Suddenly coming into a large sum of money is usually a good thing. Whether you’ve been expecting it or it’s a complete surprise, a big increase in what’s in your bank account can be very helpful. However, when you have a big sum of money all of a sudden, you might be overwhelmed by the change in your financial situation.
You want to make the most of the money that you have and avoid spending it all at once or even ending up in a worse financial position than before. So what do you do when you have a sudden windfall?
Check Tax Implications
Coming into a large sum of money could have certain tax implications. Whether you have won, inherited, or earned your money, you might have to pay tax on it, or it could affect you in other ways. For example, a large amount of savings might mean you can no longer receive certain government benefits. Before receiving your money, it’s important to check whether you will need to pay tax on it and how it’s going to affect you. You need to be prepared for a large tax bill or other tax obligations so that you don’t spend money that you can’t afford to spend.
Get Financial Advice
People who win the lottery often make the mistake of burning their cash too quickly. They live above their means and soon have none of their money left. Getting a large amount of money can immediately make you excited, and your first instinct might be to start spending or perhaps give some money away to friends and family. However, before you do anything, you should be sure to get some financial advice. Speaking to a financial advisor will help you to ensure your money goes further and lasts for longer. It will even help you to grow your funds when you have a financial plan.
Pay off Debts
For many people, the first thing that they will want to do when they come into some money is to pay off any money that they owe. Being able to pay part or all of your debts can lift a weight and give you more financial freedom. If you have recently been awarded money from a claim after a road accident, your auto accident attorney can help you to ensure your funds go to the right places. The money you have been awarded should cover your expenses, such as medical debt. There are plenty of other debts that you might have too, but consider the merits of paying them off now or not. Is paying the balance on your mortgage the best idea, or would your money be better put to use elsewhere?
Set Aside an Emergency Fund
If you don’t already have an emergency fund, it’s time to set aside some money for a rainy day. Even if you do have some emergency savings, topping them up for extra security is a good idea too. If you’re not sure how much to save, it’s a good idea to have at least three months’ worth of expenses in your emergency fund. It’s even better if you can have six months’ or a year’s expenses saved, and anything you have after that is great too. Your emergency fund is there if you have any unexpected expenses, or you find yourself without any income for any reason.
Invest Your Money
Do you want your windfall to be a one-off bonus, or would you like it to benefit you long-term? Of course, even short-term changes could help you in the long-run, such as paying off debts. However, if you consider investing your money, you could turn it into an additional income stream or grow it to benefit you later. If you’re considering investing some or all of your money, it’s a good idea to speak to an expert about what you should do with it. You can also do lots of your own research to find out the best ways to invest a lump sum.
Update Your Estate Plan
You may or may not already have an estate plan, setting out what will happen to your money after you have died. If you do have one, it’s time to update it, and if you don’t have one, it’s time to create one. Meeting with an attorney is the best thing to do if you want to get it done properly. Someone with expertise in estate planning will help you to make plans for your assets. You might not be expecting to have any money left at the end of your life, but you never know when that might be. It makes sense to plan for the future, especially if you’re investing your money into other assets.
Be Careful With Friends and Family
If you tell people about your sudden windfall, you could find that some people start asking you for money. Of course, you may be perfectly willing to give away some of your money, even without anyone asking. However, you should be careful with everyone who might try to get something out of you. While you might be happy to give your parents some money or help your sister pay off a debt, you probably don’t want to be handing out cash to everyone who asks. You could soon have no money left. Be careful about who you tell and who you say yes to if anyone asks for money.
Spend Some on Fun
You might be trying to do something sensible with your money, but don’t deny yourself the opportunity to spend some cash on something fun too. Spending some money on yourself is fine if you don’t go overboard. In fact, depending on how much cash you have, you might spend most or all of it on yourself. A couple of thousand could seem like a lot of money, but if you don’t have any debts to pay off, it could be an excellent vacation fund.
If you come into a large sum of money in one go, be careful with what you do with it. Make a plan to avoid spending it too quickly.