Congratulations! You may have won the Powerball, sold a business or investment, settled a major lawsuit, or received an inheritance. You have suddenly got your hands on a considerable amount of cash. Even people of means are usually unused to the experience of having six figures in their checking account, and approaching good fortune in the right way can create a long-term positive change for you and your family
Step 1: Engage some professionals
Talk to people who have experience with this. Most professionals will be happy to have a brief chat with you, at no charge, about the basic ramifications of your situation, and explain what you can expect and generally how they advise clients to handle a windfall. For all of these professionals, look for someone with experience handling assets like yours- don’t pick someone you know as a favor to them. Try to avoid being someone's richest or poorest client; take advantage of their experience without being unimportant to them. You should consider hiring:
- A tax attorney or accountant.
Taxes eat away at large sums in a hurry, and protecting and managing assets reduces that impact. These folks will also be a great source of referrals for other professionals you may need.
- An estate planning attorney.
Having significant assets changes how end-of-life and disability planning works. Estate plans can help protect your assets not only for you, but for your heirs.
- A financial planner.
Earning a third of a percent in a savings account is not the best you can do. Where you store your assets is going depends on your liquidity needs and willingness to accept risk. A financial expert can help steer you down the right path.
Step 2: Be generous, but not foolish
You’ll find that giving away your good fortune feels fantastic, but it’s important to do your due diligence. Don’t write checks to your friends; ask to see the bills they are struggling with and pay them directly. Don’t make investments outside of major markets; particularly in ventures you or your loved ones don’t have experience with. You’ll get much better return using conventional investment vehicles.
Step 3: Don’t change your life too much
Don’t immediately call into work and quit, get married, or make any other big decisions in the days or weeks after your windfall. If it’s the right decision, it will still be the right decision in a month or two, and you’ll be better able to evaluate your options. The financial consequences of an impulsive move can be bigger than your windfall and put you in a bad spot.
Step 4: Buy yourself something nice
The conventional wisdom is that you should spend 1.5% of a windfall on something frivolous. That can be a big vacation, a nice piece of jewelry, or something special for your home. Whatever it is, pick something that will have lasting value to you and won’t incur costs down the road that you can’t afford on your regular income.
Congratulations again! You have a lot to be happy about, and if you are careful and wise, it will help you find happiness for years to come.