- A financial windfall is a large amount of money that an individual or business comes into unexpectedly.
- Sources of windfall gains include inheritance, bonuses, investment returns, winnings and more.
- A financial windfall can be used in many ways, including spending and saving. Working with a financial professional can help you make the right financial planning decisions.
Windfalls are unexpected financial gains that many people experience at least once in their life. There are many different types of windfalls, such as a holiday bonus, an inheritance or a winning lottery ticket. As well as the source of the financial windfall, the amount of money in a windfall varies. The ways people use windfall gains vary, too.
If you receive a windfall, you’ll want to know the financial windfall meaning, examples of windfall gains and how to manage coming into an unexpected amount of money.
Financial windfall meaning
What is a windfall? Also referred to as a windfall profit or windfall money, this is an often unexpected, one-time financial gain.
Windfalls often happen to individuals, but companies, organizations or other entities may experience windfall gains from market changes, price spikes, shortages and other events. For instance, if demand surges for a business’s product or service, the company can experience unexpected windfall gains. Similarly, if an organization receives a large, unanticipated donation, it also would be considered a financial windfall.
How much money is considered a windfall?
No set amount of money constitutes a windfall, and the financial windfall meaning can vary among individuals and organizations. A windfall profit represents any unexpected large spike in income, meaning it could be $1,000 or even an amount in the millions.
As you may expect, as these amounts constitute such a large range, what people consider a windfall also varies.
Examples of financial windfalls
There are several different sources of unexpected gains, with some being more common than others. Examples include:
- A surprise $1,000 holiday bonus from work
- A $50,000 jackpot from a winning lottery ticket
- A $1 million inheritance to a beneficiary from the death of a family member
- A $300,000 gain from an unexpected spike in a stock you hold
- A $10,000 donation from a company or private individual
- A $25,000 profit from a surge in product demand
- A $500 prize from winning a competition
- An $8,000 profit from selling an antique
- Windfalls are more common than you may think and affect individuals of all backgrounds and at all income levels.
What to do with a windfall
Coming into a windfall gain is good news that comes with a responsibility to manage the money, too. Because a financial windfall is unexpected, you may not know what to do with the surprise income. Yet, it’s important to manage it well, so you can maximize the gain.
The best way to use a windfall is individualized to you and will vary based on your financial priorities, saving goals, investment opportunities, current financial situation and more. Additionally, those who experience windfalls of particularly large amounts of money may choose to manage them differently than those with smaller windfall profits. Some may want their financial gains to be managed professionally, for instance.
Although people use windfalls differently, you may be familiar with some of the common uses for unexpected financial gains.
Pay off high-interest debt
You can use a financial windfall to pay off debt, including credit cards. Chipping away at these balances can be financially beneficial for several reasons, such as potentially increasing your credit score and giving you increased opportunity to save going forward, especially if you prioritize paying off high-interest debt.
Open an interest-bearing account
A high-interest savings account, money market savings account or other interest-earning bank account can help you securely store your money and earn interest. Since you can withdraw from them as you’d like, you can use these accounts as large emergency funds or rainy day funds, which are important pots of money to have set aside for unexpected expenses.
You can also choose other types of financial options, such as a certificate of deposit (CD) or a CD ladder, which can help you grow your windfall.
Invest in your retirement
Even if retirement is not yet on the horizon, putting money into your retirement savings can help you prepare for a comfortable lifestyle once you’re done working. You can make contributions to retirement accounts, including IRAs, Roth IRAs and 401(k)s. Putting windfall gains into retirement accounts early can help grow your savings.
Explore other investment options
You may also want to consider other investment opportunities where you can invest funds for a potential return. These include mutual funds and equities, direct investments, real estate investment, fixed income, annuities, bonds and more. These investments all have different rates of return and risk.
Plan for future expenses
In other cases, you can use your windfall to help you manage large upcoming expenses such as taxes, a home purchase, a car purchase, a renovation and more. Saving parts of a windfall for these expenses can help you avoid debt in the future. Additionally, in some cases, being able to transact in cash can secure you preferable prices.
For education, in particular, you may want to consider a 529 Plan, which is a tax-advantaged savings account for education-related expenditures.
Because of the multiple options available for spending or saving a windfall, you will want to consider an individualized approach in determining how to use the funds, as well as decide whether you’d like to work with a financial planner accordingly.
Seek help managing a windfall
Managing an unexpected influx of a large amount of money can be stressful, but you are not always responsible for handling a windfall on your own. Financial experts can help you make the correct financial planning decisions by looking at your overall financial health, discussing your goals and providing potential options for windfall management.
Seeking help from a professional can make you feel confident in deciding how to maximize the potential of your unexpected earnings.