Receiving a windfall from an inheritance, a legal settlement, a gift, or winnings naturally lends itself to exuberance and disbelief. Likewise, to receive sudden money is rightly a time to express joy and many find it difficult to contain themselves, often sharing their good news with friends and family such is the excitement. Unfortunately, the majority of people are not prepared for the changes that such an event brings into their lives, their relationships with others, the emotional involvement thrust upon them, and crucially financial management obligations they must now navigate. Therefore. receiving sudden money and what to do with it is a question worth asking.
“When I have a little money, I buy books; and if I have any left, I buy food and clothes.”
History’s examples of lost sudden money
History is littered with examples of historical and present-day figures who had everything only to lose it all. Nikola Tesla, the namesake of the car company, and a gifted physicist and inventor of the AC motor, lost his fortune in 1901 through an investment in a wireless electrical tower project. Similarly, boxer Joe Louis had little financial advice and squandered it all, leaving behind a $1.25 million debt on his passing. Motown legend Marvin Gaye lost his fortune tragically because of drug addiction. Therefore, falling into sudden money and what to do with it is not always a joyful event.
However, lost fortunes are not only the realm of private citizens, the 45th President of America, Donald Trump, went from making millions to bankruptcy on a number of occasions. But if you think that was a confined case, one of his predecessors, the 18th president of the United States Ulysses Grant, lost his fortune through investing in a financial firm that later went bankrupt. Consequently, between poor investment decisions, addiction and poor or non-existent financial advice, money that is here today can be gone tomorrow.
Time to take stock
The great Dutch scholar Erasmus, perhaps whimsically, thought it best to prioritise books over food and clothing. But despite his good intentions we would advise you to take a different route. Furthermore, the following steps will help you to enjoy yourself and keep your ‘food’ and ‘clothing’ priorities in check:
1. Take time out
Firstly, any sudden decisions you make are likely to be emotional ones and sound financial decisions are never driven by emotion. I did say enjoyment would be a factor in this process and taking a holiday when you receive such large sums to clear your mind would be of benefit.
2. Determine the Tax implications
Secondly, it may be the case that there are none, either way, I would talk to a tax adviser to evaluate what portion is exempt and if it is deemed that tax may be due especially around gifting some further thought might be needed.
3. Engage A Financial Planner
Thirdly, a qualified Financial Planner such as a Certified Financial Planner™ gathers all of your essential information, family, personal and financial circumstances and answers the ‘what if’ scenarios for you. They assist in the construction of a financial plan. For example, this is one that addresses saving, investing, protection, pension, and estate planning. Essentially a Financial Planner helps you to see the macro view of your finances.
4. Create an Estate Plan
In short, it is wise to establish a detailed Will with consideration for taxation and set up an Enduring Power of Attorney. To clarify, this is a legal document that allows an individual to appoint a specific person to look after your financial affairs in the event that you may be unable to do so due to mental capacity.
5. Pay off or pay down debt
Depending on the windfall size, the reduction of clearance of debt is prudent and one of those ‘food’ priorities we discussed earlier. As a result of a loan you will be accruing interest and the sooner you say goodbye to interest the better.
In conclusion, the only book to prioritise is the one you bring with you on holiday in step 1, and let Aspire Wealth Management discuss your essential financial needs upon your return.
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