It’s a dream come true for many. You get word that you might soon be getting a monetary windfall. (It might be a little or a lot, but extra money is always good.) It may be an inheritance, a tax refund that’s anticipated to be larger than normal, or an anticipated bonus. Whatever it is, the news might make you lose your head for a moment. Go ahead, run around for a moment, and scream.
But hold up…
This windfall is only a possibility right now. You don’t have the money in hand. All you have is a “someday,” or a “maybe.” Bonuses can be revoked or changed at any time. Inheritances can be eaten up by expenses, or your relative might change their will at the last moment and leave it all to charity, your brother, or the cat. Even a tax refund can disappear if you did the math wrong, or the IRS finds you owe money from prior years. So what should you do with this anticipated money? Do you go ahead and live your wildest dreams, or do you pretend that this money doesn’t even exist?
On the rare occasion I’ve had to deal with a nebulous windfall, I’ve opted for a hybrid approach. I don’t go out and spend the hypothetical money, but neither do I pretend it doesn’t exist. If you’re facing a possible windfall, here’s how to cope.
- Get your plan in order. I call this practical dreaming. Let’s say the money comes to you. What’s your plan for it? Will you pay off debt first, or save a chunk for retirement? Do you have overdue household projects you need to handle or a long-awaited renovation? Charitable donations? What are your needs and wants for this money, and in what order do you plan to tackle those items? If the money never comes this plan may be for naught, but if the money does arrive, you have your plan ready to go.
- Don’t accrue debt because of the windfall. Don’t use the money you don’t have yet to finance purchases. Racking up a huge debt and betting that you’ll be able to pay it off (or more easily service the payments) when the windfall comes is a terrible idea. What if the windfall never comes, or is substantially less than anticipated? What happens to that debt?
- Don’t plan on a windfall to cover permanent/necessary expenses. You need to be able to afford your life with the money you have in hand today. Don’t buy a new/bigger home because you might get windfall. That’s a permanent expense that’s difficult to change if the money doesn’t come. Purchases like cars, pools (remember Clark Griswold in Christmas Vacation?), and major additions/renovations. These are things you can’t return or easily weasel out of if your finances change. Save things like this until you actually have the money and then work the plan you made in step one.
- Make sure your fun is refundable. If you simply must do something with this news, make sure it’s something you can get out of. Maybe you go ahead and book that dream vacation, but do so under conditions where every piece of it is refundable. If you enter into anything with a contract, make sure the start date is after you have the money and that you can terminate the contract at any time with no penalty.
- Dream a bit. It’s okay to engage in a little fantasy. Go ahead and picture your life with this money in it. Imagine the things you can do or the wants you can fulfill. A little fun fantasizing can get you through some dark times and bring a little joy. Just don’t get to the point where you feel like the dream has to become reality or else your life is ruined. You don’t want to be totally gutted if the money never comes. Be happy with what you have today while engaging in a little “what if” therapy.
- Plan for help. If the amount of money you’re expecting is large and life-changing, go ahead and think about who you will turn to for help. Large sums of money often trigger a need for help in areas like tax planning, estate planning, legal issues, etc. You don’t have to visit these people yet or sign any contracts. Just figure out who’s reliable and recommended in your area. That way you’ll already know where to go when/if the time comes.
Windfall money is great, but only when you have it in hand. Before that moment, it was merely hypothetical. While it’s fine to make some plans around the what if’s, avoid committing to anything you cannot undo, or which will leave you worse off if the money doesn’t come.
Read More:
- 3 Ways to Optimize Your Bonus Tax Strategy
- Reward Yourself with Windfalls and Tax Refunds
- How to Request a Bonus from Your Boss
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Jennifer Derrick is a freelance writer, novelist and children’s book author. When she’s not writing Jennifer enjoys running marathons, playing tennis, boardgames and reading pretty much everything she can get her hands on. You can learn more about Jennifer at: https://jenniferderrick.com/.
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