Updated on 09.16.14

Financial Windfalls and a Revelation About Debt

Trent Hamm

Earlier this week, I tossed out an interesting question to the people following me on Twitter:

What would you do if someone gave you an unexpected $10,000 gift (meaning it’s tax free)?

I was utterly flooded with responses to this question, far more than I anticipated. I took the first 250 responses and did a bit of evaluation on them and here’s what I discovered.

What Would You Do With a Financial Windfall?

89% of all respondents would use most or all of the money to repay debt. That, of course, means that 89% of the people who responded to the question have at least $5,000 in debt.

15% mentioned some sort of investment with the money. Yes, only 15% of the people who wrote to me mentioned investing the money (in something besides debt reduction). About half of these people were people who were splitting money between debt repayment and investment.

Of those mentioning investing, 60% were going to invest in cash. Cash? People often mentioned putting money into a savings account for the purposes of starting or expanding on an emergency fund (7% of all respondents talked about their e-fund).

Only 8% mentioned spending more than 10% of the money on something largely fun. There were quite a few people who talked about spending $100 to $500 on something frivolous, but it was very rare that people mentioned spending $1,000 or more on something purely fun.

This reveals a few things.

First, most of the people following me on Twitter have their heads on straight when it comes to personal finance. A windfall wouldn’t be spent on frivolous things – it would be spent on getting themselves into a better financial place.

However, most of that group have incurred pretty serious debts in their past. Debt repayment is a major part of all of their lives. If $10,000 won’t knock off the debt, then it’s likely that a significant portion of their monthly income is going to debt repayment. That’s a life-altering situation – it locks you into specific jobs and makes you very worried about keeping it.

Another interesting point: a lot of people out there also intuitively see the value of an emergency fund. People who aren’t aiming for debt repayment aren’t simply looking to throw money into traditional investing. Instead, they’re playing it safe – putting the money away into an emergency fund so that if something happens in their life, things are fine. Of course, this might be influenced by a down economy, but it still indicates a real-world focus on personal stability.

What would I do if I suddenly had $10,000 in tax free dollars drop on my lap? I’d use much of it to buy a new car for my wife’s commute to work. Without that money, we’d likely be taking out at least a small loan for the vehicle, so in many ways, this money is effectively debt avoidance.

What’s the real take-home message here? The real message is that you’re not alone in your struggles with debt. A large proportion of the people reading and commenting on The Simple Dollar are going through many of the same experiences that you are. This is not a struggle you’re dealing with alone.

Similarly, many people are on the path to overcoming such a debt load. People are out there trying different things – frugality, better money management, and so on.

These things are struggles that most of us share. When I talk about my own experiences on The Simple Dollar, I might be talking about my own specifics, but that core experience of fighting and trying to overcome debt is one that a lot of people are digging through right now.

Don’t feel alone, because you’re not.

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  1. DivaJean says:

    For me- half would go on a big home improvement project that’s been put off for too long; and half would go for pure fun (take kids to Disney?) since we’ve never done anything like it.

    Be aware that this is only because I have a 6 month emergency fund already (with my expected to be tax returns to join this or go for the home repair mentioned above).

    Does it mean I’m too spendthrifty? Doubtful.

  2. JP says:

    I agree with DivaJean – I would spend most if not all of the money. I have about 9 months in an emergency fund and no other debt other than my house. I would finish my upstairs “man” room and then spend the rest on my honeymoon in May. I consider myself frugal and by living that way in the past would offer an opportunity to spend the money that I didn’t expect to receive.

  3. Jimbo says:

    “heads on straight” – Trent, not everyone is in debt. Those who have saved up well, and are on top of things can in fact spend on things that you deem “frivolous.”

  4. Nancy says:

    I think I would use some for debt repaymentand some on projects around the house. Some would also go to help our daughter at college. It would be great to help her not have to borrow quit so much.

