You may think it is just a pipe dream, getting an unforeseen large windfall. (and I’ve spoken about small windfalls before). Nevertheless, throughout my years of stewardship in the residency program, I have encountered a few residents who have had a significant life-changing amount of money fall into their hands. Some with cryptocurrency, others with family inheritance, and others with a stock pick that rose much more than expected. So, what is the best way to deal with a substantial windfall like this? OK. It might not happen to you. But it still occurs more often than you might think. And, if it doesn’t happen to you, it is still fun to mull over. So, let’s talk about some general advice about what to do with a windfall.
Give The Large Windfall A Little Bit Of Time To Sink In
In general, when you receive a windfall of a significant amount, your first thought is to do something immediately with the cash hoard. But your brain needs to catch up a bit with the reality of the situation. Typically, it would help if you waited a bit until the initial circumstances of the windfall had settled out. When it comes to money, emotion can interfere with the best and most rational choices that we need to make. So, give it some time. Waiting a bit won’t cause that much harm (just a little bit of a loss to inflation). But the opportunity cost of doing something rash with the money is much worse!
It’s Not All Or Nothing!
Just like you don’t want to put all your money on 00 on a roulette wheel (you will lose much more often than you will win!), don’t put all your money into one financial basket. Diversification is the name of the game. And you may want to consider not putting it all into one debt repayment or investment. Consider spreading out your newfound fortune on a host of different opportunities. It’s tough to predict the future. So, you are generally better off spreading your money into multiple options.
Consider Repayment Of Debt/Student Loans
Although many of your student loans are at low interest (or 0 interest rate currently), you should consider putting a large chunk of your fortune into your student loans. Why even at these interest rates? Well, there is always a risk that you may not be able to complete a residency, or an unforeseen event can happen that can prevent you from paying them back when the interest returns to normal. And student loans are generally not dischargeable in bankruptcy. So, taking these risks off the table is enormous. Furthermore, the peace of mind of knowing that your student loans are significantly smaller or even gone is priceless.
In addition to student loans, also consider putting some money away for a rainy day. Some good options you might want to consider as a low-paid resident will be an emergency fund for savings, a Roth IRA, or a hospital 401k if there is a match. And try not to buy individual stocks or bonds. That situation can lead you to a very undiversified state that can lose all your hard-earned money.
Other Depreciating Assets
Finally, if you still have some money left over, there is nothing wrong with a bit of enjoyment in your life. Just beware of taking too much to buy things like cars, boats, planes, or whatever else floats your boat. You may regret it later on. I recommend using no more than 10 percent for personal enjoyment related to these items. Otherwise, there is a good chance that you will regret any rash decisions you make for your future self!
Let A Large Windfall Be A Blessing!
Whatever the reason for the windfall, it is your opportunity to make it into a blessing instead of a curse. It’s an opportunity to make your life better and your future self happier. So, give it some time to sink in; don’t spend it all on one thing; consider repayment of debt/student loans, and enjoy a bit of it. Following these rules will make that obscene sum of money into something more than just a number. Grandma would be proud!