How to Handle a Huge Financial Windfall
Edited by Eve Fish
There’s something incredibly freeing about the idea of a huge financial windfall. After all, many of us spend a lot of our time (and our anxiety) thinking about money and bills and all the stress that comes with them. That’s why the idea suddenly receiving a windfall of money (whether it be an inheritance, insurance payout, or lottery win) is so appealing.
Some of that stress would go away, you’d have more freedom, and (depending on how much money you get), your entire life could change.
The truth though is that coming into a large amount of money suddenly also requires a lot of responsibility. Everyone has heard the stories of people who’ve won millions in the lottery only to end up penniless just a few years later. This is a real possible threat if you’re not careful.
An unexpected financial gain can certainly be lifechanging, but it can also lead to several new problems including some you may not have expected. That’s who it’s so crucial to take the right steps after receiving a huge windfall.
Take a Pause
One of the easiest things in the world to do is to act when you come into some money. Maybe you’ll go on a shopping spree, give some cash to family members, or pay off debts so you can make the rest of your life easier. These can all be smart decisions, but none of them should be made quickly.
When you first come into a financial windfall, you’ll want to pause and take some time to think. It’s easy to feel overwhelmed by your situation and that stress or anxiety might be pushing you to act quickly. Try to fight against these urges. Before you make any big changes like quitting your job, starting a business, or spending or giving away large amounts of money, stop and give your mind time to clear. How you use the windfall can mean a lot for your life, so you want to be relaxed and thinking clearly when you act.
Review Your Situation
When you’re deciding how to respond to the money, it’s vital that you have a complete and accurate idea of your current financial situation. Where do you stand right now? Many people have a general idea about how much they have coming in and out each month, but it’s important at this time to know your full financial circumstances in their entirety. Having a full and complete picture before you act will help you make the right choices for your situation.
Think About Who You Are
Coming into a large amount of money isn’t just a financial decision. How you handle this change depends on your personality, your life, and your current financial situation. For instance, someone who has struggled with not having enough their entire life is bound to want to act differently than someone who has been financially comfortable since birth.
In the same sense, someone who already has some savings will probably spend their newfound money differently (perhaps spending more on “wants” than “needs”) when compared to someone who doesn’t have any significant savings and who has been trying to catch up for years.
These differences aren’t wrong or bad, but it’s important to think about them.
You’ll also want to think about what many people call your “money personality.” Some people are more emotional about money than others, having their mood rise and fall along with their financial situation. On the other hand, some keep the same outlook and mood no matter what their bank account looks like. Again, neither of these views are wrong, but they’re important traits to consider.
Your risk level matters as well. Some people are naturally riskier than others. They’ll take chances and swing for big benefits, risking losses along the way. Other people are more conservative when it comes to money. When you’re thinking about what to do next, it helps to stop and consider how your situation and your personally are affecting your decisions.
Clarify Your Goals
What matters to you the most at this time? Every individual will have different goals and things will matter differently to different people. For instance, if you’re spending a lot of money on mortgage payments every month, maybe putting down a lump sum and paying off some or all your mortgage will matter the most at the moment. If you have children in college or university, your top financial goal might be investing in their education or helping them pay for schooling. If you’re close to retirement, you may want to put your money into a retirement fund.
You will have both short-term and long-term goals. Short-term goals are ones that can be achieved in less than a year. This might be paying off your credit card, creating an emergency fund, doing house repairs, or even going on a vacation.
Long-term goals are ones that take several years to achieve. This might mean saving for your child’s education, investing for your retirement, or starting a charity.
When you come into a large amount of money, you’ll want to rank these goals based on their importance, then compare your list of goals to your current financial situation. Looking at your situation in this way can help you figure out what is most important to you at this time while also letting you see where the money would make the largest benefit in your life.
Think About Taxes
Depending on where you are life and the type of financial windfall you receive, you may be taxed on the money you get. Many gifts and inheritances aren’t subject to income tax, but the situation can get complicated. It’s a good idea to speak with a tax professional about your situation before you spend any of your money. The last thing you want is to end up in trouble with the authorities.
Watch for Scams
Unfortunately, financial scams are incredibly common these days and criminals often look to take advantage of those who have received large financial windfalls. If something seems too good to be true, it usually is. If someone presents you with an “investment opportunity” or other offer, be skeptical and ask for details. You shouldn’t allow yourself to be pressured into acting quickly or giving anyone money without having time to think about it.
If you’re contacted by someone who claims to be from a financial or government authority (like a bank or government department), do not provide personal or financial information. Very their details, get their contact information, and call back at the official numbers posted on the institution’s official website before you discuss anything.
Keeping a low profile can help you. Avoid posting about your windfall or social media and only tell those who are very close to you and whom you can trust.
Know You Can’t Do Everything
No matter how money you come into, it likely won’t be enough for you to do everything you’d like and to help everyone you want to help. A lot of well-meaning people unfortunately end up in financial trouble because they feel like they must help everyone they know with whatever financial help they can provide. Whether this is due to generosity or guilt of having come into money while others are struggling (or sometimes both!), you should always keep things in perspective. You can’t say “yes” all the time.
This is why clarifying your goals and what matters to you means so much. While you probably won’t be able to do everything you want, you’ll still be able to achieve a lot if you plan it right.
(Disclaimer: This article and apps mentioned are for informational and educational purposes only. The advice given isn’t a guarantee for specific money earnings or savings. You are responsible for your own actions.)