Getting a big sum of money out of the blue – like an inheritance, a huge profit from an investment, or a significant salary increase – can be life-changing, especially if you're over 50.
While it's tempting to spend freely, careful planning can ensure this money improves your life in the long term. Here are the top recommendations from financial experts on how to wisely manage a financial windfall:
1. Pause Before Making Decisions
Rushing into choices can lead to regret. Take a cue from a story shared by David Wilson, a financial planner, about a client who sold their business quickly without planning for the future. They ended up feeling lost. So, take your time to think about what you really want out of life.
2. Take a Break
Receiving a lot of money can be overwhelming. Relax and give yourself time to process things emotionally without making any big money moves right away.
3. Plan Your Spending
Think about how to divide the windfall. Chris Diodato, another financial expert, suggests splitting it for paying off debts, making major purchases, saving for retirement, and a bit for fun. Be careful not to drastically increase your day-to-day spending.
4. Pay Off Expensive Debts
Use a portion of the money to clear high-interest debts like credit card balances. This step can save you from paying loads of interest in the long run.
5. Boost Your Retirement Savings
You can add more to your retirement account, such as a 401(k). This not only increases your nest egg but might also lower your taxes.
6. Consider Retirement Options
A big windfall could mean the chance to retire early or modify your retirement plans for the better, such as working less or pursuing a passion project.
7. Keep Some Money Accessible
Have a portion of your funds easily available in a high-interest savings or money market account, ensuring you have something for immediate needs.
8. Spread Your Investments
Don't put all your money in one spot. Diversifying reduces risks and can lead to steady growth of your wealth.
9. Update Your Estate Plan
With more assets, you may want to revise your will or other estate planning documents to ensure your wishes are followed and your loved ones are taken care of.
Check Out: The Importance of Having a Will: What Happens If You Don't?
10. Give Generously
Consider sharing your good fortune with family or charities. Giving can bring joy and make a significant impact on others' lives.
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Remember, managing a windfall wisely can ensure financial security and peace of mind for years to come.
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