Windfall meaning: what a financial windfall is and what to do with one

What a windfall means

Cambridge Dictionary defines a windfall as an amount of money that you win or receive from someone unexpectedly. The word has an older sense, a piece of fruit blown down from a tree, which is where the idea comes from: it fell into your lap.

It is the unexpected part that makes it a windfall. A raise you knew about is not one, and a tax refund you plan for every year is only partly one.

Why a plan helps

Money that was not in the budget has no job yet, so it tends to get spent. A short plan made before the money arrives, or right when it does, decides what it is for.

The CFPB suggests setting aside all or part of a tax refund, which can help you build an emergency fund quickly. The same thought works for other windfalls: give part of it a job before it blends in with the rest.

Windfalls in a couple

Talk before it arrives. Is a bonus one person's or both of yours? Do you split it by half, or in proportion to income? A rule you set in advance is easier than an argument afterwards.

Some of it can be fun. A plan that includes a share for spending is one you are more likely to stick to.

A worked example: a $3,000 tax refund

• Refund received: $3,000.
• Emergency fund: $1,000.
• Upcoming costs you know are coming (car registration, gifts): $800.
• Pay down a credit card: $700.
• Spend on something you want: $500.
• Check: $1,000 + $800 + $700 + $500 = $3,000.