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How Physicians Should Approach What to Do With a Financial Windfall

On our physician communities, we talk a lot about financial challenges as well as how to build your wealth over time. However, sometimes we’re fortunate to have the opposite situation and receive a large amount of money at once, the financial “windfall.”  It’s also important to have a plan in place for this situation.  Most commonly for physicians, this occurs in situations such as inheritances, bonuses, or the sale of a house, but it can also be from that startup side gig that made it big, winning the lottery (one can hope!), or an investment property that appreciated significantly. In this article, we’ll discuss how to approach a windfall, should you be in the position to encounter a situation where you have a sudden influx of cash and you’re unsure what to do with it.

7 ways physicians can use a financial windfall

Disclaimer: As always, you should consult appropriate expertise before taking action based on this content, which is not individualized to your personal situation and cannot be guaranteed to be accurate or up to date. We are not formal financial, legal, or otherwise licensed professionals, and you should consult these as appropriate. To learn more, visit our disclaimers and disclosures.

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General Approach to a Financial Windfall 

When you receive a bonus of money, there are several considerations you should take into account before taking all of it and placing your name on the waitlist for the 911 you’ve been dreaming about. For most of us, this situation will not arise many times in life, and it’s important to be intentional about it. Here are some immediate steps:

A general approach on what to do with a financial windfall


Before you do anything else, the very first thing you should do is to account for taxes and to set that cash aside. While taxes won’t always be applicable in situations such as many gifts, inheritances, or distributions from a trust, it’s important to check with a professional to see what the tax implications of your windfall are. In many cases, there may be capital gains, estate taxes, inheritance taxes, gift tax exclusions to keep in mind, or even amounts that are taxed at your ordinary income rates. Particularly in the case of things like bonuses or sales, there will likely be tax considerations, so be sure to set aside the amount of the financial windfall that is subject to taxation to avoid an unpleasant and unaccounted for surprise with a tax bill.  

Short Term Planning

It may take you a little while to figure out how to deploy that capital, especially if you want to use it for something like a new house, the right investment opportunity, or to make a change in your career. In the meantime, take that money and make it work for you so that it’s not actively sitting around and losing value. This could be in a short term investment such as a high yield savings account (HYSA) or money market fund. Don’t keep it in cash.

Long Term Planning

This is the harder part. While you may ultimately decide to use it on a bucket list item or experience, you should first view the surplus cash through the lens of future growth potential or the potential to change your life. Whether paying down debt, investing that capital, or allowing you to achieve financial independence and possibly even retire early, financial windfalls represent a large opportunity. If you choose to invest the money or pay down debt, either option is likely to translate into multiples of the original principal amount over the course of years when accounting for compounding interest. Don’t underestimate the ability to supercharge the trajectory of your net worth by an infusion of capital today. Additionally, the psychological benefits of not having debt can also allow you to make changes in how you work, reduce burnout, and allow you to enjoy your daily life more. 

Ways for Physicians To Use Their Financial Windfall

Establish an Emergency Fund

If you don’t have an emergency fund, this is an opportunity to get that jump started. Plan to have approximately six months of your annual expenses stashed in a high yield savings account or other low risk short term investment vehicle.

Pay Down High Interest Debt

While there may be an advantage to holding off on paying off tax-deductible debt or low interest debt, such as student loans or mortgage payments, if you have higher interest debt, a windfall is a great opportunity to pay it off. Paying down a 8% mortgage or a high interest rate credit card is the equivalent of having that return on cash (and more, considering that you pay that interest in post tax dollars).

Invest the Money Into Tax Advantaged Accounts

If you aren’t already maxing out your tax advantaged options, this is a great opportunity to infuse cash into these investments. If you haven’t maxed out your Roth IRA or backdoor Roth, this would be the opportunity to do so. Similarly, if you qualify, health savings accounts (HSAs) are excellent investment vehicles that allow for tax-free growth (for qualified healthcare expenses). 

