top of page
MM Logo Update Outline.png

Wasting Financial Windfalls


"Money went as quick as it came."

-Tupac "2Pac" Shakur


I'm tired as I arrive at the restaurant for work. It's 1998 and I get to work the morning shift today. This is a coveted shift. Even though we have to be at work by 7 am, we get done at 3 pm. The trade-off is worth it.

The kitchen manager, who I'll call Bobby, tells us that one of his relatives recently passed away and he inherited $100,000. This is a lot of money for restaurant workers in the Fargo, North Dakota area! I can't speak for my fellow cooks, but I'm jealous. I immediately calculated how long the money would last at my current pay rate of $20,000 per year. If I had $100,000, I could live for five years with the same amount as I make now.

Said another way, I would have blown the money. In my mind, I want to be a bum for five years. I don't really think about what happens after five years. I guess I'll have to get another job but I won't have any marketable skills. I would reward my self in the present, but at the expense of me in five years, and me in 10 years, and so on.

It turns out, putting a lot of money into my hands when I'm not prepared for it would be a bad idea. But certainly, others will do better.

Not Bobby. He had his money for a week and already spend 20% of it on a truck, wants to buy a house, and has grand plans of traveling with the rest of it.

There's something inherent about us that wants to use up all the money we have. This is the proverbial hole in the pocket. It's why our savings rates are so low. We are terrible at providing for our future selves.

Why is it that we tend to waste our windfalls?

balance present and future you

Financial Windfalls

Think of a financial windfall as an influx of money. This could be a one-time event or a large jump in income. Examples of a one-time influx include an inheritance, settlement, pension payout, sale of a business, or the proverbial lottery-winner (this is the least common because of the odds, but you hear a lot about what happens to the winners). Examples of a large jump in income would be a significant promotion, earning a contract in an entertainment industry (singing, acting, etc.) or sports industry (NFL, NBA, etc.).

There isn't a specific dollar amount that makes something a windfall. Everyone is different, so this is personal. The way to think about it is this - if the influx of money or income is more than what you're used to managing, then that would be considered a windfall. Another way to think about this is to ask whether the new money would change your life in some way.

The potential problem with being on the receiving end of a financial windfall is the difficulty in keeping the money. Around 70% of people receiving a windfall are back to where they started in a few years. You may have heard that many sports stars with huge contracts are broke within five years of leaving the game.

financial windfall

Squandering Windfalls

It's far too common that people receiving windfalls squander it. We get used to our "financial neighborhood," and a financial windfall pushes us to a new neighborhood. Windfalls often end up in the hands of those that are not prepared to deal with the consequences of moving to a new financial neighborhood. This is a result of their relationship with money and not the money itself.

Sometimes there are emotional reasons for this. Think about a person who feels survivor's guilt around receiving a life insurance settlement because her husband had to die in order to get it; or a person who feels shame because they now make a lot more than their friends and family members.

It's not always about negative emotion; sometimes it's about positive emotion. If you went from nothing to having a lot, it can feel like money has no limits. When you come from a situation where you had to make sure you always had money available before spending it, you didn't have to make a plan to have your money last. Getting a windfall feels like everything is now free because it seems like you don't have to worry about running out of money.

But you do have to worry about running out of money. More specifically, future you has to worry about running out of money. Without designing a life that incorporates both your needs and the needs of future you, you are effectively robbing your future self to live a carefree life today.

squandering financial windfall

Why: Awareness of Money Scripts

You might be wondering why; why is it so common for people to blow through a windfall so quickly? Don't these people know they need to make their money last?

If people were 100% logical and rational, you could expect that. But, we're not rational creatures. When it comes to making decisions with our money, information isn't enough. We have to be able, willing, and ready to make a change.

Behind all of our financial behaviors lie our money scripts, which are subconscious beliefs that we have about money that influence our financial decision-making.

