Planning matters

Pearls of Wisdom: Managing a Windfall

In 2018, we’ll periodically share “Pearls of Wisdom” on a variety of frequently-encountered planning situations. This month, we focus on the issue of navigating new-found wealth.

It’s the problem everyone wants to have: how should you spend a large additional sum of money? Whether the source is an inheritance, bonus or gain realized on the sale of an asset, the boost to your bank account can create the urge to splurge. As you begin to think about what you might do with your windfall, consider the following tips:

Be intentional.

Even if the extra sum is more money than you ever thought you would have, if not managed intentionally and with care, you risk looking back one day with regret.

Take your time.

If it suddenly feels like you have money burning a hole in your pocket, try to avoid the urge to spend quickly. Take several weeks, a few months, or even longer to decide what to do – there’s no rush.

Use your head and your heart.

You want to make financially savvy decisions, but there’s more to money than simply math. Decisions are emotional as well as logical, and whatever you decide to do, make sure both your head and your heart are on board.

Create a financial plan:

This is the opportune time to work with your planner to create a thoughtful plan that will incorporate your long-term goals and objectives. Determine how to best spend your windfall based first on what you need – such as earmarking for retirement, debt payoff or emergency savings – setting yourself up for long-term financial success.

Enjoy it:

If you’re feeling confident about your financial well-being, allow yourself to splurge on one or two dream items. You may even wish to pass the blessing along to others by making a gift to a favorite organization(s) or to a friend or family member. Just be sure to set some parameters, and make sure that the splurge or gift is one you can truly afford.

Over the years, your financial planner has guided many people who have been faced with the myriad of options, tax implications, relationship dynamics and decisions that surround the receipt of a windfall. If you have questions about how such a life-changing event would impact your situation, please be sure to bring up the topic at your next review.