How To Handle A Sudden Financial Windfall

Welcome to all my students, clients and loyal followers. If you are brand new to this channel, welcome. My name is Denzel Rodriguez, your personal finance geek of the 21st century. And today we're going to be discussing how to handle a cash windfall. There are many different types of cash windfalls that can come into your life. It could be good and it could also be a tragic thing that occurred. But then there's a payout such as a death in the family, and then you receive a portion or a large sum of a death benefit or maybe some money from a trust. A family member leaves you material things, money, things like that. It could be that you were injured and you received a large settlement, a large sum of money. So it was, you know, an unfortunate event, but now you're being rewarded with some money and you're figuring out how to handle this, like, what do I do with this money? What are the first things that come to mind? What I've been able to do over the last seven years, working with over a thousand plus families, is pretty much put together a framework based on those experiences that some of my clients faced. So I've had clients that received death benefits from family members passing away. I've had clients receive settlement money from injury or someone else getting injured and they're receiving some of that money and also have had clients dramatically increase their income depending on the company that they work at. Maybe they jumped a few promotions or they had a massive commission payout and it just completely changed everything for them financially. But it also put them in a very uncertain, worried, nervous sort of situation. So today we're going to look at a case study. I'm going to give you my framework how I think, how I've been able to help people, guide them, not give them an answer, but guide them through a process to help them make the best financial decision for themselves. So hopefully you take this framework as a guide, not this is what I'll do, but as a, as a guide, as a framework where you can build a foundation from and you can make tweaks according to your specific situation. So we're going to look at a real situation. This is a individual that received a settlement of money due to an injury. That amount was 176,500 and some change. So I rounded the number 176,500 and it is a tax free payout. Part of my framework adjusts for taxes. Sometimes you receive a cash windfall and it's taxable, and sometimes you receive a cash windfall and it's not taxable, such as a death benefit or maybe a settlement such as this. So let's direct our attention to the board here. Our four major numbers. On the left hand side we have an individual making $9,500 a month. This is W2 and rental income. We have expenses of roughly 9,000 overestimated. Total debt $655,912.90. Predominantly that debt is made up of mortgage debt as well. And then we have a home equity line of credit, we have a car loan and very, very small credit card debt. Okay, we have a net cash flow underestimated, about 500amonth. Here's our home equity line of credit in the second position. $55,000 credit limit 5.99%. The name of that bank is Affinity Federal Credit Union, which is a reputable bank that is worth taking a look at. If you're trying to implement Velocity into your finances and you're searching for a home equity line of credit, let's say you're in New York, New Jersey area. Affinity Federal Credit Union is running a promotion right now as I'm recording this video in August of 2025. That could change come September if the feds decide to reduce interest rates then the offer may get better. So that's actually in your favor if you're watching this video months later when it, when it comes out. If interest rates stay the same, then most likely the offer that I'm going to share with you will most likely stay the same. So Affinity, I'm going to share my screen real quick so that you can have that. It's great to just see what kinds of banks my clients are using all throughout the United States and you can use that as a framework to help you do your research as well. So they have a 12 month intra rate 4.9%. My client got a 5.99 for 12 months, so it could be as low as 4.9% for the first 12 months. Then it goes to a variable rate as low as 7.38%. Pretty attractive. And it does say HELOCs are available in all states except Texas. So if you live in Texas, this bank would not be a suitable bank for you. But it looks like they do serve majority of the United States based on that statement alone. So let's continue. HELOC, we owe 27,000. We've been doing the strategy already for some time. So they're dumping their income into the home equity line of credit. Expenses are coming out, cash flow staying into the line of credit. They've already, you know, paid off debt before and consolidated into the line of credit itself. We have a $50,000 car balance, 966 payment, 7.5% interest rate, and these are our two mortgage balances with the, with the payments right here, 5.9, 7.6%. And we move on to the framework now for a cash windfall. One of the key things I would say before I even get into the framework, even if you never worked or work with me before, even if you never