  5. tambo says:

    I’d maybe paint the house and fix up a few things, but a good portion of the money would get squirreled away to help pay for our daughter’s next year of college (she’s currently a freshman). Other than the house, car, and my student loan, we don’t have any debt and all of those are manageable. So, increasing our home’s value and paying for the kid’s education for us. :)

  6. Michelle says:

    I’d probably go halvsies. $5000 would pretty much get rid of all our debt except for the student loans. And since we already make double payments on those, I think the money would be better spent on getting my husband his pilot’s license (a skill set he really needs to go where he wants with his career). I highly doubt we’d spend any of it something fun, or if we did, it’d be small, and something everyone would enjoy, like getting our piano repaired so we can enjoy the music again. For me, the “big” fun stuff (like big vacations, etc) happens after we finish paying for all the bad money decisions we made earlier in our lives (spending money we didn’t have, etc). Until then, “small” fun stuff (like playing the piano) will have to do.

  7. Johanna says:

    I’d be interested in seeing a breakdown of the types of debt people intended to repay. If, for example, I had no debt but a mortgage, I might put a big chunk of a $10K windfall toward the mortgage, but that doesn’t mean I’m “struggling with debt.”

    Did anybody mention charity?

  8. Michael says:

    Let’s get the Twitter angle here, too. Do popular Twitter users save differently than unpopular users?

  9. ChrisB says:

    My question is similar to Johanna’s… I’m curious about how many of the respondents who said they’d use the money to pay off debt were including their mortgages.

  10. Meg says:

    $10,000 would get rid of half of my federal student loan debt. I’m graduating college with $20,000 in federal loans for my degree, which isn’t that bad.

    That being said, I’d put it into savings because I’m about to get married. Because my fiance is not American, I need to sponsor him for immigration and it will look good to the INS to have that money in savings, so that’s where half of it would go.

    The other $5000 I’d split between paying off my student loans and putting it in my emergency fund.

  11. Good social experiment there. I guess your audience is skewed towards paying attention to their money but that’s a good thing. 10k would finish off our non-mortgage debt with a couple k to spare. Those would then go towards the emergency fund – after pulling out a couple hundies for a celebratory evening out!

  12. michelle says:

    I’m being honest with myself, first chance we could we would take a trip to Europe, anythng left would be for investing in ourselves, my savings fund for grad school or for my finace to explore a new career. We have no debt, no mortgage (don’t want one), and a pretty healthy emergency fund already.

  13. J.D. says:

    You can see all of the responses to Trent’s question here.

  14. CBus says:

    I used to wonder if 37.3% of all statistics really were made on the spot. If 89% of the 250 people are paying off debt, I feel sorry for that 1/2 of a person. Same for the 15%. Have you ever considered posting a google spreadsheet or something like that, maybe some users could infer other meanings out of the data. Otherwise, we’ll just have to rely on the fact that 42.662% of all statistics are created on the spot.

  15. Chris says:


    Don’t mix up credit card debt with home loan debt. While my home loan debt is way more than $10,000, my credit card or any other debt is zero. So if I get $10,000 I would put that into paying off my home loan.

  16. Mel says:

    I would probably go on the DivaJean plan and take my Princess Obsessed 3 year old to Disney. We’ve turned her world on it’s ear this year, and she’s handled it like a champ. Might as well have tea with Cinderella!

    The rest would go in either her college fund or the e-fund.

  17. Beth says:

    wow, 10k, huh? I would definitely go have fun w/ some of it. Probably a nice dinner, casino, and hotel night. Then I would throw the rest at my mortgage since everything else is pd up. Maybe since the economy isn’t looking much better stuff another month or so cushion in my emergency fund.

  18. Mule Skinner says:

    I would view this windfall as a message that I should help the economy by spending it all.

  19. EngineerMom says:

    I think the timing of any windfall is critical to the decisions made about how to use it. We have a young son, but we rent, so no mortgage. We know we’ll be moving this summer because my husband will be graduating, so we have zero incentive to buy a house at the moment. We don’t carry any debt except less than $500 left on my low-interest student loan, so a windfall right now would go towards future costs like a downpayment and moving expenses.

    Specifically, we would donate 10% to charity (I like Heifer International and Second Harvest, a local food bank), take ourselves out to a nice dinner (less than $100 at our favorite restaurant), and put the rest into our high-interest (close to 3%) savings account.

  20. Diane says:

    I have no debt other than my mortgage, car is in good shape and I have a reasonable emergency fund.

    I would probably use half for home improvement projects – although I could definitely use it all for that… replace back wall of the house & add insulation, possibly install energy efficient windows (about $2.5K) and maybe add insulation to the attic. We also need a new water heater.

