We have had two windfalls in our lives. The first was when Ms. Blue Ribbon’s grandmother passed away. The money we inherited was used to pay off some new windows on our house (naturally, we financed them). It wasn’t much and wasn’t expected but I feel like we used the money wisely.
The second windfall we received was $20k from a family friend who had passed away. This was considerably more and we took our time figuring out exactly what to do with this money. Thankfully we had started getting our financial act together. Our debt snowball was taking off and we used the money to smash the last loan and jumpstart our emergency fund. That gracious gift helped us become (consumer) debt free and allowed us to have the money in the budget to get life insurance and increase contributions to the retirement accounts.
Since those two windfalls, I haven’t really thought about what would happen if we got another windfall. If we received a small windfall we would likely have a small discussion but ultimately applied to one of our goals. Larger windfalls need a solid plan around them. Slow Dad from somethingsdontchange.com proposed an interesting challenge.
What would you do with a Million Dollar WindFall?
I, for the sake of simplicity, am going to assume we are getting one million tax-free, or the windfall is one million after taxes (whichever is easier to fathom). Here are the steps we would take if we were to receive one million dollars:
Be 100% Debt Free
The first thing I would do is take out the last standing debt we have. $160k would go right into the checking and a check would be cut to pay off the house. I listed this one first partly because of my dream of owning the whole house. When I think about our mortgage I feel as though the bank owns it and we only own a closet. The rest of the list gets into the more complicated things.
Take A Break
No matter how we come across this windfall it would be good for the family to get away. (God forbid it is from an inheritance.) Ms. Blue Ribbon suggested we take the whole family to Disney World (@FrugalGene that’s the one in Florida :P). This would check something off our long-term goals/bucket list. That is about $10k based on our back of the napkin planning we did a year ago.
A little while later Ms. Blue Ribbon and I would take $5k and go on a much overdue vacation all by ourselves. What is the point of having this new safety-net if we don’t take some time for ourselves for once. We aren’t sure where but it would likely involve beverages and a sandy beach. (@Ms. BR …do we really want to remodel a bathroom? I say take a trip now!!!)
It’s Tool Time
Now that we own the house it is time for us to do some of the projects we have been wanting to do since buying it. $100k would be set aside to do a kitchen remodel, the upstairs bathroom and put in new floors throughout the house. (Lame I know but it would check a lot off our bucket list.)
One thing that just makes sense would be to create a Donor-Advised Fund over at Vanguard. We would be able to set aside $100k to give to charities as we see fit. If we do have to pay taxes on the windfall this would help mitigate them. This money would also have a chance of growing so we could give more. Ultimately, we could contribute more over time and use the 4% rule to keep the fund going for a very long time.
Load Up That Brokerage!
For those following along that leaves us with $625k left to work with. The plan for that money would be to put all of it into a brokerage account. That would give us a serious leap in our FI path.
Using the plans from our Million Dollar Pledge I was able to see what this would do to our outlook.
That would shave 9 years off our early retirement date!
You: Mr. BoaS I think you missed some things
Me: Like what?
You: Those children you talk about non-freaking-stop?
Why The Kids Get Nothing
Wow, that was a harsh title! Besides, I’m sure they will get all sorts of cool autographs at Disney World. What I mean to say is we would not be adding any money to their 529s. I would much rather have that money in a brokerage account with high accessibility versus being locked down in a 529. We have every intention of paying for our kids higher education but I have serious issues with the 529 account.
If they modify them to make the money easier to access if a child doesn’t need all the money in the account for whatever reason I may change my mind. (I will keep off my soapbox for now.)
But In The End…
We will keep working. One million dollars after all our plans are complete doesn’t get us all the way to being able to quit our jobs but pretty darn close. We’ll still have to load up the Roths and 401k for a little bit longer if we want the 4% rule to work out for us. Since the timeline is sped up so much we may work a few years past our FI date. Just because you can retire early doesn’t mean you have to. Plus, we would be able to have Fat FI then :).
What would you do first if you had a big windfall? What is the thing you would want to do the most? Have you ever had a big windfall?