decide to work with me, I would argue this framework is very effective. But what makes it actionable, where you actually go and do it, I would say, is if you have a professional that you hire to look at your situation, look at your entire financial situation. Even if you don't select me as your professional, as a financial coach consultant, I would encourage you hire someone outside of family and friends that is a professional that can step into your world, see all the data, see all the numbers, see the entire situation, support you through the process, hold you accountable. Because we can plan, you can have the framework, you can take it with you, but we actually go ahead and do that. Most do not. Most. Some will, but most do not. So if you're going to have, say, a cash window, whatever the amount is, ten thousand, twenty, a million dollars, whatever it is, it is absolutely worth paying someone by the hour to take a look at, at your finances or purchase one of their programs and they can walk you through an entire process, an entire framework. So maybe it's someone else's framework or maybe you use mine and you hire somebody else. Whatever it is, I'd say that is a key ingredient for success. Coaching, support and accountability is insane. Perfect. So now onto my framework. This is just a breakdown of the, of the percentage amounts in terms of where I send this money personally. So if it were me and I get a lump sum of money, $176,500, I personally will pretend like I didn't get all of this money. So that's like the first framework is I'm. I'm acting as if not all of that176.5 is is mine. Step one, step two is, what are the immediate problems, challenges, obstacles in front of me that I can remove with money. Third of those obstacles and challenges that I'm facing that are right in front of me, how can I. This is where the strategy comes into place. How can I get more than one use of this dollar to handle that expense, handle that immediate challenge obstacle in front of me, yet still retain my dollars over the long haul. So step three is more comprehensive. You have to think a little bit more outside the box. And oftentimes the third strategy will have a delayed reward to it where you have to see the full context of the situation to see the results versus you just directly sending your money to the problem and now it's gone. That could be valuable for people listening that are not confident in receiving 176,000 in one shot, that are not confident that they're going to do the right things with that money, that they're going to do the best things for themselves. I would say sometimes sending that money directly to that problem and just you're done with it now. You increase your cash flow, it's off your back, the burden is gone. I'm not against that. So it's a process and it's case by case. In this scenario, we're dealing with someone that does have a level of discipline with their money. They've been doing the strategy, they've been doing velocity, they've been coaching, they've been getting coaching from me. We're working together, we've built out this plan. I shared the framework, now I'm just reiterating it and holding them accountable. The money hasn't come as of yet. The money will land in their account in the in the following week. So I'm recording this video as August 17, 2025. By the time I post this is probably get posted in sometime September, maybe, maybe even later than that. So framework step one. I take 10% off the top. So $17,650 and I am personally going to give that money and help someone or I may give it to my church directly. That is my personal desire. If I'm getting money I wasn't even expecting, I'm just going to take 10% off the top as a principal and I'm going to give. In this case, he has a desire to help his mom. Mom is 80 years old, he is the son and he's helping his mom with different expenses here and there. He just kind of gives mom money kind of sporadically. So what I did was, hey, we can develop a strategy to maybe give mom a stream of income personally that you give to mom and that's tax free money. Okay. One of the things that I've personally learned working with a lot of immigrant families, specifically Asian families, Indians, Nigerians and a few others, even Jewish families, there's a cultural standard that they typically practice where if I'm talking to the son or the daughter and they have living parents, mom or dad part of their living expense. Once they get to a certain age, of course they have their career and everything going and they have parents that are now retired. They part of their living expense like 2, 3, 4, $500, sometimes more per month like clockwork. They just send that to their parents and it covers utility bill, it covers their phone bill, it covers any kind of fixed expenses that helps close the gap that maybe their Social Security doesn't fully cover or their pension plan. And so they're a form of Social Security. The child, son or daughter is a form of welfare financial care on a consistent basis for their parents. And it's not sporadic and it's something that they can manage and handle. And it's just a cultural thing. So I think that's pretty powerful if you grew up in an environment where you