By: Colleen Weber
News and Updates
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By Olivia Weber
What would you do if you received a sudden, unexpected chunk of change? Most of us could probably come up with a pretty long list of things we would like to spend that money on. But if you aren’t intentional about what you do with your extra cash, you could follow in the footsteps of many lottery winners who squander their winnings and end up unhappy and broke.
Regardless of how big or small the amount of the gift, it’s important to be strategic in how you utilize those funds. Here are 5 smart moves you can take today to set you (and your newfound wealth) up for success.
1. Take a Deep Breath
When you receive a sudden windfall, it’s easy to be overwhelmed with all sorts of emotions. This overwhelm can lead you to make irrational decisions you may later regret.
For at least the first 30 days (if not longer), refrain from doing anything with the money. Just take a step back and breathe. Use this time to reflect on potential ways you may want to use your windfall—but don’t make any decisions just yet.
2. Talk it Over With an Expert
Once you’ve taken some time to breathe, your next step should be finding a trusted financial advisor who can help you use your recent windfall to reach your goals. The right financial advisor can help you:
- Create a cash flow plan for your money to ensure it lasts for years to come
- Make smart investment decisions that align with your long-term objectives
- Create an estate plan that will protect your windfall if something were to happen to you
- Minimize the amount of taxes you could potentially pay on your money
3. Think Through Tax Implications
There’s a very good chance you’ll have to pay some taxes on your sudden windfall. But when you have to pay these taxes and how much you pay depends on what exactly you received.
For example, if you inherited a 401(k) from your dad, you likely have 10 years to fully deplete it—and pay ordinary income tax on all your withdrawals in the process. If you received a cash lump sum as part of your divorce settlement, your ex may be on the hook for those taxes instead of you (because you’re the recipient).
The best way to know if you owe taxes and how much you can expect to pay is to meet with a trusted financial professional who can help you evaluate your situation. If you do owe taxes (which you likely will in most cases), they can also help you pinpoint any strategies you could use to mitigate your liability.
4. Revisit Your Financial Goals
What were some of your financial goals before you received this sudden windfall? Was it to retire early? Pay off your mortgage? Create college funds for all your grandkids? Buy a vacation home? Start your own business? Grow your net worth to that next million-dollar mark?
Take a moment to revisit your short-term and long-term goals. See if your newfound money could help you accelerate your progress toward reaching them.
5. Beware of People With Bad Intentions
You’d be surprised by how many long-lost friends, family members, and acquaintances will come out of the woodwork when they hear you’ve received a sudden windfall. It may sound innocent at first—with people congratulating you on your newfound money—but beware of anyone who starts asking for cash.
If your new windfall is public knowledge—either because of divorce, an estate settlement, lottery winnings, or anything else—you’ll want to also have your guard up against potential scammers who may be looking to swindle you out of your wealth.
If this feels overwhelming to you, find a team of financial professionals who can help you keep your guard up and thoroughly vet anyone you want to help out.
Make the Most of Your Windfall
It can be tempting to want to rush out and spend an unexpected lump sum of cash. Or maybe you are overwhelmed and don’t know what to do so you put all the funds in a savings account and let it sit there. Neither of these options is the best decision. The key to being smart with a sudden windfall is not making sudden moves or emotional decisions. Take some time to think it through, or, better yet, speak with a trusted financial advisor who can help you determine the best path.
At Colleen Weber CPA, CFP®, we have experience helping our clients work through these types of situations and have successfully helped them navigate how to use the money to move them closer to their financial goals. If you’d like to partner with a financial planner who understands your unique needs and inspires you to be more confident in your financial decisions, book a free introductory meeting online or call us at (952) 470-0750.
Olivia Weber is a financial advisor at Colleen Weber CPA, CFP®, a fee-only financial advisory firm that specializes in serving clients nearing retirement, retirees, busy professionals, and women. Olivia graduated from the University of St. Thomas with a bachelor’s degree in business and economics and earned her Juris Doctor from the St. Thomas School of Law. Her legal background includes estate planning, financial law, and employment law. In her work as a financial advisor, she combines her knowledge and experience with her dedication to helping her clients plan for a secure financial future. Olivia is currently working towards the CERTIFIED FINANCIAL PLANNER™ certification. When she’s not at work, you can find Olivia spending time with her husband, spoiling her French bulldog, trying new recipes, and settling into her new home in the southwest Twin Cities suburbs. To learn more about Olivia, connect with her on LinkedIn.