Financial windfalls by inheritance, lottery winnings or insurance proceeds can be both a blessing and a difficult challenge. With new opportunities and possibilities come pitfalls and challenges.
1. First, consider an overall strategy
- Identify your key goals and priorities for this “sudden money.”
- Think about what can this windfall do for you in the short and long-term.
- Distinguish how you want to impact the “Present You” vs. “Future You.”
2. Reflect on Emotional and Family Dynamics
- Do you feel anxious or guilty about receiving this windfall?
- Will you receive pressure from friends or family to share the wealth?
- Will you make gifts to family, your kids, or charities?
3. Don’t Ignore Tax Issues
- Do you understand the differing implications for lottery winnings, inheritance, gifts, insurance proceeds, and business buyouts?
- Will you receive cash or assets?
4. Examine Personal Debt
- Do you currently have personal debts, credit card balances, student loans or a mortgage?
- Do you know what the interest rates are on each?
- Does your strategy include paying down debt?
6. Formulate an Investment Strategy
- Do you know your investment "Speed Limit?”
- Align any investments with Long-term Objectives
- If you receive assets (stocks, bonds, real estate), are they appropriate for you?
7. Avoid Lifestyle Creep
- Differentiate between personal discretionary and essential spending
- Decide if increasing your spending is needed or simply wanted.
For more on this topic and a deeper dive into avoiding pitfalls of a financial windfall, please check out our podcast by texting “Windfall” to (314) 597-1477. For more information visit msmf.com.