never experienced that, you never saw your mom do it for their mom, you never saw your dad do it for his dad. And it is a new framework that you can implement because it's not as sporadic like you send $4,000 this month and then nothing next, and then again they're hitting you up and then they ask you for money again and ask you for money again. I think it also helps the relationship between mother and son. Mother, daughter, right? Father, daughter, father, son. I think it really helps the relationship honestly, when you, the son or daughter set a standard for your parents. This is what I can give on a monthly basis. You need to steward that. And I think it really sets some boundaries and some frameworks that they don't overstep and you don't feel resentment toward your parents and you feel like you got to take care of them and you're raising your family and you got to take care of yourself. So that's huge. So giving 10%, saving 10%, 10% set aside for taxes, that's if your money is taxable, you're going to want to set money aside, preferably in a liquid account where you can earn some interest for the next 10, 11 months until you file so that you don't get blindsided with a tax bill. In this case we don't have to set aside money for taxes. So when that occurs, I Simply roll that 10% into savings. So that looks more like 20% going to savings. 10% give 10% or more immediately invest, preferably in a non liquid account also with some tax benefits, preferably, and then 5% guilt free spending the rest of the money. So we got 10, 10, 10, 10 and 5, 45% already pretending like I don't Even have that money. That money is being applied toward the future. That money is fortifying my foundation with savings. It's accounting for taxes, if there is one. I'm accounting for money that I'm going to help people with. And the remaining, typically for this audience that I'm working with, the remaining amount we remove debt with or other upcoming large expenses like doing a roof repair, you know, something immediate in your household, car repairs, you name it. So let's break this down. Of this money over here in the middle of the board here, got 176,500, minus 10%, $17,650 we're going to help mom with, but instead of just handing Mom $17,650, we're going to spread that out over consistent payments. So the client is working on coming up with a number. I gave him a range and said, you know, anywhere between like 500, $1,000 a month is a good healthy range. And you can also figure out what specific bills mom has that you can just take off her plate. You say, okay mom, moving forward, I'm just going to cover your phone bill, I'm going to cover your utilities. And now mom can adjust her income and, and redirect that money in other places. So if it's 500 bucks, you got 17,000 to work with. 17,650 divided by five. This 35 months that you're able to project out with just 10% of that windfall. And obviously the money could be more, but you're initially setting that 10% aside. And if we have more money to work with, you can add it into that bucket. Okay, if it's 1,000, then it's about 17 and a half months. So a little over a year and a half and a lot can happen over here with his finances, put him in a position to keep doing that. So this gives us that boost. So that's the immediate thing that's happening with this particular case is we have a parent that we're looking to take care of financially and we want to stretch this money out as long as possible so it doesn't put him in a bind or in a position. The next step after that is 10% savings, 10% tax, in this case, no tax. So we added 20%. That's $35,300 that we're going to save in a properly structured whole life insurance contract. It's the most efficient place where you get liquidity, guaranteed growth, guaranteed death benefit, non guaranteed dividends on your money. That's new dollars. Alright. So it's a return of premium initially and then you get to a point where your money breaks even. Now it's new dollars that are compounding tax free on a guaranteed basis and a non guaranteed basis. And you have liquidity. So you're able to pull the money out before 59 and a half via loans or withdrawals up to the cost basis without any tax liability. Pretty effective. So I have a lot of videos that go into that on how to properly set yourself up. And this also solves for a lot of future problems. This person is able to secure his insurability through the death benefit. So you're purchasing your future net worth in advance for pennies on the dollar essentially. And that 35,300 could be a lump sum deposit into a properly structured account. Or we can break up that 35, 3 over 2, 3, 4 payments and do it that way. So this isn't implemented just yet. We're working on that, we're building that out, we're figuring it out. The other 10% I talked about investing and preferably again, if I'm in, if I'm in his shoes, what I would prefer to do is put 10% of that lump sum out of my hands into accounts that are illiquid until 59 and a half. My favorite accounts are the Roth IRA and the HSA. So in his case, we're over the age of 50, we're able to contribute to a Roth IRA at $8,000 per year max contribution. And this person does have an HSA account with their