Maybe you’ve won the lottery. Maybe you’ve received a large settlement or inheritance. Whatever the situation, if you’re fortunate enough to hit the jackpot, it’s common to be tempted to go on a spending spree. But if you’ve suddenly come into a large sum of money – typically referred to as a financial windfall - it’s wise to review all of your financial options and come up with a long term strategy for your newfound wealth. According to the National Endowment for Financial Education, a whopping 70% of people who receive a financial windfall will not have any of that money left within the span of a few years. Luckily, there are some steps you can take to help prevent you from becoming one of them.
Don’t make any rash decisions. If you’re impulsive with your recent wealth, you could risk losing all of it. For example, if you win the lottery and immediately quit your job, you might regret it once you see what your actual monthly or annual payouts will look like. Likewise, if you go right out and buy a mansion, you could feel pangs of guilt once you see how high your property taxes will be. Rather than make any immediate decisions about what to do with your new money, it’s a good idea to consider all of your options and establish your financial priorities. Make a list of things you might like to do with your riches, whether that includes paying off your mortgage, giving a cash gift to family or friends, donating to a charitable cause, or setting aside funds for your children.
Consider your future. When you’re establishing a list of priorities for your fortune, it’s important to think long-term. While there’s nothing wrong with splurging a little if you have the means, it’s crucial to not overlook your future financial situation. If you don’t already have a retirement account, now would be a perfect time to set one up. Likewise, if you have children, it could be a good time to establish a college fund for them if you haven’t already. And, if you don’t yet have an emergency fund set up, creating one could be extremely beneficial for you down the road.
Don’t forget your debts. If you have a significant amount of money charged on your credit cards, it’s a good idea to pay off those balances as soon as possible to avoid further interest charges. Likewise, it’s a good idea to evaluate any loans you have in your name, and consider the interest rates you’re paying on each one. If there is no pre-payment penalty, it might make sense to use your new money to pay off your loans in full. Doing so could save you a boatload of money on interest charges, depending on the rates you’re locked into.
Talk to the experts. Once you’ve let your new financial situation sink in, and have some idea of how you’d like to proceed, it’s important to find and meet with trusted professionals who can help guide you through your next steps. Coming into a large sum of money can radically change your financial picture, and it’s important to understand all of the tax implications, and potential risks involved, with the decisions you’re about to make. Depending on what your financial wish list looks like, it could make sense to meet with a tax advisor, an investment manager, a financial planner, a certified public accountant, or even an estate planning attorney. Just be sure to thoroughly vet any so-called “expert” before dealing with them. People with newfound fortunes can be a magnet for fraudsters looking to get their hands on your wealth, so it’s important to only work with trustworthy, reputable advisors.
Defend your dough. If your financial windfall is public knowledge – say, if you won the lottery – there’s a good chance of scammers coming out of the woodwork. And even if your financial gain wasn’t broadcasted, it’s still smart to be on high alert with your money. Stay up-to-date on the latest financial scams and fraud tactics, and keep your financial and personal information secure when you’re banking or shopping online, or using a mobile device.
Being smart with your financial windfall is critical if you want your money to last. By taking some time to evaluate your current priorities and future goals, and seeking guidance from financial experts, you can be well on your way to enjoying your fortune for years to come.
Don’t make any rash decisions. If you’re impulsive with your recent wealth, you could risk losing all of it. For example, if you win the lottery and immediately quit your job, you might regret it once you see what your actual monthly or annual payouts will look like. Likewise, if you go right out and buy a mansion, you could feel pangs of guilt once you see how high your property taxes will be. Rather than make any immediate decisions about what to do with your new money, it’s a good idea to consider all of your options and establish your financial priorities. Make a list of things you might like to do with your riches, whether that includes paying off your mortgage, giving a cash gift to family or friends, donating to a charitable cause, or setting aside funds for your children.
Consider your future. When you’re establishing a list of priorities for your fortune, it’s important to think long-term. While there’s nothing wrong with splurging a little if you have the means, it’s crucial to not overlook your future financial situation. If you don’t already have a retirement account, now would be a perfect time to set one up. Likewise, if you have children, it could be a good time to establish a college fund for them if you haven’t already. And, if you don’t yet have an emergency fund set up, creating one could be extremely beneficial for you down the road.
Don’t forget your debts. If you have a significant amount of money charged on your credit cards, it’s a good idea to pay off those balances as soon as possible to avoid further interest charges. Likewise, it’s a good idea to evaluate any loans you have in your name, and consider the interest rates you’re paying on each one. If there is no pre-payment penalty, it might make sense to use your new money to pay off your loans in full. Doing so could save you a boatload of money on interest charges, depending on the rates you’re locked into.
Talk to the experts. Once you’ve let your new financial situation sink in, and have some idea of how you’d like to proceed, it’s important to find and meet with trusted professionals who can help guide you through your next steps. Coming into a large sum of money can radically change your financial picture, and it’s important to understand all of the tax implications, and potential risks involved, with the decisions you’re about to make. Depending on what your financial wish list looks like, it could make sense to meet with a tax advisor, an investment manager, a financial planner, a certified public accountant, or even an estate planning attorney. Just be sure to thoroughly vet any so-called “expert” before dealing with them. People with newfound fortunes can be a magnet for fraudsters looking to get their hands on your wealth, so it’s important to only work with trustworthy, reputable advisors.
Defend your dough. If your financial windfall is public knowledge – say, if you won the lottery – there’s a good chance of scammers coming out of the woodwork. And even if your financial gain wasn’t broadcasted, it’s still smart to be on high alert with your money. Stay up-to-date on the latest financial scams and fraud tactics, and keep your financial and personal information secure when you’re banking or shopping online, or using a mobile device.
Being smart with your financial windfall is critical if you want your money to last. By taking some time to evaluate your current priorities and future goals, and seeking guidance from financial experts, you can be well on your way to enjoying your fortune for years to come.