Everyone dreams of it; it’s a fantasy that comes true for not everyone. Congratulations if you are sitting on multiple zero after taxes. You are happy, who wouldn’t be! You may think having too much money isn’t a problem until you had it and lost in the world of knowing what to do. Your windfall might be a tax refund, jackpot, inheritance or that piece of art you didn’t know is worth so much.
Not everyone you know can win a jackpot, but if you are the “one” that just experienced a windfall, what would you do with it? You must have known at least one person that won a jackpot, may be not directly; you must have seen one on TV. How did they react to the unexpected cash windfall? Would you have done something different if you were in their shoes? Have they been able to do something in sort of investment in the long term? These are all questions that we are trying to help you solve.
Take a long deep breath right now; it’s now as bad as you think. Just follow these tips, and you’ll always be in the safe zone financially.
- Be Calm, Don’t Touch It Yet.
There’s this excitement and euphoria that comes with a windfall that pushes you into autonomous consumption. Avoid this drama at all cost, just imagine you don’t have any extra cash to throw around. The truth is, all you’ll have in your mind are irrational and illogical financial decisions. Cool down for a while, and you’ll realize the mistake you would have made. You will have to take a breather and think about your long-term financial goals. As we have youthful exuberance, you can also be faced with an economic vitality that pushes you into bankruptcy.
- Keep Your Day Job, Never Quit.
At this point, you’ll be telling yourself you don’t need your day job anymore. That is part of the financial exuberance that comes with the windfall. Quitting your day job may be the worst thing that can ever happen to your newly found luck. Don’t push this luck too hard by leaving. Imagine when taxes are cut from this fund and you are left with almost nothing, where will you start? Aside from losing wages, the network of professionals you currently have around you will be lost. This network is needed to make some sound decisions.
- Seek the Opinion of Financial Advisers.
This is their day job, providing sound advises to people like you who just hit the jackpot. They have seen it all, many of your type who made a mistake and went bankrupt or the few ones who made the right decisions and is reaping the benefits till date. Since you are not used to such a huge amount, the most rational thing to do is to put together a team of financial advisers and let them guide you. It will cost you just a token out of your huge cash. Look for a financial planner and a certified public accountant, let them do the job
- Discuss it as a Family.
Don’t even think of not letting them know about the windfall. Inform your family as soon as possible and carry them along. Put together your loved ones and reveal to them the real financial outlook. Let them have a say, consider every opinion and needs. Depending on the amount involves, you can bring in your financial advisers to the conversation. Let’s say you inherit a large estate; you cannot hide this forever. If this a joint inheritance, that means you don’t own it all, but you have the responsibility of pointing the entire family in the right direction.
- Know the Impact of Tax, Don’t Ignore It.
Immediately you have your windfall; the most important act is to know the after-tax balance. Don’t even think of avoiding or evading tax. The law will eventually catch up with you in an unpleasant way. Just know that not all windfall such as insurance payout is tax-free, you owe IRS a part of the windfall. Even though there are legal ways of avoiding a massive tax payment, just consider every available option and remember to stay on the side of the law.
- Eliminate Debts and Credit Card Payments.
You must prioritize your credit card payment, mortgages, and saving. The most logical thing is never to hold cash when you have debts to pay. Clear off your debts first and think of other likely obligations that are lurking around. Prepare ahead and don’t let it linger for long. Eliminate your debts or any instant loansby offsetting those with higher interest rate.
- Splurge A Little, Just a Little.
There’s a reason why this is coming almost at the tail end. This is not about going on a shopping spree or investing in liabilities. You can treat yourself to a good car or boat after deciding and taking actions on what you will be doing with a significant portion of your huge cash. You can take a little and treat your family to a vacation, never spend beyond the planned limit no matter the pressure. Be in control of your funds always.
- Remember the Rainy Day.
Lastly, this is the moment to consider having an emergency fund. Things cannot be rosy like now forever, plan for your children college and forecast how you want to spend your retirement. Your emergency fund should be enough to cover around six months of your living expenses.