Windfall

A windfall is money arriving unexpectedly in a lump — a bonus, an inheritance, an insurance payout, a severance package. Because it differs from regular income, it should be handled differently.

The most common mistake is spending it immediately. Money that arrives without a plan tends to leave without one, and a few months later there is nothing left.

The recommended first step is waiting. Parking it in a deposit for a few weeks or months defers the decision until the excitement has settled.

The priorities are fairly settled: clear high-interest debt, top up the emergency fund if it is short, then move to long-term investment. Repaying expensive debt is the most certain return available.

Planning to spend part of it works better than locking it all away. Complete restriction invites a backlash that breaks the plan. Designating roughly 10% for free spending makes protecting the rest easier. For larger sums, tax comes first. Inheritances and severance payments often carry their own filing obligations and payment deadlines.