4 Big Mistakes People Make in a Financial Windfall

We all dream of winning the lottery or winning the jackpot at a casino. Sometimes that dream becomes a reality. It’s not too uncommon for people to suddenly have a surplus of cash. Perhaps your great aunt left you an inheritance or your beanie baby collection from the 90s is now worth more than you imagined. 

Most folks don’t know how to deal with a major financial windfall. That’s why it’s important to take a step back and thoughtfully plan what you’re going to do next. What is a financial windfall?

A financial windfall happens to a person who receives a significant increase in net worth from a sudden inflow of a large amount of cash. These are usually one-off life events that include things like winning the lottery, selling a business, receiving an inheritance, an annual bonus, divorce settlement, and so on. We’re here to help you avoid common mistakes, so that you’re smart and effective with your new surge in wealth.

Mistakes to Avoid when Managing a Windfall 

The first thing you probably want to do with your monetary milestone is to spend it. Before you do anything, we recommend seeking advice from a financial advisor, a Certified Public Accountant (CPA) and an attorney. A trusted financial advisor can help guide you through the critical next steps in managing your new wealth and can recommend an attorney and CPA if you’re not sure where to start. Getting set up with the right team can help you avoid some common and costly mistakes people often make.

Don’t Act on Impulse

When people suddenly receive a lot of money, they’re often unsure of their options which can lead them to live beyond their means. That’s why it’s important to not act impulsively. Give yourself a few weeks or even a month to think rationally before you spend your new funds. If you receive notice that a windfall is coming, have a plan in place so you know how to maneuver through the sudden boost in wealth. Take a deep breath and know nothing has to be done overnight. 

Don’t Forget to Take Care of the Basics

It’s ok to celebrate your new financial boost, but make sure that you account for your debt, savings and investment obligations. Your first goal is to evaluate any outstanding debt. Consider paying off student loans, credit cards and other high interest rate debts that you owe. Start with the cards that have the highest interest rates and then work your way down. Once you’ve assessed your debt, top off your emergency fund for unexpected expenses for up to six months. 

Don’t Forget that You May Owe Taxes

Free money isn’t always free. Keep in mind your windfall may come with tax implications. Find yourself a competent professional who can help you understand your new tax situation and responsibilities. Lean into professionals so you’re not scrambling to meet Uncle Sam’s April 15 deadline. 

Don’t Trust the Wrong People 

Surround yourself with people who can help you make sense of your new financial status. Include key decision makers who will look out for your best interests, such as your CPA, attorney, and trusted financial advisor. A good advisor can help you determine how to manage your money wisely and place you in a better position to reach your goals. 

What’s Next? Build Your Plan with Rosevest Financial

Credentials matter. Experience matters. Connection matters. These truths become evident as you experience our unique process which includes: a unique discovery meeting, investment consulting, financial planning, legacy planning, asset protection, and charitable giving. We encourage prospective clients to take advantage of the firm’s “second opinion” service. This offering allows prospective clients to get a real snapshot of their current investments and plans with a written action plan. Ready to get started? Call our offices at 480-951-5300 to set up a complimentary appointment.