    I would consider buying a treadmill or a bike for additional exercise opportunities. We walk when weather permits, but I’d like to ride & have a indoor exercise option.

    The rest I’d likely save for now. I’d like to start a vacation fund!

  21. I’ve read some interesting research that shows that people that inherit a windfall (i.e. often much larger than the 10K, say a 1MM inheritance) are actually quite miserable 1 year following the event. In one case, they compared quadrapalegics to past lottery winners and guess who was more content in life? Findings show that you’re able to be happy AND wealthy, but it usually comes from a sustained/routine income, not a one time life changing event.

    Food for thought: If you’re always wanted to win that lottery, you might want to be careful what you wish for!

  22. Melinda says:

    When a respondent said that they would use it to pay off debt, did that differentiate between consumer debt and mortgage debt? You seem to have assumed that if a person said ‘debt’ then they had gotten themselves into deep consumer debt, however it could be ‘good’ debt such as a mortgage.

    Note: I don’t actually think there is any kind of ‘good’ debt, however at least a mortgage is for an item of value and great use!

    What would we use it for? Probably replacing my 18 year old car, and we’d likely use some for a family weekend away or flights to visit relatives interstate.

    Paying down the mortgage would be good too, as we’re working on having it gone in five years.

  23. Carrick says:

    I mean, it kind of makes sense that most of your readers would be heavily in debt. I mean, what kind of person would be most interested in a blog about finances? People who aren’t in debt would either already know a bunch about frugality and finance or are lucky enough not to have ever had to worry about it.

    I’d be in the group that would split the amount half between my burgeoning emergency fund and repaying debt, which, yes, is over $5000….

  24. Nick says:

    @cbus #11. I laughed. Funny stuff.

  25. Melody says:

    Definately debt here, and I think other than perhaps socking a thousand or so away for emergencies (in a CD or something we couldn’t even get at) I would definately use it to settle w/ some of the larger amounts and pay-off a few ant-bite size debts (less than $500). Some of it is business debt, so I’d have to figure that out w/ my accountant!

  26. J.D. says:

    My last comment hasn’t been approved for some reason. (My comments with links never get approved, Trent! You should let regular commenters post a link without sitting in purgatory.) I’ll try again by putting the link inline.

    You can see the responses to Trent’s question at Twitter through the search feature. This will satisfy those who want raw data:


  27. J.D. says:

    Ugh. Still not approved. (My comments with links never get approved, Trent! You should let regular commenters post a link without sitting in purgatory.) I’ll try again by putting the link inline.

    You can see the responses to Trent’s question at Twitter through the search feature. Go to search.twitter.com and look for “@trenttsd” to see the responses.

  28. I would put more money towards our kids 529 plan. We have 15 years left until college and hope to take advantage of the current stock market.

  29. Kim says:

    Contemplating and preparing for windfalls is almost a hobby of ours, so I believe my husband and I would handle it quite differently. I would immediately give my tithe to my church and would probably tithe another 10% toward the building fund. The remainder would go into savings except for about 5% for fun. Too much austerity makes me grumpy. From those savings I would determine which charity to send another 5%, probably Compassion or World Vision.

    My husband would buy a car. Period. End of story. We’re very different. If it weren’t for him, though I would likely never have known what it was like to own a new piece of furniture, or own virtually anything that someone else hadn’t used before me.

  30. Sheila says:

    Since I’m hoping to go to Europe this spring, I’d use my windfall money and leave my savings in the bank earning its measly 2.41% interest.

  31. Jess says:

    Interesting but your demographic – people who follow you on twitter- are already poised to be interested in money smarts. This is “the simple dollar” afterall.

  32. Jade says:

    $10,000… hmmm… I too have contemplated what I’d do with a windfall. I mean, what happens if I go to Vegas with my boyfriend, decide I’m tired of walking around with him so take a seat in a Keno lounge, tip a waitress a dollar for a drink, and buy a $1 ticket while I’m at it. And then by dumb luck I end up with a windfall.

    In this case, the windfall is tax free, so I think I’d put it into a 6 month CD and decide what to do with it. I’d probably take $500 and the interest I’d earned in the CD and go to Vegas with my boyfriend for our anniversary. The rest of it could pay off any debt I hadn’t paid off in 6 months, and the rest of it would go into my emergency/new car fund.