Invest the Money Into Taxable Accounts 

Typically, once the buckets above have been addressed, it’s time to think about where to invest the excess money, and for most physicians, the easiest thing is to put the money into taxable accounts or other investment classes. There are many different investment opportunities often utilized by physicians, so you should pick what’s best for you if you’re not already investing in these. If you’re not used to investing and not sure where to start, consider a ‘lazy’ investing option or consult a financial advisor.

Use the Opportunity to Invest in A New Asset Class

As physicians, we are often exposed to other asset classes for investment but stick with what we know. If this money is however truly extra money and you want to take a foray into investing in alternative income streams, this may be the right time to deploy some capital in that direction. This could include dipping into real estate investing, angel investing or investing in venture capital funds, or even allotting a small portion of your portfolio to something risky like cryptocurrency. Of course, be careful and learn as much as you can before investing in a new asset class, especially ones like these where there are both good and bad opportunities, and even with good opportunities, there is more risk.

Use the Financial Windfall to Gain Financial Independence

If you have wanted more flexibility in your life as a physician, this may be your opportunity. Using a financial windfall to pay off your mortgage, pay off your student loans, superfund your kids’ 529, or pay off your buyin for your private practice are all things that will rapidly decrease the amount of money you need to have in your monthly budget.Once you’ve lowered your non-discretionary expenses in your budget, you can afford to make less money, which allows you to cut back clinically, change your hours, cut out call or procedures you don’t like, or make a switch in practice environments to something less lucrative but more enjoyable. These are all things we talk about that people should consider before choosing to leave medicine because of clinical burnout, and part of the reason why we are such big believers in financial independence

Buy Yourself A Treat

If you’ve considered all of your options and just want to treat yourself, that’s a completely reasonable option as well, as long as it’s an informed decision. We delay gratification in medicine quite a bit, and it’s important to enjoy the fruits of your labor so that you can feel you are getting something in return for all of your hard work. Daily reminders of the success you deserve such as a car or watch you love or occasional bucket list items such as a nice vacation can really improve your overall happiness, and by extension your career longevity. Investing in your own happiness is an investment as well!

Common Physician Specific Financial Windfall Situation: Bonuses

If you are in a situation where you are planning on receiving a regular bonus every quarter or two months according to your practice schedule, you should probably incorporate that into your global financial planning. For example, if you expect to receive an extra $15,000 every two months, that extra amount should be incorporated into your global financial plan. This could be an approach of lump sum investing into your taxable account every six months, or investing it in a high yield savings account for a future down payment on a house, depending on what your overall financial goals are for the year. 

The other approach is one often taken with bonuses that are not guaranteed or vary greatly in amount. In this case, it likely makes sense not to incorporate these bonuses into your financial planning and instead create your budget as though it did not exist. They then treat the bonuses as a true windfall if it’s a large amount of cash received annually or semi-annually. 

Either way, again, view these bonuses as opportunities to augment your progress towards your financial goals, or as ways to enjoy the fruits of your labor, combat burnout, or make changes in your life. Both are reasonable approaches. 

Common Physician Specific Financial Windfall Situation:  Real Estate

When you make a profit in real estate, you really need to think about taxes. If this is from your primary house, a certain amount of money is exempt from capital gains. However, if this is from an investment property, you need to be intentional. If you want to continue investing in real estate, you could pursue a 1031 exchange with the purchase of a new real estate investment to kick capital gains down the road. Keep in mind that while this is advantageous from a tax perspective and defers capital gains on the real estate sale, there are a number of qualifications that must be met in advance to qualify for a 1031 exchange, namely that the funds are received by an intermediary and that there is a designated like-kind investment named within 45 days of sale. If this is from a syndication or other active real estate investment, you may be subject to depreciation recapture. 

Regardless of how you approach the money from a real estate sale, you should work with your accountant to ensure you know how much money is actually coming into your pocket before spending it all.


Having a financial windfall is exciting and in many ways liberating, however, there should be a plan on what to do with each dollar you have, as that will diminish the likelihood of squandering an opportunity.

Still confused? You may need help with your financial plan. In this case, we recommend taking some time to create one that lists your priorities and goals. Some of our recommended books for physicians and financial advisors for physicians can help.

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