What to do with a bonus, commission check, or windfall of cash

A lot of people will receive large sums of money outside of their normal paychecks. It can be expected, unexpected, or maybe even dreaded. It’s great to get a large sum of money but if you do, you may think “what do I do with this?” As someone who works in sales and has quarterly commission checks, I thought I’d write down my thoughts to see if it can help someone else who may receive an inheritance check, a settlement, or a tax refund and feel lost about how to make the most out of the chunk of money.

1- Pay off your high interest, consumer debt (or any other debt you may have)

This option might seem obvious to people a part of the Financial Independence Retire Early (FIRE) movement. If you plan to invest enough in stocks, bonds, and assets to be able to live off of the interest for the rest of your life, then debt just stands in your way. It’s a debt weight that will eat at the money that you have invested and should be settled before you stop full-time work.

In my opinion, getting rid of high-interest debt right away is a great option for putting a large sum of money to work. If you already have paid your bills and have a 3-6 month emergency fund, feel free to get rid of your nagging credit card debt or car loan. If you have already paid off your high-interest debt and have low-interest debt hanging around, feel free to pay that off too. It can feel like a huge weight has been lifted off of your chest and can’t help you focus on your financial and life goals.

2-Invest it in your Roth IRA, 401k, or brokerage account

If you’ve already gotten rid of your debt, or never had to worry about it (lucky you!) then feel free to put your money into an investment account. Injecting extra cash can help shed off the time until you reach Financial Independence (FI) number or get you closer to achieving ‘FU Money’. Personally, I put extra money into my brokerage account since I plan to retire before the age of 59 and a half. It goes into my total stock market fund and total bond market fund in Vanguard. I could max out my Roth IRA early, but I choose to instead invest $500 per month over the course of a year.

3-Treat yourself to a purchase for you and your family

If you’ve already paid off your debt, invested money into your Roth IRA, 401k, and brokerage accounts, it doesn’t hurt so use some money to ‘treat yourself’. Depending on the sum of money that you receive, you can choose all three options for what to do with a windfall of cash. After you’ve paid off debt and invested, it’s okay to do something for yourself. If you need a new pair of shoes, go ahead. If you’ve been waiting to buy proper furniture, now it a perfect time to. I’ve often found that sometimes people that are looking to achieve FI can feel guilty for making purchases that are not ‘necessities’. You don’t have to neglect all small pleasures in life in pursuit of retiring early. It’s perfectly fine to go out to dinner (or takeout) to a new restaurant that you’ve been waiting to try out but maybe didn’t fit into your monthly budget. Just because you’re on the path to FI, that doesn’t mean that you can’t enjoy the journey along the way and life at the moment.

In conclusion…I hope that this post was helpful for you or someone else that has had trouble deciding what to do with a windfall of money.

If you have additional advice for what to do, feel free to comment below.