employer, so which they're already contributing to. So in 2025 they can simply max out their HSA at $4,300. What I like about the Roth, obviously if you don't know, a lot of people don't actually you can contribute to a Roth with after tax dollars. So this is after tax money, completely tax free, contribute to the Roth eight grand, and if you put it into a self directed Roth ira, you're able to invest in alternative assets. Part of this framework when I'm working with you is to also figure out who you are, why you're here, what's your purpose in life and what do you want your money to do for you with this particular client? They have a desire to. Let me look at my notes real quick. They have a desire to invest in real estate, which they already do. So they have a real estate license, they have a small real estate portfolio, two properties already, and they want to be able to acquire more. So instead of sending my money to places That I don't understand that particular industry. You can leverage these financial vehicles to store money in and then invest in the thing that you know. So that's building your investor DNA with this, with a self directed Roth contribute $8,000 per year, he can then invest in real estate directly with that $8,000. So that's pretty cool. Then with the HSA, same thing. If it's self directed HSA account, not just through the employer for now it's through the employer. So you're limited to whatever the employer and the brokerage has you in. So that's typically stocks, bonds, mutual funds. But he takes this tax free money of $4,300, which is super cool, and he can reduce his tax liability, reduces his taxable income by $4,300 for 2025 with tax free dollars. Now when that money goes into the hsa, you get a tax deduction, you get tax deferred growth, and you get tax free withdrawals after 59 and a half on any qualified medical expense. And you can also reimburse yourself for any out of pocket medical expenses that he had prior to 59 and a half and even onward. So pretty powerful stuff there. The Roth ira. Tax free money goes in, tax free growth, tax free withdrawals out of that Roth IRA and then finally it's real estate. So if we have the 17,006 50 to work with, let's take a look. 17,650 minus 8 grand and then minus 4,300, we're left with $5,350. That 5,350 can go, you know, fund Properly Structured LLC to invest in real estate. Right. Setting up the corporation properly if he hasn't already done so. And we can now fund that with the 5350. Okay, so we max funded the HSA, we max funded the Roth for one year with that money. And there's still plenty of money to go around. Okay, so now finishing up, we got 5% guilt free spend. I think this is super underrated right here. So 5% of 176,500 is 8,825. You can literally just put that in a separate account, call it your spend account. Guilt free spending. There's something you want to buy. You want to buy a new tv, you want to get a new couch, you want to do some work to your backyard. That 5%, his case, 8 grand. You can do a lot with $8,000. We don't have to spend it all at once. If you want to take a vacation you take a vacation, you want to take mom out, you want to do something nice for mom, you do something nice for mom, do something nice for your spouse, for your partner, for your kid, whatever it may be. Having that limitation, having that standard like 5%, boom over here, is going to prevent you from overspending and then filling guilt afterwards. So now you can't even enjoy what you spent because now you feel guilty about it. So this is why I call the guilt free account, Guilt free spending account. 5% or less is a standard framework. Again, you don't have to do this word for word. If you can, I'm arguing you're going to put yourself in a really good, healthy position. And finally, to wrap things up, the remaining amount of money, when you minus all of this, we're left with paying off debt and or other expenses. In his case, I told you about that HELOC, 5.99%. We're going to bring that HELOC to zero because we want to then turn around and leverage that 55k for a real estate acquisition. So you got 5350 in cash. You have a $55,000 credit line at a low interest rate of 5.99%. Pretty cool. It can, you know, it can leverage that money, pays off some debt on the heloc. So that move is complete, secures the win of what we did inside a line of credit. What are we left with? We left with two mortgages. We have this car loan. Yes, pretty high interest rate. Yes, pretty high payment, but the balance is pretty high. Now this is where you come in as the individual and you get to decide what you want to do with your money. I'm going to be your biggest cheerleader as your coach, as your accountability partner. I'm going to let you decide on these things, but I'm also going to challenge your thinking. So the first immediate thought this person wants to do is they have a desire. They want to pay off the car. They pay off the car, that's $966 back into their economy. From a cash flow perspective, that's 7.5% interest that they save. And now the car is done. We have69189.02 left over estimation. If we pay the car off, we'll have 18784.89 left. Let's say we did that. Boom. Now the car's done, HELOC's done. All