    And I wouldn’t tell anyone but my mom, because everyone else in my family would come up to me with their hand out, with the usual “Well I used to help change your diapers so give me $5,000” routine…

  33. lilah says:

    Pay for the IVF treatment we just found out we will need to conceive our first child…

  34. NorCalRN says:

    We don’t have any debt other than our mortgage but that woul dbe a hard decision. I want to say I would add to our already substantial emergency fund, or help pay off our mortgage…. or maybe replace my 15 year old car. Set up our fancy home gym….

    But what I would really want to do with 10k is pay for a *very* modest wedding, and spend the rest on a very long, extended tropical honeymoon/vacation. We’ve been together for 7 years and never taken a “real” vacation (always just camping or to visit family, etc). I mean, how often do any of us get 10k that we didn’t plan for, don’t owe taxes on and can spend any way we’d like?? I’d take advantage.

  35. KC says:

    I’d put it in the bank to invest in the future. I’m not convinced we’ve seen the worst yet. That makes me think it might be best to keep it fairly liquid. I also think the market isn’t low – actually I think its going to be pretty much stagnant for the coming year. So I’m not willing to put it into an index fund just yet. I know some people say that is market timing, but it isn’t. It’s just common sense – why tie it up when I really believe (and there are plenty of economic experts that support this) the market isn’t going up for a while?

  36. Joey says:

    I’d pay for the next year of grad school. Tuition is free, but housing, gas, bills, and school fees aren’t.

  37. Eve says:

    My husbands mother gave us 10 grand 2x in the past 4years hoping that we would invest it. My husband felt that it was ok to spend it on what he thought would be good for the family like golfing, paying 2 people to run his office instead of him working. Well, it is now 2009 and he has 1 worker and he is now working more than ever, and I get to see him come home looking depressed and sad cause he has to make a living. Gentleman, sometimes the wife does know what she is talking about. So, if someone ever gives me 10 grand, I would put it toward my childrens education. I believe they are my future and I believe in them whole heartedly. To this day I think my husband still does not get it. txs for letting me vent.

  38. Kyle says:

    $10k would get me completely out of debt, with the exception of my mortgage. If I didn’t have that student loan debt, I would save a good bit but I would buy something with a good clip of it too. The space over my fireplace has been screaming for an LCD…

  39. Karen M says:

    I’m concerned about the term “struggling with debt.” As several have already pointed out, paying down a mortgage isn’t struggling with debt (unless you can’t afford the mortgage in the first place. But that’s another topic.) Generalizations like this are one of the reasons that I’m not reading TSD with the frequency I once did.

  40. I must’ve missed your twitter message! I’ve been trying to spend less time on there…

    I’d use $5000 to top off our emergency fund (we want it to be at $10,000 and we’re about halfway there).

    The other $5,000 would likely go into a Roth IRA, although it would be tempting to keep some of it to use for travel or some new furniture.

    Our plan for 2009 involves topping out our emergency fund, maxing out two Roth IRAs, and starting to save for a “baby car” (likely a mini-van). We’re already ahead of schedule which is awesome, but an extra $10,000 would really speed things up.

  41. richerandslimmer.com says:

    I have no debt, so I will probably do something fun with 20% and invest the rest (not sure where though).

  42. I’m skeptical.

    People *SAY* they will put it on a CC or Emer. Fund. But will they really?

    Talk is cheap. It’s like most people think they are smarter than average, which is obviously not possible.

    I think 89% is too high a number, even for a limited population.

    I think some people need their mouths washed out with soap for lying to themselves thinking they are ‘good’ with money.


  43. Carmen says:

    Since I would put most of the 10k against the mortgage (and some into our holiday savings), apparently I fall within the 89% of respondents. However I do not consider myself to be “struggling with debt”, since this is the only debt I have ever had.

    Additionally, savings and investments are entirely different. Building an emergency fund is saving, not investing.

  44. DEBTJOURNEY says:

    You are right…….we are not alone in fighting our individual debt. The blogging community is so supportive of everyone becoming DEBT FREE and keeping us all accountable for our actions. Thank you for a wonderful blog! You can join me on my own debt free journey (which officially began yesterday!!) at debtfreethroughchristwhostrengthensme.blogspot.com
    God Bless!

