Windfalls are unexpected large amounts of money. It certainly seems like a good thing, but if the receiver of a windfall doesn’t know how to react or handle the money properly, it won’t be long before he or she burns through that newfound wealth.
A windfall can come from different sources, such as the lottery, structured settlements, annuities, inheritances, etc. After taxes, a windfall is usually still a large amount hence careful planning of where best to allocate it is important. Here is how to live life normally after receiving a windfall.
Examine Your Personal Finances
If you haven’t been doing this before the windfall, then you certainly have to start adopting the practice at least once a month. Examine personal cash flow, where most of your net income is going, which expenditures consume most of your budget, how your investment portfolio is performing, and so forth.
Once you have collected sufficient data, start to put a plan of action on how to improve your budgeting and money management. If desired, you can even hire a financial planner. This ensures that every penny is put in the right place.
Erase Credit Debt
Before running to the nearest car dealership or jewelry store to spend your windfall, remember to get rid of debt first. Outstanding balances on your credit cards and store cards can cripple your finances long-term and decrease the amount of money you have available each month, so it’s best to start erasing them from your books as soon as possible.
Car or house loans should also be paid off first before any new expenses. The only drawback with early mortgage repayments is that they often come with penalties. If you have any doubts, seek professional advice or do your own calculations of which approach would cost less.
It is impractical to stop saving money just because of a windfall. Moreover, don’t quit your job for the same reason. Chances are, the money will dry up in a few years. Taxes alone can chip a big chunk off the money.
Put at least 10 percent of the money into your savings pool. But don’t just let it rot in a savings account that pays a dime annually. Look for a low-risk investment vehicle with decent returns and let your money sit there. Anything can happen in the future, and having this financial safety net will allow you to keep going if unforeseen events emerge, such as getting laid off work or hospital bills.
Give Yourself a Treat
The time you receive a windfall is probably the best time to treat yourself. Sure you didn’t earn a treat or reward since its free money, but still it’s a good practice to treat yourself and enjoy some of the money. This way, you don’t feel like spending all of the cash in a compulsive way. A weekend out of town or a fine meal are some ways you can celebrate with the family or friends.
Disclaimer: Dolphin Asset Group is not allowed to provide tax or financial advice. All information contained herein should not be construed as such. Readers are advised to seek independent advice from a qualified professional.