There’s good news and then there’s good news. And a financial windfall is certainly the second type — it could be a year- or life-changing amount of money that falls on you all at once.
But no matter if it’s a tax refund, work bonus, inheritance, settlement or proceeds from selling a home, the question becomes how best to deal with all this money. Here are a few ways you might make the most of it.
Before You Do Anything: Pause.
When the windfall hits your bank account, it can be an exhilarating and terrifying moment. That’s why it’s so important to give yourself time to plan. So before you withdraw even a dollar, do yourself a favor and park that money for at least a few weeks.
A short cooling-off period can help you avoid impulsive choices and give you space to think clearly. And if you put that windfall into a short-term investment account, you can come out of your holding period with a little more than you started with. (Think of it as a reward for your patience!)
Get Clear on Your Priorities
Now that you’ve put your money in a safe place for a few months, you can start planning. And the first order of business should be listing your needs from most- to least-pressing. Ask yourself:
- What are my riskiest or most expensive debts?
- What does “financial stability” look like for me?
- What do I want in the short-term and long-term?
Remember: This is your money, so your opinion matters more than anyone else’s idea of what you should do. But there is conventional wisdom worth considering in your plan.
A Basic Windfall Priority List
- Create a solid emergency fund
- Get caught up on — or supercharge — retirement savings
- Cover any pressing, personal medical needs
- Clear any outstanding or high-interest debts
- Invest a portion of your money to grow along with you
- Set aside funds for loved ones’ future needs, like a 529 plan for future college students or savings for elder care
- Take a trip you’ve always dreamed of
No matter what your list ends up looking like, it’s important to use this money strategically. In the example, the highest-priority things are also some of the least fun — but they’re essential to your long-term stability and financial health. Remember: This windfall likely won’t happen again, so make it work for you as long as possible!
Celebrate — This is a Big Deal!
It’s healthy to take some of your money and use it to do something exciting. But no matter what you have in mind, decide in advance what you want to do. We recommend writing down your ideas as you sit on your cash — by the end of that pause, you’ll have had plenty of time to meditate on what you actually want to get out of your windfall celebration.
Remember: Enjoyment doesn’t cancel out responsibility — both can coexist!
Feeling In Over Your Head? Here’s What Kind of Support to Look For.
Asking for help can be difficult — but with so many different ways you could use your money, getting a second opinion could be a leg up (and pay off in the long run).
If your confidence in your financial management is low, or you’re dealing with an amount of money that you feel anxious about managing, help is out there. But not all wealth management services are made the same.
To start your journey, you might want to consult with a Fiduciary Financial Planner. These professionals are required to act in their clients’ best interests, and could be a good starting point for better understanding your wealth and options.