Sudden wealth sounds like a dream to many, but the reality of sudden wealth is much more complicated. People dream of coming into money and then paying off debts, buying a fancy house, traveling around the world, and so on, but those dreams could end up meaning nothing if you don’t know what steps to take once you get the money.
Rather than improvising and possibly losing all the money you just got, handle it wisely by creating a plan ahead of time. Even creating an outline now of the steps you’ll need to take can help. Your plan should be a mix of the practical and the hopeful — and the more detail you can work out now, the easier it will be to handle any money that really does come in. Here are 10 tips for managing wealth if you receive a sudden windfall.
1. Talk to an Accountant, an Attorney, and a Financial Planner.
Your first step really needs to involve professionals. Even if all you discuss is where to park the money for the time being (and how to protect yourself if your windfall has a public side to it, like winning the lottery and becoming an overnight millionaire), you have to understand the implications of where you put the money and what your immediate tax obligations might be.
2. Take Care of Taxes.
Speaking of taxes, if any of that money is taxable, send in the taxes early. Don’t wait until you file to find out how much you might owe. Not only could the amount be larger than you anticipated, but you could have trouble coming up with the amount if you’ve already divided up the money between investments and purchases.
3. Take Care of Additional Financial Obligations.
If you have any debts (or if family and friends have debts you want to pay off for them), do that now. Clear your financial slate so you no longer have to worry about those payments.
4. Take a Break.
After you get debts and taxes paid, don’t spend except for necessary costs like food and basic bills for a time. Many, many people who come into money lose it soon after, either through poor investments or overspending, because they’re not psychologically used to having that cash. Take a break and just get used to the idea that now you have money.
5. Create an Emergency Fund.
Now it’s time to start funding your future. Create an emergency fund that gives you a certain number of months’ worth of living expenses. Place the fund in a conservative account (i.e., a stable bank account and not the stock market) where it can sit, ready for use if needed.
6. Should You Buy a House?
If you rent, you’re at the mercy of your landlord in terms of monthly housing costs. Buying a house could make your home life a lot more stable, and if you have the money to purchase the house outright, you may as well. Start looking, but be careful to choose a house that really suits you, rather than one that strikes your fancy but that you might not like as much in a few months.
7. Consider Investments.
Other investments are worth looking into now. These can be retirement accounts, investment properties, and more. Go back to your financial planner and take a look at which avenues might be lucrative.
8. Set Aside Money for Your Children’s Futures.
If you have children, nieces and nephews, or other younger family members, it would be nice to set up funds for them to use in the future. You can create university funds for them or place money in accounts that they’ll get when they reach other milestones.
9. Fill up Other Funds.
If you have other funds, such as ISAs, place more money in those. Fill them up if you can. If you received a windfall so large that you’re set for life, you may as well max out every account that you can.
10. Consider Charities.
Finally, consider donating to charities. You can make a huge donation once or set up recurring donations that go on indefinitely. Find both charities that speak to you and that could really benefit from an infusion of cash. That way you’re supporting causes you like regardless of financial status, and helping out other charities that haven’t been getting the support they’ve needed.