Dialogue from the movie Office Space:

Peter: What would you do if you had a million dollars?

Lawrence: I’ll tell you what I’d do, man: two chicks at the same time, man.

Peter: That’s it? If you had a million dollars, you’d do two chicks at the same time?

Lawrence: Damn straight. I always wanted to do that, man. And I think if I were a millionaire I could hook that up, too; ’cause chicks dig dudes with money.

Peter: Well, not all chicks.

Lawrence: Well, the type of chicks that’d double up on a dude like me do.

Peter: Good point.


Oh, lottery winners. We’ve all heard the statistics of how nearly a third of all lottery winners end up declaring bankruptcy, but it doesn’t really stop us from fantasizing about how a large windfall might change our life. Although this line of thinking is mostly fantasy, the majority of Canadians can expect to receive an inheritance in their lifetime and the average size of this inheritance will be $100k. Today we’re going to talk about how to use a windfall to set yourself up for life, not set yourself up for failure.

Let’s start with saying that playing the lottery is not a good idea, it is gambling and should be viewed as such. A ticket in our stocking at Christmas is okay as is the odd office pool, but it’s a slippery slope of delusion and bad math thereafter.

Inheritances in Canada are a much much likelier occurrence. We avoid creating a well thought out plan because of the interesting mixture of guilt and greed we feel when we think of our family members passing away and us receiving a financial benefit. However, we can hold our relatives dear to us and also acknowledge that planning for our future may change depending on our family wealth situation. I firmly believe we should have a plan in advance for windfalls so we don’t get swept up in the emotions and come out the other side with a hangover and empty pockets.

First we need to acknowledge that large sums of money come with their own issues and challenges.


Expectation and Timing

Don’t spend money that you don’t have yet. If you are receiving an inheritance, funds will most likely have to pass through an estate first. Depending on the source accounts, taxes may eat a good portion of the final value. It may take several years to actually receive the funds. Don’t modify your lifestyle in anticipation of funds that you don’t have in hand.


Financial Literacy

Honestly consider what you do and don’t know about handling money and behavioural finance. If you haven’t had any experience with managing a generous surplus from your existing paycheque, consider that you are at risk of being swept up with an overwhelming feeling of abundance. You are also more likely to fall prey to sales pitches or your cousins husbands advice on up-and-coming stock picks. Even understanding the different types of accounts and investments could be overwhelming. Assess if you are vulnerable and identify how you will get reasonable, independent financial advice from someone who can walk you through your options.


Easy Money

If you saved up $100k over several years, would you treat it the same way as the lump sum you have just received? Earned money is often treated with more respect since you can attribute long hours of work with its existence. Try to create consistency between money decisions, no matter the source.



Depending on how large of a windfall you receive, it could cause a crisis of meaning in your life. Purpose in life is comes with planning, building, anticipating, and using our skills to help others. Without a strong sense of who you are, having a lifetime worth of cash at once can pull the rug out from under you. Be wary of the “gift” of a large inheritance.


Fitting In

Understand that unearned wealth and conspicuous consumption may be viewed as distasteful in more affluent social circles (or even your current social circle). Before you move into the neighbourhood of your dreams, decide whether you’ll fit into a community of self made entrepreneurs and high paid professional specialists. This transition will come with more hidden cultural and social issues that you’ve no experience navigating. It’s like the out of shape European man strutting along the beach in his leopard print banana hammock in North America. We all feel he’s out of place and he doesn’t have enough context to understand the appropriate balance of vanity and prudishness our culture expects. Don’t be this guy!


Declining Spending Profile

Don’t create the lottery winner spending profile with a huge amount spent immediately and then tapering off a each year as funds begin to dwindle. This creates a set of feelings completely opposite of anticipation where each year seems worse than the one before. Experiencing declining hedonic adaptation (lifestyle deflation) due to scarcity is an unpleasant slope to ride down.


With that being said, a windfall should be a source of excitement and if managed properly, can create solid walls of financial security around you and your family. So what is the appropriate course of action?


Do Nothing

At first just sit back and enjoy the dopamine high you’re experiencing, the feeling of security and unending possibility. This is not the wave you want to ride to shore. Depending on how large a sum you have received, you may need to sit out for up to a year to allow it all to sink in and get back to rational. How long? I think it depends on the value of the inheritance as compared to your current networth. Here are a few guidelines as food for thought:

  • Less than 25% of your networth – 3 months
  • More than 25%, less than 50% of your networth – 6 months
  • More than 50% of your networth – 1 year
  • Multiples of your networth – Maybe lock up a good portion in a non-redeemable 5 year GIC so you can wake up from your hangover with a second chance.


Implement your Financial Plan

Yes! Because you are a wise and thoughtful person, you have a written financial plan of how you are getting from here to financial independence with your current salary. Although you cannot know the final amount, it doesn’t matter because you have a list of set goals and priorities that already tell you in what order the money should be spent. Here is an example plan:

  • Pay off consumer debt – Credit cards, car payments, lines of credit. Note that this will increase your cash flow immediately, allowing for a bump in standard of living right now.
  • Invest for retirement – Make contributions to RRSPs and TFSAs over several years to max out your retirement and savings vehicles, calculate (or have your planner calculate) how much money should be set aside now to allow for a comfortable future retirement.
  • Other savings goals – Now that your retirement is taken care of, turn your attention to saving for your kids education via an RESP, pay off your mortgage, or assist aging family members with their standard of living.
  • Supplement your lifestyle – If you still have money leftover, you can begin supplementing your current income, downshift from full time to part time, go back to school, buy that vacation property. Ensure you are taking account of the full time period between now and your retirement, so if you’re 45 years old now, you have 20 years to spread the money over. Don’t spend it all in the early years or future you will be angry.
  • Legacy and charity – If your needs have been completely wiped away, begin planning your meaningful legacy or charitable contributions.


Notice that the amount that you receive just accelerates your financial plan to whatever point it will take you to. Along the way, you eliminate more and more payments and savings contributions that you would have otherwise made, so your cash flow situation improves and you can inflate your lifestyle reasonably without shooting your expectations into the stratosphere.

The absence of a written financial plan shouldn’t deter you from thinking about these issues. The more thought you put into it, the likelier it is that you will keep your head and stay rational. It should also become evident that your priorities don’t change whether you receive a windfall, or painstakingly save over a 40 year period.

What would you do if you had a million dollars?