What To Do With a Windfall

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The first rule of windfalls is to understand that everyone will handle coming into some extra cash differently. People have varying obligations, responsibilities and personal styles.

“We have 73 households that we work with,” says James Bryan, a certified financial planner with Hyland Lake Partners in Edina, Minnesota. “The answer is going to be different for each and every one of them.”

That said, there are some helpful rules of thumb: Don’t start spending money right away, for instance.

“I’d suggest the person take a step back to soak it all in,” says Uziel Gomez, a CFP with Primeros Financial in Los Angeles. Whether it’s an inheritance or a lotto win, he says, “there will be a lot of emotions at play.”

Not every windfall is a life-changing amount, but even a small payout can make a difference. Here’s a solid plan for handling an unexpected financial boost.

Before you allocate your cash, talk to an accountant or financial advisor to see what you might owe in taxes.

“It’s not a popular answer,” says Bill Shafransky, a CFP with Moneco Advisors in New Canaan, Connecticut. “But it’s the right answer.”

Different types of windfalls get different tax treatment. You might not owe taxes on a cash inheritance or a life insurance payout, but if it’s a large bonus or a lottery prize, you’ll pay taxes on the proceeds just like regular income.

Shafransky recalls an acquaintance who won a large sum and sank it all into a house, not realizing he’d have a big tax bill the following year. When tax time arrived, all his cash was tied up in the property.

“His parents had to get a home equity line of credit on their own home,” Shafransky says.

Once you understand the tax situation, consider focusing on debt — which is what 30% of Americans say they’d do with the majority of a financial windfall, according to a new NerdWallet survey, conducted online in November by The Harris Poll.

If you have any liabilities — like car loans, high-interest credit card debt, student loans and home equity loans — get rid of them, Bryan says.

“An old professor of mine long ago said, ‘There are two types of people in this world, those that pay interest and those that earn it,’” Bryan says. “Absolutely eliminate every liability you can.”

If you have no other debts, but your windfall would pay off your mortgage, Bryan suggests knocking that debt out as well. Mortgage rates are typically lower than higher-interest debt, but paying that balance off can be freeing, he says.

“When people are debt-free, there is a glow about them when they walk into your office,” Bryan says.

It’s also important to make sure you have enough cash to cover unexpected expenses. Some 28% of Americans would put the majority of a financial windfall into savings, according to NerdWallet’s numbers.

Bryan recommends having enough money to cover at least three months’ worth of living expenses in case life throws you a curveball — your car breaks down, you lose your job or you get sick for a period of time.

“My priority is just to create a cash cushion for insurance against those rainy moments that we all encounter in our lives,” Bryan says. “Nobody goes through life without that.”

Because some people feel uncertain about the economy and jobs right now, Gomez talks to clients about how long it would take them to find a job if they were laid off. The longer it might take, the bigger your emergency fund should be.

“The rule of thumb is typically three to six months,” Gomez says. “I am having clients reevaluate and see if they need anything more.”

Odds are, you’ve got other goals that could use a boost — retirement, college savings and home improvements. If you’re behind, you might use your influx of cash to do some catch-up. Thirty percent of Americans would invest the majority of a financial windfall, NerdWallet’s survey says.

Homeowners will want to have money in the bank to handle maintenance and repairs, Bryan says. “Homes cost a lot of money, things break down. Not a year goes by where a homeowner doesn’t have to replace something.”

If you’re sending money toward education expenses, just make sure your retirement savings are on track. In the end, your kids can borrow for college, but you can’t borrow for your later years.

“Even though college is coming first, I would still make sure you’re saving for retirement,” says Crystal McKeon, a CFP with TSA Wealth Management in Houston.

Once your other financial obligations have been met, consider taking a portion of your newfound cash and splurging on something fun.

“Vacations and travel are popular for most people,” Bryan says.

McKeon has a personal philosophy for extra cash: If she’s debt-free, her emergency savings are funded and she’s saving for retirement, she can spend 10% on whatever she wants.

“No questions, judgments or second guessing,” she says. “I have done my savings duty and I can enjoy my purchase because I am putting myself financially on the right foot.”

This survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet from Nov. 3-5, 2025, among 2,094 U.S. adults ages 18 and older. The sampling precision of Harris online polls is measured by using a Bayesian credible interval. For this study, the sample data is accurate to within +/- 2.5 percentage points using a 95% confidence level. This credible interval will be wider among subsets of the surveyed population of interest. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact [email protected].