By: Sentient Wealth Group
Experiencing sudden wealth can seem like a dream come true. Maybe it’s from the sale of a business or property, divorce settlement, winning the lottery, money from an insurance claim, or profits from investments. Regardless of how you receive your newfound money, you may not be prepared to deal with it properly – especially when your emotions may run high.
While receiving an unexpected financial windfall is a great situation to be in, we’ve worked with hundreds of families, and here are some mistakes to avoid and aspects to consider.
- Understand exactly how much you have. This includes unpaid taxes and outstanding debt. While it may seem like this sudden wealth is your signal to sit back and enjoy a life of luxury, it is essential to consider what you truly have after you have paid all other dues.
- Keep it discreet. Although it can be great news, announcing sudden money can cause undue pressure to give some of your allotment to family, friends, or charities you hadn’t planned on.
- Outline your goals. Before making any hurried decisions, spend time thinking about what is important to you and how you want to use your newfound funds.
- Consider hiring a financial advisor and creating a financial plan. Talk to your advisor about your ideal lifestyle, charities important to you, loved ones you want to help, and any inheritance you want to pass along.
If you’re looking for additional ideas on what to do with an unexpected sum of money, here are four strategies to consider.
- Grow your emergency fund: A healthy emergency fund can help safeguard you in financial emergencies.
- Save for retirement: Adding a windfall to a tax-advantaged retirement account can potentially be a great way to grow that extra money over time.
- Invest for the future: If you’ve maxed out your tax-advantaged investment options, investing through a taxable brokerage account may be another way to turn extra cash into long-term wealth.
- Prepay your mortgage: If you are considering this option, talk with your lender about paying down your loan principal, which will reduce your interest payments in the long term.
Ultimately, the best use of a windfall depends on your circumstances. At Sentient Wealth Group, we can help you determine the best course of action as part of a long-term wealth management plan. Contact us to start a conversation today.