How do you budget a windfall?

[LivingAlmostLarge]

If you were to come into some money what would you do with it? How would you budget your windfall? How much would you save? Spend? Gift? Would you use it for yourself? Give to your children? We are coming into some money, well we earned it so it's not an inheritance. But it's a pretty large number. I'm trying to decide how much to spend. I'm pretty cheap in case it's not obvious on this board and my instinct is to save it all. My DH is a little put out by this. So what do you guys do?

[Jluke]

50:30:20

save, spend, something else

in whatever weighting you want to assign to them

[corn18]

I'd invest per my AA.

[LivingAlmostLarge]

I'd incest per my AA.

So save the entire amount?

[bjl584]

How much money is it?
That would probably determine what I would do with it.

Inheriting $10,000 is way different than inheriting $2 million.

One day I will be coming into some money in the form of my mom's estate.
I don't know exactly how much, but probably close to 7 figures.
I have a loose plan, but my life circumstances at the time I receive it will determine what I specifically do with it

[Fishindude77]

All depends on an individuals situation.
Some might desperately need it just to survive, some might clean up some debt, some might not need it and just have fun with it or give it away ..........

[corn18]

So save the entire amount?

Yup. When I was working, my bonus and vesting RSU's would be in the $400k range. In 2019, it was over $1.2M. I just invested it all per my ISP. Not a windfall per se, as it happened every year but a large chunk of money at one time. Although every year around bonus time I would go out and look at supercars, but I always had this forum in my head.

[disneysteve]

I reject the notion that saving the money isn't spending it on yourself. It's just doing so in a delayed gratification manner. So says the guy who inherited $1.3 million this past year and didn't do or buy anything special. It all went into savings so that I could drop to part time work and start planning my full retirement in the very near future.

That said, I see nothing wrong with taking a small piece of it and doing something fun - a new car, a vacation, or something else that would be a special treat for you. How much? Maybe 10% if the number is large enough to be meaningful.

[LivingAlmostLarge]

$300k after taxes. I was thinking $150k to 529s (75k each kid) but I don't know if that's overkill. Guess those numbers overall then $150k. Do we just save it? Spend some of it? No it's not an inheritance and it's not exactly income per se. It's just money that we happen to make. My DH wants to spend some and I'm on the fence.

DK1 (age 12) 529 $56k, taxable $40k
DK2 (age 9) 529 $44k, taxable $40k

[kork13]

As others have said, it generally depends on the size of the windfall. With $300k, I'd probably top up any sinking funds, reserve a few thousand dollars for something fun (like maybe a $5k vacation), and invest the rest in one manner or other. 529 isn't a bad option, though $75k/child could become "too much" if they're fairly young (say, 10 or younger). Honestly, I'd just put the bulk of it into normal taxable investments & let it be.

.... That, or find a rental house to buy.

[jenn_jenn]

We found ourselves in a very similar situation this year with income earned that felt like a windfall. Ours
was not as much, about $250k after taxes.

We contemplated several things. I wanted to throw a good chunk of it at our mortgage but we decided against it because our interest rate is low and we decided the opportunity cost was too high for now. My husband (still) wants to buy a business. He also really wanted to buy a second car, we even test drove a couple, but I talked him off that cliff.

In the end, our approach was:

1) Top off one year savings

2) Spend a little bit <$6k

My husband replaced his broken computer with an upgraded model. In reality, we would have done this anyway but he got to feel like he splurged. I haven’t pulled the trigger yet but I’ve been eyeing a $500 end table that I’ll probably order soon. I don’t need it, I just want it. The only way I’m justifying it is that I earned it!

3) Invest the rest

Actually, in full transparency, we have too much cash on hand but the intention is to invest it once we decide on where. We potentially have another $50-$100k later this year. If that happens, we’ll just invest all of that as well.

Both you and your husband have reasonable approaches. My two cents (and that’s all it’s worth), is to support him wanting to spend some of it, assuming it’s somewhat reasonable. From what I’ve read in your posts, you work hard and are very good stewards of your money. There’s nothing wrong with getting to enjoy some of it!

[scfr]

Not as much as you are talking about, but the closest we came was one exceptionally good year for DH's business. Since we had already been working towards paying down our mortgage little by little, we just paid the whole thing off.

I agree with the comments that you and your husband both have a say in this. If there is a purchase or two you've been eyeing and saving for, in your case I agree there's nothing wrong with accelerating and using some of the windfall to go ahead and make the purchase (or go to the concert, or whatever the splurge is ... within reason).

[LivingAlmostLarge]

As others have said, it generally depends on the size of the windfall. With $300k, I'd probably top up any sinking funds, reserve a few thousand dollars for something fun (like maybe a $5k vacation), and invest the rest in one manner or other. 529 isn't a bad option, though $75k/child could become "too much" if they're fairly young (say, 10 or younger). Honestly, I'd just put the bulk of it into normal taxable investments & let it be.

.... That, or find a rental house to buy.

I would love to buy a rental house but I have no idea where and how to do it. I also agree $75k to the DK seems a bit overkill.

This is earned income not an inheritance. Sorry no inheritances here. We earned it but it was just a bit unexpected. Didn't think we'd have this bit of cash.

I really want to buy rental property. There isn't much we deny ourselves so I don't feel like we should spend it. We travel a lot and eat out when we want. There isn't much I scrimp on.

I was thinking of not saving monthly for the next few years and just let us spend a bit more monthly on stuff. Or maybe writing this out upgrade on hotels instead of looking for budget hotels but going somewhere nicer.

[disneysteve]

Or maybe writing this out upgrade on hotels instead of looking for budget hotels but going somewhere nicer.

Be careful with that. Once you start staying in the nicer hotels, you’ll never want to go back to the budget ones. It’s hard to stop once you come to appreciate the finer stuff.

[kork13]

I would love to buy a rental house but I have no idea where and how to do it. I also agree $75k to the DK seems a bit overkill.

I was thinking of not saving monthly for the next few years and just let us spend a bit more monthly on stuff. Or maybe writing this out upgrade on hotels instead of looking for budget hotels but going somewhere nicer.

On the rental property, there's 2 good ways to learn: hard-earned experience, or find a good mentor/advisor. Of course, I'd recommend the latter. Find a successful landlord who is a friend, colleague, neighbor, relative, or even just hire a realtor or property manager to help teach you about how to find/buy a cashflowing rental, and how to manage it. Most people who are successful in real estate are passionate about it, and are happy to talk/teach about how to be successful. Honestly, especially if you can buy a rental in cash or with a very small mortgage, it's almost impossible for it not to produce a net positive income.

On your second point... That's not at all a bad option to consider. I'd still max retirement accounts, since you can only fill those up one year at a time... But otherwise, if you drop $300k into investments & call yourselves good for a few years, no reason not to enjoy more of your income. Doesn't even need to be huge changes, like you said -- staying at nicer hotels, enjoying more entertainment, traveling more, or whatever else is appealing to you. The invested cash will work for you in the background. Of course, if you get used to nicer stuff like that, you'll probably come to always want it. But that's not necessarily bad, and I know you're in fine financial shape, so those extra costs would almost certainly be easily affordable for you guys regardless.