Windfalls and Money Management Skills

by TTMK on October 6, 2014 · 12 comments

The following post is from staff writer Melissa Batai

Have you ever received a windfall? If so, you know the sense of excitement and possibility that come from it, especially if your money is typically very tight. A windfall can be a blessing that helps you become more successful in life, or it can be a curse that serves to amplify your previous financial issues.

I know two families who have received substantial windfalls. I’ll call them Couple A and Couple B.

Couple A

Couple A are the parents of six kids. They married young (18 & 19) and always struggled to provide for themselves and their children. Couple A lived off the husband’s factory job while the wife stayed home to care for the house and the kids. Both the husband and wife have big hearts and willingly volunteered at church and helped elderly family members by driving them to the doctor or to the grocery store. When other people would donate their money to charities, this couple donated their time.

When the wife’s elderly aunt died, the aunt left all of her money to Couple A. At that point, Couple A were empty nesters. They had years of frugal living under their belts. When they received the inheritance, they bought a new house in a better neighborhood and they took a modest vacation. The rest of the money was invested, and they’re using the interest from the money as income now that they’re in retirement.

Couple B

Couple B has received several windfalls. When the husband lost his sister in a tragic car accident, he sued and won a settlement. He spent the money buying toys like a boat and a sports car. He had always wanted these things, and his sister’s death taught him that life is short and you never know what tomorrow will bring. He decided to live in the moment and enjoy life now.

Later, the husband himself was involved in an accident where he lost his arm below the elbow. He sued once again and received a substantial settlement. This time, Couple B used the money to buy a modest house along with a trailer at a vacation destination four hours away. He also bought a new truck to tow the boat.

Unfortunately, thanks to his injury, the husband had trouble finding a job. His wife had a good job, but she was later diagnosed with Multiple Sclerosis and eventually had to quit her job. Now, they survive on disability. They have lost the boat and the house. The only reason they didn’t lose the truck was that they’ve had it for more than five years and had paid off the balance on the car loan.

Couple B certainly can’t help the health issues that have befallen them, but I can’t help but think that if they’d been smart with their money as Couple A was, they wouldn’t be struggling right now.

My Questions for You

Do you know anyone (or have you) received a substantial windfall? What happened to the money?

Do you think a windfall just highlights a person’s money management skills or lack thereof?

{ 12 comments… read them below or add one }

Kasia October 6, 2014 at 6:02 am

This resonates with me a lot. A close family member had a windfall, they got lucky, and could have set their family up financially for life, instead the money the received disappeared within a couple of years and they have trouble explaining where it all went.
I think fear of investing held them back but they lost the money anyway by spending frivolously. It’s the mentality of ‘spend it while you have it’, rather than saving for a rainy day or at least being prepared for when the rain comes. They are now in their fifties and still can’t save, don’t have a retirement account, and will probably work for as long as they can and then finally end up on the minimum pension. I hope things change but if their behaviour continues, change for the better is unlikely.

It’s weird but it seems that often those who get a windfall are those who are incapable of managing money and it definitely highlights their ability to manage or mismanage their money.

Reply

Melissa October 7, 2014 at 5:16 pm

Kasia–I think you’re right about fear of investing. For the second couple in the story, I think they were on such a tight budget before, they just wanted to spend, spend, spend. Unfortunately, they’re back on a very tight budget now.

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Jon @ Money Smart Guides October 6, 2014 at 8:23 am

I received 1 windfall in my life. I used the money to pay off my debt, invest and then bought a toy (a mountain bike) for myself. I am of the belief that I will use about 5% of the windfall to spend on whatever I want and then use the rest to cushion my savings or pay off any debt I have.

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Melissa October 7, 2014 at 5:16 pm

Jon–That is a great way to handle a windfall. Blow a little and be smart with the rest.

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Little House October 6, 2014 at 9:05 am

I haven’t received any windfalls, but I know a couple that did and pretty much spent it on paying off consumer debt and going on vacations. I’d like to think that if I received a windfall, I’d invest a substantial portion of it and use a small portion towards a vacation or luxury items. Maybe someday I’ll have a chance to test out my theory! 🙂

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Melissa October 7, 2014 at 5:18 pm

I haven’t received a windfall either, but we can both dream about it!

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maria@moneyprinciple October 6, 2014 at 4:22 pm

My sister and I inherited some money when my parents passed away. The money is invested. I haven’t had any other windfalls and don’t know anyone who has had them. From what I heard about lottery winners, it seems most people waste money they have not worked hard for.

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Melissa October 7, 2014 at 5:18 pm

Maria–So true. It’s the rare lottery winner who manages it responsibly and does something good with the money.

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Poor Student October 7, 2014 at 3:31 am

My relatives received a substantial amount of money after their parents died and they decided to renovate their house. Unfortunately, they miscalculated the amount of money they needed to complete it, and now their house is half-finished. From their story, I think it’s really important to think in the long term of any action you take, or not go beyond what you can afford to, otherwise you won’t get what you actually need.

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Melissa October 7, 2014 at 5:17 pm

Poor Student–Yikes, that’s terrible! I wonder if they think they wasted the money, considering the outcome.

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Jean @ NearlyRetired October 13, 2014 at 1:30 pm

We’ve received a couple windfalls in our life due to auto injuries. The first (over 20 years ago) covered the closing costs for our first home. The second (just last year) was applied to our current mortgage. I think we kept a couple hundred dollars out, but the rest went onto the house.

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Zee @ Work To Not Work October 14, 2014 at 1:25 am

The closest thing that I have ever had to a windfall is when my old work paid me for years of unpaid overtime that I had been threatened to work yet was never paid for since my manager was a jerk. After 3 years that added up to about $10k after taxes. It wasn’t enough to consider retiring on or anything, but it sure could have paid for a nice vacation or even a car had I wanted. But I invested 100% of it. Luckily I was interested enough in early retirement (perhaps because I hated that job so much) that I just decided to save it all.

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