Boom! You just got a massive chunk of unexpected cash out of nowhere?
Your inner child is screaming, “I’m rich, I’m rich, I’m rich!” However, your emotional grown-up is saying, “Yeah it’s a lot, but we do need to be smart about how we use it.”
Or at least, you should be saying that anyway.
Deciding what to do with a financial windfall has implications that could very well change the rest of your life. However, you must be careful to put your emotions away and let your intellect rule the day.
1. Keep Your Job
Go on living as if nothing changed at all. Money has a way of dispersing faster than people think that it will. Telling everyone at work to apply their lips to your glutes is a very bad idea.
You never know when you might need to bring those glutes back into that office and plant them right back into that very same chair. It is best to keep your good fortune to yourself and continue on as if everything is the same.
2. Stop and Think
That huge chunk of cheese could cloud your judgment, and before you know it, a Bentley is parked on the driveway of the home on which you still have a huge mortgage.
Even while a stack of enormously draining credit card bills is still clogging your mailbox every month.
Far too many people have acted impetuously in the face of good fortune — only to be weighing the pros and cons of bankruptcy a few years later.
Do not be one of them.
Chill for a minute — get your priorities straight.
3. Seek Professional Help
The type and amount of the windfall will determine how much — or whether — you need to plan to pay taxes on the money. Going hand in hand with this consideration should be a consultation with a financial planner.
This person can help you figure out where to put the money to best shield it from tax consequences, as well as how to use it to ensure that you derive the maximum long-term benefits.
Yes, they will charge a fee for their services, and it will be money that is well spent.
Just be careful to find a reputable expert.
4. Pay off Your Debts
Eliminate your highest interest debts first, then work your way down to the ones with the lowest rates. As you do so, make a vow to never go into debt again. Otherwise, you will have filled in that hole only to turn around and dig another one.
Keep your accounts open to maintain your credit score, but pay off all future charges at the end of each month — before interest accrues. This is of the utmost importance, as your boon could seduce you into thinking that you can afford to charge far more than you can.
Acting judiciously will help you live the rest of your life debt-free.
5. Establish an Emergency Fund
If you do not already have one, set aside a percentage of the influx to serve as rainy day protection. This should be at least three to six months’ worth of all of your household expenses.
This money should be deposited into a high-yield savings account so that it earns as much interest as possible while remaining liquid, should you need ready access to it. Depending upon the size and nature of your bonanza, you might never need it — but you will be glad to know that it is always there.
Another sizable portion should be invested in something that will generate a healthy return. Strong mutual funds or index funds that cut across a diverse swath of the market are a good way to go, if you do not want to have to put a lot of thought into it. Of course, a good financial planner (see number three above) will be able to guide you in the best manner here, as well.
7. Treat Yo’self
Hey, we are human, too. Of course, there is going to be some fun in here. Just make sure that you have taken care of everything that you need to keep yourself both solvent and debt-free first. Be certain that you have made the money do as much as possible to secure your future before you go off.
And that’s what to do with a financial windfall!