What to Do When You Get an Extra Windfall of Money

Here’s 5 steps to make your money last for a lifetime

You recently received a check for six or seven figures. Wow! You’re dizzy with dollar signs in your eyes and a hole burning in your bank account.

Most of us have never been so lucky — including me — to receive a considerable lump sum of money. We can always dream of winning the lottery, quitting our job, and traveling the world. Or whatever we think will make us happy and free.

However, for some people, its a reality. Maybe you got a healthy end-of-year bonus, or a significant advance from a freelance project or a relative passed and left all of their savings to you. Or maybe you won the lottery.

What is considered a windfall of money? Well, it depends. It can be $10,000 or $10 million, but a windfall is defined as more money than you’re used to handling.

I know quite a few people who have received a money windfall, and they’ve handled their fast fortune in different ways. Some of them handled it well, and some of them handled it poorly.

It’s a helpless sight to watch your friend inherit a lot of money and then watch them blow it on “stuff” only to have nothing left to show for it a few years later.

To keep from getting overwhelmed and falling into the “heir trap” (I just made that up), and avoid making poor decisions that you’ll regret later, here are a few things to do when you learn you have a ton of extra cash on hand.

Wait! Do nothing

No matter how level-headed you are, you will have to get through the fog of confusion before you make any decisions about your money.

Money can cause a lot of emotions to rise to the surface: disbelief, euphoria, sadness, guilt, and confusion. Making choices in this state of mind is dangerous.

Regardless, you have some choices to make, but you can make them later. For now, tuck your new money away into a savings account until the dollar signs in your eyes calm down. Leave your money there for at least a couple of months. Even better if it’s several months.

Don’t do anything with it.

When you place your funds on hold for a number of months, you will have more success when it’s time to spend your money and distribute it for the essentials in your life, creating a legacy of abundance for yourself and your future — even your future legacy.

I know the temptation is there. But it’s impossible to make the right decisions with new money. So, hold on to it for now. Wait until you are used to having a large pile of cash on hand.

Take inheritance laws and taxes into consideration

Since every state and country is different, it will be your responsibility to find out how the laws and taxes apply to you.

Depending on where you live, you will need to consult a professional (or professionals) who can help you navigate through the requirements of receiving a large inheritance and paying taxes on a large sum of money. For example, this may mean finding a tax attorney, accountant, and financial planner.

Find someone who you feel a rapport with and can break down what you need to do into terms that make sense. Except for what is required by law, don’t do anything with your money that makes you feel ill-at-ease. If you aren’t sure you want to do business with the person in front of you, get a second opinion. This is your money, and you are the ultimate decision-maker.

Break it up into years, not assets

If you think about your money lasting you for the rest of your life, it helps to break it down into segments. Instead of thinking, “I have $1.5 million,” think about how much you have per year for the next 20–50 years. This mindset helps put your money into perspective.

For example, if you’re thirty-years-old, and you inherited (or earned or won) $1million, think about how much money you’ll have after taxes, say $500,000 (to be on the safe side), this will give you $10,000 per year for the rest of your life (or until you’re eighty).

$500,000 divided by 50 years = $10,000 per year for the rest of your life

Suddenly, $1million doesn’t seem like a lot of money.

Be practical. You still need to live and take care of yourself.

Make your money boring

Like a new relationship, your new money will conjure up feelings of giddiness and impulsive spontaneity. As you become more familiar with the amount of money you have, that feeling will level out and become a more stable foundation for your life.

Will boring money make you happy? Hell yeah, it will!

Boring money creates a foundation for you to feel freer to do what you want in your life. You want this money to support you, not fizzle and burn and leave you more destitute than before you got that pile of cash.

It helps to categorize your money into five different types of expenditures:

Security: medical expenses, housing, transportation, insurance

Pleasure: dining out, traveling, vacations

Future: investments, retirement, anything that will remain untouched for five or more years

Reserve: emergency fund, Fuck-off fund

Charity: philanthropy to a cause that’s close to your heart

Make sure you have some cash in each category. This gives balance to your money and will help you to keep from spending it all on Pleasure.

Get your affairs in order

There will come a day when that money will pass on to the next heir(s). With a large sum of cash, make sure you, at a minimum, establish a financial power of attorney and designate beneficiaries to your estate. Even if you think you will spend all the money before you go, do this. Later on, these measures will make everything much easier for you and your heirs.

Cha-Ching Money Blog helps you manage your personal finances by giving you tips on changing your money mindset and lifestyle. Sign up for the Cha-Ching newsletter here and join us in learning about money and how to have more of it.

Advocate for Women / Owner of The Virago

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