Coming into some money is a good thing, but it is easy to spend it all right away and have regrets later. You have likely read of athletes who made a lot of money and then didn’t have anything left once they retired from the industry.
You might feel that would never happen to you, but even if you are never an athlete, getting a smaller amount all at once can still feel overwhelming. Knowing what to do with the funds you acquire will help you make the most of your good fortune.
Coming into Money
There are a lot of ways you could find yourself with a large chunk of change all at once. For example, perhaps you won the lottery or had good luck gambling. Or you might have inherited it from a well-off family member.
Or maybe you have a life insurance policy you no longer need. If so, you might consider selling it to supplement your hard earned income and live a bit more comfortably. Still, it will only be helpful in the long run if you know how to manage it when you get the funds.
Paying off Debt
It might not seem exciting to spend the funds on debt repayment, but it will make a positive impact on your life. When there is enough money around, you can eliminate debt so you don't have to pay interest.
Start with the highest interest rates, like that of credit cards and anything that is left can then go toward higher balances, such as your mortgage.
When you invest, you will ensure the funds will last much longer. That way, you won't be back to where you started in a couple of years when the money runs out. It is an effective method of growing the money, and depending on the amount, you might even be able to use the returns on the investments to live off of. If not, they can at least help supplement your income.
To invest well, you need to reduce your risks. Consider looking into index funds, which will still help you get a good return while reducing the risks. There are also online stockbrokers, who can help you decide on the right route to take with your investments. When executed correctly building your wealth through investing is a lucrative option.
Avoid Telling Everyone
It might seem tempting to share your good news with everyone, but do not tell everyone you know about your money. You will likely want to tell your spouse and perhaps a few friends you trust, but avoid telling the world. You could tell some family members, like parents or siblings.
If you share too much about your finances, you might find yourself swarmed with people hoping you will share the money with them or invest in something of theirs. And when someone knows you have money, they might be more likely to try to get a piece.
Avoid Making Big Changes
Even if you got a significant amount of funds, avoid quitting your job or making other big changes. Resist the urge to purchase a large house or other expensive items. Make sure your lifestyle stays the same so you do not end up with large bills to pay back.
If you decide to treat yourself to something more expensive, allow yourself to think about it for several weeks or months so you avoid making an impulse purchase.
Plan What to Use the Funds For
If you want to avoid wasting the funds, it is best to come up with an idea of how you will use them. That could depend on the amount you have, as well as your goals and where you are in life. It might be a good idea to turn to a financial advisor for advice in this area. Of course, not everyone needs a financial advisor, and many people get through life without one.
But if you suddenly find yourself with a lot of money and do not know what to do with it, you could benefit from some advice. It is best to do your research so you find a reputable one who will not try to take advantage of you.
Consider the Taxes
Whether or not you owe taxes, as well as the amount, will depend on where the money came from. For example, if you won something in the lottery or from gambling, you will likely owe a significant amount of taxes. If you inherited the money, it might be taxable, but that would depend on the value and type of inheritance.
You might want to work with an accountant or even a lawyer to understand whether or not you would need to pay taxes on the funds. If you got funds from selling your life insurance policy, consider how you can understand what the tax obligations of inheriting money vs winning money are so you do not have to pay steep penalties.
Accessing the Money
It is good to invest your funds, but it is also a good idea to leave some out. That allows you to have better access to the funds, and there will be a more stable value. You might want to look into different bank accounts for keeping the cash.
It might let you make the most of the available interest rates. Consider a savings account, which has better interest than a checking account and allows you to easily access the money. the FDIC also insures them for up to $250,000.
You could also consider a CD (certificate of deposit). These earn more interest than a savings account, but you also have to leave the money there for a certain amount of time. You could get a term as short as several months to as long as several years.
If you are afraid, you will overspend the funds, getting a CD is a great way to prevent yourself from touching that amount of money. Plus, at the end of the term, you will have the option of rolling the funds over into a new CD or withdrawing them for another purpose. If you put enough into a CD, you can often see a significant return.