What to Do With a Sudden Windfall

It may seem like an impossible dream, but the truth is most of us will come into a decent sum of money at some point in our lives. This can come from many sources. Some people inherit funds from deceased loved ones. Others may have a scenario where a parent or relative purchased bonds or stock to be given as a gift at some point during adulthood. Still others have the skill and fortune to rake in a huge payoff at the lottery. Even if these eventualities seem far off or unlikely, you will probably find yourself in possession of a hefty sum within your lifetime. Probably more than once. What you do next is vitally important.

1) Take a breather. The thrill of a sudden financial acquisition can cloud your judgment. For this reason, we recommend setting the money aside for as long as six months. Just take the time it takes for the surprise to wear off. Now you can decide just how to use the money wisely so it doesn’t disappear on you. An estimated 70% of lottery winners go into bankruptcy in the years following their win. You may not have that much money to work with, but even a few thousand dollars shouldn’t be squandered. If you aren’t used to having money to spare, you may need to wrap your head around just what money like that can do. And what it can’t.

2) Pay off Debt and Taxes. Even if you were to invest your money directly into stocks and earn 10% back, you would still be losing money if you have credit card debt with interest rates of 17-25%. It’s best to pay taxes on your windfall, then focus on the debt you have. Once it’s gone, you can begin saving and spending in a meaningful way, without hemorrhaging money at every turn.

3) Talk to a Professional (and maybe no one else). A CPA (or Certified Public Accountant) can give you objective advice on how best to use your money. Make sure you ask your CPA if they sell financial products, just to make sure they aren’t trying to rope you in to any particular deal. I recommend a CPA because they are unlikely to take advantage of you, but any trustworthy financial professional will help. A financial professional like this can help you understand all the possibilities for your money. Maybe you want to start saving for retirement, a home, or your child’s future education. Learn about investment opportunities to make sure that this money isn’t here today, gone tomorrow.

Also think about keeping quiet about your sudden good fortune to family and friends. Those we love very frequently try to get a piece of the action when we experience sudden financial luck. Maybe your family will respect these boundaries, but it is good general practice to be judicious about how you announce your wealth. Better to keep it to yourself.

4) Stick to the Plan and Have Fun. Once you have an idea of what you are going to do with your money, stick to it. Maybe you have formed a plan where you will get a 5% payout every year. Maybe you want to spend 10% now and use the rest to grow with interest for the next 15 years or so. Whatever you have decided, don’t deviate from it once you have moved forward. Then enjoy your money!

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