This post is from new staff writer William Cowie.
A few weeks ago, the lottery jackpot was almost $600 million. Did you buy a ticket? If you’re like millions of others, the answer would be yes. As the size of the jackpot climbs, more people buy tickets.
Why? The “big pot” Powerball ticket costs the same ($2) as the one paying the minimum of $40 million, and the odds are identical (lousy). So, why do more people buy tickets when the pot becomes larger? Is $40 million not enough? (“Nah, $40 million isn’t what it used to be. I’m not wasting my time on one of those!”) It may not be the pinnacle of logic, but when the jackpot swells, so do the sales of tickets.
Odds are you ended up not winning the big one and its $375 million estimated cash value. If you did, you wouldn’t be reading this. (By the way, isn’t it interesting: if anybody should be reading this, it’s the winner of that fortune, and if there is someone almost guaranteed not to read anything about personal finance or investing, it will be that winner. Go figure.)
So you didn’t win the big one. In fact, you probably haven’t won any lottery.
But there is something you get which you may be overlooking: windfalls.
You might never win a lottery, but odds are you’ll receive many a windfall in the course of your lifetime.
Nobody ever talks about it, but it’s true: we all get windfalls from time to time. Sometimes it’s a gift, sometimes a bonus. Sometimes mom and dad simply give their kids a little handout. It could be a rebate check from a utility or a small prize in a charity raffle. Some are small and some not so small. Whatever it is, we all get windfalls.
We don’t get them all the time. But we all get them. The essence of a windfall is it’s unexpected. But what’s not unexpected is that almost all of us get them.
The important question is: what do you do with your windfalls?
What you do with your windfalls says a lot about your mindset about money. You know what they say: actions speak louder than words. Nowhere is that as true as what happens to your windfalls.
What’s your first, no-brainer, reaction to getting money unexpectedly? Head to the clothing store for that outfit you’ve had your eyes on? A lovely dinner out? If you’re a spender, your no-brainer use of a windfall is to spend it.
But, if you’re an investor, your no-brainer use of a windfall is to invest it.
Okay, what did you do with, say, your last three windfalls? Can you even remember what they were? If you can’t remember, just close your eyes and imagine getting a $100 refund check. What would you do with it? Nobody’s watching so you don’t have to be politically correct. What’s the thing that makes your heart leap the most? Don’t think about what duty calls you to do. What made your heart skip a beat?
That’s a good indicator of your passion where money is concerned.
Why is this important?
Windfall crystal ball
Where people are today financially is a very good predictor of where they’ll be in the future. So, if you spent your windfalls, odds are you’re not wealthy.
Ouch. The first time somebody pointed that out to me, it stung. I fancied myself as someone responsible, but when I looked back, there was more spending than saving in my windfall record. And it showed in my financial status (or rather, lack thereof).
Consider the squirrel in the picture above: she grabs every acorn she can find, and puts it away. If you’re a saver or investor, you put away every loose acorn you come across. Anybody should be able to do it: you’re already getting by without the windfall, so if there’s ever a perfect bit of money to put away, it’s those windfalls.
None of us may win the lottery, but each windfall brings a spare acorn or two.
Where do you put those acorns?
It’s hard to find a better place than the old-fashioned savings account. If your investment of choice is rental properties, there’s not much you can do with, say, $200. Or you may not be able to buy a block of Apple shares.
But you can put it into your savings account. Yep, that’s right, old faithful.
A savings account is a wonderful staging area for investing. You can accumulate any amounts, big or small, until the balance reaches a critical mass, at which point you can deploy the funds into a higher-yielding investment.
Once you open your eyes for those windfalls, and you put each one into your savings account, you’d be surprised to see how those turbocharge the balance.
Your next windfall may be unexpected. But you can decide ahead of time where you’re going to put it, no matter how big or small.
Forewarned is forearmed.