What should I do next?
Here are some of the windfall situation clients come to me needing advice:
- Divorce settlement
- Insurance settlement
- Lawsuit settlement
- Real-estate sale
- An income bonus
- The sale of a business
First, I think the best advice I can give anyone is celebrate a little! Yes, you heard me, I said enjoy some of the money. As an advisor and a financial planner, I’m not always about budgets and saving. Just don’t go crazy. One or two percent of the windfall initially is enough to get it out of your system.
Here are the steps you need to take next:
1. Pay any taxes due. This is where people get themselves in trouble. Seek a good tax advisor and have them tell you how much to set aside to pay the eventual tax bill that is due. Do it as soon as you get the windfall.
2. Pay off debt. Here’s where my planner training comes in. I know you’ve waited for that flat screen TV, but that’s exactly why I told you to spend 1-2% initially to get some goodies. You should use as much of this money as possible to pay off existing debt.i I know it doesn’t sound exciting, but you’ll thank me later. It will increase your cash flow, and it may be your only chance to wipe out a large amount of debt at one time.
3. Place the remainder in a money market account. Just put the rest in a safe place. Don’t over think it. Don’t try to find higher yields in higher risk investments. Especially if you plan on using this money in a few months.
4. Wait a few months. Let the initial excitement about the windfall wear off. You may even be still emotional about a family loss if it is an inheritance. This will give you time to think. In addition, you’ll be less likely to run to the Mercedes dealership or buy a bigger house.
5. Make a wish list. These will be the things you’d like to buy. They could be a new car, college education, savings for retirement, or even that new boat. It really is up to you. It will also make you realistic about how far the money will go.
6. Hire a professional. I can’t stress this enough. When you have an unexpected windfall there are tax consequences, so getting a good CPA could save your butt. In addition, hire a good financial advisor to help you set realistic goals for the money.
If you follow these steps it will help you get perspective and use your new-found windfall with common sense, Keep in mind many of these windfalls come from life events that can be very emotional, such as a divorce or death in the family. If you need some help with your windfall, feel free to write me at firstname.lastname@example.org, or call me at (859) 225-2596.