What to do if you get a sudden windfall

The Northern Irish footballer George Best was a player of rare talent – thought to rival Pele the Brazilian great – and considerable achievement.  He earned a tidy sum of money for his day but was not a paragon of frugal living or delayed gratification. He apparently quipped that ‘I spent a lot of money on booze, birds and fast cars. The rest I just squandered .’

On some level, we can probably all relate to George, even if we are not League Championship winners. Receiving a financial windfall – perhaps from a deployment, bonus or inheritance – is a blessing. But working out what to do with it can actually be difficult, even stressful.

We have choices and that requires us to choose, for example, should we:

• Keep it for a rainy day? If so, where? In the bank? Maybe in a high interest savings account? Which one?
• Pay down our debts? Which debts?
• Invest for the future? In what? How?
• Put it into our or our partner’s superannuation? What about contribution caps? What if we need it before we retire?
• Help our children or other loved ones with it?
• Donate some or all of it to charity or a cause we care about?
• Simply use it to indulge more enthusiastically in our hobbies like George Best? After all, you only live once.

Sometimes the fear of regret at making the wrong decision or the dizzying array of options can cause us to freeze up. We mustn’t kid ourselves, not making a choice is still making a choice. It’s usually choosing to leave the money in a low interest bank account where it’s probably relatively safe but its purchasing power reduces over time with inflation. Or, perhaps worst of all, to just thoughtlessly fritter it away.

So, what to do if you get a sudden windfall?

We suggest that you:

1. Put the money somewhere safe. For example, money held in Authorised Deposit-taking Institutions in Australia (e.g. Australian banks) are subject to a government guarantee of up to $250,000 in the unlikely event that the institution fails. A shoebox or WW2 ammo tin under the bed on the other hand is not.
2. Don’t just do something, think.  Don’t allow yourself to be rushed by sales spin or fear of missing out (FOMO), give yourself time to think (not forever though).
3. Review your budget. Your budget will tell you how you are managing from pay to pay. You may see some potential options emerge if, for example, you are struggling to balance the books because of car or personal loan repayments. This could be a great opportunity to take some pressure off.
4. Review your goals. A windfall can be a wonderful opportunity to reach your goals sooner. Were you already saving up for something? This could speed up the timeframe. It can also be a catalyst to set some new goals which have now become attainable, like saving for a home or paying it off earlier.
5. Do your homework. If you have already identified some options, research them using reliable sources like our ADF Consumer Centre website, MoneySmart and other credible sources.
6. Get proper advice. Seek advice from people who have relevant knowledge, you trust and believe have your best interests at heart. This could include paying for advice from a qualified accountant and/or licensed financial adviser. If your windfall is substantial it is extremely likely that a skilled ethical professional will be able to help you achieve your goals and that the cost will be worth it in the end.
7. Go easy on yourself. If you have done these things and chosen a particular course of action, don’t look back and ruminate and ask ‘if only I had…’. Don’t ever waste time and energy thinking about the risky investment you did not choose (probably for good reason and on advice), which may have done well if you’d only have been like Nostradamus and bought and sold at just the right moment. This is hindsight and truly in the realm of the uncontrollable. Try instead to focus on what you can control; continuing to make properly considered and informed choices using all you have learned along the way.

You may not ever be able to dribble the football or score a double hat-trick like George did but you can certainly beat him in the field of personal financial management.