How Should I Manage Financial Windfall?
For most of society who operates by earning a pay check every two weeks a sudden inflow of a large lump sum of money (financial windfall) can be overwhelming. Whether it is a tax refund, a substantial inheritance, or if you are an athlete a signing bonus, it is wise to pause for a moment and think through a strategy on how you will use your money.
Unfortunately, we are familiar with the perplexing stories of lottery winners who mismanage their millions of dollars away and find themselves in financial ruin. No fewer are the athletes who went broke, despite earning five, six, and even seven-figure sums year upon year. Below are a few tips that will help you avoid the potholes and help you successfully manage these great gifts.
The Sudden Money ® Institute emphasizes the importance of not making any immediate decisions. Do not commit to donating it, spending it, or even investing it. Give yourself time to allow the emotion that comes with the money to subside and begin to build a strategy to make objective decisions that will help you reach your goals.
Your first goal should be to fund an emergency fund of at least 3 to 6 months’ worth of living expenses. This is the first wall of security for you and your family.
If you are carrying any high-interest debt (credit card debt, personal loans, etc that exceed 8%) consider paying off the balances. This is a true investment where you are actually paying yourself a rate equal to the interest rate that your debt is carrying.
Invest in building the foundation of your financial house by making sure all your estate planning documents (will, trust, powers of attorney) are in order. All is lost if you have not properly planned for your estate.
If you have an emergency fund, no high-interest rate debt, and your estate documents in place you can begin to consider which personal purchases you would like to make and the long-term investments, such as a home purchase, vacation, retirement planning, or education planning that you would like to fund.
Being blessed with a large sum of money gives you the opportunity to catch up, reward yourself, and accelerate you on the road to accomplishing your life’s goals and dreams. When you find yourself expecting financial windfall construct a well thought-out plan and seek on-going advice from a professional. You will be proud of the decisions you make for years to come.
