I was recently at a fundraiser where one lucky raffle winner won a grand prize of $5,000. When asked what she was going to do with the money, the winner responded that she was going to pay off some of her debt.
I was impressed with the winner’s answer and wondered if I would have been as responsible. It reminded me of Brenda’s recent post “What Would You Do If You Won the Lottery?”
While there is very little chance that any of us will ever win the Powerball, there are other times that one could experience a windfall, whether from a sale of a business, an inheritance, a year-end bonus or even a grand prize.
Similar to winning the lottery, receiving a windfall offers the same temptation to spend lavishly without a plan.
According to research from the National Endowment for Financial Education, about 70% who receive a windfall will spend it in a few years.[I] If you do receive a windfall how can you ensure that you’re part of the 30% rather than the 70%?
While it can be tempting to run out and buy a new car or home, delay any big purchases. Think about your values and your current relationship with money. Suddenly having a large lump sum won’t necessarily fix all of your problems or your relationship with money.
Evaluate your current spending habits and assess how you can and want to utilize the money, whether it’s securing your children or grandchildren’s education, donating to charity, paying down debt or retiring early.
Get Professional Help
A January 2016 article in Time chronicles the mishaps of many lottery winners who hit the jackpot and found out that sudden wealth doesn’t make them immune to misery. However, one exception is winner Richard Lustig, who explained that “the key to staying happy is to hire a good financial planner and a good accountant after paying off all debt.”[ii]
While you may not think that having sudden wealth means you need professional help, one of the most important items with which a financial planner can help you is understanding your financial limitations.
He or she can help you create a financial plan based on your values. Some items a financial planner can help you navigate include:
- Developing a strategy to pay down debt.
- Increasing your retirement contributions.
- Creating an investment strategy aligned with your values.
- Deciding how much money you can contribute toward big purchases, while still achieving your long term goals.
- Working with your CPA to help you manage any tax liability from the windfall.
- Partnering with an estate attorney to ensure you have the proper estate planning documents in place.
Receiving a windfall can be emotional, especially when tied to an inheritance or the sale of a business. While creating your plan, make sure you include the ability to spend some of the money on yourself, whether it’s a nice trip with your family or a special dinner out.
Life is about balance and we want to help you find it.
Helping people build, secure and enjoy their financial lives is our passion. Let us show you how.
[i] Chan, Melissa. Here’s How Winning the Lottery Makes Your Miserable.Time. 12 January 2016.
[ii] Chan, Melissa. Here’s How Winning the Lottery Makes Your Miserable.Time. 12 January 2016.