What windfalls reveal about how we really think about money

Zarak Khan
Director of Behavioral Science, Edward Jones

You will sometimes hear people make a specific confession with a mix of embarrassment and justification when it comes to unanticipated cash: “I know I should have invested it, but I spent it instead.”

The sentence is usually framed as if the underlying choice were obvious. There was the responsible option — save, invest, advance a goal — and there was the less responsible one, which was to let the money dissipate into the ongoing stream of life. Framed that way, the story is one of discipline versus indulgence, future versus present, prudence versus weakness.

That framing misses too much.

We are all mental accountants

People do not spend windfalls on “lifestyle” because they are incapable of self-control or uninterested in their future. They do it because windfalls are psychologically unusual. A bonus does not feel like ordinary income, even when, in a technical sense, it is simply compensation paid in a different shape. We tend to assign our salary to different tasks and expenses before it arrives. It already belongs to the rent or mortgage, the retirement account, the bills, the recurring obligations of life.

A bonus often arrives feeling less encumbered. Even when it’s been earned over the course of a year, it looks like extra money rather than part of the normal operating budget.

Behavioral research has long shown that people do not treat all dollars as interchangeable. We sort money into categories that reflect not just where it came from, but what it seems to mean. Expected money feels different from surprising money. Money associated with effort can feel different from money associated with luck, reward or recognition.

Future abstraction loses to immediate gratification

This helps explain why people so often spend when they intend to invest. The explanation is not simply a lack of willpower. It’s that several behavioral forces tend to operate in the same direction.

One of those forces is the tendency to prefer rewards that are vivid and immediate over those that are meaningful but psychologically distant. Reducing debt, advancing a savings goal or increasing future optionality may be highly valuable, but those outcomes often lack the immediate emotional resonance of something that can be seen, used or enjoyed right away.

Another force is identity. Bonuses often arrive as signals of advancement, competence and recognition. Spending on lifestyle can become a way of bringing external success into alignment with everyday life. If a person’s compensation has changed, there can be subtle pressure to make their visible standard of living change as well.

A third force, and perhaps the most practically important, is the absence of precommitment. In practice, what usually happens is the opposite: The money lands, starts to feel available, and every possible use begins making its case.

Making the most of the unexpected

Precommitment matters because people are usually better at designing good decisions in advance than they are at making them in the moment. Automatic savings systems work not because people are unusually disciplined, but because the decision gets made before temptation presents itself. The same principle applies here. If part of a bonus is directed automatically toward a specific goal before it becomes mentally available for spending, the future is given a claim while it still has some leverage. If the money arrives first as a flexible lump sum, every possible use begins competing for it at once.

The most effective response, therefore, is not moralizing but planning. And the most useful lesson is not that bonuses should never be enjoyed. It’s that windfalls should be handled with more intentionality than ordinary income precisely because they are so psychologically charged. They arrive carrying meanings that make them easy to spend and unusually easy to misinterpret.

So, when someone says, “I know I should have invested it,” the most useful response is not to treat the moment as a moral failure. It’s to recognize that the outcome was shaped well before the spending happened. And the real question is not whether the person cared enough about their future; it’s whether they had a structure in place that gave their future self a fair chance to win.