Windfalls are a topic you see periodically on personal finance blogs like this one. It’s an old-sounding word, like something from a Victorian novel. And in our post-recession world, it’s a somewhat antiquated concept as well. Inheritance? Winnings? These are concepts foreign to a generation raised on student debt and the collapse of financial structures. But whether you believe it or not, chances are you will receive a windfall (the sudden, unexpected acquisition of money) at least once in your life. This may be in the form of an inheritance, a legal settlement, a gift, or one of many other sources of money. Preparing for a windfall is like practicing how to dial 911. Before you have to do it, it seems like the easier thing in the world. But in the excitement of the moment, it’s easy to make mistakes. Here are three ways to mentally prepare for what you would do if a windfall came your way.
- Know How Much You’ll Spend, and On What. If you get a sudden sum of money, you don’t want to spend it all at once. Ideally, you want to make any money that you spend work for you. You can do this by investing the cash, using it as a downpayment for a house, using it to pay off a high interest debt, going back to school, or any of a number of other worthy options. It’s not wrong to spend some of it on fun, but you should figure out how much that is going to be before you ever receive the cash. If you get a windfall with no plan in place, chances are you may waste it all before the excitement wears off.
- Prepare to Do Nothing for Awhile. Even the best laid plan can backfire in the heat of the moment. So if you have a windfall coming your way, don’t do anything with it for awhile. Take the plan you made well in advance and scrutinize it while you get used to have extra money in the bank. During this time, don’t tell anyone that you have extra cash. This can lead to awkward situations with friends and relatives. Just live life as normal and prepare yourself to make the most of this once-or-twice-in-a-lifetime opportunity.
- Have Your Finances in Order Already. One of the best ways to prepare for a windfall is by already having your financial house in order. Don’t let a big win make you decide “Now is the time to figure out my finances.” If you can make the most of a little bit of money, you can make the most of a lot of money. But if you don’t pay attention to the money you have, you’ll be careless with your windfall. So work out your budget before you call CIYA Annuities about cashing in your structured settlement. Figure out how to deal with your student loans from your normal income before you take that lottery check to the bank. Successful windfall strategies are all about having your head on straight before you really need it to be.
A windfall is a great thing to have. They usually come after trying events, like legal cases and the deaths of loved ones. So have your plan of attack prepared well in advance, then stick to it as you get used to have a windfall at all. Using these techniques, you’ll be able to make the money work really hard for you, and give you a better life for years to come, not just weeks or months.