Having too much money is a good problem to have…right? The truth is, many people who suddenly find themselves with a financial windfall discover that deciding what to do with the money - and dealing with its effects on their lives - can be stressful in a whole new way.
Most people are never going to win a multi-million dollar jackpot, but some of us will at some point in our lives experience a financial windfall in the form of an inheritance, bonus, the sale of a business, contest winnings, lucky night at the casino or picking the right scratch-off lottery ticket.
In the event that lady luck shines her good fortune on you, here are some ideas for how to handle your financial windfall. More money is almost always a good thing - but you need to make sure you make good use of it.
Take some time to think.
When you suddenly find yourself with a few extra thousand (or hundred thousand) dollars, there might be a lot of emotions running through you. You might feel giddy, excited, or even sad or guilty. Suddenly getting a lot of money can also be anti-climactic - you might find yourself thinking, once that check has cleared and the numbers are in your bank account, "Is this all there is?" Don't make any big decisions about how to spend or invest the money until you have a clear idea of what you want to accomplish with it.
Save most of it, spend little.
Remember that this financial windfall - whether it's a one-time business transaction or some money left to you by a deceased relative - is "one-time" money that is not going to happen again. So don't immediately run out and spend it. Since it's one-time money, it should be used for "one-time" expenses - not to support your ongoing lifestyle needs. If you're using your inheritance to pay your mortgage, that's a bad sign. Put the windfall in an FDIC-insured savings account and resist the urge to splurge.
Find something special to do with the money.
If you're not careful, a financial windfall can all too easily disappear into the daily grind of paying the bills. So it's best that you use the money toward a dedicated purpose. If you've inherited some money from a relative, consider saving it for your children's future education. If you've received some money in a life insurance payout, perhaps you could make a memorial charitable contribution in honor of the person who was lost. Or spend some of the money on something fun that your lost loved one would have wanted you to enjoy - whether it's a new car or a vacation, make the purchase meaningful to you and honor the memory of your loved one.
Don't forget about taxes. Life insurance payouts and many inheritances tend to be free from taxation, but not all windfalls are tax-free. Anytime you come into a large amount of money, the IRS is likely to be interested. So as soon as the financial windfall is in your hands, immediately set aside a significant portion for taxes. This is especially true if you win a scratch ticket lottery prize or receive a one-time award or bonus payment - depending on your tax situation, you might owe a higher rate than you're used to paying on your regular income. So make sure you're covered at tax time - you might want to hire a tax professional to help you determine how much you will owe.
Whether you're raking in the money or waiting for your next big windfall, Quizzle.com offers great tools and resources to help you manage your personal finances. With Quizzle's financial tools, you can set a budget, access credit improvement resources, and make better financial decisions for a happier financial life.