A money script can be any belief, but they generally fall into four categories. Three of these categories can lead to our financial windfall squandering.

The first category is money avoidance. Money scripts that fall into this category are generally beliefs that money is bad. If you believe that money is bad, money corrupts, or that you can only have love or money, then coming into money is going to be uncomfortable and you have the potential to subconsciously come up with reasons to get rid of it. Those reasons will feel justified, but the underlying root is that you are uncomfortable having money.

The second category is money worship. Money scripts that fall into this category are beliefs that money will make your life better. Commonly, this includes the belief that money buys happiness. If you believe that money will make you happy, then you are more apt to spend it, trying to find happiness. The result can be deep sadness and anger because you think you should be happy, but when you're not you think it's your fault.

The third category that can influence windfall spending is money status. Money scripts that fall into this category are beliefs that our self worth is tied to our net worth, or that we ought to use money to symbolize how successful we are. Both this category and the last one involve the quest for more money, but whereas money worship scripts are about having more money for internal reasons, money status scripts are about having more money for external reasons.

Money scripts impact our financial comfort zone, which is a range of wealth and income within which we're comfortable - the proverbial financial neighborhood. For some of us, we hold tight to our old identity and are uncomfortable with having more.

money scripts drive financial behavior

Money Script Sources

Exploring your money scripts will help increase your awareness about your money beliefs and behaviors. This will make it easier to implement a good system that helps prevent people from wasting their windfall and ending up in the same place.

Think about what you learned about money from your family. How was money used? Who handled the money? How was money talked about? Were there any highly emotional events around money that impacted how you think about it?

Increasing awareness is the key to understanding.

increase your awareness of your money scripts

What to Do About It If You Get a Windfall

If you ever find yourself on the receiving end of a financial windfall, Sudden Money Institute recommends taking some time before doing anything with the money. Don't make any decisions right away. Take an inventory of yourself. Being aware of not only yourself and your money history, but just the simple idea that most people waste windfalls will make it less likely that you'll squander yours.

A windfall is an opportunity. It changed your life. Remember to make sure that you balance your current needs and desires with the person you'll become. The idea behind YOLO (you only live once) is sadly misunderstood. While it's true that you only live once, the idea is mistakenly interpreted as live for the moment, and only for the moment. Living by this credo is part of the reason many people fail to think about the future - namely, there will be versions of themselves in the future. The opportunity is for you to set up not only your current self, but also every version of future you that will exist. You only live once, and you should use that as permission to design a life that's aligned with what's important to you, but inherent in "you only live once" is that you have a life - and most of that life is in the future. Living intentionally is different than living like you're dying.

live in the present, but be aware that there will be a future version of yourself

Take some time to think about the life you want and how you can design a life around areas that are important to you. Increase your awareness, and break subconscious money behaviors.

You only have one life. Live intentionally.

organize your financial mess
money health

Wasting Financial Windfalls
Download PDF • 2.02MB

Do you want to print this or view it offline? Download the PDF version.

Related Money Health® Reading

References and Influences

ESPN: 30 for 30: Broke

The Happiness Lab: The Unhappy Millionaire

Brad Klontz, Rick Kahler, Ted Klontz: Facilitating Financial Health

Sarah Newcomb: Loaded

Sudden Money Institute: Windfall

Note: Above is a list of references that I intentionally looked at while writing this post. It is not meant to be a definitive list of everything that influenced by thinking and writing. It's very likely that I left something out. If you notice something that you think I left out, please let me know; I will be happy to update the list.


If you like this post, consider joining the Money Health community. There is no spam, just an email every Thursday when new posts come out and every month with a recap.



About the Author

Derek Hagen, CFA, CFP, FBS, CFT-I, CIPM is a speaker, writer, and coach specializing in financial psychology, meaning and valued living, resilience, and mindfulness.


Join over 1,700 other subscribers.

No Spam - Just new articles sent to you every Thursday.

Popular Articles

bottom of page