The tale is not uncommon. A person comes into a large amount of money through a financial windfall — a lottery payout, perhaps — and rather than help their financial situation, the money is quickly frittered away, sometimes leaving the person worse off than before.
For most people, winning the lottery isn’t in the cards, but a financial windfall is not out of the question for many people. Indeed, what many don’t realize is that it is far likelier that a large amount of money may land in one’s lap through an inheritance, proceeds from the sale of a business, or lump-sum payments from retirement plans versus winning big in Las Vegas, an event that requires a serious beating of the odds.
But that windfall can quickly turn into a nightmare if not handled correctly. Stress and anxiety often accompany unexpected wealth and for good reason. Typically, many people who receive a large sum of money spend it all within a few years and sometimes amass more debt than they had before the windfall.
How does one avoid this? Here are some simple tips to help sidestep the pitfalls that often accompany unexpected wealth.
n Resist the temptation to spend. Buying that sports car or taking a cruise is a natural impulse, but waiting a few months to explore all options is a good idea. In the short term, consider depositing the money into an interest-bearing bank account that keeps the windfall safe.
n Put it in perspective. Extra bucks can come extra tax obligations. Before sharing, saving or spending, set aside enough money to cover the taxes of a potentially higher income tax bracket.
n Re-evaluate your goals and budget. Sudden wealth can dramatically affect one’s goals. Regardless, continue to think long term and keep careful track of goals and budget.
n Review estate and retirement strategies. Update wills and review estate tax issues. Doing so ensures the propre transfer of wealth based on new circumstances.
n Share the wealth. Set aside some money for family, a favorite charity or congregation.
n Seek professional help. A professional can provide sound recommendations and innovative solutions to help manage a windfall in ways that reflect one’s values while helping one stay focused on long-term goals.
Financial windfalls can be managed in ways that are enjoyable and responsible. Professional help can ensure that the windfall actually helps secure one’s future, not jeopardize it.
Thrivent Financial is represented in the Stillwater area by financial consultant Dana Erickson. She has offices at 204 S. Third St. in Stillwater and can also be reached at 651-439-7091.