philosophical

spend your windfalls

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There have been a spate of posts on other excellent personal finance blogs, about what one should do with a windfall. (See lazy man and money and blueprint for financial prosperity). In the days before I started plonkee money, but after I discovered pf blogs, JLP developed a project on The Bogleheads Guide to Investing, which also covered what to do in the event of receiving a windfall. What I think is interesting about this is the suggestion to spend some of the money (1-2%) on treating yourself.

This is a good idea because it means that you are less likely to blow the money on something if you have spent a little on yourself. I agree that this is true and a good reason to treat yourself a little.

I also recall that I often remember people and events related to windfalls by what I spent the money on. I remember that when I inherited some money I spent it on a trip to New Zealand, when I got a large bonus at work I spent (technically am spending) it on the deposit for my house. All these things make me feel good about the purchase, when I look at the photos of my trip, I’m also recalling the person who left me the money that allowed me to take the trip.

In contrast, I once inherited some shares. At some point I sold the shares and invested the proceeds in my index fund. Its all very sensible, but it doesn’t make me feel good, and it doesn’t bring the person who left me the shares to mind.

I think, by all means, be sensible with your money, including your windfalls, but commemorate the occasion by spending some of the money on something that you wouldn’t otherwise have.

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• thank crunchie its friday
• it’s not what you make, it’s what you keep
• sunk cost fallacy

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