5 Smart Money Moves to Make When You Receive a Windfall
Regardless of where it comes from, getting an unexpected chunk of change usually makes for a pretty good day, week, or even year. But if you aren’t intentional about what you do with your extra cash, you could follow in the footsteps of many lottery winners who squander their winnings and end up unhappy and broke. (1) Even if the gift you receive isn’t a significant amount, you’d be amazed at how some strategic planning can make a big difference down the road. Here are 5 smart moves you can take today to set you (and your newfound wealth) up for success.
1. Take a Deep Breath
When you receive a sudden windfall, it’s easy to be overwhelmed with all sorts of emotions. This type of overwhelm can lead you to make irrational decisions you may later regret.
For at least the first 30 days (if not longer), refrain from doing anything with the money. Just take a step back and breathe. Use this time to reflect on potential ways you may want to use your windfall—but don’t make any decisions just yet.
2. Talk it Over With an Expert
Once you’ve taken some time to breathe, your next step should be finding a trusted financial advisor who can help you use your recent windfall to reach your goals. The right financial advisor can help you:
- Create a cash flow plan for your money to ensure it lasts for years to come
- Make smart investment decisions that align with your long-term objectives
- Create an estate plan that will protect your windfall if something were to happen to you
- Minimize the amount of taxes you could potentially pay on your money
3. Think Through Tax Implications
There’s a very good chance you’ll have to pay some taxes on your sudden windfall. But when you have to pay these taxes and how much you pay depends on what exactly you received.
For example, if you inherited a 401(k) from your dad, you likely have 10 years to fully deplete it—and pay ordinary income tax on all your withdrawals in the process. (2) If you received a cash lump sum as part of your divorce settlement, your ex may be on the hook for those taxes instead of you (because you’re the recipient).
The best way to know if you owe taxes and how much you can expect to pay is to meet with a trusted financial professional who can help you evaluate your situation. If you do owe taxes (which you likely will in most cases), they can also help you pinpoint any strategies you could use to mitigate your liability.
4. Revisit Your Financial Goals
What were some of your financial goals before you received this sudden windfall? Was it to retire early? Pay off your mortgage? Create college funds for all your grandkids? Buy a vacation home? Start your own business? Grow your net worth to that next million-dollar mark?
Take a moment to revisit your short-term and long-term goals. See if your newfound money could help you accelerate your progress toward reaching them.
5. Beware of People With Bad Intentions
You’d be surprised by how many long-lost friends, family members, and acquaintances will come out of the woodwork when they hear you’ve received a sudden windfall. It may sound innocent at first—with people congratulating you on your newfound money—but beware of anyone who starts asking for cash.
If your new windfall is public knowledge—either because of divorce, an estate settlement, lottery winnings, or anything else—you’ll want to also have your guard up against potential scammers who may be looking to swindle you out of your wealth.
If this feels overwhelming to you, find a team of financial professionals who can help you keep your guard up and thoroughly vet anyone you want to help out.
Make the Most of Your Windfall
The key to being smart with an unexpected windfall is to not make any sudden moves. Take some time to think it through and decide how you can use this money to propel you closer toward your goals.
At RJL Financial Group, we help our clients manage their financial affairs so they can focus on what’s most important in life. We’ve worked with many clients who have received sudden windfalls either as a result of a divorce settlement or inheritance and have helped them navigate how to use the money to build a better life for themselves.
If you’d like to partner with a financial planner who understands your unique needs and inspires you to be more confident in your financial decisions, schedule a complimentary consultation by contacting us at (201) 612-6626 or carole@rjlusa.net.
About Jerry
Jerry Clark is the Founder and Principal at RJL Financial Group, an independent financial advisory firm dedicated to supporting and empowering their clients so they can enjoy life without financial worry. With more than 20 years of experience, Jerry specializes in guiding his clients through transitions, whether that be retirement, divorce, or widowhood. His tailored services and strategies help set clients up for the retirement they dream of, overcoming challenges and taking advantage of opportunities along the way. Jerry is a former golf pro who would play every day if he could! Inspired by his sports coaching background, he aims to motivate and empower pre-retirees and retirees to achieve predictable savings results, giving them the ability to feel secure about their future. Jerry is known for going the extra mile for his clients and building relationships that make his clients feel like family.
When he’s not working (or playing golf), Jerry loves spending time with his wife, Lisa (whom he’s known for 40 years!), and their two grown daughters, Riley and Josie. You can often find him working or relaxing at his beach house in South Bethany, Delaware. To learn more about Jerry, connect with him on LinkedIn.
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(2) https://www.investopedia.com/articles/personal-finance/102815/rules-rmds-ira-beneficiaries.asp