What to do with a windfall

What to do with a windfall

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I’m slowly interviewing people for a podcast series I’m working on and one of the questions I ask is “if you were given $10,000 right now what would you do”? I picked that amount because in my mind it is enough to be significant, $1,000 just doesn’t make people sit up and listen, but the thought of a sudden and unexpected $10,000 does.

Answers vary more than I expected them to when interviewing a heap of people about saving and investing. There were a heck of a lot of hypothetical holidays being booked, which for a bunch of savers surprised me! In most cases they had been paying attention to their financial future and were secure enough to spend some or all of the windfall.

My husband and I have had two windfalls of significance that have made a real impact on our lives. Each came from businesses he was involved with. In the first instance he had a new partner buy into the company he owned with two others and then in the second he sold out of another company he helped create. The first time this happened we still had a mortgage and that cash went straight on it. All of it. Because our mortgage was “revolving credit” (or revolting credit as we sometimes referred to it) that money could immediately be put against it and it made a substantial impact on bringing the loan closer to zero, thus saving us oodles in interest payments and allowing us to pay it back so much faster. There was never any doubt that the money would be used to pay down debt and buy our freedom from the bank. When we got our second windfall we were mortgage free but coping with the Christchurch earthquakes, so that money added to the emergency fund that we already had and some of it was used sparingly for day to day living.

I don’t recall celebrating with champagne or anything when the money came through but I do recall getting enormous satisfaction out of seeing our debt shrink. My husband had put a lot of his life into each business so it was a reward for a lot of long days and late nights over the years. Seeing it come into our bank account never prompted a round of extravagant spending, instead we still went about planning for things we had been planning to do in the future anyway, such as holidays etc and ongoing contributions into investments that we had. It didn’t prompt any new splurging and saving the bulk of it was always our first option.

It brings me back to the older gold miner I know who told me “Ruth, everyone gets a few lucky chances in life, big pivotal points that if you handle them well will set you up”. Financial windfalls, expected or otherwise, are just those lucky breaks he was talking about. The most recent one was about four years ago and while lucky for me it was incredibly unlucky for the person who gave it to me.

My Mum is English and her elderly Aunt and Uncle had always been a part of my family life here in New Zealand. Christmas cards, long distance phone calls where I awkwardly spoke with two people I had never met and finally meeting in person when I and each of my siblings (and a variety of friends) made our way to England during our travels. To finally meet in person was incredibly special. They were very gracious and kind and to hear their stories about their life and the travels they had made will always stay with me. To meet them in their modest bungalow, surrounded by the bits and bobs of their life told me they were not extravagant people. But time catches up with all of us and within two years of each other they passed away.

Receiving money due to the death of someone you love is an awful way to come into money.

They were not wealthy people, but they were comfortable and in their will after their estate was settled they left some money to my Mum. She in turn gave me $5,000 to do with what I will. It is not a large sum of money, but money always has emotion tied into it and it is significant for the fact that they could have spent it on their own lives and happiness but they chose not to. When planning for their retirement many people factor inheritance into their equations, and my great Aunt and Uncle wanted to leave something behind for the next generation.

Therefore, when I received the $5,000 from my Mum I knew that they had made a careful and conscious decision to hold back on their lifestyle and potentially go without so that they could leave something to my Mum and Dad and in turn me. I didn’t even have to resist the urge to buy stuff with it, that urge is just not there anymore, so there was no chance that I was going to waste a cent because I respected them far too much to do that. They worked too hard to make it for me to just blow it on junk so that five years from now I could not even remember what I did with it.

That is where I think my saving mindset is different to others with a spending mindset. I never thought of it as money I hadn’t factored into my finances so we may as well just spend it all and it needn’t even enter my spreadsheet.

Unless it is Lotto you have won, which does come as an unexpected surprise, when you come into some money either via business or family, generally you know it is on its way. My advice on what to do with it would be this:

  • Don’t actually spend a cent until you have it in your account. I’ve read enough gossip mags which talk about people who had their Great Grandma's’ dosh well and truly spent before they received it because she was on death's door and an inheritance was imminent, only to have her sitting at the head of the Christmas table again at Christmas. Go Grandma!
  • When you do receive a chunk of cash, for whatever reason, put it in a high interest account (yeah I know they are hard to come by) while you work out your options.
  • Pay down debt first. Mortgage or credit card debt: whatever debt of choice is, get rid of it!
  • If you have any money left, take your family out to lunch and then direct the rest to whatever investment strategy you have in place, or if a surplus of cash is a first for you then go back and read the rest of my blogs for a few ideas of where to begin.
  • Don’t fritter it away! These opportunities don’t come around often so give that money a purpose as quickly as you can.

What did I do? I saved it of course. And I still have every single penny of it today AND the interest it has accumulated. Broken down to a weekly amount it represents another $96.15 cents we don’t have to work for. Immediately upon receiving it I whipped it into a higher interest account until I had the opportunity to add it to a term deposit which I always have on the go and that is where my great Aunt and Uncle’s money is sitting all these years later, mixed in with some other cash but still very much ring fenced as “their” money. And every time it matures and I receive an interest payout I think of them and the careful planning they did throughout their long lives to ensure they left something behind for my family. My great Uncle worked in banking and I think he would respect the decisions I have made with his and my great Aunt’s money.

It’s not how much money you make, but how much you keep, how hard it works for you, and how many generations you keep it for - Robert Kiyosaki

Happy Saving!

Ruth

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