Windfall
An unexpected large sum of money received from inheritances, settlements, investment gains, or similar sources.
What is Windfall?
A windfall is an unanticipated receipt of a substantial sum of money that falls outside a person's normal income, such as an inheritance, legal settlement, lottery win, stock option payout, home sale profit, or a large insurance claim. Windfalls present both a financial opportunity and a behavioral challenge: research in behavioral finance shows that unexpected money is often spent faster than earned income because it feels 'free' (a form of mental accounting). Financial planners generally advise a deliberate pause before spending a windfall — paying off high-interest debt, fully funding an emergency fund, maxing out tax-advantaged accounts, and investing the remainder according to a long-term plan, rather than making impulsive purchases.
Example
A 35-year-old inherits $150,000 from a grandparent. Financial advisors commonly recommend waiting 6–12 months before making major decisions, first paying off any high-interest debt ($15,000 credit cards), then funding a Roth IRA ($7,000) and HSA ($4,300) for the year, and investing the remainder in a diversified index fund portfolio — rather than buying a new car or taking an expensive vacation.
Source: IRS — Gifts and Inheritances