You’ve heard of lottery winners who are bankrupt after five years. Money can give you freedom for a lifetime, or you can spend it all in a couple of years. A large chunk of money requires planning, management and frugality like a monthly paycheck. Experts such as Susan Bradley, author of "Sudden Money," suggest that you give yourself some time to adjust to having a large chunk of money before you make any promises, give anything away or sign for a purchase.
Don’t quit your job, change your friends, move or do anything rash, suggests Bankrate.com. Give yourself time to adjust emotionally to the newfound wealth as this is a transition much like adjusting to marriage or a death. Bankrate.com suggests that you wait up to a year to review your situation. Financial planners such as Michelle Singletary, columnist for "The Washington Post" recommend that you place most of the money in a certificate of deposit, 30-day Treasury bill or money market mutual fund to accumulate interest until you’re ready for it. While you wait, contact an estate planning attorney and make a will or set up a trust, recommends Susan Bradley.
Off the Top
If you have outstanding debt that is accumulating interest, you’ll want to pay off your debts with some of your money, recommends Michelle Singletary. Hold money for income taxes if your windfall requires it. You might hold a small amount — less than 5 percent — to treat yourself. Don’t use your treat money as a down payment as you’re paying off debts, not incurring more debts.
Make a Plan
If you aren’t good at money management, get planning help. Consult a tax attorney if you owe taxes. Contact a financial counselor or an adviser who doesn’t sell investment products, according to "Time" magazine. Don’t sell your structured settlement or lottery winnings for cash without advice from a financial planner who won’t profit from the transaction. If you accept, for example, $35,000 a month for life, it’s tempting to cash that amount in for present dollars. You may receive $350,000 up front, but you’ll likely pay much of that in taxes and you’ll not have the steady income of the monthly amount. If you live only 20 years, you’d receive more than double $350,000 at $35,000 a month.
Improve Your Future
Invest in your Roth IRA and retirement plan. Establish an emergency fund so you’ll never be without cash. Map out a plan to help you reach your financial goals. Remember that the purchase price isn’t the total cost of most items. You may have to pay storage fees and maintenance. A house requires constant upkeep, taxes, utilities and maintenance in addition to the purchase price. A large house has higher yearly costs than a small one and a house ties you to a location. Insurance costs more for a sports car than a sedan. You want freedom, not obligations, and not many windfalls last a lifetime without restraint and planning.
Linda Richard has been a legal writer and antiques appraiser for more than 25 years, and has been writing online for more than 12 years. Richard holds a bachelor's degree in English and business administration. She has operated a small business for more than 20 years. She and her husband enjoy remodeling old houses and are currently working on a 1970s home.