if any surprise expenses come up. Many experts recommend establishing or strengthening your emergency fund with six to nine months’ of expenses.

Keep in mind that paying down debt has the added benefit of helping your credit score. On-time payments and lower credit utilization rates can help maintain or build a great credit score. You can see how your debt is affecting your credit scores for free every month on Credit.com.

3. Plan for Your Future

Once you address your immediate financial health, don’t forget about the future. It’s a good idea to determine how much you will need for retirement, how much your child’s education will cost, details on that second home or business you want to start and get to work on those goals. You could even consider using some of the money to pay the closing costs so you can refinance your mortgage to a lower interest rate. Depending on how high your current mortgage rate is, this can save you significantly in how much money you will pay in interest over time.

Last but far from least important, remember the taxes you may face now that your income for the year has grown substantially. The exact amount will depend on how you came into the money, but it’s important to research what is taxable and be prepared for the sudden bracket bump.

Once you have some funds allocated for saving and repayment, you can invest in the market carefully or splurge within reason. Just be sure to review your finances regularly to make sure you get maximum benefit from that windfall.

More Money-Saving Reads:

Image: Hemera

You Might Also Like

Rolled up $20 bills sit on a table.
With two stimulus checks under our belts, planning is curren... Read More

March 16, 2021

Personal Finance

A woman sits on a window seat with her young child, who is reaching up to touch her face.
The COVID-19 pandemic has taken a financial toll on nearly all of... Read More

March 16, 2021

Personal Finance

financial productivity
The following is a guest post by Orion Talmay, of Orion’s M... Read More

March 16, 2021

Personal Finance

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them. Compensation is not a factor in the substantive evaluation of any product.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team