Receiving a financial windfall can be a life-changing event. However, according to the Sudden Money Institute, an estimated 70% of people who receive a large amount of sudden money won’t have any left within a matter of a few years. This statistic underscores the importance of careful planning and prudent decision-making to ensure your newfound wealth provides long-term benefits.
Avoid Common Pitfalls
- Overspending: One of the most common mistakes people make after receiving a windfall is to spend excessively. The excitement of having a large sum of money can lead to impulsive purchases and lifestyle inflation. You can certainly treat yourself but resist the urge to over splurge and instead focus on your long-term financial goals.
- Poor Investment Choices: Investing your windfall without proper knowledge or guidance can lead to costly mistakes. Making uninformed, risky investment decisions can quickly deplete your funds or make them hardly accessible. It’s important to approach investments with caution and seek advice from financial experts.
Catch Your Breath and Plan
Before making any decisions, take some time to catch your breath and develop a comprehensive plan. Here are some key steps to consider:
- Consider the Impact of Taxes:
- Work closely with a tax professional to understand the tax implications of your windfall. Depending on the source of the money, you may owe a significant amount in taxes.
- Set aside an amount equivalent to the expected tax payment to avoid any bad surprises and tax penalties.
- Assess the Impact on Your Life and Financial Plan:
- Reflect on how this money will affect you, your family, and your overall financial plan. Consider both immediate needs and long-term goals.
- Pay Off High-Interest Debt:
- Using part of your windfall to pay off high-interest debt, such as credit card balances, can provide significant financial relief and improve your overall financial health.
- Boost Emergency Savings:
- Strengthening your emergency fund is a prudent use of windfall money. Aim to have at least three to six months of living expenses saved to protect against unexpected financial setbacks.
- Invest Wisely:
- Investing your money can help it grow over time. Take advantage of the power of compounding by starting early and investing wisely.
- Create a diversified portfolio that aligns with your values, as well as short- and long-term goals.
- Fund Education:
- If you have children, consider using part of your windfall to fund their education. Investing in a college savings plan can provide significant long-term benefits for your family.
- Make a Difference:
- Starting a charitable fund can be a meaningful way to use your windfall. Not only can it help others, but it can also provide tax benefits by offsetting some of the tax impact of the lump sum through bundled contributions into a charitable giving account.
Seek Professional Help
If managing a windfall feels overwhelming, seek help from a professional. Argent Bridge Advisors provides tailored strategies, including tax planning, wealth management, and investment choices, to ensure your windfall serves you long-term. Avoid common mistakes, make informed decisions, and turn your sudden influx of money into lasting financial security.
Contact us at service@argentbridge.com to learn more about our services or to schedule a complimentary session today.
About Argent Bridge Advisors
Argent Bridge Advisors is a leading financial advisory firm dedicated to providing personalized strategies and solutions to help clients achieve their financial goals. With a team of experienced Private Wealth Advisor professionals and a commitment to client-centric service, Argent Bridge Advisors empowers individuals to navigate life’s financial challenges with confidence.
By: Cecile Hult, CFP®, CDFA® Partner & Private Wealth Advisor
