Have you ever suddenly come into a large sum of money, and just like that, it’s gone?

Well, you’re not alone.

That’s because when I was a kid, I often made money by helping my dad at his auto body shop during the summer.

Now, for all of my toil, my father was kind enough to give me $50 for my trouble.

And, you know, back then $50 bucks was a lot of money.

And so, payday eventually came, and the night before, I’d lay in bed imagining all the things I could buy at the mall with what seemed to me like a windfall.

Now, this was years before I learned to put money away and save prudently for the future.

Even so, all I knew then was that I had money that was burning a hole in my pocket.

Sure enough, a few days after receiving my paycheck, I spent it on Mexican Hot Chocolates, Ice Cream, Soft Pretzels, arcade games, and useless knickknacks from one mall store or another.

Just like that, in a day or so, fifty dollars was gone.

And to add insult to injury, I was left with shopper’s remorse.

Maybe you’ve felt that way before too, right?

Well by this point, the excitement was gone, and I wished that I had done something more meaningful with my windfall, like buying a videogame or a book to keep me occupied throughout the summer.

Now, have you ever felt disappointed when the excitement from spending a windfall wears off?

Or maybe you’ve felt discouraged after spending through a tax refund, a bonus, or a vested stock award?

Either way, you likely know that not having a purpose for a financial windfall can open the door to frivolous spending, and hence, regret.

That’s why, when you receive a windfall, you should create a plan for how that money will amplify your life goals.

Because if you don’t, you’ll likely impulsively spend it, leaving you with not only the guilt of overspending but also the conflict of letting down yourself and your loved ones.

The Problem with Mental Accounting

So then, if we all know that we should do better with money that freely comes our way, why is it that we still struggle with making wise money choices, especially when it comes to financial windfalls?

Well, it likely has to do with the trouble we get into when we use mental accounting.

Now, this term, mental accounting, was coined by economist Richard Thaler.

And mental accounting is like when you put your money into different imaginary jars based on where it came from or what you plan to do with it.

Now, this approach can make you do funny things with your money that might not make much sense if you think about it long and hard.

For example, have you ever received money back from the government, like a tax refund?

Have you ever stayed up late at night thinking about how you’d spend your refund?

You know, even though this money was yours all along, you might feel like it’s a special treat.

It feels like “free money,” right? So then, when you think about it this way, you’re likely to put it in your “free money” jar.

So, instead of using it for something boring but necessary, like paying off a credit card, you might decide to “live a little” and buy something fun or go on a little trip.

It feels like you’re spending “free money,” even though it’s really just your own money coming right back to you.

So then, if you get $10,000 back from taxes, you might think, “Yay, free money!” and buy something cool or go somewhere nice.

Now, it might feel good right now, but that feeling won’t last because you know it might not be the smartest way to use your money.

Now, Thaler tells us that this happens because we think of the tax refund as different from our regular money.

That’s because, due to mental accounting, it seems like we receive a bonus we can have fun with, even though it would be smarter to use it for something more important.

Short-term Thinking Undermines Long-term Success

And so, the trouble with falling for this mental accounting is that we often get trapped in near-term thinking that can derail our long-term success.

Take the power of compounding, for example.

Let’s say you received a $50,000 bonus for all of the hard work you’ve done over the past year at work.

What should you do with your money?

Well, bonuses are just that, they’re bonuses right? You could use the money for a blowout vacation, or treat yourself to a shopping spree for toys around the house.

The trouble is however, that you likely already know what it would feel like to be on the other side of that spending spree.

Logically, you know that putting that money away so that it can grow for the long-term would be more advantageous than spending it away in the near-term.

What you need is to align your windfall with a long-term purpose you’ve already defined.

In fact, if you put your $50,000 to work over fifteen years and grow at around 6.5%, you could triple your money by the end of fifteen years!

The fact is that putting your money to work right now reduces how much you need to save today to reach your future goal.

Now, if you instead decide to use up all of your money today, you’re effectively taking away the potential opportunity to use that money in the future at a higher level.

Remember, windfalls are waypoints, not endpoints. They help move us closer to the bigger goals that we’ve already established for our money. So don’t let your windfall be a distraction.

The Problem of Self-Sabotage

Now, another problem that you’ll likely face when you don’t have a purpose for your financial windfall is that, over time, you can develop guilt from poor spending decisions that eventually leads to self-sabotage.

Indeed, sometimes, the negative feelings associated with poor financial decisions could send you into a spiral that has effects beyond the initial windfalls itself.

Now, I, like I’m sure many of you out there, have tried dieting at various points in life.

And so, like a lot of experts will tell you, dieting simply doesn’t work.

That’s because I’ve found that, at times, I end up gaining more weight after my diet than when I initially started.

And you know, this weight rebound had nothing to do with the food I was eating.

Instead, it had to do with the fact that, once I fell off my diet, or felt the feeling of making a poor decision, I didn’t care about counting calories or macros anymore.

I’d just go with the flow and just splurge.

Certainly, it wasn’t the diet that threw me off.

Rather, it was not sticking to the plan that set me in the wrong direction.

I’d think, “What’s the point? Things will always be the same, right?”

