What to Do With a Windfall (One-Time Income)

When it comes to dealing with a windfall, or one-time income, you have a range of different options. Here are some tips for how to think about this money so you can put it to good use.
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Have you ever been excited (or surprised) to receive a big chunk of unexpected income, only to find yourself later wondering where it went? Whether it’s from a tax return, a stimulus check from the government, a bonus at work, money from a contract job, or an inheritance, figuring out what to do with one-time income can be tricky.

In general, your options for using your money include paying off debt, saving, spending, investing, and charitable giving. But without a plan in mind, it’s easy to think of one-time income as ‘free money’ instead of money that could help you achieve your financial and personal goals.

With so many options, a little forethought can go a long way in your financial success. So before you part with your money, consider the following tips to help you put it to best use.

Make a plan before it hits your account

Seeing a large number sitting in your bank account—or on a check in your wallet—can all too easily burn the proverbial hole in your pocket before you’ve had a chance to make an informed decision.

If you know when you’re set to receive a payout in advance, like with a tax return, use that time to plan what you’ll do with the bonus money. If the income is unexpected, such as a larger-than-anticipated inheritance, the wise step is to not touch it until you’ve had time to assess how to use it. If it’s a significant amount of money (beyond what you’d usually see in a year), it might make sense to consult with a financial advisor to make sure you’re aware of everything you need to know.

One tip: Stash it into a Protected Goals Account so it’s not sitting in your Safe-to-Spend® (because it might not be safe to spend!).

Another tip: You might need to pay taxes on them; work bonuses and other large chunks of money (like the cash you’d get from selling your car) are often subject to hefty tax rates, so wait until the check clears to plunge ahead to the next step—you don’t want to accidentally spend money you don’t have! Consult with a certified tax professional to find out how taxes will impact you.

Put it toward your principal balance on any debts

Got debt? Consider using your one-time income to put a dent in it. Making an extra car payment may not feel as exhilarating as the day you drove that new car off the lot, but it’s a step toward the exciting feeling of being debt-free.

A large chunk of unexpected cash may be just what you need to pay off the last of that financed TV or nagging student loans. Even a small amount can be applied toward the principal of your loan—just make sure to specify that you want to make a principal-only payment. In addition to peace of mind, you’ll also save money on interest.

For more tips on paying off debt faster, read this blog.

Use it to cover current and future expenses

Are you living paycheck to paycheck, or not saving as much as you’d like at the end of each month? A one-time cash infusion might be just the thing you need to break that cycle. If you’re keeping track of your expenses with Simple Expenses, transfer the extra cash to get ahead on some of next month’s expenses. This will help you establish more of a financial cushion, so that you have a little more wiggle room in your budget in case your income goes down or your expenses go up.

Learn more about keeping track of your expenses with Simple here.

Save it for a rainy day (or one of your Goals!)

As your friend in helping you build financial confidence, it’s probably not surprising that we’d recommend for you to save one-time income if possible. Especially in times of financial crisis, having the cushion of emergency savings to fall back on can help you avoid going into debt (or deeper into debt) in order to stay afloat.

If you don’t have an emergency fund, or it’s not yet fully funded, that’s an important place to start (learn why here).

Perhaps you’re one of 41% of Americans who do have $1,000 or more saved up in case of emergency. Go you! If that’s the case, and you don’t have debt to pay off, it’s still wise to set aside the money instead of spending it. Read this article about how to prioritize your savings goals to inspire some ideas.

Invest in yourself

Another smart way to use your windfall of money? Invest in yourself, in a business, or in something that will save you money later. Here are some ideas:

  • Want to make a career change? Consider investing in an online course to grow your skills, or a training seminar to help you grow in your field.
  • Curious about turning your hobby into a side hustle? Maybe you can use the cash to upgrade your equipment, buy some inventory, or set up your website.

You can also think through ways that you might invest in something now that will help you save money over the long-term, which might have not been an option for you before. For example, perhaps you haven’t been able to afford to pay for the annual subscription for the photo editing software you use for your side hustle, even though you know the monthly subscription option costs you more in the long run. Use your windfall to pay for the year in advance, so you can save cash throughout the year.

Pay it forward

If your one-time income is truly extra (read: you aren’t depending on it to pay your bills), why not consider sharing with someone less fortunate? Whatever you feel strongly about—whether it’s human rights, homelessness, or saving the planet—can lead you toward a charitable organization where your donation will help further the cause.

Just make sure to do your research, and consider both local, national, and global groups. If you are part of a local church or volunteer at a food pantry, you can see exactly where your money will be used. Or maybe you know someone who is struggling financially, and covering their electric bill or car repairs will help them through a rough patch. Giving may not be the most lucrative option, but when you find a situation that feels right, paying it forward can be a rewarding way to handle your one-time income.

Spend it (wisely)

If your bills are covered and your debt is under control (even if not totally paid off), it’s okay to spend a little, especially if the one-time income is truly bonus money. Consider giving yourself a percentage to spend; for example, one third to debt, one third to a savings account, and a third to spend. Or get out of debt sooner by putting 90 percent toward your debt payments and going on a mini shopping spree with the 10 percent left.

Just make sure that you’re spending it on something you actually need or want—and not just spending it for the sake of spending it (or because that well-targeted Facebook ad found you at just the right time). For more guidance on when to spend or save, check out this blog.

Be smart with one-time income

Regardless of how it came to you, there’s no strict rule for how to spend your one-time income—and the ways to use it are endless. The smartest thing you can do is to take your time, and think logically about where that cash could do the most good in your financial life.

Whether you choose to save, spend, invest, give, pay off debt, or a combination, make it a choice that aligns with your existing financial goals so you feel good about it down the road.

Disclaimer: Hey! Welcome to our disclaimer. Here’s what you need to know to safely consume this blog post: Any outbound links in this post will take you away from Simple.com, to external sites in the wilds of the internet; neither Simple nor our partner bank, BBVA USA, endorse any linked-to websites; and we didn’t pay/barter with/bribe anyone to appear in this post. And as much as we wish we could control the cost of things, any prices in this article are just estimates. Actual prices are up to retailers, manufacturers, and other people who’ve been granted magical powers over digits and dollar signs.