  45. Tim says:

    people always say they will use windfall to pay off debt. that’s the problem and is not an indicator of having your head on straight. often times it means that people think they cannot pay off debt unless they have some sort of windfall, so the answer is a bit skewed.

  46. Dave says:

    Like another here, I’ve actually had this in the last year. My Mother-in-law gave us $10k of an inheritance she recieved. This was in Aug, our only debt is $30k in Student Loans (renting, 1 new/paid/car, 1 old/reliable truck). But we were in the unique situation that my wife was diagnosed with Leukemia that May when our daughter was only 9months old. We immediately banked that $ somewhere safe, and have been keeping it as a Fully Funded Emerg Account. If my wife hadn’t gotten sick, we would have held it for a down payment on a house. Despite having $30k in student loans, we were easily making double payments. We wanted this money to be available if we happened upon a deal of a house. We wanted to be prepared if the occasion arose.
    And for those wondering my wife is now doing well, just under a year from initial diagnosis.

  47. CPA Kevin says:

    Did anyone mention giving some away? I think I would give at least $1,000 to charity.

    I would probably buy something that I would never otherwise buy – like an Ipod Touch or something and get a laptop for my wife to use at home.

    After that I would probably invest it – I have some ideas on where but just don’t have the funds right now.

  48. marc says:

    I would give some of it to charity. (10%-20%) and invest the rest in our children’s 529s. If it is an unexpected windfall, give some of it away. It creates good karma. I believe that what you give away comes back tenfold.
    Just my two cents.

  49. Bekki says:

    Ugh… my husband and I were in just this situation a couple years ago, and we went about it all wrong.

    My husband and his father own a plumbing and HVAC business together. This was their first year and things were going so well that we really had to get rid of some money (wish I had that problem all the time).

    We decided that each of the 2 families would get $10,000 to spend on whatever we want.

    My in-laws used it as a downpayment on a new GMC Yukon – my mother-in-law has a thing for having a nicer car than everyone else.

    As for us, we blew it mostly on stuff we didn’t need. At that time in our marriage, we were about $40,000 in debt – but instead of knocking 25% of that away, we spent only $2000 on paying off debt, $1000 on helping my parents with car trouble, and the rest was spent on new bedroom and living room furniture, decor for said rooms, video game stuff for my husband, and a week-long vacation to Niagara Falls, ON for our anniversary.

    Looking back, it was such a waste. The furniture we had was certainly not beautiful, but it was functional. And we really didn’t need a week-long vacation – perhaps a weekend away in the Berkshires (only a 2 hour drive away) would have been just as nice.

    Every time I remember that summer, I shudder when I think of how that money was wasted.

    If we ever, ever find ourselves in a position like that again, a huge portion of it will go towards paying off our debt (which is now down to about $20k) and the rest will go into savings for our daughter’s future.

  50. Peggy says:

    100% to debt reduction here. As long as we are so hand-to-mouth we don’t have even enough to set aside in an emergency fund. We are less than 15 years from “retirement” (ha! ) and have nothing saved for that, either. Buying a house was the worst decision we ever made and I will regret it forever.

  51. Carrie says:

    I get a windfall once a year when my bonus check arrives. 25% goes into long term investments, 25% goes to extra mortgage paydown, 25% goes to longer-term savings (like for a car, home improvements, etc.) and 25% is discretionary. I usually end up spending some of the discretionary funds and saving the rest. Since I plan budget, including retirement funds/IRAs/emergency fund assuming that the windfall isn’t there, the windfall gives a huge boost toward my goals.

  52. Linda says:

    This happened to us when Veteran’s Affairs paid us back some long overdue pension. First portion went to charity, then credit card debt, then savings. We want to make some home improvements. Without credit card debt, we can actually add to the savings account each month now!
    Thanks for all the great guidance you give on your blog! Very, very helpful!!!

  53. Dan says:

    No Credit card debt, no car loans (there all old clunkers that still run well.) Mortgage paid off. Fairly substantial emerg fund.
    Sounds like I’m bragging…. Maybe. But this financial armageddon has been a decade in the making, I read and adopted the
    principles in”Your Money or your Life” a long time ago. They are tough but they work. So 10k… I would stimulate the economy.

