When the bills are piling up and you don't have a clear idea of where the money's going to come from, it's hard not to dream about a sudden windfall making all those dark clouds go away. Sometimes, that dream really does come true when a windfall drops into your lap. Some, like tax refunds, are modest. Others can be substantial enough to leave you set for life, if handled correctly. You'll have no shortage of friends and family telling you what to do with your good fortune, but there's no substitute for professional advice.
First Things First
If you've come into a substantial amount of money, there's a natural impulse to start spending. It's entirely understandable, especially if you've seldom had extra cash, but resist the temptation to make quick decisions. Keep out a little for emergencies and fun, but put the rest into a separate high-interest bank account; money market fund; or other safe, liquid account. Take six months or a year to calm down, decide on your priorities and select one or more advisers to help you make the most of your good fortune.
One of the most important decisions you'll make is finding a financial adviser. Accountants and tax lawyers can be helpful. A fee-only financial planner, one who doesn't sell any actual investments, is also a good choice and might provide a better look at the big picture. Talk to your adviser, and each other, about your goals and dreams. Planning for retirement, getting out of debt and funding your kids' education are all valid goals. Your adviser can help you decide how you can best make those things happen.
Make It Happen
Once you've made your plans, you can start putting the money to work. To begin with, set aside funds to pay any taxes you might owe on your windfall. Invest money for your retirement and set up that education fund for the kids. Don't forget about paying down debt. If your car loans and credit cards cost you more interest than you could earn by investing, paying them down is your smart option. Paying off your mortgage is less compelling, since the rates are low and bring you a deduction.
Have Some Fun
No, seriously. Have some fun. Go nuts. Make memories. Just be sure you set a budget and don't spend more than you should. Financial advisers often recommend allocating five to 10 percent of your windfall for pleasure. Go ahead, buy shoes. Visit one of the world's great restaurants every year or take a family vacation. See the country. Sign up for some courses. In short, start working on your collective "bucket list." If you've planned adequately for the rest of your money, you don't need to feel guilty about enjoying yourself.
Fred Decker is a trained chef and certified food-safety trainer. Decker wrote for the Saint John, New Brunswick Telegraph-Journal, and has been published in Canada's Hospitality and Foodservice magazine. He's held positions selling computers, insurance and mutual funds, and was educated at Memorial University of Newfoundland and the Northern Alberta Institute of Technology.