Have you ever felt that way? Have you ever put your car into a ditch because you’ve gone off course?

I know I have.

Now, in a similar way, not having a plan for your windfall and just spending money as it comes through your hands could set you up for a similar outcome.

From Millionaire to Broke

How so?

Well, let me tell you about the story of a man named Jack Whittaker.

Now, in December 2002, Whittaker won nearly $315 million in the Powerball lottery, which was, at the time, the largest jackpot ever won by a single lottery ticket in U.S. history.

Now, Whittaker was already a millionaire from operating his construction business before he won the lottery.

And despite his existing wealth, the windfall presented him with an unprecedented opportunity to further his financial security, support his family, and contribute to his community.

Winning the lottery was a good thing for a man who was already blessed, right?

Well, not so much.

That’s because, following the win, Whittaker’s life took a series of tragic turns, and much of it due to impulsive and reckless spending, along with poor financial management.

And by some accounts, he indulged in high-stakes gambling, gave money to friends and family without a strategic plan, and made numerous investments in businesses that did not align with his expertise.

At the same time, the poor guy was robbed several times, as he often carried large sums of money on his person.

Now, these financial missteps were compounded by personal tragedies, including the loss of his granddaughter in circumstances that were indirectly linked to the misuse of the lottery winnings.

And, ultimately, Whittaker’s relationships with his family and community suffered significantly.

He faced lawsuits, personal loss, and public scrutiny.

And so, the man who once had everything, found himself grappling with the consequences of his decisions, and ultimately expressing regret over winning the lottery.

In the end, Whittaker was a broken man.

His later reflections revealed his guilt over overspending, to the extent that he wished he had never won the lottery.

That’s because the conflict of letting his future self and loved ones down was manifested in his deteriorating relationships and the personal losses he endured.

Now, his experience is an extreme example of how impulsively spending a financial windfall without a clear plan to amplify one’s life goals can lead to profound emotional distress and a fear of failing to live up to your own expectations.

Indeed, not being proactive with your money could set you down a path of not just blowing through a tax refund or a lucrative stock option vest, it could leave you with a defeatist mindset and trap you in a self-fulfilling prophecy that nothing will ever change.

That’s why windfalls are waypoints, not endpoints.

How to Give Your Windfall a Purpose

So then, what can you do to avoid the perils of impulsive spending and turn your windfall into a waypoint for future life goals?

Move the Money

Well, you can start by moving your windfall to a trusted savings account.

That’s because, by immediately placing your windfall in a savings account, what you’re doing is effectively putting a barrier between your impulse to spend and the action of spending it.

And this approach is crucial because this cooling-off period allows you to make more rational, long-term decisions and counteracts the natural tendency towards seeking immediate gratification.

So then when you first receive a windfall, ask yourself, “Where can I put this money so that it’s out of my immediate reach?”

And when you receive that direct deposit or that stock award vests, don’t wait: Take the time to move those funds to a savings account where you’ll be less tempted to spend it.

Revisit Your Savings Goals

The next thing you’ll want to do to ensure that your windfall is set for the future is to consider your long-term funding goals.

Now, when done right, your long-term savings goals are directly tied to your most significant life ambitions, such as building generational wealth, supporting future generations, and contributing to causes you care about.

So then, without a clear vision for these goals, it’s easy to let a windfall slip through your fingers on expenditures that don’t contribute to your long-term happiness or fulfillment.

That’s why, as you go about this process, ask yourself, “Will my great-grandkids be proud of me for this choice?”

Thinking this far in advance will help ground the decisions you make with your money in the present.

So then, what you’ll want to do is start by clarifying what you want your legacy to look like.

This could include identifying the values you want to pass down, the kind of impact you wish to have on your family and the wider community, and how you envision your wealth supporting these aspirations.

Remember, small moves can have a big impact.

Take Action

And the last thing that you’ll want to do when you get that windfall is to act immediately.

This means moving that money you’re about to receive into a savings account immediately after you receive it.

To be sure, taking immediate action will keep you out of trouble and give you peace of mind.

That’s because knowing you are actively contributing to a legacy that reflects your deepest convictions can, in many ways, offer profound satisfaction and clarity of purpose.

So then, take the time to ask yourself, “Where can I apply the money today so that I’m not just waiting to act?”

You know, the longer you wait to define and act on your financial goals, the more you expose yourself to external influences and internal doubts that can erode your original intent.

That’s why taking immediate action solidifies your commitment and protects your vision from being diluted over time.

Windfalls are Waypoints, not Endpoints

Now, if you expect a bonus, stock award, or other windfall this year, it’s crucial to create a plan for how you’ll use the money before you receive it.

Remember, easy come, easy go. If you don’t appreciate what you have, there’s a good chance that it will be gone before you know it.

And that loss will not only cost you in terms of lost future opportunities, it could also be a trigger for a cascade of further poor financial decisions and challenge your belief in getting your financial house in order.

That’s why, as tax season comes to a close and bonus checks are cut, ask yourself how your life or financial situation could change over the long term if you used your windfall to speed up your broader life outcomes.

Ultimately, windfalls are waypoints, not endpoints, that will not only help you get to your destination sooner, but the decisions you make today will also help you become the master of your own financial independence journey.