  54. Ilah says:

    I would give zero dollars to a charity! Except for a charity of my own making, helping one of my kids or even a local family who is struggling. Sometimes the best charity you can contribute to is yourself, i.e. if you have debt or no emergency fund. There are too many charities who use 80-90% of their donations to cover administration costs. IMHO, no one working for a charity needs to be making over $100,000 a year. (By the way, I work for a non-profit)
    There, that’s my rant for the day-
    I would use an extra $10,000 to pay down my mortgage, plus I’d keep out $2,000 so I could go visit my son & family in Brooklyn this May (after my newest granddaughter is born).

  55. Mule Skinner says:

    I think that spending it is sorta charitable since it would support someones occupation: auto workers if I bought a car, cooks and waiters if I ate out, etc.

    Unemployment is a problem currently.

  56. Jen says:

    $5K straight into the IRA, $1K to charity, and the rest kept in cash until I find a job.

  57. Daria says:

    In the 1990’s my husband worked at a job that paid a once a year bonus. We either used it towards our childrens’private school tuition or we bought him a new car because he usually worked 70-80 hrs a week and it was like reward for him. The last year he worked that job, we had no short term or long term debt and knowing he would not get a bonus in the new job he was leaving for, we used his 15K to buy a single family property for investment. We held the property for 7 years and sold it 3 years ago to help pay for college costs. We have four children and with academic scholarships and that rental property, all four are graduating debt free. If we could do it all over again, I would have invested every single bonus. We could have driven cars longer and not all of our children appreciated the private school education. Two would have been just as happy staying in public school

  58. Tim says:

    College fund comes to mind. As does establishing a ‘parent fund’ to help my folks. All looking to the future. My take is that we’re nowhere near the bottom in this financial mess, so anything which insulates from the anticipated bumps.

    That being said, I could really use with an escape from this winter, so maybe a few days in Aruba. Lewis Black has gotten me thinking ….

  59. Jen says:

    I wish all of the overly critical readers of TSD would actually quit reading and commenting, like they always threaten. It’s such a bore to labor through their comments.

    If we received a 10K windfall, it would be used to rid ourselves of debt. That would be non-mortgage debt for those of you who like to quibble over “generalizations”.

  60. sharon says:

    I actually received such a windfall recently by unhappy circumstances (death of a family member). I put everything in a CD except 5% which went to my church which does charitable work. I’m planning on using @$2-3000 as part of a planned European vacation next year. We have no consumer debt and I’ve already refinanced our mortgage and have 6 months e-fund.

    I’m not buying any ‘stuff’ even though I’d love a new car – current one is 11 yrs old- it just doesn’t juice me any more. My goal is no mortgage and retire early as possible and you Trent and your readers have helped me stay focused on this goal. Please keep blogging, you make a difference.

  61. Becky Joy says:

    Just like the others pointing out that mortgage debt is different than credit card debt, I hope you will agree that using $10K to pay down student loan debt is reasonable and not a sign of “struggling” with debt.

    Good post, by the way. And we’d certainly tithe on the gift (10% off the top) before paying down loans.

  62. I would like to give my views. Firstly i will investigate the money. How can one take money directly from a stranger and use it for any purpose. Once it is confirmed that there is no harm in using that money. Depends upon the circumstances i will give it to charity, and rest if i have any debt i will clear that completely.if not i will invest it for my future use.

    Check out this blog for more info on various loans

  63. SteveJ says:

    I don’t get the quibbling over mortgages not being debt either. I just ran the numbers…if I threw 10K at my mortgage I’d save myself 37K in interest over the remainder of the term. *Drooooolll* That beats the snot out of saving $800 in interest by paying off my wife’s student loan, or the $500 in interest by paying off the car and credit card.

    Of course the main problem with throwing windfalls at debt is that you can’t get it back later if you need it. Diversification sounds like a plan. I also like the idea of maybe putting it in a CD and having a little passive income coming in. It’s free money after all, not like it throws off the debt repayment plan. But…I’m too competitive to talk myself into giving banks that free interest money by not paying down.

  64. Johanna says:

    @SteveJ: I’m not sure anyone actually said that mortgages are not debt. What they *have* said is that someone who would use a windfall to pay down a mortgage is not necessarily “struggling with debt,” as Trent suggested they were.

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