we have is the two mortgages, basically. And we have 18,784, 89 left. Over what could we do with that 18,000? I put some suggestions here. We could put life insurance on Mom. Anything that we could get, we could purchase an annuity on mom. Mom is 80 years old. It's a very strategic play that could build into the $17,650 that we already set aside for her. So $17,650, $18,784.89. We could combine that money, acquire an annuity for her and see what kind of payout that could provide. So there's the annuity. You could just simply save more of that money. So again, either, either we roll that 18, what most likely will happen in this case, because he has a desired in terms of priorities priority was pay off debt and help mom. That's like the major priorities. So this 18,000, if he pays off the car will most likely roll into this money here and that'll give him a longer run rate to just give mom a monthly stipend, essentially, right? A monthly income that's tax free. And if there's any kind of long term care, any kind of insurance that we could buy, that would remove certain risk as our parents continue to age and age, that insurance could offset some of that. So if we can pay premiums, right, pay dollars, pay pennies to get dollars, that's huge. That's something that we'll look at. Now here's the challenging thought. Let's say we didn't pay off that $50,000 car and we left it. Say we didn't pay it off, we left it alone. And you looked at that car as a depreciating asset. It's a seven and a half fixed rate. This is $966 payment. And you ask yourself, can I earn more than 7.5% somewhere else and continue to service that consumer purchase for 966? We have the ability to do that, still maintain positive cash flow. What this does reduces risk in a different way. If I was to pay off this 50 grand all at once and then total the vehicle, I'm not going to get all that money back when I go to trade the car in. And now I get it, I have to get a new vehicle, right? I'm not going to get all that back. So instead of paying it off, we could hold on to that 69, 189. And let's say we're going to solve for helping mom by creating a stream of income for her. Take that 69189.02 and take the 17,650. That's 86,839. Now we could round up, pull from other dollars if he spends less from the guilt free spending, if he doesn't put as much in cash value life insurance, we're going to just round up for now say 90k. I'm going to share my screen. I googled what it would look like in 2025 if I were to purchase an immediate income annuity for an 80 year old female. And here's what Google told me. AI okay, so this is pretty accurate. Says an 80 year old female with a $90,000 lump sum for an immediate annuity could expect to receive a monthly payout in the range of approximately 850 to $950 per month, according to figures from multiple sources. That's not bad. That's actually really, really secure type of income. A lot of safety involved there. So if I could get anywhere from 850 to $950 guaranteed lifetime income for as long as mom lives, then that removes this person from having to come up with the money to support mom with. So let's say he was to do that and you dump 90 into an annuity, you immediately it pays out this range, let's say 850 to $950. Let's just say could be less, maybe even more, don't know. But if that were the case, it sort of solves for the range that we were looking at and it provides guaranteed lifetime income. Let's say mom lives all the way to age 100. 850 times 20 years. Okay, 850 times 12 times 20 is 204,000. So we put 90 in, we got 204 back. If she lives to age 100, how much time would it take for me to drain all that 90? And then it becomes even more profitable the longer I live. So you take the 90,000. Right. Let's do this. 850 times 12. What was that? 10 2. All right, so 90,000 divided by 10 2. So mom only has to live eight to nine more years where that 90,000 runs out. But because it's an annuity and the way annuities work is even if and when the money runs out, the insurance company is going to keep paying that money out. So now you Fast forward mom's 88, 89 years old, we burn through the 90 grand, that's on a guaranteed basis. So from 89 and onward, it continues to pay her guaranteed income upon her graduating earth. You could do that with another asset, but you're not going to get the keyword, you're not going to get guarantees. And there could also be additional riders that we throw on here, like a long term care rider that would increase that payout in the event she needs some long term care. Pretty powerful asset that solves for the problem. Now, some alternatives just to like not be fully biased in terms of how I would approach this, but for me, this is how I would approach it for my own mom is I want guarantees that I can just give her a certain amount of income guaranteed no matter what. That money's never going to run out. So I'm providing insurance on that 90,000 by leveraging her age because annuities pay more money out the older you get because you're closer to mortality. So that's pretty powerful. And specifically in this environment today where we're still at a very high interest rate environment, so annuities are paying these higher rates, which makes.