What to Do When You Receive a Financial Windfall

Knowing what to do if you receive a financial windfall is necessary to ensure that it does not get wasted.

There are numerous ways one can receive a windfall, some predictable and others not so.

The following steps will help you maximize your newfound funds and strengthen your financial position.

Set aside the money

Put the money into a savings account while you determine the best strategy for your windfall.

Sitting on the money for a few months can help clear your mind of any temptation to spend it and will allow you the time to develop a sound financial plan.

Meet with a Certified Financial Planner (CFP®)

Consulting with a CFP® professional will help you organize your finances, to analyze your finances, and provide a plan of recommendations that fit your needs, wants, and wishes.

For instance, that might be paying off your debt, purchasing a new home, paying for your children’s college, or retiring early.

Without a planner, it may be tempting to allow a financial windfall to reshape your goals, be spent, and disappear.

Perhaps, you wanted a new car and considered purchasing a mid-sized SUV before the inheritance. However, now that you have the additional money, you are tempted to buy a luxury model instead at a significantly higher price.

It is important to consider the true cost of the purchase. How does spending the money on the more expensive car impact meeting your other financial goals, such as a secure retirement?

A CFP® professional has the tools and experience to help you make the right decision to match your financial situation today, as well as to support your goals for the future.

Partner with a Certified Public Accountant (CPA)

There may be additional tax liabilities depending upon the size of the windfall and different states have different provisions regarding the treatment of lottery wins, inheritances, and capital gains.

Being aware of your tax responsibilities in your state of residence as well as your country of residence is crucial to preventing fines and penalties from the tax authorities.

Additionally, it is important to remember that gifting money to family and friends can have tax implications if not handled properly.

In other words, before you donate money to relieve another person’s financial burdens, speak with an accountant to determine the most tax-efficient way to distribute the money.

Wills and managing your estate

If you receive a life-changing windfall, you should also consider how it will affect your estate. Whether you have a will in place or not, it is imperative that you consider how your estate will be distributed when you pass on.

If you happen to receive a windfall of money in some form or another, it is important that you are able to cope with this financial situation before you act upon your purchase dreams.

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