Whether you’ve received a life insurance payout, a substantial inheritance, a big raise, or a sizeable return on an investment, it can be overwhelming when you receive an unexpected large sum of money.
Handled properly, a financial windfall can help secure your financial future and give you the freedom to have a little extra fun along the way. But managed poorly, even a large windfall can disappear as quickly as you receive it.
Check out these seven smart things to do after a financial windfall so you can make the most of your money.
1. Take a Cool-Off Period Before Making Moves
Financial windfalls often come during emotional or stressful times in life, such as after the loss of a loved one or during career moves. It’s never wise to make big financial decisions rashly or driven by emotion, so take some time to sit on the money before doing anything big.
Consider keeping the money in a high-yield savings account. This will help keep your money safe and accessible, while also allowing it to grow in value while you make a plan.
During this time, consider keeping details of your windfall private. This can help safeguard your financial security and your relationships, giving you space to make decisions without unsolicited advice, loan requests or tension.
Related: What to Do When a Parent Dies
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2. Pay Down Debt, Especially High-Interest Debt
If you have credit card debt or other high-interest debt, paying that off first is a smart use of a windfall. Check out these four strategies that can help you knock out your credit card debt.
3. Get on Track for Retirement
With daily costs of living on the rise, saving for retirement is hard, but a financial windfall can help you get on track.
- With the extra financial freedom a windfall allows, consider maxing out your 401(k) and Roth contributions.
- Choose a mix of diversified investments that give you the potential of steady growth.
- Be sure to consider your longevity and future health care needs. A quality long-term care insurance policy can help ensure your funds will last the life of your retirement.
4. Set Aside Some Liquid Savings
While it’s important to invest in your future, it’s smart to not tie all your money up. Set some aside in a checking, money market or savings account that you can access when needed. Experts say you should aim to save three to six months’ worth of expenses in an emergency fund.
5. Revisit Your Estate Plan
When big life events happen, including a windfall, it’s important to review your will, trusts and beneficiaries. Ensure your estate plan reflects your situation now that you may have the funds to give more to your loved ones—whether now or in the future.
6. Have a Little Fun
Even most financial professionals agree that it’s important to have a little fun with a financial windfall. Consider focusing on experiences over material items to create lasting memories that will enrich your life.
7. Talk to a Financial Professional
Managing a financial windfall can feel overwhelming, but you don’t have to make big decisions alone. Working with a financial professional can help give you confidence that you’re making smart financial decisions that will help secure your family’s future for generations to come.
Want more? Check out our blog, Using Life Insurance to Build Wealth
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