If you’re fortunate enough to receive a windfall of cash in your lifetime there are several ways to make the most of it. Every so often the headlines include a story about a lottery winner or professional athlete who’ve earned large amounts of money in a brief period of time going completely broke. Don’t be this person! Read what to do with a windfall of cash to avoid any mistakes.
The windfall may come from a variety of sources, whether that’s an inheritance, gift, lottery winnings, or work bonus. Without a doubt, being prepared, patient, and thoughtful when it occurs can ensure you make the most of it.
Below is an overview of steps to take in the event you receive a windfall of cash.
1. Patience is key
After receiving the windfall take a deep breath and realize nothing has to be done immediately. Patience will go a long way in ensuring you think clearly and take the time to go through the remaining steps. Whether the money was expected or unexpected can also have an impact on how a person reacts.
If the money was expected they likely had an idea of the amount and how it fits into their financial situation. None the less, it’s still important to be patient when the money is actually received and work through the remaining steps.
If the money is unexpected its even more essential the person be patient. If the money is significant it can be overwhelming at times. Especially for someone who’s not used to having a lot of financial flexibility, and can lead to disastrous and sad outcomes.
2. Prioritize your Goals
As with anything related to personal finance, everything should be viewed holistically. How does this windfall of cash fit into my entire financial picture? My family’s financial picture?
If you hold high-interest debt on student loans, mortgages, or business loans, you may consider paying these off first. Or maybe you’ve wanted to begin funding a college account for a child. Whatever the goals may be, take the time to prioritize and make smart decisions about what is necessary, vs what is merely a want.
3. Include decision makers
Whether you’re single or married, it’s important to have someone you can trust included in money conversations. Sadly, it’s become very taboo in society to discuss money even among families. Resentment, sadness, and a variety of other emotions can come into play if families avoid openly discussing money.
By including a spouse, parents, grandparents, or whoever it may be in a conversation about a windfall of cash you receive another trusted perspective. In the case of a gift or inheritance, you’d want to know what a parent or grandparent wished the money to be used for. Just as if you were to make a gift to a child or charity. What’s the purpose of this money?
4. Get professional advice
Depending on the sum of money received, you may want to seek professional advice from a financial planner, lawyer, and/or CPA.
A financial planner will help you develop a long-term, goal-oriented, and holistic financial plan. This will not only help you prioritize your goals further but give you realistic expectations and recommendations about what to do with the money.
Depending on how large your net worth is after receiving the windfall, it may be smart to consult an estate attorney. Estate attorneys help protect your assets after your passing and allocate them to the people, or charities you want. It’s especially important if your net worth is substantial. If you were to pass without a plan in place, the IRS can collect up to 40% of taxable assets.
A CPA will help you determine the tax implications of the windfall. Often times people forget the tax consequences and are caught off guard when they see tax figures for the previous year. Setting aside a portion of the windfall in order to prepare for any tax consequences can help avoid having to scramble come tax time. A CPA will help plan for this accordingly.
A couple further tips to avoid when receiving a windfall are splurging and sharing the information with individuals who aren’t key decision makers or influencers.
Making hasty decisions and splurging on a new car, new home, or another large purchase can end badly. Be sure the purchase fits into your long-term financial plan and not just a temporary satisfaction. While a $60,000 windfall may seem like a lot upfront, it can be spent fairly quickly. Be sure it’s used for meaningful and top financial priorities.
Lastly, including people who aren’t necessarily decision makers or large influences in your life regarding the windfall can have dramatic effects on personal relationships. Unfortunately, friends and even family may look to you for loans, or cash gifts if they know you received a large sum. Money has the ability to put strains on relationships. By keeping the information to decision makers and people you trust, you can avoid any uncomfortable conversations with friends and family who may only have their best interest at heart.
A windfall of cash can be a great blessing. Ensure you take the time to prioritize, get professional advice, and include key decision makers before making any hasty decisions. Patience is key!
If you need assistance in planning what to do with your windfall of cash, schedule a free consultation with us today.