How to handle windfall income

A windfall is money which comes into your possession without expectation or too much work. It is sometimes called the “lottery syndrome.” This is because windfalls are often squandered. Most lottery winners and gamblers end up worse off after getting their pay off. Same thing with corruption proceeds. Corruption proceeds often don’t amount to much and are rarely passed onto the next generation.

Windfalls come in many forms including; per diems, bonuses, allowances, random cash gifts, inheritance, 13th cheques, christmas vouchers, prize winnings, deals, etc.

Here are five strategies I use to manage windfalls:

1. Anticipation. When you expect to receive something you are better prepared to handle it. Windfalls are factored into my cashflow projections and allocated to specific expense lines. Once the money comes in I know where to put it.

2. Debt repayment. A colleague of mine allocates most of his windfalls to clearing debt. This makes alot of sense. Instead of splashing on new stuff, pay off debt instead and reduce your financial stress.

3. Budgeting. My budget has a list of projects to be accomplished in a year. Once I get random cash I often allocate it to one of these projects.

4. Create an emmergency fund. I typically put my windfalls in my STANLIB unit trust. The money is easily accessible yet I earn some interest.

5. Have some fun. Life is short. Have a blast with some of the cash. Spend on experiences rather than buying more stuff. Travel to exotic places with your family.

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